M o de l s a nd M an a g e r s :

T he C o n c e p t o f a De c i s i o n C a l c u l us

4 0 3- 6 9

J o hn D C L i t t 1 e
. .
' _

S l o a n S c h oo l o f Ma na g eme nt
M I . . T .

Cambr id ge , M as s . 02 1 3 9

J une 1 9 6 9

"
P ap e r p r epa re d f o r d e liv e ry a t the sympos i um : B e ha vi or al a n d
"
Ma n a gemen t S c i en c e i n M ar ke t i n g s pons ore d by t he T I M S C o l l e g e
o f Mark e t in g , and t h e G r adua t e S ch oo l o f B us i nes s o f t he U nive r s i ty
o f Ch i cago , Unive r i s t y o f Ch i c a g o , J u n e 2 9 - J ul y 1 , 1 9 6 9
 AB S T RAC T

A manage r t r ie s to pu t t oge the r the va r iou s re s o ur c e s unde r h is

con t ro l in to an ac t ivi ty t ha t a ch i eves h i s ob j ec t ive s . A mode l of hi s

Op era t ion c an as s i s t h im b u t p rob ab ly w i l l no t unle s s i t me e t s c e r ta in

re q ui remen t s . A mode l t ha t i s to b e u s e d b y a manage r s hould b e s i mp l e ,

rob us t ,
e as y to con t ro l , adap t i v e , as comp l e t e as pos s ib le , and e asy t o

communi c a t e w i t h . By s imp le i s mean t eas y to unde r s t and ; by rob us t , h a rd

to g e t ab s u rd answer s f rom ; by eas y to co n t ro l , t ha t th e us er know s wh a t

i np u t da t a woul d b e re q u i re d to p ro duce de s i re d ou tp u t answe rs ; adap t i v e

means t ha t the mo de l can b e adj us t ed as new in f o rma t i on i s acqui red ;

comp l e tene s s imp l i es tha t i mpor t an t ph enomena wi l l b e in c lude d eve n i f

the y r equ i re j udgmen t a l e s t ima t e s of th e i r e f f e c t ; and , f i na l l y , ea s y t o

c ommun i ca t e w i t h means tha t the manage r c an q ui ckl y and e a s i ly change

inpu t s an d ob t ai n an d unde r s tand the ou t pu t s .

S uch a mo de l cons i s t s of a set of nume r i c a l p ro ce dure s for

p ro ces s ing da ta an d j udgmen t s to as s i s t manag e r i a l de c i s i on making and

so w i l l b e ca l l e d a de c i s ion ca l cu lus . An examp le , AD BU D G I I i s des c r i b e d.

Th is i s an o u l ine mode l for us e b y p r odu c t man age rs on adve r t is in g

b udg e t ing q ue s t ions . The mod e l i s cur ren t ly in t r ia l us e b y t h re e

p ro du c t manag e r s .
1 . I n t ro duc t ion

The b i g p r o b lem w i t h manag emen t s c i en ce mode l s i s th a t

p r ac t i c a l ly nob ody us e s t hem . Th i s is e s p e c i al ly t rue in m a rke t ing .

The re hav e b een a f ew app l i ca t i ons , of c ours e , b u t the p rac t i ce i s a

p a l l i d p i c t ur e o f t h e p rom i s e .

The i n cen t ive s f o r s uc ce s s f ul imp lemen ta t ion are g re a t . J ohn

F . K e nne d y ha s b ee n quo t e d as s ay i ng
"
The re a l i s s ue t o d ay is th e manag em en t of indu s t r i a l
s o c i e ty

F ew who re a d the news p a pe r s can d i s ag re e . Ma rke t i ng i s o f par t i c u la r

in t ere s t , no t only b ec a us e o f i t s k ey and s ome t imes c on t rov e rs i al ro le

in the s o c i e ty , b u t a l s o b e c a us e f undame n t a l know ledge he re ha s

ap p l i ca t io n b e yond b us i ne s s i n to t he ma rke t i ng - l ike ac t iv i t i e s o f

gov ernme n t s , u n i ve r s i t ie s , ho s p i t a l s , and o th er o rgani za t ions .

A l th ough t h ere are many f a c e t s to s u cc es s f u l i mp l emen t at ion ,

th e one t o b e tak en up he re i s th e me e t i ng be tween ma nag er and mode l .

