Markov Chain

Analysis
Markov Process

• A Markov analysis looks at a sequence of events

and analyse the tendency of one event to be
followed by another. Using this analysis you can
generate a sequence of random but related
events which will look similar to the original
Markov Chain
• A Markov process is useful for analysing dependent random events
that is events whose likelihood depends on what happened last. It
would NOT be a good way to model a coin flip, for example since
every time you toss the coin it has no memory of what happened
before. The sequence of heads and tails are not inter related.
They are independent events.
• But many random event are affected by what happened before.
For example, Yesterday’s weather does not have an influence e on
what today’s weather is. They are not independent events.
 EXAMPLE
• Markov analysis in an industry with 3 firms
we would look at the market share of each
firm at any time and the shares have to add
Up to 100%. If we had information about
how customers might change from one to
the next then we could predict the future
market shares. This is just one example of
Markov Analysis. In general we use current
probabilities and transitional information to
figure future probabilities.
Application of Markov Chain

• Frequently used to describe consumer behaviour

• Used for forecasting long term market share in an oligopolistic
market
• Brand loyality and consumer behaviour in the same can analysed
• Usefull in prediction of brand switching and their effect on
individuals market share.
• Sales forecasting
 Advantages
• Markov models are relatively easy to drive ( or infer) from successional data.
• Does not require deep insight into the mechanism of dynamic change
• Can help to indicate areas where deep study would valuable and hence act as
both a guide and stimulator to further research.
• Transition matrix summarizes all the essential parameters of dynamic change.
• The results of the analysis are readily adaptable to graphical presentation
and hence easily understood by resource managers and decision makers.
• The computational requirements are modest and can easily be met by small
computers or for small numbers of state by simple calculators.
 Limitations
• Customers do not always buy product in certain intervels as they
donot buy the same amount of a certain product.
• Two or more brands may be brought at the same time.
• Customer always enter and leave markets and therefore markets
are never stable
• The transition probabilities may change according to the average
time between buying situations
• The time between different buying situations may be a function of
the last brand bought.
• The other areas of the marketing environment such as promotions
advertising, competition etc were not included in these models.