Optimal pricing and promotional effort control policies for a new product growth in segmented market

Abstract

Market segmentation enables the marketers to understand and serve the customers more effectively thereby improving company's competitive position. In this paper, we study the impact of price and promotion efforts on evolution of sales intensity in segmented market to obtain the optimal price and promotion effort policies. Evolution of sales rate for each segment is developed under the assumption that marketer may choose both differentiated as well as mass market promotion effort to influence the uncaptured market potential. An optimal control model is formulated and a solution method using Maximum Principle has been discussed. The model is extended to incorporate budget constraint. Model applicability is illustrated by a numerical example. Since the discrete time data is available, the formulated model is discretized. For solving the discrete model, differential evolution algorithm is used.