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Discount pricing in word-of-mouth marketing: An optimal control approach

Author

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  • Li, Pengdeng
  • Yang, Xiaofan
  • Wu, Yingbo
  • He, Weiyi
  • Zhao, Pengpeng

Abstract

This paper addresses the discount pricing in word-of-mouth (WOM) marketing. First, a dynamic model capturing WOM spreading processes is suggested. Second, the problem of finding an optimal discount strategy boils down to an optimal control problem. Third, the existence of an optimal control for the control problem is proved, and an optimality system for finding an optimal control is presented. Thereby, the dynamic discount strategy associated with the optimal control is recommended. Some examples of the optimal control are given. Finally, the influence of different factors on the optimal expected net profit is examined.

Suggested Citation

  • Li, Pengdeng & Yang, Xiaofan & Wu, Yingbo & He, Weiyi & Zhao, Pengpeng, 2018. "Discount pricing in word-of-mouth marketing: An optimal control approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 512-522.
    • Handle: RePEc:eee:phsmap:v:505:y:2018:i:c:p:512-522
    DOI: 10.1016/j.physa.2018.03.062
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    1. Yang, Fang & Huang, Yao-Huei & Li, Jun, 2019. "Alternative solution algorithm for winner determination problem with quantity discount of transportation service procurement," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).

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