Transcript Kotler_ch01

Strategic Marketing Management
3
Chapter
Marketing Decision
Making and
Case Analysis
Strategic Marketing Problems, Cases and Comments, 12 Edition Roger A. Kerin & Robert A. Peterson
Decision-Making Process
Although no simple formula exists that can assure solution
to all problems at all time, use of systematic decision
making process can increase likelihood of arriving at
better solutions. The decision making process described
here is called DECIDE.
1. Define the problem
2. Enumerate the decision factors
3. Consider relevant information
4. Identify the best alternative
5. Develop a plan for implementing the chosen
alternative
6. Evaluate the decision and the decision process
1. Define the Problem
• The philosopher John Dewey observed that
“A problem well defined is half solved”
• What this statement means?
– Objectives of the decision maker
– Constraints
– Success measure or Goal
1. Define the Problem (cont…)
Consider the situation faced by EI Nacho Foods, a marketer
of Mexican foods. The company had positioned its line of
Mexican foods as a high quality brand and used
advertising effectively to convey that message. Shortly
after the company’s introduction of frozen dinners, two of
its competitors began cutting the price of their frozen
dinner entrees. The firm lost market share and sales as a
result of these price reduction; this loss led to reductions
in the contribution dollars available for advertising and
sales promotion. How might the problem be defined in this
situation?
One definition of the Problem:
“Should we reduce our price”
A mush better definition:
“How can we maintain our quality brand image (Objective)
and regain our lost market share (success measure),
given limited funds for advertising and sales promotion
2. Enumerate the Decision Factors
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Two sets of decision factors must be enumerated in the
decision-making process
1. Alternative courses of action and
2. Uncertainties in the competitive environment
Alternative courses of action are controllable decision
factors because the decision maker has complete
command of them. Alternatives are typically product
market strategies or changes in the various elements of
the organization’s marketing mix.
Uncertainties, on the other hand, are uncontrollable
factors that the manager cannot influence.
In marketing context, they often include actions of
competitors, market size, and buyer response to
marketing action.
3. Consider Relevant Information
• Relevant information, like the relevant costs, consists of
information that relates to the alternatives identified by the
manager as being likely to affect future events.
• Identifying relevant information is difficult both for the
practicing manager and for the case analyst.
• There is frequently and overabundance of facts, figures
and viewpoints available in any decision-making setting.
• 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.
Upon the conclusion of the first three steps,
the manager or case analyst has
completed a situation analysis. The
situation analysis should produce an
answer to the synoptic question,
“Where are we now?”
4. Identify the Best Alternative
• A framework for identifying the best alternative is
decision analysis.
• 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.
• Manager implicitly use a decision tree and a
payoff table to describe the relationship among
alternatives, uncertainties, and potential
outcomes.
4. Identify the Best Alternative (cont…)
Suppose that at the conclusion of Step 2 in the
DECIDE process (that is, enumerating
decision factors),
EI Nacho executives identified two alternatives:
1. Reduce the price on frozen dinners, or
2. Maintain the price
They also recognized two uncertainties:
1. Competitors could maintain the lower price
2. Competitors could reduce the price further.
4. Identify the Best Alternative (cont…)
Conclusion of Step 3 in the DECIDE process
(considering relevant information),
EI Nacho executives examined the changes
in market share and sales volume that
would be brought about by the pricing
actions. They also calculated the
contribution per unit of frozen dinners for
each alternative for each competitor
response.
4. Identify the Best Alternative (cont…)
Decision Tree for EI Nacho Foods
Company Action
Competitor Response
Financial Outcomes
Maintain Price
$150,000
Reduce Price further
$110,000
Maintain Price
$175,000
Reduce price further
$90,000
Reduce Price
Maintain Price
4. Identify the Best Alternative (cont…)
Payoff Table for EI Nacho Foods
Uncertainties
Competitors Maintain
Price
(Probability 90%)
Competitors Reduce
Price
(Probability 10%)
Reduce Price
150,000
110,000
Maintain Price
175,000
90,000
Alternatives
4. Identify the Best Alternative (cont…)
Decision Analysis and the Value of Information
Payoff Table Uncertainties
Alternatives
Competitors Maintain Price
(Probability 90%)
Competitors Reduce Price
(Probability 10%)
A1: Reduce Price
150,000
110,000
A2: Maintain Price
175,000
90,000
Calculation of Expected Monetary Value (EMV)
EMV (A1) = 0.9(150,000) + 0.1(110,000) = $146,000
EMV (A2) = 0.9(175,000) + 0.1(90,000) = $166,500
Calculation of Expected Monetary Value of Perfect Information (EMVPI):
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
4. Identify the Best Alternative (cont…)
• The higher average contribution of 166,500 for
maintaining the price indicates that EI Nacho’s
management should maintain the price. The
contribution is higher because competitors are
expected to maintain their prices nine times out of
ten. Under the same condition (same outcome,
same probability estimates), EI Nacho’s would
achieve an average contribution of 146,000 if the
price reduction alternative were chosen. A
rational management would, therefore, select the
price maintenance alternatives.
5. Develop a plan for implementing the Chosen
Alternative
• The execution phase is critical, and planning for it
forces the case analyst to consider resource
allocation and timing questions. For example if a
new product launch is recommended, it is
important to consider how managerial, financial,
and manufacturing resources will be allocated to
this course of action. If a price reduction is
recommended, it will be important to monitor
whether the reduced prices are reaching the final
consumer and not being absorbed by resellers in
the marketing channel. Timing is crucial, since a
marketing plan takes time to develop and
implement.
6. Evaluate the Decision and the Decision
process
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2.
3.
4.
5.
Did I define the problem adequately?
Did I identify all pertinent alternatives and uncertainties?
Were my assumptions realistic?
Did I consider all information relevant to the case?
Did I recommend the appropriate course of action? If so
was my logic consistent with the recommendation? If not,
were my assumptions different from the assumptions made
by others? Did I overlook an important piece of information?
Did I consider how my recommendation could be
implemented?
Honest answers to these questions will improve the chances of
making better decisions in the future.
Preparing and Presenting a Case Analysis
• Approaching the Case
• Formulating the case Analysis
– Nature of the Industry, Market, and Buyer Behavior
– The organization
– A plan of Action
– Potential outcomes
– Formulating the case analysis in teams
• Communicating the Case Analysis
– Class Discussion
– Oral Presentation
– Written Report