Redesigning promotion strategy for e-commerce competitiveness through pricing and recommendation

Abstract

Internet sales have transformed the retail business. Today almost all products sold in the marketplace can be found online, and online retailers constantly engage in promotional activities. In this paper, we demonstrate that online price promotion and product recommendations should be jointly considered and optimally determined. Through attractive price discounts, e-tailers can motivate customers to purchase the promoted product; and by way of online recommendation systems, e-tailers can encourage customers to buy non-discounted items. The best promotional effect can be achieved by concurrently optimizing price promotion and product recommendation, because the loss from discount can be compensated for by the gains from the regular items. To maximize the profit, we propose an analytical model to help e-tailers exploit the potential of online promotion, and to maximize the influence of product recommendation on e-tailer’s sales and profits. Through numerical experiments, we find the proposed approach outperforms alternative methods in profit maximization. Finally, we offer managerial insights and useful guidelines for online promotion activities.