Consumer decisions to repair mobile phones and manufacturer pricing policies: The concept of value leakage

Mobile phones have become 'essential-to-have' devices for information-gathering and social communication. They are being technologically advanced, while they are readily available at affordable prices. This motivates consumers to upgrade their mobile phones more frequently. Given these considerations and the lack of accessible repair services, mobile phones have a relatively short life span. The underuse of mobile phones, despite the fact that they are made durable, may result in losses or value leakage. In this study, a probabilistic approach is proposed to quantify the value leakage that may occur due to consumer's decision to not repair broken mobile phones and simply replace them with new ones. A group of 208 mobile phone users has been surveyed to capture consumer's time-dependent willingness-to-pay for repair services. Then, consumer's repair behavior is combined with manufacturer's repair service pricing strategies to calculate the probability of repair or replacement decisions over the life span of mobile phones. Finally, the total expected leakage risk is derived for both consumers and manufacturers. For illustrative purposes, it is shown that a manufacturer may lose up to 331 million dollars over a period of five years due to consumers' decisions to not repair their cracked-screen mobile phones and switch to another brand.