EXPRESS: A Reference-Dependent-Preferences-Based Model of Extended Warranty Purchase Decisions

Durable goods often come bundled with limited-time and sometimes generous factory/base warranties. Yet a sizable number of durable goods customers purchase extended warranties that they rarely make claims against. This study offers a reference-dependent-preferences-based theoretical explanation of why consumers purchase extended warranties even if their purchased good is already covered by a base warranty. Consistent with our theory of reference-dependent preferences, we show that consumers treat base warranties as a reference point, thereby creating a qualitative difference in the valuation of an extended warranty on the purchased product. Specifically, our theory model predicts that the loss aversion motivation for consumers with base warranties results in these consumers valuing extended warranties more favorably than their peers purchasing identical products without a base warranty. The authors validate the predictions from the theory model using observational data from the automobile industry and show how the reference-dependent-preferences-based effect varies with vehicle quality and with macroeconomic conditions. The analyses reveal autobuyers' elevated loss-aversion motivations and higher price sensitivity during weaker macroeconomic conditions than during more robust macroeconomic conditions. Finally, the authors use the empirical model to identify opportunities for auto dealers to engage in targeted price promotions as a function of prevailing macroeconomic conditions. These findings have important implications for marketing managers, as they provide valuable guidance on when an extended warranty should be promoted, to whom and what extended warranty should be marketed.

Condition-Based Maintenance Modeling and Reliability Assessment for Multi-Component Systems with Structural Dependence under Extended Warranty

For engineering and production systems, due to the structural dependence between components, the disassembly operation caused by the replacement of components will affect the failure and degradation processes of other components in the system. In order to optimize the extended warranty (EW) cost of the multi‐component system with structural dependence, this paper described the structural dependence and modeled the disassembly operation impact, and then the failure rate model of the component considering the impact of disassembly operation under EW was developed. Combined with the actual situation, a condition-based maintenance (CBM) strategy was employed to construct the EW cost model of the multi‐component system with structural dependence. Monte Carlo simulation was proposed to determine the optimal EW cost of the system and the optimal periodic inspection interval of the CBM strategy. Finally, a numerical example of the planetary gear train of an automobile generator is introduced to demonstrate the feasibility and advantages of the proposed model in EW cost optimization and the analysis of disassembly operation impact on the optimal maintenance strategy.

How to Choose the Refueling of New Energy Vehicles under Swapping Vs. Charging Mode: From the Consumers’ Perspective

Background: Battery charging mode is a prevalent method of transshipping power to new energy vehicles. Unfortunately, due to the limited capacity of batteries, typical new energy vehicles can only travel for approximate 350 miles on a single charge and require hours to be recharged. Battery swapping mode, as a novel alternative, can offer ideal solutions by depleted batteries being exchanged for recharged ones at swapping stations in the middle of long trips, thus will inevitably influence potential consumers’ purchase behaviors accordingly.Methods: To examine the impact of swapping mode and charging mode on consumers’ purchase intention, this paper examines a duopolistic market consisting of two new energy vehicle makers (i.e., new energy vehicle maker with swapping mode and one with charging mode), who adopting swapping mode and charging mode to service consumers, respectively. Considering swapping mode characterized with low initial investment and ease of use for consumers, the new energy vehicle makers with charging mode, capitalize on battery extended warranty service in response to rivals’ utilization of swapping mode, thereby non-cooperative game models are formulated, in which government subsidies are taken into account, both the optimal production decision for the new energy vehicle maker with swapping mode maker and one with charging mode are analyzed under three scenarios: without extended warranty service, with extended warranty service, and with extended warranty service and subsidy.Results: The results show that two makers’ market dominance relies on the ratio of the swapping station’s convenience to the extended warranty service and the valuation incremental rate. Additionally, we also find that the government subsidy can dramatically improve the performance of the new energy vehicle maker with swapping mode at the initial stage, but if the subsidy is insufficient size at the sequent stage, this will lead to policy failure and inefficiency in propelling the diffusion of swapping mode.Conclusions: The emerging swapping mode technology is a promising innovative one in boosting new energy vehicle diffusion, which will supplement to charging mode, thus reduce climate change dramatically