Joint Pricing and Inventory Control Policies of Extended Warranty and Products under the Influence of Product Quality

Abstract

Abstract:

Aiming at the multiple effects of product quality, a two-period Stackelberg dynamic game model is developed, which is based on the scenario that products are provided by a manufacturer and sold by a strong retailer who provides extended warranty. We analyze the influence of the quality sensitivities on the optimal decisions of product quality, price and inventories. We comparatively analyze the optimal decisions under centralized and decentralized supply chain. Furthermore, we design a "quality cost sharing" contract to remedy the loss of profit which is caused by the improvement of quality and motivate the manufacturer. The conclusions show that the strong retailer could encourage the manufacturer to improve the quality of the products and take the initiative to share the quality cost. The retailer could influence the wholesale price decision by carrying strategic inventories across two periods, and then affect the retail price. The "quality cost sharing" contract could improve the marketing effect of vertical marketing system. Finally, a numerical simulation is used to verify the effectiveness of the coordination contract.

Key words: product quality, extended warranty, strategic inventories, joint pricing, coordination strategy

Kou Jun, Zhao Zehong. Joint Pricing and Inventory Control Policies of Extended Warranty and Products under the Influence of Product Quality[J]. , 2019, 31(6): 225-237.

References

[1] Tan Y. F., Yi Y. Y., Yao J. J. Supply Chain Coordination for Strong Retailer with Extended Warranty under Network Externality[J]. Journal of Service Science and Management, 2015,8(3):393-409
[2] Albaum G., Wiley J. Consumer Perceptions of Extended Warranties and Service Provider[J]. Journal of Consumer Marketing, 2010,27(6):516-523
[3] Lam Y., Lam P. K. W. An Extended Warranty Policy with Options Open to Consumers[J]. European Journal of Operational Research, 2001,131(3):514-529
[4] Wang Y. L., Wallace S. W., Shen B., et al. Wallace. Service Supply Chain Management:A Review of Operational Models[J]. European Journal of Operational Research, 2015,247(3):685-698
[5] Desai P. S., Padmanabhan P. Durable Good, Extended Warranty and Channel Coordination[J]. Review of Marketing Science, 2004,2(1):1-22
[6] Lutz N. A., Padmanabhan V. Warranties, Extended Warranties, and Product Quality[J]. International Journal of Industrial Organization, 1998,16(4):463-493
[7] Maull R., Smart A., Liang L. A Process Model of Product Service Supply Chains[J]. Production Planning & Control, 2014,25(13):1091-1106
[8] Bouguerra S., Chelbi A., Rezg N. A Decision Model for Adopting an Extended Warranty under Different Maintenance Policies[J]. International Journal of Production Economics, 2012,135(2):840-849
[9] Jack N., Murthy D. N. P. A Flexible Extended Warranty and Related Optimal Strategies[J]. Journal of the Operational Research Society, 2007,58(12):1612-1620
[10] Gallego G., Wang R., Hu M., et al. No Claim? Your Gain:Design of Residual Value Extended Warranties under Risk Aversion and Strategic Claim Behavior[J]. Manufacturing & Service Operations Management, 2015,17(1):87-100
[11] Hartman J. C., Laksana K. Designing and Pricing Menus of Extended Warranty Contracts[J]. Naval Research Logistics (NRL), 2009,56(3):199-214
[12] Chen C. K., Lo C. C., Weng T. C. Optimal Production Run Length and Warranty Period for an Imperfect Production System under Selling Price Dependent on Warranty Period[J]. European Journal of Operational Research, 2016,259(2):401-412
[13] Huang Y. S., Huang C. D., Ho J. W. A Customized Two-dimensional Extended Warranty with Preventive Maintenance[J]. European Journal of Operational Research, 2017,257(3):971-978
[14] Cohen M. A., Whang S. Competing in Product and Service:A Product Life-cycle Model[J]. Management Science, 1997,43(4):535-545
[15] Li K., Mallik S., Chhajed D. Design of Extended Warranties in Supply Chains under Additive Demand[J]. Production and Operations Management, 2011,21(4):730-746
[16] Wang J., Zhou Z., Peng H. Flexible Decision Models for a Two-dimensional Warranty Policy with Periodic Preventive Maintenance[J]. Reliability Engineering & System Safety, 2017,162(6):14-27
[17] Dai Y., Zhou S. X., Xu Y. Competitive and Collaborative Quality and Warranty Management in Supply Chains[J]. Production and Operations Management, 2012,21(1):129-144
[18] Jiang B., Zhang X. B. How Does a Retailer's Service Plan Affect a Manufacturer's Warranty?[J]. Management Science, 2011,57(4):727-740
[19] Mai D. T., Liu T., Morris M. D. S. Quality Coordination with Extended Warranty for Store-brand Products[J]. European Journal of Operational Research, 2017,256(2):524-532
[20] 罗春林,田歆. CVaR准则下随机需求依赖于价格的供应链运作策略[J]. 管理评论, 2015,27(4):167-176
[21] 裴学亮,田也壮,孙洪义. 制造企业供应链协调与绩效关系:环境不确定性视角下的实证研究[J]. 管理评论, 2013,25(3):168-176
[22] Desai P. S. Quality Segmentation in Spatial Markets:When does Cannibalization Affect Product Line Design?[J]. Marketing Science, 2001,20(3):265-283
[23] Hartwig R., Inderfurth K., Sadrieh A., et al. Strategic Inventory and Supply Chain Behavior[J]. Production & Operations Management, 2015,24(8):1329-1345
[24] Balachandran K. R., Radhakrishnan S. Quality Implications of Warranties in a Supply Chain[J]. Management Science, 2005,51(8):1266-1277
[25] Hsieh C. C., Liu Y. T. Quality Investment and Inspection Policy in a Supplier-manufacturer Supply Chain[J]. European Journal of Operational Research, 2010,202(3):717-729
[26] Gao F., Su X. Omni Channel Retail Operations with Buy-online-and-pick-up-in-store[J]. Management Science, 2017,63(8):2478-2492
[27] 范小军,刘艳. 制造商引入在线渠道的双渠道价格与服务竞争策略[J]. 中国管理科学, 2016,24(7):143-148
[28] Xia Y., Xiao T., Zhang G. P. The Impact of Product Returns and Retailer's Service Investment on Manufacturer's Channel Strategies[J]. Decision Sciences, 2017,48(5):918-955
[29] 华夏时报. (2008-03-10)家电厂商涨价冲动激发国美苏宁联手抑价平市[EB/OL]. http://www.chinanews.com/it/jdxw/news/2008/03-10/1186940.shtml,2008-03-10
[30] 魏来,陈宏,张洁. 液晶电视机供应链价格波及效应的实证研究[J]. 管理评论, 2013,25(8):168-176