Decision Making and Marketing Models

Decision Making

Decision-Making Models

• Alternatives, uncertainty, high-risk, interpersonal complexity, consequences, issues are factors in decision making.

Lecture 7: Pareto Analysis, ABC, XYZ, and Correlation

• Pareto Principle (20/80 rule)

• ABC Analysis

• XYZ Analysis

• Correlation

Lecture 8: Marketing and Marketing Research

Lecture 9: Decisions in International Marketing

Pareto Principle (80/20 Rule)

• Also known as the 80/20 rule.

• States that by doing 20% of the work, you generate 80% of the benefit of doing the entire job.

• Example: In quality improvement, 80% of problems are produced by 20% of the causes.

• Also called "the vital few and the trivial many."

• 80% of the outputs result from 20% of the inputs.

Applications of the 80/20 Rule:

• 80% of customer complaints arise from 20% of products/services.

• 80% of delays result from 20% of possible causes.

• 20% of products/services account for 80% of profit.

• 20% of the sales force produces 80% of company revenues.

• 20% of system defects cause 80% of its problems.

• 20% of input (time, resources, effort) accounts for 80% of output (results, rewards).

Vilfredo Pareto

• Born: July 15, 1848

• Died: August 19, 1923

• Italian engineer, sociologist, economist, political scientist, and philosopher.

• In 1906, observed that 20% of the population owned 80% of the property in Italy.

• Joseph M. Juran generalized this into the Pareto principle.

Pareto Chart

• A chart with bars and a line graph.

• Individual values are represented in descending order by bars.

• Cumulative total is represented by the line.

• Highlights the most important factors from a large set.

• In quality control, represents the most common sources of defects, the highest occurring type of defect, or the most frequent reasons for customer complaints.

Pareto Distribution

• A power law probability distribution.

• Used in describing social, scientific, geophysical, actuarial, and other types of observable phenomena.

• Probability Density Function.

• Cumulative Distribution Function.

Lecture 8: DMM in Marketing and Marketing Research

Marketing

• A group of activities designed to expedite transactions by creating, distributing, pricing, and promoting goods, services, and ideas.

• Marketing activities create value.

• Important part of a firm’s overall strategy.

• Marketing is NOT manipulating consumers or just advertising and selling.

Nature of Marketing

• Creating value with marketing.

Value

• A customer’s subjective assessment of benefits relative to costs in determining the worth of a product.

• Customer value = customer benefits - customer costs

• Benefits are what a buyer receives.

• Costs are what a buyer gives up.

The Marketing Concept

• Idea that an organization should try to satisfy customer’s needs through coordinated activities that also allow it to achieve its own goals.

Businesses must:

• Find out what consumers desire.

• Develop the good, service, or idea to satisfy that want.

• Get the product to the customer.

• Continually alter, adapt, and add products to keep pace with changing customer demands.

• Example: Oscar Mayer introduced a line of natural meat and cheese plates with no artificial ingredients to appeal to the health and wellness market.

Buying Behavior

• The decision processes and actions of people who purchase and use products.

Types of Buying Behavior

• Consumer buying behavior.

• Business buying behavior.

Psychological Variables

• Perception: The process by which a person selects, organizes, and interprets information received from that person’s senses.

• Motivation: An inner drive that directs a person’s behavior toward goals. A customer’s behavior is influenced by a set of motives rather than by a single motive.

• Learning: Brings about changes in a person’s behavior based on information and experience.

• Attitude: Knowledge and positive or negative feelings about something.

• Personality: Refers to the organization of an individual’s distinguishing character traits, attitudes, or habits.

Social Variables

• Social roles.

• Reference groups.

• Social classes.

• Culture.

• Understanding Buying Behavior.

• It is difficult to explain why a buyer purchases a particular product.

• Trying to understand is the best way to satisfy customers.

The Marketing Environment

• External forces that directly or indirectly influence the development of marketing strategies.

• Political, legal, and regulatory forces.

• Social forces.

• Competitive and economic forces.

• Technological forces.

• Environmental forces can change quickly and are interconnected and sometimes uncontrollable.

Creating Value

• Companies find that communicating with customers through social media sites can enhance customer relationships and create value for their brands.

Functions of Marketing

• Buying.

• Selling.

• Transporting.

• Storing.

• Time utility.

• Usually impossible to store services.

• Financing.

• Marketing research and data analytics.

• Trends.

• Changes in consumer tastes.

• Risk taking.

