JOINT DETERMINATION OF PRICE, WAR RANTY LENGTH AND PRODUCTION QUANTITY FOR NEW PRODUCTS UNDER FREE RENEWAL WARRANTY POLICY

K.Jeyakumar, T. Paul Robert

Abstract: An optimal business strategy whic h integrates the decisions, such as pricing, production quantity, and custom er service, in or der to maximize profit is vital for any manufacturing industry. Post sale factors like warranty, spare parts availability, maintenance, service and cost play an important role in the sale of a pr oduct. As better warranty signals higher product quality which provides greater a ssurance to customers, warranty is an important factor in marketing new products. In this paper, a decision model with the price, warranty le ngth and production quantity of a product as decision variables to maximize profit based on the pre-determined product life cycle is presented. The study considers free renewal warranty policy for producers in the static sa les market. The expected number of renewals based on the warranty le ngth is derived for lognormally distributed products. The effect of m odel parameters on the profit is studied.

Keywords: Price, Warranty length, Produc tion quantity, Free Renewal Warranty, Profit maximization.

DOI:

Recieved: 30.08.2009  Accepted: 03.02.2010  UDC: 658.8.027.5

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