Optimizing warranty cost in a three-stage non-renewing warranty policy

Attracting customers and keeping market share have become more important for manufacturers in today’s competitive market. Offering warranty for their products is one of the techniques that manufacturers use to attract customers. There are different types of warranty policies. Most research in this area has focused on two-stage warranties and little attention has been paid to three-stage warranties. Hence, in this study, a three-stage non-renewing warranty is investigated in which, the length of warranty period is divided into three phases. In the first phase, if the product fails, the cost of repair is fully covered by the manufacturer. In the next phase, if failure happens, most of the repair cost is still covered by the manufacturer while the customer must pay for the rest of it. Finally, in the third phase, if the product faces any failure, most of the repair cost is paid by the customer as the product has been used for quite some time by then. In this study, a repairable system under this type of warranty policy is investigated and warranty cost during this period is derived. To minimize the cost of warranty period, the optimum length of each phase is obtained. Numerical examples are provided to verify the proper performance and applicability of the proposed model.