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CHAPTER 3

Marketing Decision Making and Case Analysis

Describe each step in the decision-making process using the “DECIDE” method.

Prepare and present an analysis of a written case.

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO:

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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

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DECISION-MAKING PROCESS

CHAPTER 3: MARKETING DECISION MAKING AND CASE ANALYSIS

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DECISION-MAKING PROCESS: DECIDE

Enumerate the decision factors

Consider relevant information

Define the problem

Identify the best alternative

Develop a plan for implementing the chosen alternative

Evaluate the decision and the decision process

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DECISION-MAKING PROCESS: DECIDE

“A problem well defined is half solved.”

— John Dewey

Problem definition framework includes:

Objectives

Constraints

Success Measures

Step 1: Define the Problem

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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: Enumerate the Decision Factors

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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: Consider Relevant Information

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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: Consider Relevant Information

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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: Identify the Best Alternative

Decision analysis:

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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: Identify the Best Alternative

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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

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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: Identify the Best Alternative

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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)

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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 Uncertainty1

Probability (p) of Uncertainty1

(

)

Outcome of Uncertainty2

Probability (p) of Uncertainty2

(

)

…

Step 4: Identify the Best Alternative

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EXHIBIT 3.3: DECISION ANALYSIS AND THE VALUE OF INFORMATION

$110,000

$90,000

$150,000

$175,000

Competitors Maintain Price (Probability = 0.9)

A1: Reduce price

A2: Maintain price

Payoff Table Uncertainties

Alternatives

Competitors Reduce Price (Probability = 0.1)

EMV Calculation

$166,500

$146,000

EMVA1 = (0.9 × $150,000) + (0.1 × $110,000) = $146,000

EMVA2 = (0.9 × $175,000) + (0.1 × $90,000) = $166,500

EMVCertainty = (0.9 × $175,000) + (0.1 × $110,000) = $168,500

EMVPI = EMVCertainty – EMVBest alternative

EMVPI = $168,500 – $166,500 = $2,000

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Change P from 0.9 to 0.7 and then practice the previous several slides in class How does the EMVPI change and why?

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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: Identify the Best Alternative

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DECISION-MAKING PROCESS: DECIDE

Allocating marketing, financial, and manufacturing resources

An implementation plan involves:

The time needed to develop a marketing plan

Step 5: Develop a Plan for Implementing the Chosen Alternative

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DECISION-MAKING PROCESS: DECIDE

Was a decision made?

With respect to the decision itself, ask:

Was the decision proper given the situation?

Step 6: Evaluate the Decision and the Decision Process

Insufficient information present?

Failure to consider and interpret relevant information?

Logical assumptions made regarding data gaps?

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DECISION-MAKING PROCESS: DECIDE

Was the problem defined adequately?

Ask 5 questions of the decision-making process:

Were all the pertinent alternatives and uncertainties identified? Were the assumptions realistic?

Was all the relevant information considered?

Was an appropriate course of action recommended? Was the logic consistent? Was any important piece of information overlooked?

How can the recommendation be implemented?

Step 6: Evaluate the Decision and the Decision Process

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PREPARING AND PRESENTING A CASE ANALYSIS

CHAPTER 3: MARKETING DECISION MAKING AND CASE ANALYSIS

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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

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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

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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

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EXHIBIT 3.4a: MARKETING CASE ANALYSIS WORKSHEET

Nature of the Industry, Market, and Buyer Behavior

What is the nature of the industry structure, conduct, and performance?

Who are the competitors, and what are their strengths and weaknesses?

How do consumers buy (why, where, when, how) 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 Case Analysis

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EXHIBIT 3.4b: MARKETING CASE ANALYSIS WORKSHEET

The Organization

Formulating the Case Analysis

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?

What are its financial, human, and material resources?

What is the “fit” between it and its environment based on the SWOT?

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EXHIBIT 3.4c: MARKETING CASE ANALYSIS WORKSHEET

A Plan of Action

What actions are available to the firm based on the situation analysis?

What are the costs and benefits of action 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 Case Analysis

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EXHIBIT 3.4d: MARKETING CASE ANALYSIS WORKSHEET

Potential Outcomes

Formulating the Case Analysis

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?

What is the best course of action to pursue?

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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”

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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

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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

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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:

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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

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