Marketing Decision Making Chapter 3 Marketing Decision Making and Case Analysis

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

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

Decision Making - Peter Drucker “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

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

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

Enumerate the Decision Factors Factors to be enumerated Controllable Alternative Courses of Action Uncertainties in the Competitive Environment Uncontrollable e.g., Arrow Shirts

Consider Relevant Information “The truly successful managers and leaders of the [twenty-first] century will…be 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.”

Consider Relevant Information Characteristics of the industry and competitive environment Characteristics of the organization Characteristics of the alternatives under consideration

Consider Relevant Information Points 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

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.

Identify the Best Alternative Sample Decision Tree Company Action Competitive Response Financial Outcome Maintain price Reduce price further $150,000 $110,000 Reduce price Maintain price Reduce price further $175,000 $90,000

Identify the Best Alternative Expected 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)

Identify the Best Alternative Sample Payoff Table Uncertainties Competitors maintain price (Probability=0.9) Competitors reduce price (Probability=0.1) 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

Identify the Best Alternative Expected Value of Perfect Information Uncertainties Competitors maintain price (Probability=0.9) Competitors reduce price (Probability=0.1) 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

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

Develop a Plan for Implementing the Chosen Alternative Resource allocation and timing Strategy formulation Strategy implementation

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

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?

Case Analysis Approaching 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

Case Analysis Formulating the Analysis Framework for Analysis Nature of the industry, market, and buying behavior The organization A plan of action Potential outcomes

Formulating the Analysis Nature 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?

Formulating the Analysis The Organization What are the organization’s 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?

Formulating the Analysis A 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?

Formulating the Analysis Potential 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 organization’s ability to compete in the future?

Case Analysis Communicating the Analysis Class discussion Oral presentation Written report

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 company’s situation Recommendations with supporting arguments and reasoning for each recommendation

Communicating the Analysis Written Report should have three major sections: Identification of the strategic issues and problems Analysis and evaluation Recommendations