Should short warranty always be interpreted as low quality: the effect of brand advantages on warranty’s signalization

Abstract

Brand and warranty information have been always been accepted as signals of unknown product quality. Given this, offering an attractive warranty is suggested as an effective competitive strategy. However, manufacturers with strong brand tend to provide the minimal industry standard warranty period in reality. This paper considers two competing manufacturers with different brand reputations selling their products through common retailer. The demand of products depends on price, brand and warranty period. A model for this problem is proposed when the manufacturers decide the warranty periods and the wholesale prices meanwhile the retailer decides the retail prices. We find that brand reputations influence all the optimal decisions of each party. We show that under certain condition, the strong brand manufacturer realises his profit maximisation by providing a shorter warranty compared to the weaker brand manufacturer. To a certain extent, this brand advantage modifies signalisation of manufacturers’ warranty. Several numerical examples and managerial insights are presented and used to illustrate the model presented in this paper.

Keywords:

• supply chain management
• quality management
• yield management
• brand reputation
• warranty
• signalisation

Notes

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant number 71225006], [grant number 71472132], [grant number 71532008].