The optimal penetration pricing strategy model under the dynamic demand function

This paper considers the effects of internal reference price and the spreading of new price information on consumers' decision making to establish a dynamic demand function and a mathematical model of the function. Based on this model a continuous optimal price control model for maximizing profits of a manufacturer can be set up. The optimal price control model is used to establish an optimal penetration pricing strategy model for a new product. From the sensitivity analysis of the optimal solution of the model, this paper discusses the effects of the spreading rate of price information, unit cost, and promotion period on the optimal pricing and total profits.