Impact Of Online Word-of-Mouth On The Pricing And Newsvendor Problem

Along with the application and popularization of the Internet,consumer behavior and information communication have undergone a significant change.Online word-of-mouth(WOM)with faster spread and wider coverage,is the key factor that affects consumer purchasing decision.And WOM marketing has become one of the most important marketing strategy.For enterprises to carry out online WOM marketing,product pricing and ordering decision,as well as the profit will strongly depend on its effect.However,the spontaneity and uncertainty of word-of-mouth communication makes it impossible for enterprises to control the process of information dissemination.The effect of WOM marketing is often difficult to evaluate and predict.It is of great practical significance to study the influence of online WOM communication on pricing and ordering decision.As the channel of information communication,the influence of consumers’ social network structure and individual position on online WOM communication has not been fully explored.The mathematical model of information dissemination has neglected these factors,making it difficult to accurately reflect the propagating process and the results,which lead to limitations in the analysis of such problems.Therefore,this paper studies the impact of online WOM communicating on product pricing and ordering decision by the methodology of multi-agent modeling and simulation.First,process of WOM information dissemination follows the SIR model,and four indicators are used to evaluate its effect.Based on social network analysis,this study compares different source node selection methods to find the best evaluation index for identifying the influential users.Finally,according to the effect of WOM,the enterprise makes decision about product pricing and order to maximize the profit.The last section further analyzes the impact of social network and WOM dissemination related factors on the optimal decision-making and profit.Simulation results proved that solution based on mathematics analysis overestimate the effect of WOM dissemination and lead to serious loss of profit.More important,results show that the enterprise could benefit from tighter relationships and higher acceptance among consumers.In addition,closeness centrality by social network analysis is the best method to identify the influential user as the source node in WOM marketing.These conclusions of this study will provide managerial insights and directions for enterprise to develop WOM marketing strategy and make product pricing and ordering decision.