A stochastic optimization model for consecutive promotion

Ho Yin LEUNG, Wai Ki CHING, Kui Chiu Issic LEUNG

Research output: Contribution to journalArticle

Abstract

Nowadays in business environment, marketing competitiveness is as demanding as ever. To survive under keen competitions, industries must keep acquiring customers and make them loyal while maximizing profit from their service subscription or product purchasing. Intensive research works have been done in answering when and what kind of promotions should be used under limited marketing communication resources to maintain a perpetual generation of revenue. In this paper, we investigate the advantages in consecutive promotion based on the framework of the model proposed in Ching et al. [1]. The customers’ behavior is modelled by using a Markov chain and we aim at maximizing the expected profit using stochastic dynamic programming. We find that a multi-period promotion strategy is better than the strategy of applying several single-period promotions in our tested examples. Copyright © 2008 ICAQM.
Original languageEnglish
Pages (from-to)403-414
JournalQuality Technology & Quantitative Management
Volume5
Issue number4
DOIs
Publication statusPublished - Dec 2008

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Optimization model
Stochastic optimization
Profit
Purchasing
Marketing communications
Stochastic dynamic programming
Industry competition
Subscription
Markov chain
Competitiveness
Resources
Customer behavior
Marketing
Revenue
Research work
Business environment

Citation

Leung, H.-Y., Ching, W.-K., & Leung, I. K. C. (2008). A stochastic optimization model for consecutive promotion. Quality Technology & Quantitative Management, 5(4), 403-414.

Keywords

  • Consecutive promotion
  • Markov process
  • Customer behavior
  • Stochastic dynamic programming