Optimal Price, Reliability, Extended Warranty Price and Extended Warranty Sales Promotion Timing for New Products

Warranties are contracts provided by manufacturers which guaranty products keep their functionally and continue to operate. Many products are sold with a warranty and often extended warranties are offered. In this paper, we develop a mathematical model to study total profit considering basic warranty and extended warranty. Bass model is a widely used growth model and we use it to develop sales growth and extended warranty sales growth processes. We also consider the promotion approach in the extended warranty sales growth process. Finally, numerical examples of optimal solutions of product price, reliability, and promotion timing, help the manufacturer to make decisions.