1. Slide 3-1© 2010 Pearson Education, Inc. publishing as Prentice Hall CHAPTER 3 Marketing Decision Making and Case Analysis

2. Slide 3-2© 2010 Pearson Education, Inc. publishing as Prentice Hall 1.Describe each step in the decision- making process using the “DECIDE” method. 2.Prepare and present an analysis of a written case. AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

3. Slide 3-3© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS “Decision making is a rational and systematic process and that its organization is a definite sequence of steps, each of them in turn rational and systematic.” — Peter Drucker

4. Slide 3-4© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS CHAPTER 3: MARKETING DECISION MAKING AND CASE ANALYSIS

5. Slide 3-5© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE E numerate the decision factors C onsider relevant information D efine the problem I dentify the best alternative D evelop a plan for implementing the chosen alternative E valuate the decision and the decision process

6. Slide 3-6© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE “A problem well defined is half solved.” — John Dewey Problem definition framework includes: ObjectivesConstraints Success Measures Step 1: D efine the Problem

7. Slide 3-7© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE Two decision factors to be enumerated and related to each other: Controllable by the decision maker such as the marketing mix Alternative Courses of Action Uncertainties Uncontrollable factors that the manager cannot influence Step 2: E numerate the Decision Factors

8. Slide 3-8© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE Relevant information consists of information that relates to the alternatives identified by the manager as being likely to affect future events. Includes characteristics of the following: Consumers Competitors Industry Organization (competitive strengths and position) Alternatives Step 3: C onsider Relevant Information

9. Slide 3-9© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Identifying relevant information is difficult: There is often too much info and viewpoints Determining what does and does not matter is a skill learned through experience Don’t consider everything as factual info Sometimes relevant info must be created  A manager has performed a situation analysis when steps 1 through 3 are completed Step 3: C onsider Relevant Information

10. Slide 3-10© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Uses a decision tree and a payoff table to show the relationship among alternatives, uncertainties, and potential outcomes Matches each alternative with the uncertainties in the environment Assigns a quantitative value to the outcome associated with each match Step 4: I dentify the Best Alternative  Decision analysis:

11. Slide 3-11© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE Example: El Nacho Foods Uncertainties about Competitors Reduce price Maintain price Maintain lower price Reduce price further Alternative Courses of Action for Frozen Dinners Step 4: I dentify the Best Alternative

12. Slide 3-12© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.1: DECISION TREE FOR EL NACHO FOODS $175,000 $90,000 Company Action Competitive Response Financial Outcome $150,000 $110,000 Maintain price Reduce price further Maintain price Reduce price further Reduce price

13. Slide 3-13© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Displays the alternatives, uncertainties, and outcomes facing a firm A payoff table:  Includes management’s determination of the probability of an uncertainty’s occurrence Step 4: I dentify the Best Alternative

14. Slide 3-14© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.2: PAYOFF TABLE FOR EL NACHO FOODS $110,000 $90,000 $150,000 $175,000 Competitors Maintain Price (Probability = 0.9) Reduce price Maintain price Uncertainties Alternatives Competitors Reduce Price (Probability = 0.1)

15. Slide 3-15© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  A payoff table computes the “expected monetary value” (EMV) for each alternative  The EMV is calculated as follows:  EMVPI = EMV of Perfect Information EMV Outcome of Uncertainty 1 =+× Probability (p) of Uncertainty 1() Outcome of Uncertainty 2 Probability (p) of Uncertainty 2 +× () … Step 4: I dentify the Best Alternative

16. Slide 3-16© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.3: DECISION ANALYSIS AND THE VALUE OF INFORMATION $110,000 $90,000 $150,000 $175,000 Competitors Maintain Price (Probability = 0.9) A 1 : Reduce price A 2 : Maintain price Payoff Table Uncertainties Alternatives Competitors Reduce Price (Probability = 0.1) EMV Calculation $166,500 $146,000 EMV A1 = (0.9 × $150,000) + (0.1 × $110,000) = $146,000 EMV A2 = (0.9 × $175,000) + (0.1 × $90,000) = $166,500 EMV Certainty = (0.9 × $175,000) + (0.1 × $110,000) = $168,500 EMVPI = EMV Certainty – EMV Best alternative EMVPI = $168,500 – $166,500) = $2,000

17. Slide 3-17© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Is a fundamental tool for considering “what if” situations Decision analysis is important because it:  Forces the manager to quantify outcomes associated with specific actions  Is useful in a variety of settings  Can be used in determining the value of “perfect” information Step 4: I dentify the Best Alternative

18. Slide 3-18© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Allocating marketing, financial, and manufacturing resources An implementation plan involves:  The time needed to develop a marketing plan Step 5: D evelop a Plan for Implementing the Chosen Alternative

19. Slide 3-19© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE  Was a decision made? With respect to the decision itself, ask:  Was the decision proper given the situation? Step 6: E valuate the Decision and the Decision Process Insufficient information present? Failure to consider and interpret relevant information? Logical assumptions made regarding data gaps?