I b e l i eve tha t commun i c a t ion ac ro s s th i s in t e r f a c e i s a lm o s t n il an d

tha t t h i s f ac t s tands a s a maj or i mp e d imen t to s uc ce s s f u l us e of

ma rke t ing mod e l s . F ur t he rm o re I wan t to s ugge s t tha t t h e requ i rem e n t s

o f th e i n t er f a c e have s t rong i m p l i ca t i ons for t he de s ign o f th e mode l

i t self .

The pap e r i s o rg an i z ed unde r the f o l low ing h eading s : (1 )

I n t roduc t i on (2 )
'
Wha t s wr ong ! (3) H ow d o manage rs us e mo de l s !

( 4 ) Wha t mi gh t b e r i gh t ! ( 5 ) An examp l e : AD BU DG II (6 ) Wh a t a b ou t

s c i en c e ! and ( 7 ) D i s cu s s i on .
 The e xam p l e t o b e d i s cus s e d c ome s f rom marke t ing ,
in f ac t

adve r t i s i ng , b u t mos t o f t he is s ue s a p p e ar t o be ge ne ra l t o t he

manag e r- m ode l i n te r f ac e . C ons eq uen t l y , a t the r i s k o f s ome t ime s

b e ing r a the r ab s t r a c t , th e d i s cus s i on w i l l b e k ep t g ene ra l .

" " " "

The te rms manage r and de c i s i on w i l l b e us ed f reque nt l y .

"
L et i t b e not ed now t ha t a manage r i s f req uen t l y a f uz ! y , s hi f t i n g

" H
mi x o f p e op l e and a de c i s i on i s us ua l ly a murky even t , iden t i f i ab le

only i n re t ro s p e c t .

2 .
'
Wh a t s Wron g !

S ome o f th e rea s ons t ha t marke t ing mo d e l s ar e no t u s e d mor e

w i d e l y a pp e ar to b e :

( 1 ) Go o d m o de l s a r e h a rd t o f i n d . C onv i nc i ng mode ls t h a t

in c l ude th e '
company s co n t ro l v ar i ab l e s an d so con t a i n di r e c t imp l i ca t i ons

f o r a c t ion a re re la t i v e l y d i f f i cu l t t o b ui l d . S ome p ro gre s s , h owe ve r ,

i s c e r t ai n l y b e i ng ma d e .

( 2 ) G ood par ame t e r i za t i on i s even ha rde r . M eas ur eme n t s and

d a t a are ne e de d . Th e y r e qu i re h i gh qua l i ty p e 0 p 1 e a t the de s i gn s tag e

and a re o f t en e xp en s i v e to c ar ry ou t .

re j e c t wha t they do no t u nde rs t an d . Th e manage r c a r r i e s re s pons i b i l i t y

f o r out co m e s . We s hould no t b e s ur p r i s e d i f h e p re f e r s a s im p l e ana l ys i s

th a t he can g ras p , even though i t may h ave a q ua l i t a t i ve s t ruc t ure ,

b r oad a s s ump t io n s , and on l y a l i t t l e re levan t d at a , t o a c omp l ex m ode l

whos e as s ump t i on s m ay b e pa r t i al l y h i dde n or c ouch ed i n j ar gon and

wh os e pa rame t er s may b e the re s u l t of ob s c ure s t a t i s t i ca l ma ni pul a t i on s .

 Typ ic a l ly th e m an a g e r i s w i l l i ng and e age r to a c c e p t f law le s s

wo rk tha t de l i ve r s t h e fu t u re t o h im w i t h c e r t a i n ty . U n f o r t un a t e l y

as h e di g s in t o any s t u dy p e r f o rme d b y h uman r es e ar ch e r s in an o rd ina ry

OR g ro u p , h e f i n d s a s s ump t i o ns t h a t s eem q ue s t i onab l e , conf us i ng

t e rmin o l ogy , a nd a c e r t a i n t e nden cy t o i gnor e a v ar i e ty o f q ua l i t a t iv e

i s su es th e m anag e r f ee l s a r e imp or t an t . Th e m ana g e r f e e l s t ha t t o

g e t d e e p i n t o th e m ode l and f i n d o u t wha t i s re a l ly go in g o n i s

t o t al l y o u t o f t h e q ue s t i on b e caus e h e l acks th e b a c k g round . Th e

s o l u t io n t o t h i s p r ed i cam e n t i s o f t en f o r h im t o p i c k on s ome s e e min g

f l aw in th e mode l , u s ua l l y a c ons i de r a t i o n le f t ou t , and make th a t

t h e ba s i s f o r po s t po ning us e in to t h e i nde f i n i t e f u t u re .

