Warranty menu design for a two-dimensional warranty

Fierce competitions in the commercial product market have forced manufacturers to provide customer friendly warranties with a view to achieving higher customer satisfaction and increasing the market share. This study proposes a strategy that offers customers a two-dimensional warranty menu with a number of warranty choices, called a flexible warranty policy. We investigate the design of a flexible two-dimensional warranty policy that contains a number of rectangular regions. This warranty policy is obtained by dividing customers into several groups according to their use rates and providing each group a germane warranty region. Consumers choose a favorable one from the menu according to their usage behaviors. Evidently, this flexible warranty policy is attractive to users of different usage behaviors, and thus, it gives the manufacturer a good position in advertising the product. When consumers are unaware about their use rates upon purchase, we consider a fixed two-dimensional warranty policy with a staircase warranty region and show that it is equivalent to the flexible policy. Such an equivalence reveals the inherent relationship between the rectangular warranty policy, the L-shape warranty policy, the step stair warranty policy and the iso-probability of failure warranty policy that were extensively discussed in the literature. (C) 2016 Elsevier Ltd. All rights reserved.