Agent Based Modeling for Marketing Strategies and Planning

Business competition is getting fierce and the consumer market more dynamic. It is very important for any industry to know, how the consumer is reacting to the changes they brought in terms of policies, products, budgets with respect to geographic, demographics market preferences, inorder to identify the Market Penetration, Market Share, Sales over a period of time etc.

To analyze the dynamics of the consumer market, it is very important to model and simulate the following six stages.

1.Life Events

Life events occurring in customer’s life sometimes force them to take purchase decisions which they have not thought about. It is important to analyze the rate at which the major events are occurring in customer’s life to identify possible market growth opportunities.
For Example: In case of Insurance industry, there are many reasons or events occurring in customer’s life such as new home, new job, moved to new place, divorce, marriage etc which force the consumer to go for new policy.

2.Customer Experience
Customer experience is very important factor in deciding future purchase by the customer. Depending upon whether the customer had GOOD or BAD experience previously, they decide whether to go for shopping with same company or not.
For Example: In case of Insurance industry, Bad/Good claim experience, rate increase, poor service experience, poor service by agent, dropping by the insurer, etc these all have a cumulative effect on the customer’s mind that decide whether to buy the insurance from previous carrier or chose the new carrier.

3.Personal Motivation
As the market is dynamic, there are many providers for the same products customer wants to use/ buy. Hence, customer is always looking for GOOD DEALS that he can buy, that meets his/her need better, which provide value to the investment, that meets his financial needs, the deals with which he/she is satisfied. Hence, the customer has got no specific traits. The business intelligence is needed to extract this information through surveys and classify them as “Personal Motivation” of customer for purchase.
For Example: The customer will go through all above stages mentioned and then will decide whether to buy that particular policy or search for a BETTER DEAL that meets his/her requirements.

4.Marketing Efforts
Every organization spends millions of dollars on advertising, just to make sure that there are reaching their customers through different channels that customer prefer. Surveys are conducted and the information is used for deciding future advertising strategies. It is important to analyze how the customer react to ads, what impressions do they have about the company and how likely are they to be biased towards that company after seeing the ad.
For Example: In case of Insurance industry, there are many insurance providers and there is a tough competition. All of them spend millions of dollars on advertising. If someone wants to know how likely the customer will buy the products from particular insurance provider, then one must take into account the marketing efforts and its interpretation by the customer.

5.Consumer Activity
Consumers have their own views about the company from which they purchased products previously based upon their experience. With this, they tend to evaluate products provided by different companies, compare prices for better deal, recommend product to their neighbors, friends, relatives, co-workers etc. This makes the consumer market even more dynamic to analyze. One must take the Consumer Activity into account if he wants to analyze the final market share.
For Example: In case of Insurance industry, consumers have their own experiences with previous or current insurance provider. Due to this they are likely to evaluate products by other companies, compare prices, ask their friend about their opinions, recommend somebody for the insurance etc. These all things make the Insurance market very dynamic and complex. To analyze the market share of Insurance providers, Consumer Activity is a very important factor.

6.Selling Process
There are Agents / distributors who sell products for the company. They have their own methods of working and their selling effectiveness affects the final decision made by consumer whether to buy the product or not. The factors such as Price Attractiveness, Product Appeal etc also affect the final decision by consumer. Hence, while analyzing the dynamics of consumer market, Selling Process is another important factor that has to be considered.
For Example: In case of Insurance industry, Agents effectiveness is very important that affects the consumers final decision whether to by the insurance or not. Hence, sometimes, customers just shop and they leave without buying the products or they get defected by other Company Agents.

“Agent based Modeling” helps to analyze all above six factors affecting the consumer market. It helps to analyze the possible growth opportunities, the areas of improvement. It provides an insight into “Emerging Behavior” of overall market. Generally, the data required for this modeling and simulation is obtained through various surveys. Finally, the model helps to identify the Market Penetration, Market Share, Sales over a period of time etc.

The “Agent Based Modeling” is widely used in business/various industries to analyze the emerging behavior of the market and develop-operate the strategies for grab more market share.