I n th i s s i t ua t i on the op e r a t i ons '

r e s ea rc h e r s re s po ns e is o f t en

t o co nc lu de tha t h i s m o d e l i s no t c omp l e t e e no u gh . The re f o r e h e go e s

b ack t o wor k t o mak e th in g s mor e comp l i c a t ed and p r ob ab l y h a rde r t o

u nde r s ta n d . M e anwh i l e th e m anage r c on t i n u e s t o u s e in tu i t i ve m od e l s

t ha t are mu ch s imp l e r th an the one re j e c t ed .

I mi gh t p oi n t out the pro f e s s i ona l OR / m a na g em e nt s c i en c e

f ra te rn i ty a ls o e s ca l a t e s t he mod e l b u i l de r i n t o comp l e xi ty . A f avo r i te

"
pas t im e i n the t r ad e i s t o t e l l a mode l buil d er
,
Yo u le f t s uch and s uc h

"
out .

(4 ) M os t mod e l s a r e i nc omp le t e . H av ing j us t de c r i ed comp l e x i ty

as a b a r t o u n d e rs t and ing , I now de c ry i nc omp l e t ene s s . Th i s m e ans tha t

I h O pe we c a n i nv e n t s imp l e m ode l s tha t h ave t he ca pac i ty t o i nc l ude

q u i t e a f ew ph e nomen a .
 I n comp le t ene s s i s a s e r i ous dang e r i f a m o d e l i s us e d f o r

op t imi z a t i o n . O p t imi z a t ion may d ri v e con t ro l var i ab l es t o a b s urd

va lu e s i f c r i t i ca l phe nomena a re om i t t ed . O ne p opu la r answe r t o t h i s

prob l em i s no t to O p t im i z e . S ome t imes t h i s i s t he r i ght t h ing t o do

we s hou l d s ay o u t l oud t he mode l p r ov i de s on l y par t O f the de c i s ion

m aki n g i n f o rm a t i o n and tha t the re s t mus t come f rom e l s ewh e r e .

Howev e r , in mo s t cas e s we wa n t to b e ab le to eva lua t e an d c omp a r e .

Th i s i s em b r yoni c O p t i mi z a t i on a nd inc omp l e t ene s s c an b e a p i t f a l l .

Th e a b ove l i s t of O b s t ac l e s o f imp lemen t a t io n c ou ld be e x t ended

b u t s h ou l d s u f f i c e to ward O f f comp l ac ency .

3 . Ho w do mana g e r s us e mo de l s !

H e re i s an imp re s s i on , a lb e i t a ne c d o t al , o f h ow manag e rs ac t u al l y

us e m ode ls .

Th e OR G ro up o f a m aj or O il com p a ny re cen t l y d i d a s u rv e y on

the us e o f ma th ema t i ca l p rog ramm ing i n p ro du c t i on s ch e du l i ng a t t he i r

re f i ne r i es . R e f i ne r ing s ch edu l i ng was a p ionee r app l i ca t ion o f

ma t hema t i ca l p rogr amm i ng and h as b een an ac t ive re s e ar ch are a f o r

1 0 1 5 ye a r s . At one re f i n e ry t he d i a log b e tween the i n t e rviewe r

and the lo c a l OR a na l y s t w e nt
\ s omewh a t as f o l l ows :

"
I n te rv iewer : DO yo u make regu la r ma th ema t i ca l p r og ramming

runs f o r s ch e d ul i ng th e re f ine ry !"

" "
A na ly s t : Oh ye s .

I n te rv iewer : "
DO imp lemen t th e re s ul t s !"
you

" "
Analy s t : On no !
 I n t e rvi e we r : "
We l l , th a t s eem s O dd . If you
'
don t imp le m e n t

"
t he r e s ul t s , pe rhap s y o u s houl d s t o p mak ing the runs !

