A Marketing Promotion Model with Word of Mouth Effects

The word-of-raouth effect — the interaction between current and prospective product users — has an important impact on the sales of many products. A mathematical model is developed which explicitly incorporates such an effect. Procedures for estimating the parameters of the model are developed and data for two ethical drugs are used to validate the model. The model is used to develop marketing policies for new product introduction, which have a short period of high marketing activity followed by a lower "maintenance level" of effort over the remainder of a planning horizon.