A study on decisions of warranty, pricing, and production with insufficient information

It has been well-recognized that a better warranty term offered by the product producer can effectively increase the product sales, but how such the warranty and pricing decisions can be integrated into a marketing strategy with consideration of production planning as well has drawn relatively less attention in practice in terms of a systematic discussion. In addition, it is not uncommon that the manufacturer may not have sufficient historical data to estimate the deterioration of the new product, and thus the marketing decisions based on the conventional computation results may not be reliable. In such a case of scarce historical data, Bayesian analysis is a reasonable approach to additionally take expert opinions into account for better decision making. Accordingly, this paper proposes a Bayesian decision model by which the integrated optimal strategy can be obtained under the situation that the manufacturer does not have sufficient historical data. Moreover, in order to deal with the computing complexity of the proposed model, a heuristic algorithm is also provided, and finally, a practical application case is used to demonstrate the usefulness of the proposed model.