[jasomill]

The most important thing in my view is that both parties are aware of their rights and responsibilities. If the plain text of the warranty agreement specifies replacement, replacement should be required. If the business doesn't want to assume the risk, that's fine, but the warranty should then clearly and explicitly stipulate replacement or refund at the retailer's discretion, in such a way that an average consumer would be expected to see and understand this (i.e., no "replacement" in large, friendly letters and "or refund" buried in fine print or legalese, or leaving out specific details to be filled in by default provisions when such provisions favor the retailer).