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MArketing research notes chapter19

MArketing research notes chapter19

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Published by Manoj Patel
this are the notes for marketing research - a subject for TYBMS, mumbai university.
this are the notes for marketing research - a subject for TYBMS, mumbai university.

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Published by: Manoj Patel on Mar 14, 2009
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© Copy Right: Rai University
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Friends, after reading this lesson, you should be able to:
Explain the concepts of model building and decision-making;
Discuss the need for model building in managerial research;
Relate the different types of models to different decision-making situations;
Describe the principles of designing models for differenttypes of managerial research/ decision-making situations.
Dear friends you are the future mangers, and for a manager,whichever type of organisation you works in, very often facessituations where he has to decide/ choose among two or morealternative courses of action. These are called decision-makingsituations.An example of such a situation would be the point of time whenyou possibly took the decision to joint this managementprogramme. Possibly, you had a number of alternativemanagement education programmes to choose from. Or, at worst,maybe you had admission in this programme only. Even in thatextreme type of situation you had a choice -whether to join theprogramme or not! You have, depending upon your own decision-making process, made the decision.The different types of managerial decisions have been categorizedin the following manner;1.Routine/ Repetitive/ Programmable vs.Nonroutine /Nonprogramable decisions.2.Operating vs. Strategic decisions.The routine/repetitive/programmable decisions are those whichcan be taken care of by the manager by resorting to standardoperating procedures (also called “sops” in managerial parlance).Such decisions the manager has to take fairly often and he/sheknows the information required to facilitate them. Usually thedecision maker has knowledge in the form of “this is what youdo” or “this is how you process” for such decision-makingsituations.Examples of these decisions could be processing a loan applicationin a financial institution and supplier selection by a materialsmanager in a manufacturing organization.The non-repetitive/non-programmable/strategic decisions arethose, which have a fairly long-term effect in an organisation.Their characteristics are such that no routine methods, in terms of standard operating procedures; can be developed for taking careof them.The element of subjectivity/judgment in such decision-makingis fairly high. Since the type of problem faced by the decisionmaker may vary considerably from one situation to another, theinformation needs and the processing required to arrive at thedecision may also be quite different.The decision-making process followed may consist, broadly, of some or all of the steps given below:1.Problem definition;2.Identifying objectives, criteria and goals;3.Generation/ Enumeration of alternative courses of action4.Evaluation of alternatives;5.Selection/ choosing the “best” alternative6.Implementation of the selected alternative.All the above steps are critical in decision-making situations.However, in the fourth and fifth steps; i.e., evaluation and selection,models play a fairly important role. In this lesson we will concentrateon Model Building and Decision-making.
Suppose you have recently bought a Sony Colour TV for yourhouse Describe briefly the decision process you have gone throughbefore making this choice.____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Models and Modelling
Many managerial decision-making situations in organizations arequite complex. So, managers often take recourse to models toarrive at decisions.
The dictionary meaning of the word model is “a representationof a thing”. It is also defined as the body of information about asystem gathered for the purpose of studying the system. It is alsostated as the specification of a set of variables and theirinterrelationships, designed to represent some real system orprocess in whole or in part.
Models can be understood in terms of their structure and purpose.. The purpose of modelling for managers is to help them indecision-making. The term ‘structure’ in models refers to therelationships of the different components of the model.In case of large, complex, and untried problem situations themanager is vary about taking decisions based on intuitions. Awrong decision can possibly land the organisation in dire straits.Here modelling comes in handy. It is possible for the manager tomodel the decision-making situation and try out the alternatives
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on it to enable him to select the “best” one. This can be comparedto non-destructive testing in case of manufacturing organisations.
Presentation of Models
There are different forms through which Models can be presented.They are as follows:1. Verbal or prose models.2. Graphical/ conceptual models.3. Mathematical models.4. Logical flow models.We let us discuss each model one by one -
Verbal Models
The verbal models use everyday English as the language of representation. An example of such model from the area of materials management would be as follows:“The price of materials is related to the quantum of purchases formany items. As the quantum, of purchases increases, the unitprocurement price exhibits a decrease in a step-wise fashion.However, beyond a particular price level no further discounts areavailable.”
Graphical Models
I think you can easily understand graphical model. The graphicalmodels are more specific than verbal models. They depict theinterrelationships between the different variables or parts of themodel in diagrammatic or picture form. They improve exposition,facilitate discussions and guide analysis. The development of mathematical models usually follows “graphical models.
Mathematical Models
The mathematical models describe the relationships between thevariables in terms of mathematical equations or inequalities. Mostof these include clearly the objectives, the uncertainties and thevariables. These models have the following advantages:1.They can be used for a wide variety of analysis.2.They can be translated into Computer Programs.The example of a mathematical model that is very often used bymaterials managers is the
Economic Order Quantity (EOQ)
. Itgives the optimal order quantity (Q) for a product in terms of itsannual demand (A), the ordering cost per order (Co), the inventorycarrying cost per unit (Ci) and the purchase cost per unit (Cp). Themodel equation is as follows:
