To meet consumer replacement needs, the free replacement extended warranty (FREW) is born and becomes popular in the extended warranty (EW) market. In this context, firms need to consider whether to introduce the FREW. Given the limited resources of the firms and cannibalism caused by the FREW, firms need to decide how to introduce the FREW. To address these issues, we construct theoretical models and obtain some managerial insights. We find that the optimal introduction strategy is related to the development cost and the expansion effect on the product market. Moreover, the optimal bundling strategy is affected by the unit maintenance cost and the cost discount caused by the FREW. Only when the benefit of the FREW is great enough, is bundling always better. An interesting result is that the price of the bundled EW is higher than the sum of the EWs’ prices when selling EWs separately.