Marketing Decision Making

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Chapter 3
Marketing Decision Making and Case Analysis
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In this chapter, you will learn about

• Decision-Making Process
• Define the Problem
• Enumerate the Decision Factors
• Consider Relevant Information
• Identify the Best Alternative
• Develop an Implementation Plan
• Evaluate the decision and decision process

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In this chapter, you will learn about

• Preparing and presenting a case analysis
• Approaching the case analysis
• Formulating the case analysis
• Communicating the case analysis

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Decision Making

• Decision making is a rational and systematic
  process. Its organization is a definite sequence
  of steps, each of them in turn rational and
  systematic.
• - Peter Drucker

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Decision Making
Define the Problem
Enumerate Decision Factors
Consider Relevant Information
Identify the Best Alternative
Develop a Plan for Implementing the Chosen
Alternative
Evaluate the Decision and the Decision Process
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Define the Problem
A well-defined problem outlines the framework
within which a solution can be derived. It
includes

• Objectives of the decision maker
• Recognition of constraints
• Clear success measure or goal for assessing
  progress toward solving the problem
• e.g., El Nacho Foods

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Enumerate the Decision Factors
Factors to be enumerated
e.g., Arrow Shirts
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Consider Relevant Information

• The truly successful managers and leaders of the
  twenty-first century willbe characterized not
  by how they can access information, but how they
  can access the most relevant information and
  differentiate it from the exponentially
  multiplying masses of non-relevant information.

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Consider Relevant Information

• Characteristics of the industry and competitive
  environment
• Characteristics of the organization
• Characteristics of the alternatives under
  consideration

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Consider Relevant InformationPoints to Remember

• Resist the temptation to consider everything in a
  case as a fact
• Create relevant information, if not available, by
  blending together data given in the case

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Identify the Best Alternative

• Decision analysis
• Matches each alternative identified by the
  manager with the uncertainties existing in the
  environment and assigns a quantitative value to
  the outcome associated with each match.

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Identify the Best AlternativeSample Decision Tree
Company Action
Competitive Response
Financial Outcome
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Identify the Best AlternativeExpected Monetary
Value
The Expected Monetary Value (EMV) of a decision
alternative is
Outcome of Uncertainty1 x P(Uncertainty1)
Outcome of Uncertainty2 x P(Uncertainty2)
Outcome of Uncertaintyn x P(Uncertaintyn)
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Identify the Best AlternativeSample Payoff Table
Uncertainties
Competitors maintain price (Probability0.9)
Competitors reduce price (Probability0.1)
Alternatives
Reduce Price
150,000
110,000
Maintain Price
175,000
90,000
Expected value of reducing price (0.9)
(150000) (0.1) (110000) 146,000 Expected
value of maintaining price (0.9) (175000)
(0.1) (90000) 166,500
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Identify the Best AlternativeExpected Value of
Perfect Information
Uncertainties
Competitors maintain price (Probability0.9)
Competitors reduce price (Probability0.1)
Alternatives
Reduce Price
150,000
110,000
Maintain Price
175,000
90,000
Expected value of certainty
(0.9)(175000) (0.1)(110000)
168,500 Expected value of perfect info
EMVcertainty EMVbest alt. 168500 - 166500
2,000
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Familiarity with decision analysis is important
for FOUR reasons

• It is a fundamental tool for considering what
  if situations

• It forces the case analyst to quantify outcomes
  associated with specific actions

• It is useful in a variety of settings product,
  communication, channel, or pricing decisions

4. It can be used in determining the value of
perfect information
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Develop a Plan for Implementing the Chosen
Alternative

• Resource allocation and timing
• Strategy formulation
• Strategy implementation

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Evaluate the Decision

• Was a decision made?
• Was the decision appropriate, given the situation
  identified in the case setting?

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Evaluate the Decision Process

• Did I define the problem accurately?
• Did I identify all pertinent alternatives and
  uncertainties? Were my assumptions realistic?
• Did I consider all information relevant to the
  decision?
• Did I recommend the appropriate course of action?
• Did I consider how my recommendation could be
  implemented?

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Case AnalysisApproaching the Case

• Become familiar with the issue(s) at hand
• Identify key facts and assumptions
• Do not rush to a conclusion
• Do not work the numbers until you understand
  their meaning
• Do not confuse supposition with fact

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Case AnalysisFormulating the Analysis
Framework for Analysis

• Nature of the industry, market, and buying
  behavior
• The organization
• A plan of action
• Potential outcomes

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Formulating the AnalysisNature of the Industry,
Market, and Buying Behavior

• What is the nature of industry structure,
  conduct, and performance?
• Who are the competitors, and what are their
  strengths and weaknesses?
• How do consumers buy in this industry or market?
• Can the market be segmented? How? Can the
  segments be quantified?
• What are the requirements for success in this
  industry?

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Formulating the AnalysisThe Organization

• What are the organizations mission, objectives,
  and distinctive competency?
• What is its offering to the market? How can its
  past and present performance be characterized?
  What is its potential?
• What is the situation in which the manager or
  organization finds itself?
• What factors have contributed to the present
  situation?

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Formulating the AnalysisA Plan of Action

• What actions are available to the organization?
• What are the costs and benefits of actions in
  both qualitative and quantitative terms?
• Is there a disparity between what the
  organization wants to do, should do, can do, and
  must do?

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Formulating the AnalysisPotential Outcomes

• What will be the buyer, trade, and competitive
  response to each course of action?
• How will each course of action satisfy buyer,
  trade, and organization requirements?
• What is the potential profitability of each
  course of action?
• Will the action enhance or reduce the
  organizations ability to compete in the future?

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Case AnalysisCommunicating the Analysis

• Class discussion
• Oral presentation
• Written report

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Communicating the Analysis
The oral presentation should have five major
sections

• Title of presentation and presenters names
• Presentation outline
• Key problems and strategic issues
• Analysis of companys situation
• Recommendations with supporting arguments and
  reasoning for each recommendation

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Communicating the Analysis
Written Report should have three major sections

• Identification of the strategic issues and
  problems
• Analysis and evaluation
• Recommendations