Evaluation of customer's risk to lifetime warranty

Abstract

Products sold with lifetime warranties are well liked by the customer as this type of warranties secure a prolonged reliable operational or useful life, and act as a shield for the customer against inferior quality as well as the potential high repair costs during indefinite life of consumable product. Under such policies, the customer are exposed to risks of costs and product reliability as products usefullife are unsure and are not recorded well in fair trade legislations. This article proposes mathematical models to determine the customer's risk evaluation for lifetime warranty by taking into account the unsure useful life of product. Risk evaluation models are proposed to estimate the optimal warranty cost through the customer's utility function for repair costs. The sensitivity of the warranty costs are discussed graphically with respect to the customer's risk choice, customer's expected failure rate, and the customer's repair costs (in the case of customer's denial of such warranty).