Pricing strategy of supply chain considering response time of extended warranty service
Year: 2025
Type: article
Abstract: • A consumer utility function is constructed, comprehensively considering the response time and its corresponding price, to carve the expected cost of Extended warranty services (EWS). • The EWS pricing strategy in multiple cycles is developed, considering two scenarios with identical response time(IRT) and differentiated response time(DRT). • The EWS supply strategy is proposed under two scenarios IRT and DRT, considering the impact of EWS response time, pricing, cost, etc. Extended warranty services (EWS) offers avenues for new profit sources and growth opportunities. In a time-sensitive market, the response time has an important impact on the pricing of EWS and satisfying consumer utility. Applying Stakelberg Game theory, a two-echelon product-service supply chain consisting of a manufacturer and two retailers (Self-owned, Franchised) is construct. Considering the EWS response time and price to characterize the consumer utility function, the EWS pricing strategies in different market stages are studied based on the scenarios of identical response time (IRT) and different response time (DRT). The research shows that: (1) under IRT scenario, the optimal EWS pricing and cost of the self-owned and franchised retailers are negatively related to the response time, therefore, both retailers should consider a trade-off strategy between the EWS price and the response time; (2) under DRT scenario, an EWS response time threshold exists, based on which the self-owned and franchised retailers should develop the optimal EWS pricing strategies; (3) under DRT scenario, the retailers’ optimal EWS prices have a negative relationship with consumers’ price sensitivity coefficient, and a positive relationship with consumers’ time sensitivity coefficient. The manufacturer and the self-owned retailer can significantly reduce EWS response time with a limited increase in the prices. While the franchised retailer need to follow the self-owned retailer in developing its pricing strategy. The study construct a time-sensitive consumer utility function by integrating response time and pricing, more accurately portraying the expected value of EWS. Based on the market characteristics of EWS growth and maturity periods, the EWS pricing strategies are expanded regarding response time differentiation in multiple cycles. It helps companies better understand consumer demand for EWS, and assists them in formulating pricing strategies for different stages of EWS market development,and improving EWS supply chain management.
Source: Operations Research Perspectives
Authors: Xingjian Zhou, Yan Feng, Hongming Chen, Lihua Cai, Vladimir Bashkarev
Language: English
Subfield: Management Information Systems
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $1,790
OpenAlex ID: W4407406749