Optimization of online promotion: A profit-maximizing model integrating price discount and product recommendation

Abstract

Price promotion and product recommendation are important tactics to gain market share in the e-commerce context. To increase sales and enhance promotion profits, practitioners often recommend non-discounted products in the promotional campaign for a product. However, no analytical model is hitherto available to jointly optimize the price discount for the promoted product and the product portfolio to recommend. This paper provides a probability model to complete the task. The proposed model motivates customers through an attractive price discount for the promoted product, while simultaneously encouraging customers to purchase the non-discounted products through the recommendation system. The numerical studies show that the proposed method attains higher profits than do conventional methods. Finally, we offer managerial insights and provide useful guidelines to help e-tailers to make the most profitable online promotional decisions. © 2012 World Scientific Publishing Company.