20. Slide 3-20© 2010 Pearson Education, Inc. publishing as Prentice Hall DECISION-MAKING PROCESS: DECIDE 1.Was the problem defined adequately? Ask 5 questions of the decision-making process: 2.Were all the pertinent alternatives and uncertainties identified? Were the assumptions realistic? 3.Was all the relevant information considered? 4.Was an appropriate course of action recommended? Was the logic consistent? Was any important piece of information overlooked? 5.How can the recommendation be implemented? Step 6: E valuate the Decision and the Decision Process

21. Slide 3-21© 2010 Pearson Education, Inc. publishing as Prentice Hall PREPARING AND PRESENTING A CASE ANALYSIS CHAPTER 3: MARKETING DECISION MAKING AND CASE ANALYSIS

22. Slide 3-22© 2010 Pearson Education, Inc. publishing as Prentice Hall PREPARING AND PRESENTING A CASE ANALYSIS First reading. Become familiar with the situation of the organization:  Identify insights into the problem  Obtain background information on the environment and organization Approaching the Case

23. Slide 3-23© 2010 Pearson Education, Inc. publishing as Prentice Hall PREPARING AND PRESENTING A CASE ANALYSIS Second reading. Pay attention to key facts and assumptions:  Determine relevance and reliability of the data  Obtain background information on the environment and organization Approaching the Case

24. Slide 3-24© 2010 Pearson Education, Inc. publishing as Prentice Hall PREPARING AND PRESENTING A CASE ANALYSIS  Do not rush to a conclusion Avoid these pitfalls:  Do not confuse supposition with fact  Do not “work the numbers” until their meaning and derivation are understood Approaching the Case

25. Slide 3-25© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.4a: MARKETING CASE ANALYSIS WORKSHEET Nature of the Industry, Market, and Buyer Behavior 1.What is the nature of the industry structure, conduct, and performance? 2.Who are the competitors, and what are their strengths and weaknesses? 3.How do consumers buy (why, where, when, how) in this industry or market? 4.Can the market be segmented? How? Can the segments be quantified? 5.What are the requirements for success in this industry? Formulating the Case Analysis

26. Slide 3-26© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.4b: MARKETING CASE ANALYSIS WORKSHEET The Organization Formulating the Case Analysis 1.What are the organization’s mission, objectives, and distinctive competency? 2.What is its offering to the market? How can its past and present performance be characterized? What is its potential? 3.What is the situation in which the manager or organization finds itself? 4.What factors have contributed to the present situation? 5.What are its financial, human, and material resources? 6.What is the “fit” between it and its environment based on the SWOT?

27. Slide 3-27© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.4c: MARKETING CASE ANALYSIS WORKSHEET A Plan of Action 1.What actions are available to the firm based on the situation analysis? 2.What are the costs and benefits of action in both qualitative and quantitative terms? 3.Is there a disparity between what the organization wants to do, should do, can do, and must do? Formulating the Case Analysis

28. Slide 3-28© 2010 Pearson Education, Inc. publishing as Prentice Hall EXHIBIT 3.4d: MARKETING CASE ANALYSIS WORKSHEET Potential Outcomes Formulating the Case Analysis 1.What will be the buyer, trade, and competitive response to each course of action? 2.How will each course of action satisfy buyer, trade, and organization requirements? 3.What is the potential profitability of each course of action? 4.Will the action enhance or reduce the organization’s ability to compete in the future? 5.What is the best course of action to pursue?

29. Slide 3-29© 2010 Pearson Education, Inc. publishing as Prentice Hall If using teams:  Create a balanced team whose member’s skill sets complement one another (writing, oral presentation, financial, etc.) PREPARING AND PRESENTING A CASE ANALYSIS  Be committed to the task and dependable Formulating the Case Analysis  Avoid “groupthink”

30. Slide 3-30© 2010 Pearson Education, Inc. publishing as Prentice Hall COMMUNICATING THE CASE ANALYSIS Class Discussion  Case preparation requires 4-5 hours  Bring notes to class  Carefully listen to the viewpoints of other students during the discussion of the case  Prepare a short summary of the case after discussing it in class

31. Slide 3-31© 2010 Pearson Education, Inc. publishing as Prentice Hall COMMUNICATING THE CASE ANALYSIS Oral Presentation  Visual aids do not replace the oral presentation Do not read slides to the audience Do not use too many graphics, colors, and transitions  Rehearse the presentation

32. Slide 3-32© 2010 Pearson Education, Inc. publishing as Prentice Hall COMMUNICATING THE CASE ANALYSIS Presentation title and presenters’ names Outline of the presentation Key problems and strategic issues that management needs to address Analysis of the organization’s situation or problem Recommendations and supporting reasoning Oral Presentation  Slides should cover the following:

33. Slide 3-33© 2010 Pearson Education, Inc. publishing as Prentice Hall COMMUNICATING THE CASE ANALYSIS Written Report  Be carefully organized and grammatically correct  Has three major sections: Strategic problem and issue identification Analysis and evaluation Recommendations

34. Slide 3-34© 2010 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.