Abstract

This chapter considers an optimal control model to obtain dynamic promotional policies for a product considering a segmented market where first-time and additional repeat purchase sales are assumed to be generated through mass and differentiated promotions. Mass promotion is carried out in the whole market which reaches each segment with a fixed spectrum, and differentiated promotion is catered to each segment individually. The firm's finite promotional resources are to be allocated for promoting a product at mass and segment levels of the market in a finite time period. The formulated control problem obtains optimal promotional effort policy for each segment using the maximum principle. The applicability of the proposed control model is illustrated through a numerical example by discretizing the model.

Keywords: market segmentation, innovation-diffusion model, optimal control theory, maximum principle
