I actually mostly agree with you apart from one thing.

Are you saying that a slow phone is more likely to encourage someone to buy a new phone versus a phone that constantly dies at random times?

Yes. I think this could be true in a lot of cases.

Personally, if I saw that my phone was dying at 50% battery but was otherwise fine, I'd think that my phone needs a new battery, and I'd weigh up my options between taking it to a service centre or buying a new phone.

If my phone was rendered almost unusably slow, but died instead at 20%, I'd think my battery is a bit degraded, but that my phone is too slow to be useful after a battery swap anyway, and I'd jump straight to buying a new one. I wouldn't know that the battery is what's causing the slowness to begin with.

IMO, as long as you inform the customer, option 2 is the best. Otherwise I'd prefer option 1.