Using performance-based warranties to influence consumer purchase decisions |
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| Authors: | Clay Koschnick Joseph C Hartman |
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| Institution: | 1. Department of Industrial and Systems Engineering, University of Florida, Gainesville, Florida;2. Department of Systems Engineering and Management, Air Force Institute of Technology, Wright-Patterson Air Force Base, Ohio;3. clay.koschnick@afit.edu;5. Francis College of Engineering, University of Massachusetts–Lowell, Lowell, Massachusetts |
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| Abstract: | AbstractTraditional warranty analysis focuses on the reliability of a product and offers warranty designs that compensate a consumer if the item fails. We introduce the concept of a performance-based warranty (PBW) that guarantees that a product will operate at or above some baseline level of performance, such as a minimum energy efficiency for an appliance. We illustrate how consumer behavior can change in the presence of a PBW and define the parameters for which a manufacturer may increase revenue. Finally, we present an algorithm to solve for the optimal PBW design given a consumer’s belief about the expected performance of the product. |
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