A discount strategy in word-of-mouth marketing and its assessment

Abstract

This paper addresses the discount pricing in word-of-mouth (WOM) marketing. A new discount strategy known as the Infection-Based Discount (IBD) strategy is proposed. The basic idea of the IBD strategy lies in that each customer enjoys a discount that is linearly proportional to his/her influence in the WOM network. To evaluate the performance of the IBD strategy, the WOM spreading process is modeled as a dynamic model known as the DPA model, and the performance of the IBD strategy is modeled as a function of the basic discount. Next, the influence of different factors, including the basic discount and the WOM network, on the dynamics of the DPA model is revealed experimentally. Finally, the influence of different factors on the performance of the IBD strategy is uncovered experimentally. On this basis, some promotional measures are recommended.