An analysis of retail promotional pricing effectiveness using agent-based modeling

In contemporary urban contexts, retail establishments have emerged as essential components of city life, engaging in fierce competition to capture consumer attention and augment their financial gains. Implementing a price promotion strategy is essential for efficaciously appealing customers. Nonetheless, the complex interaction between consumer preferences and product attributes, particularly in environments characterized by competitive product offerings, complicates the development of effective promotional strategies. This paper aims to present an agent-based simulation model for capturing the results of strategic approaches for retails offering competitive products, thereby sidestepping the need for empirical testing or data collection in real-world settings. In this model, consumer decision-making processes are initially influenced by two primary factors: the effectiveness of advertising and the impact of word-of-mouth communication. Subsequent decisions are then depending on the degree of price reduction encountered in-store. The simulation assesses various promotional tactics, examining the depth of price reductions, the frequency and timing of promotions, and the resultant impact on store profitability. The outcomes reveal that distinct strategies yield varying levels of effectiveness depending on the price elasticity of products. Moreover, non-overlapping promotional happenings yield superior profit margins as compared to concurrent promotions. The insights garnered from this study are anticipated to provide helpful guidance for future strategic planning for retails.