Path Dependencies and the Long-term Effects of Routinized Marketing Decisions
The purpose of this paper is to discuss a simulation of marketing budgeting rules that is based on a simplified version of the market share attraction model. The budgeting rules are roughly equivalent to those that may be used in practice. The simulation illustrates the concept of path dependence in dynamic marketing systems and shows how it might result from decision rules potentially applied by marketers and retailers. Path dependence results from positive feedback in dynamic systems that imparts momentum to market choices. Where the potential for path dependence exists, there are implications for defining and measuring long-term effects of marketing decisions in a way that is meaningful to managers and researchers. In the simulations presented we show that limited retails assortment may contribute to path dependence when firms use either percentage-of-revenue rules or "market learning" experiments to set budgets. While other budgeting procedures (e.g., matching competition) may stabilize market share, this stability in the share dimension comes at the cost of instability for budgets and profits.
|Keywords||marketing decisions, path dependencies|
|JEL||Statistical Decision Theory; Operations Research (jel C44), Business Administration and Business Economics; Marketing; Accounting (jel M), Marketing (jel M31)|
|Publisher||Erasmus Research Institute of Management (ERIM)|
Farris, P.W, Verbeke, W.J.M.I, Dickson, P.M, & van Nierop, J.E.M. (2008). Path Dependencies and the Long-term Effects of Routinized Marketing Decisions (No. ERS-2008-035-MKT). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management (ERIM). Retrieved from http://hdl.handle.net/1765/12634