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3. CHAPTER. Marketing Decision Making and Case Analysis. DECISION-MAKING PROCESS: DECIDE. D efine the problem. E numerate the decision factors. C onsider the relevant information. I dentify the best alternative. D evelop a plan for implementing the chosen alternative.

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  1. 3 CHAPTER Marketing Decision Making and Case Analysis

  2. DECISION-MAKING PROCESS: DECIDE Define the problem Enumerate the decision factors Consider the relevantinformation Identify the best alternative Develop a plan for implementingthe chosen alternative Evaluate the decision and the decision process

  3. STEP 1: DEFINE THE PROBLEM “A problem well defined is half solved.” — John Dewey Problem definition framework includes: Objectives Constraints Success Measures

  4. STEP 2: ENUMERATE THE DECISION FACTORS Two decision factors to be enumerated and related to each other: AlternativeCourses of Action Uncertainties Controllable by the decision maker such as the marketing mix. Uncontrollable factors that the manager cannot influence.

  5. STEP 3: CONSIDER RELEVANT INFORMATION 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: Industry Organization (competitive strengths and position) Consumers Alternatives Competitors

  6. STEP 3: CONSIDER RELEVANT INFORMATION • Identifying relevant information is difficult: • There is often an overabundance of information and viewpoints • Determining what does and does not matter is a skill learned through experience • Resist the temptation to consider everything as factual information • Sometimes relevant information must be created • A manager has performed a situation analysis when steps 1 through 3 are completed.

  7. STEP 4: IDENTIFY THE BEST ALTERNATIVE • The framework for identifying the best alternative is decision analysis, which: • Matches each alternative with the uncertainties in the environment • Assigns a quantitative value to the outcome associated with each match • Use a decision tree and a payoff table to show the relationship among alternatives, uncertainties, and potential outcomes.

  8. STEP 4: IDENTIFY THE BEST ALTERNATIVE A payoff table: • Displays the alternatives, uncertainties, and outcomes facing a firm. • Includes management’s determination of the probability of an uncertainty’s occurrence.

  9. EXHIBIT 3.2: PAYOFF TABLE FOREL NACHO FOODS Uncertainties CompetitorsMaintain Price(Probability = 0.9) CompetitorsReduce Price(Probability = 0.1) $150,000 $110,000 Reduce price Alternatives $175,000 $90,000 Maintain price

  10. STEP 4: IDENTIFY THE BEST ALTERNATIVE • A payoff table computes the “expected monetary value” (EMV) for each alternative. • The EMV is calculated as follows: ( Outcome of Uncertainty1 Probability (p)of Uncertainty1 ) EMV = × + ( Outcome ofUncertainty2 Probability (p)of Uncertainty2 ) × + … • EMVPI = EMV of Perfect Information

  11. EXHIBIT 3.3: DECISION ANALYSIS AND THE VALUE OF INFORMATION Payoff Table Uncertainties CompetitorsMaintain Price(Probability = 0.9) CompetitorsReduce Price(Probability = 0.1) EMVCalculation $150,000 $110,000 $146,000 A1: Reduce price Alternatives $175,000 $90,000 $166,500 A2: Maintain price 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

  12. STEP 4: IDENTIFY THE BEST ALTERNATIVE Decision analysis is important because it: • Is a fundamental tool for considering “what if” situations. • 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.

  13. STEP 5: DEVELOP A PLAN FOR IMPLEMENTING THE CHOSEN ALTERNATIVE Developing an implementation plan involves: • Allocation of marketing, financial, and manufacturing resources. • Timing needed to develop a marketing plan. • Strategy formulation. • Strategy implementation.

  14. STEP 6: EVALUATE THE DECISION AND THE DECISION PROCESS With respect to the decision itself, ask two questions: • Was a decision made? • Was the decision appropriate given the situation?

  15. STEP 6: EVALUATE THE DECISION AND THE DECISION PROCESS With respect to the performance of the decision-making process, ask five questions: • Was the problem defined adequately? • 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?

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