Optimal decision making for online referral marketing |
Abstract:
Widely available web 2.0 technologies not only bring rich and interactive user experiences, but also easilyhelp users advertise products or services on their own blogs and social network webpages. Online referralmarketing, for example, is a business practice that rewards customers who successfully refer other customersto a website or upon completion of a sale usually via their own social contacts. The referral rewards come indifferent forms such as shopping vouchers, redeemable points, discounts, prizes, cash payments, etc.Wedevelopan analyticalmodel to evaluate the business potential of incorporating an online referral marketing programintothe firm's product selling strategies. Under different demand dynamics, we investigate the optimal decisionmaking including the pricing and referral strategies to maximize the seller's profitability. We find that,under simple decision making environment such as fixed product price and myopic strategy, different demanddynamics yield the same prediction of the referral payment,which turns out to be a static policy. However, undercomplex market situations, both the optimal product pricing and referral offering critically depend on thedemand side dynamics. Under the nonlinear demand dynamics, the referral payment is an all-or-nothingdecision throughout the product selling horizon. In contrast, under the linear demand assumption, the referralpayment can be partially offered in initial phase of the product introduction.We further offer some managerialinsights to guide practical implementation of the online referral marketing strategy. |
| Keywords: |
Dynamic pricing Word of mouth Referral marketing Optimal control |
| Author(s): |
Zhiling Guo |
| Source: |
Decision Support Systems 52 (2012) 373–383 |
| Subject: |
بازاریابی |
| Category: |
مقاله مجله |
| Release Date: |
2012 |
| No of Pages: |
11 |
| Price(Tomans): |
0 |
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