Analysis of Corporate Pricing Strategy based on Word-of-mouth Communication on Social Networks
AUTHORS
Ahmad Alelaimat, Department of Computer Science and Information Technology, La Trobe University, Melbourne, Australia
Viktor Marchuk, Department of Computer Science and Information Technology, La Trobe University, Melbourne, Australia
ABSTRACT
As an indispensable marketing method for modern enterprises, word-of-mouth communication can be combined with recommendation and reward strategies to promote the promotion and purchase of new products, to improve enterprise profits. The research of social network word-of-mouth communication is of great significance to the pricing strategy of enterprises. In this paper, we establish a two-stage model, in which a manufacturer sells a single new product to several consumers with social network relationships. Consumers choose whether to buy or not according to their utility and the influence of word-of-mouth communication. Considering the influence of word-of-mouth communication, enterprises decide whether to adopt the recommendation incentive strategy and determine the pricing and the amount of recommendation incentive. The results show that the two-stage optimal pricing and the amount of recommendation reward are related to the recommendation satisfaction threshold and the influence coefficient of word-of-mouth. The two-stage optimal pricing decreases with the increase of recommendation satisfaction threshold; Under the influence of negative word-of-mouth, only when the threshold of recommendation satisfaction and the influence coefficient of word-of-mouth communication are within a certain range, can enterprises make profits. To achieve the maximum profit, the amount of recommendation reward increases with the increase of the recommendation satisfaction threshold. Under the influence of positive word-of-mouth, the threshold of recommendation satisfaction is larger, and the influence of positive word-of-mouth communication is smaller, so enterprises should give up the recommendation reward strategy; Under the influence of negative word-of-mouth, only when the threshold of recommendation satisfaction is small and the influence of negative word-of-mouth communication is large, can enterprises make profits by using recommendation reward strategy.
KEYWORDS
Social network, Pricing strategy, Word-of-mouth communication, Recommendation reward
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