Optimal decision making for online referral marketing

Widely available web 2.0 technologies not only bring rich and interactive user experiences, but also easily help users advertise products or services on their own blogs and social network webpages. Online referral marketing, for example, is a business practice that rewards customers who successfully...

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Main Author: GUO, Zhiling
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2012
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Online Access:https://ink.library.smu.edu.sg/sis_research/1858
https://ink.library.smu.edu.sg/context/sis_research/article/2857/viewcontent/Optimal_DM_online_referral_av.pdf
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spelling sg-smu-ink.sis_research-28572020-03-02T13:16:25Z Optimal decision making for online referral marketing GUO, Zhiling Widely available web 2.0 technologies not only bring rich and interactive user experiences, but also easily help users advertise products or services on their own blogs and social network webpages. Online referral marketing, for example, is a business practice that rewards customers who successfully refer other customers to a website or upon completion of a sale usually via their own social contacts. The referral rewards come in different forms such as shopping vouchers, redeemable points, discounts, prizes, cash payments, etc. We develop an analytical model to evaluate the business potential of incorporating an online referral marketing program into the firm's product selling strategies. Under different demand dynamics, we investigate the optimal decision making 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 demand dynamics yield the same prediction of the referral payment, which turns out to be a static policy. However, under complex market situations, both the optimal product pricing and referral offering critically depend on the demand side dynamics. Under the nonlinear demand dynamics, the referral payment is an all-or-nothing decision throughout the product selling horizon. In contrast, under the linear demand assumption, the referral payment can be partially offered in initial phase of the product introduction. We further offer some managerial insights to guide practical implementation of the online referral marketing strategy. 2012-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/sis_research/1858 info:doi/10.1016/j.dss.2011.09.004 https://ink.library.smu.edu.sg/context/sis_research/article/2857/viewcontent/Optimal_DM_online_referral_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Computing and Information Systems eng Institutional Knowledge at Singapore Management University Dynamic pricing Word of mouth Referral marketing Optimal control Computer Sciences E-Commerce
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Dynamic pricing
Word of mouth
Referral marketing
Optimal control
Computer Sciences
E-Commerce
spellingShingle Dynamic pricing
Word of mouth
Referral marketing
Optimal control
Computer Sciences
E-Commerce
GUO, Zhiling
Optimal decision making for online referral marketing
description Widely available web 2.0 technologies not only bring rich and interactive user experiences, but also easily help users advertise products or services on their own blogs and social network webpages. Online referral marketing, for example, is a business practice that rewards customers who successfully refer other customers to a website or upon completion of a sale usually via their own social contacts. The referral rewards come in different forms such as shopping vouchers, redeemable points, discounts, prizes, cash payments, etc. We develop an analytical model to evaluate the business potential of incorporating an online referral marketing program into the firm's product selling strategies. Under different demand dynamics, we investigate the optimal decision making 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 demand dynamics yield the same prediction of the referral payment, which turns out to be a static policy. However, under complex market situations, both the optimal product pricing and referral offering critically depend on the demand side dynamics. Under the nonlinear demand dynamics, the referral payment is an all-or-nothing decision throughout the product selling horizon. In contrast, under the linear demand assumption, the referral payment can be partially offered in initial phase of the product introduction. We further offer some managerial insights to guide practical implementation of the online referral marketing strategy.
format text
author GUO, Zhiling
author_facet GUO, Zhiling
author_sort GUO, Zhiling
title Optimal decision making for online referral marketing
title_short Optimal decision making for online referral marketing
title_full Optimal decision making for online referral marketing
title_fullStr Optimal decision making for online referral marketing
title_full_unstemmed Optimal decision making for online referral marketing
title_sort optimal decision making for online referral marketing
publisher Institutional Knowledge at Singapore Management University
publishDate 2012
url https://ink.library.smu.edu.sg/sis_research/1858
https://ink.library.smu.edu.sg/context/sis_research/article/2857/viewcontent/Optimal_DM_online_referral_av.pdf
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