It’s Showtime: Live-Streaming E-commerce and Optimal Promotion Insertion Policy

Live-streaming e-commerce has gained tremendous success as a new form of business model over the past few years. Nevertheless, there has been scarce research examining the effect of exogenous stimulus-driven factors (i.e., social cues such as promotion coupons) on the profit of the live-streaming platform. We model the continuous evolvement of the aggregate viewer involvement level with geometric Brownian motion and investigate the optimal timing and depth of promotion insertion policy. Our findings reveal that the optimal promotion insertion policy for the live-streaming room is a threshold policy that consists of a start-to-promote threshold and an involvement target when the trend of the aggregate involvement level is not large and the promotion cost is not high. Under some scenarios, the promotion planning process is constrained by various business rules, such as the promotion depth being limited by a discrete set (e.g., integral multiples of [Formula: see text]). Although this problem involves more complex constraints, we analytically show that a variation of the abovementioned threshold policy is the optimal strategy among all feasible policies, i.e., when the aggregate viewer involvement drops below a certain level ([Formula: see text]), the live-streaming host promotes with the depth of the least integral multiple of [Formula: see text] to raise the viewer involvement level above [Formula: see text]. Finally, to examine the effectiveness of our proposed policy, we compare it with prevalent industry practices. The result shows that the proposed promotion insertion policy outperforms prevailing ones significantly in generating profit for the live-streaming room.