Google Inc Vs Yahoo Inc - Strategies : Summary of Case Studies

Yahoo Inc:

Yahoo, an internet portal, operates search, directory and programming services for navigating the increasingly complex environment of the world wide web. Like many internet-related firms, Yahoo makes all its money from advertising revenues. Yahoo’s major competition comes from other search engine firms such as Google. Yahoo’s service philosophy is to minimize the amount of time that users must spend at its site. As a service provider, the firm Yahoo believes that before the new product is released to the outside world, it needs to be more robust than the typical internet software beta. The market risk of broad, public testing is too high; users who try a new service once and have a poor experience with it are unlikely to return. Further it is assumed that once a new service is released, innovative features will be copied by competing firms like Google. These factors made Yahoo to adapt delayed development cycle compared to other competitors as Google.

So, Yahoo’s development/ service process is based upon “slow” release of softwares to users as a new product becomes progressively more robust. Apart from helping to quickly scale services in response to demand fluctuations, the Yahoo setup also has benefit in more effective experimentation. With such a setup, Yahoo also has the flexibility to tailor the customers that first try a new service. Yahoo has high risk of experimentation and external testing as compared to Google.

The competition between Yahoo and Google is Smart Player Vs Smart player.

What makes the game between these two players is

1. Source of turbulence :Customers , Internet users, Competitors, Technology
2. Flexibility required in product/service development

• Time to complete the projects
• Response time relevant to text and context is small

3. Sequential product development

• Concept –design – prepare- produce
• Experimentation is required

Google Inc:

Google started as a small search company over the web, went adding new features for its users and has evolved into the world's no.1 search engine. It is now on the verge of scaling even more heights with its email service. When Google entered the online search market, Yahoo was the market leader. In a short span of time, Google has become the best search engine by eating into the market share of Yahoo and other players. Since its inception, Google has been successful in giving its competitors a run for their money. Its innovative strategy to generate revenue by placing advertisements on sites which contain information related to those ads has indeed made Google highly profitable. Google's popularity among Internet surfers was mainly because of its superior search technology. Having improved its reputation as the most reliable and useful search engine, Google surprised everyone by announcing the launch of Gmail, its email service, with a massive storage space of 1GB and was quite successful in attracting users of Yahoo and Hotmail.

One of the special features is the speed at which Gmail works. Through Gmail, users can enjoy a faster and more efficient service. A Gmail user need not store the messages in separate folders as all the mails corresponded are grouped into a conversation. This kind of feature is not provided by Yahoo.

Google even came up with search technology for Wireless Application Protocol (WAP) enabled phones and other handheld devices. Google pioneered the concept of Ad Words and Ad Sense, and thus created a sensation in the field of online advertising.

The innovation is major strength, in case of Google. The smart strategies they played right from the start have wondered Yahoo. Apart from searching information and answering queries, Google has been offering various features for its users. Recently, it has partnered with world's top most universities like Harvard, Oxford and some others to digitize their libraries. It has acquired Keyhole Corporation - a map service provider, for Geographical Information System (GIS) applications.

Revenue Model Yahoo Vs Google:

The difference between Google and Yahoo is the revenue factor. Yahoo gets its revenue from Yahoo mail, ads, and some other features where as Google gets almost 85% of its revenue from ads. Google’s technological innovations and focus on user-friendliness to its popularity. Google’s unique business model has made it one of the rare dotcoms to earn profits. While most search engine companies spent a lot of money on marketing to build their brands, Google, focused solely on building a 'better' search engine.

Opportunities for Google are more as compared Yahoo:

Google has been generating enough revenue from its Ad Words, Ad Sense and Gmail service. Its IPO has been successful. Recent reports suggest that Google wants to increase the storage space in Gmail from 2GB to 10GB. Once this happens, its competitors like Yahoo will be left in a quandary, diminishing their power in the market. They are already struggling to keep pace with the fast and vast Gmail. In the years to come, Google can expand its business horizon by developing its own operating system, thus challenging Microsoft's top position in the global software market.

Challenges for Both Yahoo and Google:

Although, Google may seem invincible, it has some challenges ahead. In recent studies, Google topped the "Customer Experience Rankings" list of search engines followed by Yahoo, MSN. Since then, both Yahoo and MSN have brought significant changes in their operations. Yahoo and MSN both made significant gains in several key areas, largely closing the perception gap with Google. So, Google needs to work towards offering better features than its competitors so as not to lose loyal search users to the competitors Yahoo and MSN Search. The storage space of 10GB in Gmail is a definitely a cause of concern for competitors. Nevertheless, Google has to check out if it is technically feasible before promising the same to the users. Even if it is feasible, there is no guarantee that this service will not be charged in the coming years once Google realizes that the users are totally hooked to Gmail and they have no place to go.

