Chapter 3

Marketing Decision Making

and Case Analysis

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1. 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…

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2. Preparing and presenting a case

analysis

Approaching the case analysis

Formulating the case analysis

Communicating the case analysis

In this chapter, you will learn about…

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Decision Making

“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

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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

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Define the Problem

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

A well-defined problem outlines the

framework within which a solution can

be derived. It includes:

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Enumerate the Decision Factors

Factors to be enumerated

Controllable

Alternative

Courses of Action

Uncertainties in

the Competitive

Environment

Uncontrollable

e.g., Arrow Shirts

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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.”

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Consider Relevant Information

Characteristics of the industry and

competitive environment

Characteristics of the organization

Characteristics of the alternatives

under consideration

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Consider Relevant Information

Points to Remember

1. Resist the temptation to consider

everything in a case as a “fact”

2. Create relevant information, if

not available, by blending

together data given in the case

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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 AlternativeSample Decision Tree

Company Action

CompetitiveResponse

FinancialOutcome

Maintain price

Reduce price further

$150,000

$110,000

Reduce price

Maintain price

Maintain price

Reduce price further

$175,000

$90,000

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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)

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

Competitors maintain price

(Probability=0.9)

Competitors reduce price

(Probability=0.1)

Reduce Price

Maintain Price

$150,000

$175,000

$110,000

$90,000

Alternatives

Uncertainties

Identify the Best AlternativeSample Payoff Table

Expected value of certainty: (0.9)($175000) + (0.1)($110000) = $168,500

Expected value of perfect info: EMVcertainty– EMVbest alt.: $168500 - $166500 = $2,000

Competitors maintain price

(Probability=0.9)

Competitors reduce price

(Probability=0.1)

Reduce Price

Maintain Price

$150,000

$175,000

$110,000

$90,000

Alternatives

Uncertainties

Identify the Best AlternativeExpected Value of Perfect Information

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Familiarity with decision analysis is important for

FOUR reasons:

1. It is a fundamental tool for considering “what if” situations

2. It forces the case analyst to quantify outcomes associated with specific actions

3. 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

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Develop a Plan for Implementing the Chosen

Alternative

Resource allocation and timing

Strategy formulation

Strategy implementation

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Evaluate the Decision

Was a decision made?

Was the decision appropriate, given the

situation identified in the case setting?

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Evaluate the Decision Process

1. Did I define the problem accurately?

2. Did I identify all pertinent alternatives and uncertainties? Were my assumptions realistic?

3. Did I consider all information relevant to the decision?

4. Did I recommend the appropriate course of action?

5. Did I consider how my recommendation could be implemented?

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Case AnalysisApproaching 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

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Nature of the industry, market,

and buying behavior

The organization

A plan of action

Potential outcomes

Case AnalysisFormulating the Analysis

Framework for Analysis

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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 AnalysisNature of the Industry, Market,

and Buying Behavior

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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 AnalysisThe Organization

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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 AnalysisA Plan of Action

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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?

Formulating the AnalysisPotential Outcomes

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Class discussion

Oral presentation

Written report

Case AnalysisCommunicating the Analysis

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Communicating the Analysis

1. Title of presentation and presenters’ names

2. Presentation outline

3. Key problems and strategic issues

4. Analysis of company’s situation

5. Recommendations with supporting arguments and reasoning for each recommendation

The oral presentation should have five major sections:

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1. Identification of the strategic issues and problems

2. Analysis and evaluation

3. Recommendations

Written Report should have three major sections:

Communicating the Analysis