Optimal testing, patching, warranty, and pricing policies for smart products considering hardware-software interaction

Early release of smart products followed by operational-phase updates through patches has become a common industry practice. However, a systematic examination of this approach remains limited in existing theoretical studies. This paper proposes an integrated framework of testing, patching, warranty, and pricing policies for smart products considering the hardware-software interaction. By modeling the various cost components and sales volume, we develop a profit optimization model that enables developers to identify the optimal combination of sales price, testing duration, warranty period, and number of patches to maximize total expected profit under reliability constraints. A comprehensive numerical study demonstrates the applicability and advantages of the proposed policy. The results show that the proposed policy is a win-win situation for both developer and consumers, not only maximizing the developer's total profit, but also enabling consumers to purchase more reliable products at lower prices.