A customized warranty model by considering multi-usage levels for the leasing industry

Abstract In addition to the high acquisition cost of large-scale equipment, firms may also have to pay for costly repairs and maintenance for subsequent conditions of inadequate reliability and malfunctions. Therefore, instead of purchasing, many firms have considered obtaining large-scale equipment through leasing. Considering customization for heterogeneous consumers, which allows consumers to choose different leasing programs, firms can meet customer demands by enhancing their degree of satisfaction. This study considers customized leasing services and develops a pricing model for the leasing industry, in which the heterogeneity of customers, two-dimensional warranties, and preventive maintenance are taken into account for the purpose of establishing a customized leasing contract. Customers are categorized into three types according to their levels of usage of the leasing product: high, moderate, and low, and the lessor respectively provides the three corresponding leasing services. The various leasing services consist of different lease fees and preventive maintenance policies. The objective of this study is to assist the lessors in developing an optimal lease contract for heterogeneous lessees with different usage types. The results of the study show that when the penalties for higher usage customers who purchase lower-usage services are managed, offering a customized lease contract will elevate lessee willingness toward purchasing lease services, and therefore increase the total profit of the lessor.