A consumer incentive warranty policy and servicing strategy for products with uncertain quality

Abstract

Abstract Owing to quality uncertainty in manufacturing, some of the items produced can be non‐conforming. When items are sold with warranty, the warranty servicing cost for non‐conforming items can be high. Life testing can be used to weed out such items and reduce the warranty cost. Such testing is expensive in terms of time and money. Releasing items with no testing can result in an increased number of early failures which in turn leads to consumer dissatisfaction and affects future profits, due to a loss of consumers. We propose a new policy which involves no testing and incorporates an incentive feature to reduce consumer dissatisfaction.