Marketing Strategy under Uncertainty

This business report refers to a company known as Burger Paradise which wishes to increase its market share but operates within an uncertain environment. In this endeavour it faces a number of variables some of which are beyond its control. The most important variable outside its scope of influence is market reception and profitability as a result of it.

The company thus choose to base its decision on management science techniques. It is then expected to utilise the decision analysis tools to arrive at the most strategic decision. This is aided by the development of a management science decision matrix that summarises the analysis done and unanimously recommends that Burger Paradise applies and sticks to an internet based marketing strategy since this offers it the most highest and probable payoff.

All calculations on each analysis criterion are elaborated upon at the appendixes section of this business report.

Introduction

The purpose of the report is to help Burger Paradise come up with a workable marketing strategy. The company is tasked with coming up with an effective and appropriate marketing strategy based on sound decision making principles. (Hamdy, 2011)  However, this is difficult in the face of information asymmetries about the market that it is faced with. (Adcock et. al., 2001)  More specifically, the company has no way of knowing the specific outcomes of its alternative marketing strategies i.e. the states of nature. (Browne, 2010) Nonetheless, the company has to make appropriate decisions under this air of uncertainty.

To correctly and accurately make this decision as best as possible with minimal risk based on available information the company must employ the use of the following criteria for making decisions under circumstances of uncertainty. These criteria are;

• The Maxi-max or optimistic criterion
• The Maxi-min or conservative criterion
• The Mini-max regret criterion
• The Laplace criterion otherwise known as the equally likely criterion
• The Hurwicz/Realism/Weighted Average criterion 

This report is therefore intended to help management make the right decisions as concerns marketing. The report is structured in a comprehensive yet simplistic manner. The main body is contained in the appropriate decision making criteria. Here, the report first begins with the criterion used, its suitability followed by its actual use to come up with a decision.

At the end of each criterion an appropriate decision is made. This will then guide management as he looks over all the criteria and finds the most repetitive decision or marketing strategy that can be applied. This will then fall into the recommendations and conclusions of the business report. 

The appropriate marketing decision making criteria

The management of Burger Paradise is faced with two main decision alternatives as concerns marketing strategy i.e. either use television for marketing (decision 1) or use internet marketing (decision 2). Given the two alternative decisions either of the following can occur; there can be a favourable market response (S1) to either of the strategies or an unfavourable market response (S2) to the same. (Charlesworth, 2009)

These possible responses to their market moves may be termed as states of nature. (Daniel et. al., 2000) They will most definitely impact on their outcomes of the year i.e. profitability thereby giving rise to a payoff matrix as will be shown below.

The conservative criterion (Maxi-min)

This criterion as the name suggests would be used by a conservative or prudence oriented manager. The decision to choose between alternative strategies is based on the maximizing the minimum possible profit level i.e. the payoff that is least in the payoff table is listed then a decision is made that in effect chooses the highest value of the minimum payoffs listed. (Paul, 1997)

Following the step as outlined the conservative criterion then it follows that D 1 holds the most appropriate strategy when following this criterion i.e. using television marketing to reach the market audience and thereby improve their market share. NB: Calculations for this section are found as part of the appendixes this report

It has the disadvantage of denying the business the chance of making higher profits than it would make using this method.

Mini-max regret approach

This criterion is a bit more complicated than the two that have been mentioned above. It requires the management to construct an opportunity loss sort of table or otherwise known as a table of regret. The values in this table are drawn up by taking the largest possible profit that can be achieved from a given state of nature and then subtracting from it the payoffs in that state of nature. (Michael, 2003)

A second process of recognizing the maximum possible regrets from the regret table is then undertaken. Finally, a decision is made based on the minimum level of regret that can be suffered as from the preceding step.

Based on the above steps as specified in this criterion we should then choose marketing decision strategy D 2 which is internet marketing. NB: Calculations for this section are found as part of the appendixes this report

The advantage of this method is that given whatever strategy that is chosen amongst the alternatives Burger Paradise will suffer the minimum level of loss (regret) that it can possibly face. The disadvantage of this criterion is that the company may be far removed from any possibility of profits over and above the one it receives using this strategy.

Equally likely or Laplace criterion

This is the last possible criterion Burger paradise will look at when finally deciding which decision to undertake.  This approach is based on finding the appropriate marketing strategy that will lead to the highest possible average payoff. (Jaakko et al., 2007)

As suggested when we introduced it, we must at first calculate the average payoff that may be obtained from each alternative strategy. From there, we ought then to pick the average payoff that has the highest value.

Since the maximum possible average payoff is 14 000 then decision marketing strategy D 2 is chosen i.e. marketing by use of the internet. NB: Calculations for this section are found as part of the appendixes this report

The main advantage of this criterion is that it is all inclusive but it suffers from high sensitivity to all possible outcomes which are in themselves subjective. As such outcomes which may be grossly exaggerated may serve to give decision suggestions far from the more appropriate and realistic decision. 

The Hurwicz or Realism Criterion

It has a variety of names depending on the author of the text you are reading from including the weighted average criterion. It is however fundamentally, the same concept and analytical technique. It is in essence a mix up of both the optimistic i.e. maxi-max criterion and the pessimistic otherwise known as maxi-min criterion.

Since the payoff for D 2 is higher than D 1 then D 2 is the better strategy. This means that the recommendation to the management of Burger Paradise is to opt for internet marketing as the most suitable marketing strategy.

NB: Calculations for this section are found as part of the appendixes this report

Conclusions

We can then make appropriate conclusions to our report by formulating a management science decision matrix that basically summaries the entire decision making analysis.

The management science decision matrix

This matrix can then be brought before management as the main decision influencing part of the report based on the sound analysis carried herein to arrive at it.

Recommendations

From the decision matrix as presented above it can be safely concluded that Internet marketing is the most appropriate marketing strategy that can be used by the Burger Paradise. It has been arrived at as the most appropriate marketing strategy by four out of the five management science decision making criteria.

It is this that the report recommends to the management of Burger Paradise based on the analysis that has been undertaken, that internet marketing is its most suitable form of marketing strategy since it will lead to higher payoffs than television marketing.