Developing a Marketing Strategy

• A plan of action for developing, pricing, distributing, and promoting products that meet the needs of specific customers.

Selecting a Target Market

• Market.

• Target market.

• Business-to-business (B2B) marketing.

• Business-to-consumer (B2C) marketing.

Total-Market Approach

• Firm tries to appeal to everyone and assumes all buyers have similar needs and wants.

• Also referred to as mass marketing.

Market Segmentation

• Dividing the total market into groups that have relatively similar product needs.

Market Segment

• A collection of individuals, groups, or organizations who share one or more characteristics and thus have relatively similar product needs and desires.

Market Segmentation Approaches

• Concentration approach.

• Company develops one marketing strategy for a single market segment.

• Allows a firm to specialize.

• Multisegment approach.

• Marketing efforts are aimed at two or more segments with a marketing strategy for each.

• Niche marketing.

• One small, well-defined group.

• Narrow market segment with unique needs.

Bases for Segmenting Markets

• Demographic: age, gender, race, ethnicity, income, education, occupation, family size, religion, social class.

• Geographic: climate, terrain, natural resources, population density, subcultural values.

• Psychographic: personality characteristics, motives, lifestyles.

• Behavioristic: some characteristic of the consumer’s behavior toward the product.

Growth and Benefits of Digital Communication

• E-business: Carrying out the goals of business through utilization of the internet.

• Digital media: Electronic media that function using digital codes via computers, smartphones, and other digital devices.

• Digital marketing: Uses all digital media, including the internet and mobile and interactive channels, to develop communication and exchanges with customers.

• Ranking of Social Media Platforms by Global Active User Figures (in Millions):

  • Facebook: 2,958

  • Youtube: 2,514

  • Whatsapp: 2,000

  • Instagram:2,000

  • Wechat: 1,309

  • TikTok: 1,051

  • FB Messenger: 931

  • Douyin: 715

  • Telegram: 700

  • Snapchat: 635

  • Kuaishou: 626

  • Sina Weibo: 584

  • QQ: 574

  • Twitter: 556

  • Pinterest: 445

Ethical and Legal Issues in Digital Marketing

Identity Theft and Online Fraud

• Identity theft: when criminals obtain personal information that allows them to impersonate someone else in order to use their credit to access financial accounts and make purchases.

• Security breaches are a serious threat.

• Phishing is using a counterfeit of a familiar website to deceive people into divulging private information.

• To deter identity theft, the National Fraud Center wants financial institutions to implement new technologies such as digital certificates, digital signatures, and biometrics.

• Online fraud: includes any attempt to purposely deceive online.

• Use a different password for each website and making them complex.

• Credit card fraud is a major type of fraud that occurs online.

• Avoid fraud by not giving out personal information unless the site is legitimate.

Intellectual Property Theft and Other Illegal Activities

• Intellectual property can include songs, movies, books, and software.

• Generally protected by patents and copyrights, but piracy and illegal sharing costs global industries billions annually.

• Illicit online marketing becoming serious issue for law enforcement.

• Illegal drugs.

• Counterfeit goods.

Digital Media’s Impact on Marketing

• Digital media can make your company more efficient and productive.

• Transition to digital media can be challenging.

• New media may require employees with new skills or additional training for current employees.

• Correct blend of traditional and digital media in marketing mix takes time and consideration.

• Future marketing opportunities will require a knowledge of digital media and how to use them.

Decisions Based on Marketing Research and Information Systems

• Marketing research.

Primary Data

• Observed, recorded, or collected directly from respondents.

• “Mystery shoppers,” surveys, and focus groups.

• Ethnographic or observational research.

Secondary Data

• Compiled inside or outside an organization for some purpose other than changing the current situation.

• Compiled by government agencies, databases created by marketing research firms, as well as sales and other internal reports.

Online Marketing Research

• Marketing research of the future.

• Virtual testing.

• Digital and social media sites.

• Online surveys.

• Marketing analytics.

AI tools:

• Creative AI: Tools like DALL-E or Midjourney that generate images from text prompts, and AI music generators that create original compositions.

• RapidMiner or Microsoft Azure Machine Learning that help in forecasting trends based on historical data.

• Marketing research is a systematic, objective process of getting information about potential customers to guide marketing decisions.

• Inside the organization: Continuous flow of information on prices, sales, and expenses.

• Outside the organization: Data available through public and private reports, census statistics, digital media sources, etc.

• Virtual testing: Combined sight, sound, animation.

