This thesis studies two topics related to product assurance in the area of interface of operations management and marketing.

The first part investigates the problem of warranty pricing when consumers learn the product reliability from the firm’s multi-period warranty policies. Firm offers warranty to assure consumers against product failures and boosts product sales. Meanwhile, consumers update their believes of the product reliability according to the firm’s warranty prices and change their purchasing decisions accordingly. Our work studies this problem through a multi-period learning model. We first show the firm should follow some simple threshold policy which is to offer warranty for free when consumers believe the product is not reliable or offer a very expensive warran...[ Read more ]

This thesis studies two topics related to product assurance in the area of interface of operations management and marketing.

The first part investigates the problem of warranty pricing when consumers learn the product reliability from the firm’s multi-period warranty policies. Firm offers warranty to assure consumers against product failures and boosts product sales. Meanwhile, consumers update their believes of the product reliability according to the firm’s warranty prices and change their purchasing decisions accordingly. Our work studies this problem through a multi-period learning model. We first show the firm should follow some simple threshold policy which is to offer warranty for free when consumers believe the product is not reliable or offer a very expensive warranty which few consumer purchase when consumers believe the product is highly reliable. Second, we show it’s possible for the firm to keep changing its warranty policies. And even when the firm chooses a steady policy in the long run, the state path of consumers’ belief may not converge monotonically in the short run. Third, the firm doesn’t always benefit from a fast learning speed and achieves the highest profit when consumers’ learning speed is at some moderate level. Lastly, while a firm may overprice its warranty in general if it ignores the impact of consumers’ learning behavior on long-term profit, there are cases where a strategic firm chooses the same warranty policy as a myopic firm.

The second part investigates the problem of product resale and firm’s returns policy. Consumer may find a product he has bought a misfit. He can resell the product directly to compensate his loss. Our result shows consumer resale may cannibalize the firm’s product sales. The firm should either produce a product with extremely high resale value and lower down the consumers’ transaction cost to encourage product resale or just "shut down" the resale market effectively by reducing the value of the resold product and imposing high transaction cost on consumer resale. Then we further consider the case when the firm also offers a returns policy to assure consumers against product misfit and resell the returned product as refurbished product through her own channel. Our result first suggests it’s always optimal for the firm to consider enrolling in resale as long as the consumers encounter strictly positive resale transaction cost. Second we show the existence of consumers’ alternative option to resell still cannibalizes the firm’s profit indirectly even when consumers return the misfit product instead of resell. Beyond this, we further demonstrate the firm should impose higher transaction cost on consumer product resale to "shut down" the consumer resale market in general. Lastly, we show though higher product resale value may bring down the firm’s profit locally, the firm should still try to make the resold product a high value substitute for the new product globally.