Analysis of promotion strategies for diffusion models of new product

摘要

Firms often utilize and coordinate adjustment of price, price promotions such as price discount and supply certain free samples to meet customer demands and achieve maximal profit in diffusion process of new product. While a product being introduced to the market, the firm has to use some strategies to attract the consumers to learn and buy the product. Some firms may choose pricing strategies, i.e. the skimming strategy or the penetration strategy, to recover its sunk costs quickly before competition steps in and lowers the market price or to learn the potential market and increased units sold. Another way to introduce the new product is to give consumers discount of the product, i.e. price promotion widely used in firms. Due to increasingly market competition, promotion has become the biggest expense item in company's marketing expenditure and has been frequently used as the most effective weapon by a lot of companies to increase their sales in the short term. Free samples are also an effective means for introducing and promoting a new product. It used to demonstrate a product's superiority and to attract a potential customer to try the innovation product and it can accelerate the diffusion process of new products. But because product sampling is expensive, a company needs to determine the "right" amount of sampling. This paper provides an analytical model for obtaining optimal decision jointly on sampling and price promotion. Based on sensitivity analysis, it investigates the interactions between the problem parameters and sampling, price promotions. Numerical study is also provided to demonstrate the contribution of the models.