Conclusion: Yahoo’s Orientation

As the world is getting more competitive every day, no company can rest assured of its success. Every company, whether it is big or small, has to put continuous efforts to come up with innovative business ideas in-order to achieve the ultimate objective of being profitable. So is the case with Google. Analysts predicted in 2003, that Google would soon compete with Yahoo for the top slot in the online destination turned out to be true. Google came up with many other features on its search engine, many innovative ideas like Blogs, Ad Words, and video search. In-order to move up the ladder, Google has to strike the right chord. What is it that will elevate Google's status further? What's more in the offering from Google? These are the major questions that Yahoo has to look for and they have to orient in the same direction if it wants to be at the top. Yahoo needs to be more innovative, flexible/fast to capture/retain the market.

References:

• http://www.icmr.icfai.org/casestudies/Google1.htm
• http://www.icmr.icfai.org/casestudies/catalogue/Business%20Strategy1/BSTR064.htm
• Living on Internet Time: Product Development at Netscape, Yahoo, NetDynamics, and Microsoft, Harvard Business School Case Study

The optimal size of the Corporate Center

An interesting short article for the topic of this forum can be found in the HBR of April 2005 on the added value of corporate headquarters. Michael Goold and David Young have investigated whether lean headquarters perform better, as many people think.
Surprisingly, they found that there is no evidence that a lean and mean headquarters is associated with superior financial performance.
Because corporate centers add value in different ways, depending on a firm's strategy and the businesses in which it competes, the appropriate size and nture of staff functions are bound to differ, too.
The bottom line is: There is no standard or ideal model or size for a succesful headquarters and the Corporate Center should simply reflect the chosen corporate strategy.

Bestselling Corporate Strategy Books

Blue and Red Ocean S.

W. Chan Kim and Renée Mauborgne in HBR of Oct 2004 don't deny that competition matters. But they do say that by focusing on competition and "competitive advantage" markets have become crowded and bloody and are looking like 'Red Oceans' as Kim and Mauborgne call them. Indeed they have a point if they claim that scholars, companies, and consultants have somewhat over-focused on 'competitive edge' and in doing so ignored 'Blue Ocean strategy':

"So why the dramatic imbalance in favor of red oceans? Part of the explanation is that CS is heavily influenced by its roots in military S. The very language of S. is deeply imbued with military references—chief executive “officers” in “headquarters,” “troops” on the “front lines.” Described this way, S. is all about red ocean competition. It is about confronting an opponent and driving him off a battlefield of limited territory. Blue ocean S, by contrast, is about doing business where there is no competitor. It is about creating new land, not dividing up existing land. Focusing on the red ocean therefore means accepting the key constraining factors of war—limited terrain and the need to beat an enemy to succeed".

Unfortunately the authors do not give much specific tools on how we can create and develop such Blue Oceans. We'll have to wait for their forthcoming book. If you don't want to wait you can find such tools plus a further review of the article here: Blue Ocean S.

Core Value Proposition

In the most recent HBR (Augusts 2004), George Day makes a case for determining a growth S. based on your company's value proposition. "To craft a winning growth S, you must first firmly identify your company’s value proposition—including its capabilities, assets, and cultural DNA. What is your company really good at? Do you best compete on price, on integrated solutions, or on innovation? Based on your true value proposition, you should select the S. that imbues this proposition with meaning and direction. Growth will naturally follow". Day recommends:
- Price-value leaders grow best by extending their low-cost value proposition to adjacent markets.
- Relational players can look for latent customer needs that they can solve well.
- Performance-value leaders grow best through continuous innovation—think. These companies should exploit emerging and converging technologies.
To achieve superior profitability, you need to beat your competition in at least one of these value arenas and equal them in the other two.
Remarkably Mr. Day not even mentions the book "The Discipline of Market Leaders" from Treacy and Wiersema (1994).

CS versus BS

On this management quotes site I noticed this intersting lamentation from Prahalad and Hamel: "How many senior executives discuss the crucial distinction between competitive S. at the level of a business and competitive S. at the level of an entire company?" I wonder how many of you CS professionals share this same frustration? What is your top workaround?