Dynamic pricing of new product with strategic customers and social networks

• 1、College of Management and Economics, Tianjin University, Tianjin 300072

Abstract：When launching a new product with unknown quality into the marketplace, it is an effective marketing strategy for retailers to utilize social networks to disseminate information and clarify product quality. We construct a two-stage monopoly model using Bayesian learning theory to exploit the influences of the initial information release range and social learning intensity on strategic customers’ purchasing decisions and retailers’ dynamic pricing. We prove that, if releasing information to only a subset of customers, the retailer could still enter the market by dynamically pricing even when the quality of new products is poor. There exists an optimal information release range to maximize overall revenue when the social learning intensity is strong, and the greater the social learning intensity is, the wider the range is. We also show that when the customers are sufficiently forward-looking, the profit went up after dropping with the social learning intensity, indicating retailer may prefer more or less accurate information. The retailer can effectively control the quality information flow through initial pricing and information release range to obtain optimal profit, which has a great reference value on the second-period pricing.

Keywords： strategic customer behavior social learning new product with unknown quality dynamic pricing information release