WARRANTY POLICY IMPACT ON NET REVENUES DUE TO OPTIONAL PURCHASES

A stochastic model is developed which can be used to set warranty periods so that a small percentage of items sold in a store are returned for rebates, repairs or replacements. If return to the store provides benefits to the retailer such as purchase of upgrades, ability to sell additional related goods or to sell snacks and other unrelated merchandise, while the customer is waiting, then profits may be maximized by setting warranty periods so...