Post-warranty strategies and pricing decisions in a dual-channel supply chain considering channel competition

Abstract

Inspired by evidence regarding Gree’s superlong free-repair warranty services and considering channel competition, this study examines post-warranty strategies, i.e., providing extended or free-repair warranty services in the post-warranty period, in a single-manufacturer–single-retailer dual-channel supply chain. Based on a game-theoretical model, we optimize the warranty and pricing decisions of supply chain members under two post-warranty strategies and perform a comprehensive analysis. Some key findings are generated. First, the results show the interactive influence of the proportion of direct-channel buyers and the cost coefficient of warranty services, which are explained by the bullwhip effect and cost-benefit trade-off of warranty services. Second, by comparing supply chain members’ profits under the two post-warranty strategies, we find that whether the manufacturer should provide extended or free-repair warranty services depends on the cost coefficient of warranty services. Meanwhile, the retailer and the supply chain may suffer losses due to the manufacturer’s implementation of the optimal post-warranty strategy. Therefore, we recommend adopting transfer payment mechanisms for supply chain coordination. We further discuss single-channel scenarios and find that the manufacturer will always provide extended warranty services. This finding highlights the influence of the channel structure on the optimal post-warranty strategy and the significance of the free-repair warranty.