• Digital and social networking sites: Customers willing to share their experiences to reach new voices and gain varied perspectives.

• Dashboards and Big data are part of new trends.

Correlation

Calculating the Correlation Coefficient (r)

• Objective: Measure the strength and direction of the relationship between two sets of data.

Instructions:

• Prepare the Data: Organize data into two columns, X and Y. Each row corresponds to a pair of values.

  • Example: Study hours (X) and test scores (Y).

Steps:

• Calculate Means: Find the average (mean) for both X and Y data sets. Label these as X̄ and Ȳ.

• Calculate the Deviations: For each X value, subtract the $X̄$ to find the deviation $(X - X̄)$. For each Y value, subtract the mean Ȳ to find the deviation $(Y - Ȳ)$.

• Multiply the Deviations: For each pair of data points, multiply the deviations $(X - X̄)$ and $(Y - Ȳ)$ to get the product for each pair. Add up all the products to get the sum of the products: $Σ(X - X̄)(Y - Ȳ)$.

• Calculate the Sum of Squares: Square each $(X - X̄)$ and $(Y - Ȳ)$, then find the sum of each set of squares: $Σ(X - X̄)²$ and $Σ(Y - Ȳ)²$.

• Apply the Correlation Formula: Use the formula for the correlation coefficient (r):
  $r = {\Sigma(X - \bar{X}) (Y - \bar{Y})}{\sqrt{\Sigma(X - \bar{X})^2 \cdot \Sigma(Y - \bar{Y})^2}}$

Interpret the Result:

• If r is close to +1: Strong positive correlation; as X increases, Y tends to increase.

• If r is close to -1: Strong negative correlation; as X increases, Y tends to decrease.

• If r is close to 0: Weak or no correlation.

Correlation vs. Causation

• Correlation measures the strength and direction of a relationship between two sets of data, but it doesn’t imply causation.

Example in Marketing:

• Analyze social media mentions of a product and monthly sales revenue.

• Calculate the correlation coefficient to see if there’s a relationship between mentions and sales.

• Data Set 1 (X): Number of social media mentions per month.

• Data Set 2 (Y): Monthly sales revenue for the product

Key Point: Correlation ≠ Causation

• A strong correlation between social media mentions and sales revenue doesn’t mean that one directly causes the other.

• Other factors (like promotions, seasonal demand, or advertising) might influence both variables.

• Mentions and revenue might rise together, but it doesn’t mean mentions cause higher sales.

• When two variables have a correlation, it means they tend to change together in a certain pattern, either moving in the same direction (positive correlation) or opposite directions (negative correlation).

Lab: XYZ and ABC Analysis in Marketing

XYZ Analysis

• How to calculate and interpret the coefficient of variation (CV) for different sales categories.

• Group the data according to these categories and then determine the sales values associated with each.

Calculate Mean and Standard Deviation for Each Category:

• For each category (e.g., X, Y, Z), calculate:

  • The mean (average) sales value.

  • The standard deviation of sales values. This measures the dispersion or variability in sales within each category.

Compute the CV (coefficient of variation ):

• The coefficient of variation is calculated using the formula:

Standard Deviation Formula

• For a dataset with values $x<em>1, x</em>2, x<em>3, …, x</em>n$, the population standard deviation $σ$ and sample standard deviation s are calculated as follows:

Population Standard Deviation σ:

• $σ = \sqrt{\frac{\sum<em>{i=1}^{N} (x</em>i - μ)^2}{N}}$

• Where:

  • $N$ is the total number of data points.

    • $x_i$ is each individual value.

    • $μ$ is the population mean (average of all values).

Example of variance calculation

1. Calculate the Mean. (e.g values 3, 7, 8, 5, 12, 15, 18, 21, 24, 30, 25, 35, )=
   $Mean = \frac{\sum x}{n}$
   $=\frac{3+7+8+5+12+15+18+21+24+30+25+35}{12} = \frac{168}{12} = 14$

2. Calculate the Variance: Measures how spread out the values are around the mean. It is calculated as the average
   of the squared deviations from the mean.

3. The formula for variance (for a sample) is:
   $Variance = \frac{\sum(x - Mean)^2}{n-1}$

Then we calculate the coefficient of variation:

• CV

Analysis of Coefficient of Variation (CV) by Group

• Group X: Products: product1 and product8. CV Values: 7% and 9%. Interpretation: Low variability, stable sales.

