Optimal Mix of Incentive Strategies for Product Marketing on Social Networks

Abstract: We consider the problem of devising incentive strategies for viral marketing of a product. In particular, we assume that the seller can influence penetration of the product by offering two incentive programs: a) direct incentives to potential buyers (influence) and b) referral rewards for customers who influence potential buyers to make the purchase (exploit connections). The problem is to determine the optimal timing of these programs over a finite time horizon. In contrast to algorithmic perspective popular in the literature, we take a mean-field approach and formulate the problem as a continuous-time deterministic optimal control problem. We show that the optimal strategy for the seller has a simple structure and can take both forms, namely, influence-and-exploit and exploit-and-influence. We also show that in some cases it may optimal for the seller to deploy incentive programs mostly for low degree nodes. We support our theoretical results through numerical studies and provide practical insights by analyzing various scenarios.