Analyzing the Effectiveness of Marketing Strategies in the Presence of Word of Mouth: Agent-Based Modeling Approach

Abstract

Consumer purchasing decision making has been of great interest to researchers and practitioners for improving strategic marketing policies and gaining a competitive advantage in the market. Traditional market models generally concentrate on single individuals rather than taking social interactions into account. However, individuals are tied to one another with invisible bonds and the influence an individual receives from others, affects her purchasing decision which is known as word of mouth (WOM) effect. In this process, some people have greater influence on other consumers’ buying decisions that are known as opinion leaders. A new evolving modeling approach, agent-based modeling enables researchers to build models where individual entities and their interactions are directly represented. In this paper, we aim to build an agent-based simulation model for a technological product in a monopolistic artificial market. In particular, we will try to assess the efficiency and profitability of different marketing strategies consisting of different price, promotion, quality levels and different number of targeted opinion leaders where consumers are subject to WOM effects . In the presence of WOM, product’s quality is found to be the most significant factor affecting the profit of the company due to the positive WOM effect disseminated by the consumers.