• Group Y: Products: product3 and product10. CV Values: 23% and 14%. Interpretation: Moderate variability, periodic monitoring.

• Group Z: Products: product2, product4, product5, product6, product7, and product9. CV Values: 28% to 43%. Interpretation: High variability, frequent monitoring, flexible restocking.

ABC Analysis

• A tool for categorizing products based on their performance metrics.

• Helps businesses develop targeted marketing strategies, optimize resource allocation, and manage inventory.

• Enables businesses to focus their efforts where they will have the most significant impact on overall performance and profitability.

Qualitative and Quantitative Data

Qualitative Data

• Data that are not characterized by numeric values and instead are textual, visual, or oral.

• Focus is on stories, visual portrayals, meaningful characterizations, interpretations, and other expressive descriptions.

Quantitative Data

• Represent phenomena by assigning numeric values in an ordered and meaningful way.

Qualitative versus Quantitative Research

Example Hypothesis Testing

• A company launches a new ad campaign and believes it will increase its website’s conversion rate (the percentage of visitors who make a purchase) from 5% to 7%.

• To test if the new ad is effective, they compare conversion rates before and after the campaign.

Formulate Hypotheses

• Null Hypothesis (H₀): The conversion rate remains at 5% (the campaign has no effect).

• Alternative Hypothesis (H₁): The conversion rate increases to more than 5%.

Key Steps

• Collect Data: The company runs the campaign for a month, collecting data on conversion rates from a sample of website visitors.

• Choose a Significance Level (α): They select a significance level of 0.05 (meaning they’re okay with a 5% risk of concluding there’s an effect when there isn’t).

• Calculate the Test Statistic and p-value: Using statistical software or tests, they calculate a p-value based on the sample data to see if there’s a significant difference between the 5% rate and the new observed rate.

Analysis

• If the p-value is below 0.05, the company can reject the null hypothesis H0, and conclude the campaign likely increased the conversion rate.

• If the p-value is above 0.05, we accept the H0 there’s not enough evidence to support that the campaign made a significant difference.

• Testing perform: Use the SPSS statistics, R-statistics to perform Z-Test.

• Z-Test: Used for large sample sizes (usually n>30).

• T-Test: Used for smaller samples (n≤30).

Marketing Research

*Identify and Evaluate Market Opportunities.

*Plan and Implement Marketing Mix.

*Analyze Market Segments and Select Target Markets.

Research Focus

Pricing

• Involves finding the amount of monetary sacrifice that best represents the value customers perceive in a product after considering various market constraints

Distribution

• Involves the marketing channels that will physically “distribute” products from a producer to a consumer

• A marketing channel is a network of interdependent institutions that perform the logistics necessary for consumption to occur.

Promotion

• Is the communication function of the firm responsible for informing and persuading buyers.

Exploratory Research

• Conducted to clarify ambiguous situations or discover ideas that may be potential business opportunities.
  *Literature Review. Pilot Study. Case Study. Focus Groups. Expert Opinion. Observational Research. Open-ended Surveys.

*A Pilot Study in marketing is a small-scale preliminary study conducted to test the feasibility, time, cost, and possible outcomes of a full-scale research project. *

Descriptive research

• Describes characteristics of objects, people, groups, organizations, or environments.

• Descriptive research addresses who, what, when, where, why, and how questions.

Stages in the Research Process

*Defining research objectives.

*Planning a research design.

*Planning a sample.

*Collecting data.

*Analyzing data.

*Formulating conclusions and preparing a report.

Characteristics of Diversity We Use to Analyze Customers and Make Decisions

Marketing Research Process

*Problem Discovery and Definition.

*Defining Research Objectives.

*Research Design.

*Sampling.

Research Design

*The methods and procedures for collecting and analyzing the needed information for a given type of research.
Survey A research technique in which a sample is interviewed in some form or the behavior of respondents is observed and described in some way.

Requirements to Data

*Relevance.

*Quality.

*Data Value.

*Completeness.

*Timeliness.

Relevance

• Is the characteristic of data reflecting how pertinent these particular facts are to the situation at hand.

Information completeness

• Refers to having the right amount of information.

Data quality

• Reflects how accurately the gathered data actually match reality. High-quality data are valid and reliable

Timeliness

• Means the data are not so old that they are irrelevant. Generally, timeliness requires highly current data.

Three Critical Pieces of Causal Evidence

1. Temporal Sequence

2. Concomitant Variance

3. Nonspurious Association

Causal Research

Should do all of the following:

• Establish the appropriate causal order or sequence of events.

