3 ms·
A 5 year warranty means: the expected failure rate over 5 years, times the percentage of customers who claim warranty on those drives, times the future price
by dsr_ 6y ago
A 5 year warranty means:
the expected failure rate over 5 years, times
the percentage of customers who claim warranty on those drives, times
the future price of an equivalent drive
is less than their general profit margin on the drive.
Let's say that the price is $600, the marginal cost of a drive is $400, and the expected 5 year failure rate is a whopping 20%, with 50% of buyers claiming warranty.
That allocates $40 of costs over the next five years to warranted replacement, against a current profit of $200.
- Someone 6y agoThe calculation isn’t that simple. It should include the elasticity of sales versus warranty period. For example, if few customers care about warranty periods larger than 3 years, but all customers still would claim a new drive if their drive broke after 3 years, there may be more money in offering 3 years of warranty, even if that means losing some customers.