Logical Flow Models
The logical flow models are a special class of diagrammatic models.Here, the model is expressed in form of symbols, which are usuallyused in computer programming and software development. Thesemodels are very useful for situations, which require multipledecision points and alternative paths. These models, once one isfamiliar with the symbols used, are fairly easy to follow. An exampleof such a model for a materials procurement situation withquantity discounts allowed, is as given in Figure 2.
A logical flow model material procurement decisions withquantitative discounts allowed.
Activity 2
Mention below a mathematical model, which has been used forsales forecasting by your organization, or any organization youknow of.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Activity 3
Think of a production decision situation and present itdiagrammatically using logical flow model.________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Role of Modelling in Research inManagerial Decision-Making
In the previous sections of this lesson, we have tried to explorethe topics of model building and decision-making. However, weconfined ourselves to bits and pieces of each concept and theirillustration in a comprehensive decision-making situation has notbeen attempted. In this section we will look at a managerialdecision-making situation in totality and try to understand thetype of modelling which may prove of use to the decision maker.The example we will consider here is the case of co-operative statelevel milk and milk products marketing federation. The federationhas a number of district level dairies affiliated to it, each havingcapacity to process raw milk and convert it into a number of milk products like cheese, butter, milk powders, ghee, shrikhand, etc.The diagrammatic model of the processes in this set up is depicted.The type of decisions which have to be made in such a set up canbe viewed as a combination of short/intermediate term and long-term ones.The short-term decisions are typically product-mix decisions likedeciding:1.Where to produce which product and2.When to produce it.
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The profitability of the organisation depends to a great extent onthe ability of the’ management to make these decisions optimally.The long term -decisions relate to1.the capacity creation decisions such as which type of newcapacity to create, when, and at which location(s) and (2)which new products to go in for.Needless to say, this is a rather complex decision-making situationand intuitive or experience based decisions may be way off fromthe optimal ones.Modelling of the decision-making process and theinterrelationships here can prove very useful.In absence of a large integrated model, a researcher could attemptto model different Subsystems in this set up. For instance “timeseries forecasting based models could prove useful for taking careof the milk procurement subsystem; for the product demandforecasting one could take recourse, again, to time series orregression based models; and for product-mix decisions one coulddevelop Linear Programming based models.We have in this section seen a real life, complex managerial decision-making situationand looked at the possible models the researchercould propose to improve the decision-making. Similar modelscould be built for other decision-making situations.
Types of Models
Models in managerial system studies have been classified in manyways. The dimensions in describing the models are:a.Physical vs. Mathematical,b.Macro vs. Micro,c.Static vs. Dynamicd.Analytical vs. Numerical ande.Deterministic vs. Stochastic.Now let us understand each one type and its utility –Physical Models - in physical models a scaled down replica of theactual system is very often created. Engineers and scientists usuallyuse these models. In managerial research one finds the utilisationof physical models in the realm of marketing in testing of alternative packaging concepts.Mathematical Models - The mathematical models use symbolicnotation and equations to represent a decision-making situation.The system attributes are represented by variables and the activitiesby mathematical functions that interrelate the variables. We haveearlier seen the economic order quantity model as an illustrationof such a model.Macro vs. Micro Models - The terms macro and micro in modellingare also referred to as aggregative and disaggregate respectively.The macro models present a holistic picture of a decision-makingsituation in terms of aggregates. The micro models include explicitrepresentations of the individual components of the system.Dynamic models vs Static Models - The consideration of time asan element in the model. Static models assume, the system to bein a balance state and show the values and relations for that only.Dynamic models, however, follow the changes over time thatresult from the system activities. Obviously, the dynamic modelsare more complex and more difficult to build than the staticmodels. At the same time, they are more powerful and moreuseful for most real life situations.Analytical Numerical Models - The analytical and the numericalmodels refer to the procedures used to solve mathematical models.Mathematical models that use analytical techniques (meaningdeductive reasoning) can be classified as analytical type models.Those which require a numerical computational technique can becalled numerical type mathematical models.Deterministic vs. Stochastic Models - The final way of classifyingmodels is into the, deterministic and the probabilistic/ stochasticones. The stochastic models explicitly take into consideration theuncertainty that is present in the decision-making process beingmodelled. We have seen this type of situation cropping up in thecase of the milk marketing federation decision-making. Thedemand for the products and the milk procurement, in thissituation are uncertain. When we explicitly build up theseuncertainties into our milk federation model then it getstransformed from a deterministic to, a stochastic/ probabilistictype of mode.
Activity 4
Give an example each of the following models used for decision-making.
a.Macro Model
b.Micro Model
c.Deterministic Model
d.Stochastic Model
Objectives of Modelling
The objectives or purposes which underlie the construction of models may vary from one decision-making situation to another.In one case it may be used for explanation purposes whereas inanother it may be used to arrive at the optimum course of action.The different purposes for which modelling is attempted can becategorised as follows:

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