A New Warranty Strategy: Combining a Renewing Free-replacement Warranty with a Rebate Policy

In this paper, a new warranty policy is proposed and analyzed for repairable products. This policy combines a renewing free-replacement warranty with a rebate policy. Under this combined policy, the warranty period is partitioned into two intervals. If a product fails during the first interval, the seller replaces the product with a new or repaired product, and the warranty begins anew for the replacement. If a product fails in the second interval, the seller refunds a pre-specified proportion of the sales price. We derive conditions under which the combined policy is cost-effective from the perspective of the seller. A numerical example is presented and a sensitivity analysis is performed. Our results imply that reduced demand due to higher prices can be offset with a longer warranty period. Finally, the future extension as well as the practical application of this warranty policy is discussed through an informal survey. Copyright (C) 2008 John Wiley & Sons, Ltd.