• Measure the concomitant variation (relationship) between the presumed cause and the presumed effect.

• Examine the possibility of spuriousness by considering the presence of alternative plausible causal factors

Absolute Causality

• The cause is necessary and sufficient to bring about the effect.
  *Conditional Causality refers to situations where one factor (the cause) is necessary for an effect to occur but, by itself, isn't enough to bring about that effect; additional conditions are required.

Even though oxygen is necessary for fire, it alone is not enough to cause it. You also need fuel and a heat source (like a match or lightning).

*Thus, oxygen is a necessary condition but not a sufficient condition for fire—other conditions must also be present. *

Social Variables of Buying Behavior

• Social roles.

*They adopt. A person may use a reference group as a point of comparison or a source of information. *

*A person may have many roles: mother, wife, student, executive. *

Reference groups

• Include families, professional groups, civic organizations, and other groups with whom buyers identify and whose values or attitudes.

*Social classes are determined by ranking people into higher or lower positions of respect. Criteria vary from one society to another. People within a particular social. *

*People within a particular social class may develop common patterns of behavior. *

Culture

• Is the integrated, accepted pattern of human behavior, including thought, speech, beliefs, actions, and artifacts culture determines what people wear and eat and where they live and travel understanding buying behavior.

Psychological Variables of Buying Behavior

• Perception.

*Motivation is an inner drive that directs a person’s behavior toward goals. A customer’s behavior is influenced by a set of motives rather than by a single motive. *

*Learning brings about changes in a person’s behavior based on information and experience. For instance, a smartphone app that provides digital news or magazine content could eliminate the need for print copies. *

*Personality refers to the organization of an individual’s distinguishing character traits, attitudes, or habits although marketing research on the relationship between personality and buying behavior has been inconclusive. *

Segmentation Process

• must be consistent with and derived from the firm’s mission and objectives, as well as its current situation (its strengths, weaknesses, opportunities, and threats (SWOT)).

Method for Segmenting Markets

Sample Segments for Segmentation:

*Continent: N. America, Asia, Europe, Africa.

*Within U.S.: Pacific, mountain, central, south, mid-Atlantic, northeast.

Demographic and Retirement Lifestyle Segmentation for the Financial Services Market

Lecture 9. Decisions in International Marketing

• Adapts marketing strategies to suit the unique characteristics and preferences of different countries or regions.
  *International Marketing considers factors such as cultural differences, local regulations, language barriers, and market trends. *

Globalization

Refer to: See video What Is Globalization. (piie.com) *

• The trend toward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe What are Eventsand trends that-affect global business? UAX.ES 90.

Global Organizations

That play a crucial role in international marketing:

World Trade Organization (WTO) -negotiations, enforces trade agreements, fair trade practices, reduce trade barriers.

International Trade Centre (ITC) -primary goal is to assist businesses in developing countries in becoming more competitive in global markets.

International Chamber of Commerce (ICC)-develops international business standards and guidelines, including those related to marketing and advertising practices.

Global Monetary

IMF ***International Monetary Fund

UN United Nations

World Bank

WTO Word Trade Organization

NATO North Atlantic Treaty Organization

Entering Foreign Market

*Thus, P&G decided to partner with the Hong Kong–based Hutchinson and Whampoa and a factory by the name of Guangzhou Soap Procter & Gamble brought its technological expertise in products to the factory, not only to assist in the production of Head & Shoulders but also to facilitate the R&D of other products for. *

the Asinn market: Grewal, Dhruv. Marketing / Dhruv Grewal, Michael Levy. p..cm includes index decision we make: International market entry modes and business strategies.

Market-Entry Strategies

Exporting: Internet, Exporter, Importer, Distributor, Direct Sales.

Contractual Agreements Licensing and Franchising.

Greater control and greater risk: Strategic alliances, Strategic alliances, Joint ventures and consortia.

Ownership Direct foreign investment.

Exporting

• Means producing goods in one country and selling them in another. requires the least financial risk but also allows for only a limited return to the exporting firm. faces little risk because it can demand payment before it ships the merchandise.*

Franchising

• Is a contractual agreement between a firm, the franchisor, and another firm or individual, the franchisee anther contract allows the franchisee to operate a business—a retail product or service firm or a B2 business format developed and supported by the franchisor.*

• Franchise*
  Franchiser
  Franchisee.

Licensing

*In the licensing mode of entry, companies sign contracts with foreign businesses, called