Lifetime Warranty: Policies and Cost Models

Abstract

Lifetime warranties are relatively new concept. These types of warranties are becoming more and more popular as these provide assurance for a longer reliable service life, protection of customers against poor quality and the potential high cost of failure occurring during the long uncertain life of products. Formulation of attractive policies and cost models for these warranties is important to the manufacturer/dealer for estimating future costs to build it into the sales price. Modelling failures during the warranty period and the costs for such policies are complex since the useful life of products are uncertain and are not defined well and it is often difficult to tell about life measures for the longer period of coverage due to usage pattern/maintenance activities undertaken and uncertainties of costs over the period. This chapter focuses on defining lifetime, developing lifetime warranty policies and models for predicting failures and estimating costs for lifetime warranty policies. In this article, stochastic models for different lifetime warranty policies have been developed and analysed for the cost of these warranty policies when offered with sale of new product. The developed models are analysed by considering products with time dependent failure mode.