Pricing and timing strategies for new product using agent-based simulation of behavioural consumers

Abstract

In this study, we are interested in the problem of determining the pricing and timing strategies of a new product by developing an agent-based product diffusion simulation. In the proposed simulation model, agents imitate behavioural consumers, who are reference dependent and risk averse in the evaluation of new products and whose interactions create word-of-mouth regarding new products. Pricing and timing strategies involve the timing of a new product release, the timing of providing a discount on a new product, and the relative rates of discounts. We conduct two experiments in this study. In both experiments, we consider the urban young person segment in the mobile phone market in Korea, in which three major new products - two smartphones and one convergence product - compete with one another. The first experiment is sensitivity analysis on the product life cycle and social influence. The objective is to observe how consumer agents behave as the product life cycle and the degree of sensitivity on social influence change. The second experiment is sensitivity analysis on time-to-market, time-to-discount, and amount-to-discount. The marketing strategy that maximises the sales volume (or revenue) of the new convergence product is sought from the sensitivity analysis. Based on the result, we provide pricing and timing implications for firms pursuing sales volumes (or revenue) increase.