MTEI Seminar by Prof. Bezalel Gavish, Cox School of Business
Event details
| Date | 16.02.2015 |
| Hour | 12:00 › 13:30 |
| Speaker | Prof. Bezalel Gavish, Cox School of Business |
| Location | |
| Category | Conferences - Seminars |
"Warranty Policy Impact on Net Revenues as a Function of Part Replacements and Optional Purchases"
Abstract
Retailer outlets spend significant resources to attract existing and new customers to their stores. Warranty policies that require the customer to return to store in which part replacements or repairs are performed can induce customers to purchase additional items while the repairs are performed. Such optional purchases can reduce the marketing budgets and/or increase the revenues to the retailers. The benefits of appropriate policies could include purchase of upgrades, additional related products, snacks and merchandise from different parts of the store, which will be made while the customer is waiting for the service or replacement. These benefits have not been studied in depth as most articles on warranties have focused on minimizing replacement costs. We identified two types of replacement patterns which have not been compared in conjunction with costs of replacement and returns from additional sales generated by return to the store to utilize the warranty. One is the case of products that gradually wears out (i.e. tires, belts and batteries), versus products that have a high failure rate in the initial period and lower rates of deterioration in subsequent periods show. An example of this type of product may be TV sets, complex electronic components and cellular phones.
Analytic models are developed for the different types of products. Using simulations which include marginal revenues from original sales and warranty utilization, we show that as more visits are made to replace parts higher revenues are gained from additional sales, marginal revenue from added sales increase in positive linear fashion. As the reimbursement rate increases mean net revenues per period decrease but by less than the reimbursement amount. Cut-off points can be set for expected mean net revenues using reimbursement decline rates and varying amounts of marginal revenue.
Abstract
Retailer outlets spend significant resources to attract existing and new customers to their stores. Warranty policies that require the customer to return to store in which part replacements or repairs are performed can induce customers to purchase additional items while the repairs are performed. Such optional purchases can reduce the marketing budgets and/or increase the revenues to the retailers. The benefits of appropriate policies could include purchase of upgrades, additional related products, snacks and merchandise from different parts of the store, which will be made while the customer is waiting for the service or replacement. These benefits have not been studied in depth as most articles on warranties have focused on minimizing replacement costs. We identified two types of replacement patterns which have not been compared in conjunction with costs of replacement and returns from additional sales generated by return to the store to utilize the warranty. One is the case of products that gradually wears out (i.e. tires, belts and batteries), versus products that have a high failure rate in the initial period and lower rates of deterioration in subsequent periods show. An example of this type of product may be TV sets, complex electronic components and cellular phones.
Analytic models are developed for the different types of products. Using simulations which include marginal revenues from original sales and warranty utilization, we show that as more visits are made to replace parts higher revenues are gained from additional sales, marginal revenue from added sales increase in positive linear fashion. As the reimbursement rate increases mean net revenues per period decrease but by less than the reimbursement amount. Cut-off points can be set for expected mean net revenues using reimbursement decline rates and varying amounts of marginal revenue.
Practical information
- General public
- Free