A Multi-agent Approach for the Newsvendor Problem with Word-of-Mouth Marketing Strategies
Word-of-mouth (WOM) marketing is increasingly playing an important role in consumers’ purchase decision with the development of mobile Internet and various social media APP. We are particularly interested in such a problem as how to make decisions under e
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Abstract. Word-of-mouth (WOM) marketing is increasingly playing an important role in consumers’ purchase decision with the development of mobile Internet and various social media APP. We are particularly interested in such a problem as how to make decisions under effects of WOM campaigns? To answer this question, we develop a multi-agent model that emulates WOM or viral marketing process as spread of disease among people. Assume that each “infected” individual will purchase one unit of product. Then, the total “infected” people form the demand of the product, as an input of newsvendor problem. Besides finding the optimal order quantity of newsvendor problem, we also identify the most influential source node for kick off of the WOM marketing. The simulation results reveal that social network and WOM have a great influence on demand and profit of the firm. Even the source node has significant effect on output of WOM marketing. According to our simulation, the closeness centrality in social network analysis is the best measure to recognize the most influential source node, comparing to degree centrality, or betweenness centrality, etc. Finally, parameter analysis infers that profit of the firm will increase with higher the spreading probability or/and lower the resistant probability. Keywords: Newsvendor problem modeling SIR model
Word of mouth marketing
Multi-agent
1 Introduction The past several years have witnessed an increasingly attention to viral marketing in business. Development of mobile Internet and smartphone APP facilitates information communications among potential and actual consumers. For example, actual customers always post product reviews on the B2C websites to comment products they have purchased. Meanwhile, potential consumers are more likely to follow these advices. Online social media APP make this kind of recommendation more aggressive. People are able to push their opinions to all their friends directly and simultaneously. On the other hand, audiences probably accept these opinions due to their relationship. It is a typical practice of word of mouth (WOM) marketing, which is one of the most efficient marketing strategies. According to [1], 91 % of respondents consult online reviews, blogs, and other user generated content (UGC) before purchasing a new product or service. © Springer International Publishing Switzerland 2016 D.-S. Huang and K.-H. Jo (Eds.): ICIC 2016, Part II, LNCS 9772, pp. 782–792, 2016. DOI: 10.1007/978-3-319-42294-7_69
A Multi-agent Approach for the Newsvendor Problem
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WOM strategies are attractive because people are more likely to accept recommendations from their friends. Moreover, online users don’t need to contact with their friends face to face, so the cost for WOM dramatically lower down to near zero. Thus, online WOM marketing becomes one of the most popular advertising strategies in practices. This raises a series of operation decisions, which are seldom targeted before by researchers. For instance, (1) how many products should be ordered with demand influe
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