Customer acquisition in e-commerce: the application o fKalman filtering and optimal control

Companies operating in the area of B2C electronic commerce can make use of a variety of business models. A key strategic choice is the rate of expansion of their businesses, involving decisions on marketing and investments in hardware, software and personnel. This paper will show how such decisions are amenable to analysis by use of optimal control theory, in particular Pontryagin's maximum principle. Data from a practical example are analysed and a novel marketing model identified using Kalman filering. General modes of optimal control of marketing effort for this model are then analysed and illustrated.