The Complexity of Strategic Marketing Decisions

As we have discussed earlier, our experience with a multitude of organizations suggests that simplified heuristics and satisficing frequently guides managers’ decision-making process. This is especially true when the decisions are complex and strategic, where the range of possibilities is large, and numerous variables and outcomes often interact with each other. We find that five characteristics define this simplified decision-making process for complex, strategic choices.

1. Organizational goals are often unclear and shift over time. As customer preferences evolve and industries adapt, old goals become incapable of providing a sustainable path forward, and create an imperative for organizations to modify their strategic objectives. For example, the evolution of technology has completely transformed the distribution system in many industries. Songs and movies are now downloadable almost instantly from anywhere. Customers can conduct banking transactions from the comfort of their homes. Up-to-the-minute news on the Internet is posing serious challenge to traditional media vehicles, such as newspapers and magazines. Under these circumstances, a number of players in incumbent industries have had to make serious changes to their goals pertaining to a number of strategic marketing domains, including pricing, content procurement, advertising, and distribution width. Even without technological advances, other factors, such as the entry of new competitors, variations in the health of the macroeconomy, regulation, and discrete shifts in customer preferences result in major revisions to organizational goals.
2. Cause-and-effect chains are seldom simple and linear. We find that when managers rely on their intuition to solve strategic problems they overwhelmingly assume simple, linear cause-and-effect relationships between upstream actions and downstream results. They tend to discount the effects of moderating factors that would attenuate or exacerbate the assumed outcomes. For example, when they contemplate a price reduction, managers automatically, and often correctly, anticipate an immediate increase in the market share of their products. However, they discount other relevant factors such as a price reduction by competitors, margin compressions in the industry, and quality signals sent by the price reduction. These and other moderating factors are almost always in play, but managers routinely ignore them and make strategic marketing decisions based on simple, linear, cause-and-effect mental models.
3. No two decisions are likely to have the same solution. Managers tend to minimize the stress associated with decision making, and find it easiest to dig into their own experiences when solving a problem. The application of heuristics then leads them to rely on analogies and similarities among situations to come up with old solutions to new problems. By doing so, they often minimize the search for alternate solutions, and the sufficient evaluation of these alternatives. While such a decision-making strategy is cognitively easier and less stressful, it is seldom optimal because it underplays the differences among situations while emphasizing their similarities.
4. A rational cookie-cutter approach to decision making does not likely exist in reality. Conflicting political interests, silo-focused local governance, precedence of personal interests over collective synergies, threatening environments, high uncertainty, and other external influences decrease the applicability of a standard cookie-cutter approach to decision making. While we tend to spend our time and energies on things within our control and the decisions we can affect, the impact of these decisions is not independent of all these external factors. Therefore, even similar decisions are articulated differently depending on the functional expertise of the decision maker, past experience with similar problems, individual incentives, and the amount of information available. As a result, the range of solutions for two decisions that could be solved with a cookie-cutter approach turns out to be dramatically different.
5. The speed of decision making is critical in today’s environment. More than ever before, the need to make effective decisions in short order of time is more important today than ever before. Customers have more choices and less patience, and many industries use technology effectively to get their offerings to customers at high speed. Customer dissatisfaction stories diffuse at lightning speed over the Internet and do not give management much time to respond. For example, airlines that do not engage in effective and quick service recovery after a much publicized public nightmare, such as passengers stranded on the tarmac for hours, can often face the wrath of the passengers as well as legislators. Toyota’s efforts to apologize and reassure car owners in the aftermath of its quality issues was again an attempt to placate the customers before it got too late. Organizations realize that they need to gather the relevant facts at high speed and incorporate as many of them as possible in order to respond in today’s fast-paced environment as quickly and as efficiently as possible. This is often a daunting task because the number of variables that can impact the observed symptom can be overwhelming, especially when an analytical and data-driven decision-making process is not in place.