Optimal Control Policy for Advertising and Pricing of Two Generation Durable Product in Segmented Market

One of the most remarkable developments in marketing is the amount of interest shown in market segmentation and an important strategy in modern marketing as it provides an insight into the target pricing and advertising policies for technological products. Developers of technological products keep introducing successive generations of product based on latest technology, either to continue to be the leading brands or due to market forces. When new products are introduced in generations of product, successive generations have substitution effect on the earlier generations. In this paper, we use the concept of market segmentation in diffusion model for consumer sales of a new durable product by incorporating the substitution behavior of a new generation product. Different advertising and price strategies for two generation product are considered in segmented market and the problem is formulated as an optimal control problem. The impact of introduction of second generation product and technological substitution and expansion created due to entry of second generation product in the market on the optimal advertising policy as well as price policy is characterized. The optimal control is applied to study and solve the proposed problem in two stages. Theoretical results of advertising and price polices for two successive generation product are also discussed.