Revenue and reputation: A stochastic control approach to profit maximization

Profit is a function of multiple variables, including demand, cost of a product and/or service and its price. A myopic approach to business that compromises quality for profit would cause customer dissatisfaction. Customer satisfaction has its effect on business´ reputation through reviews on websites like Yelp, Amazon, eBay and thus affects profitability for a business. An additional factor that influences profitability is marketing the product/service, through advertising and promotional deals to attract customers. Overall, there is an intricate relationship that couples quality, reputation, demand and product-marketing, all of which should be driven towards maximizing profitability for a business. This paper formulates profit maximization problem as a static optimization problem, based on relationships among underlying variables and derives a dynamic decision policy from that. This formulation factors in variability caused by uncontrollable market factors. This paper presents a profit maximization scheme that is agnostic to the distribution of the market factors and proves its near-optimality.