An al y s t :
"
No . NO . We
'
wo ul dn t wan t t o do t h a t ! "

" "
I n t e rv iewer : Why no t !

"
Ana l y s t : We l l , wha t happ ens i s s ome th i ng l i ke th i s : I mak e

s eve ra l comp u t e r runs a nd take th em to the p l an t manage r . He is

re s pon s i b le f or thi s who l e mul t i m i l l i on do l l ar - '

p l umbe r s p a r a d i s e .
"

"
The p l an t man ag e r lo oks a t th e runs , t h i nks ab ou t

t hem f o r a whi le and then s en d s me ba ck to make mo re . I do th i s a nd b r in g

t hem in . He looks a t th em and p r ob ab ly s ends me b ack t o make mo re r u ns .

"
Th i s p ro c e s s con t i nues un t i l , f i na l l y , t h e p lan t

"
manage r s cr ews up enough c ou rage t o m a ke a de c i s ion .

Nex t l e t m e re c oun t s om e exp e r i en ce s w i th p eop le u s in g M E D I AC [2]

a m e d i a p la nn i n g m od e l d eve l op e d by L en L od ish and mys e l f . Th e f i r s t

s t e p in us in g t h e mo de l i s p rep a ri ng th e inpu t d at a . Th i s r e q u i r e s a

f a i r am oun t o f re f l e c t io n on the p rob lem a t hand , a c e r t a in amoun t of

d i gg ing out numb er s , and us ual ly s ome sub j e c t ive e s t ima t e s o f s ev e r a l

quan t i t i es . The re a f te r , t he mo de l i s run and a s ch edu l e i s gene ra te d .

The us e r looks a t th e s ch edule and imme di at e ly s t ar t s t o c on s id e r

whe the r i t m a k e s s e n s e t o h i m o r no t . I s i t ab ou t wh at h e exp ec t ed !

S ome t ime s i t is an d , i f s o , us ual l y t h at i s t ha t . O f t en t ime s ,

howev e r ,

t he s che dule doe s no t qu i t e ag r e e wi t h h i s i n t u i t i on . I t may eve n d i f f e r

s ub s t an t i a l ly . The n h e wan t s to know wh y . A p ro ce s s s t a r t s o f f i nd ing

o ut wh a t i t wa s abo ut the inpu t s t ha t made the o u t p u t s come ou t as t h ey

d id . Th i s us ua l ly can b e d i s c ove re d w i th out t oo mu ch d i f f i cu l ty by a

comb ina t i on of i ns pe c t ion , c ons ide ra t i on O f h ow th e mo de l works , and

var i ous s ens i t iv i ty ana ly s e s .

H av ing done th i s , th e us e r de c i de s whe th e r he i s wi l l i ng to go

al ong wi t h re s ul t s as th ey came o ut . If no t , he c a n, f or examp l e ,

change the p rob l em f o rmu la t ion i n var i ou s way s or po s s ib ly chang e

h i s s ubj e c t ive e s t ima t es . S ome t ime s h e f inds ou t r i gh t er r o rs i n the

i npu t da t a . M os t of the t ime , how ever , i f he ha s b een care f u l i n h is

da t a p re p ara t io n , he wi l l ag re e wi th t he re as ons fo r the answe rs c om in g

o ut as they d i d and h e has , in f ac t , l earne d s ome th ing new ab ou t hi s

p rob lem . The who le p r o c es s mi gh t b e de s c r ib ed as an up da t ing Of hi s

in t ui t i on . The mod e l ha s s e rv ed th e f un c t i on of in te rre l a t i ng a numb e r

O f fa c t ors an d , i n th i s c as e , no t a l l th e imp l i ca t i ons O f the i n t e r

re la t ion s we r e ev i d en t to h im whe n he s t ar t ed .

N o t i ce , i nc i d en t a l ly , t ha t he ha s by no me ans t u rn ed ove r h i s

de c i s ion ma k in g to t he compu t e r . He rema in s the b o s s and demands

" "
exp lana t ions f r om h i s s ub o rd i na t e .

I b e li eve the s ame ty p e Of p r o ce s s i s go ing on wi th t he p lan t

manage r i n th e e ar l ie r ex amp le . I s ee the whol e ana ly s is - educ at ion

de c i s ion p ro ce s s as a m a n+ m o d e 1 - ma ch ine i n t e rac t i on in wh i ch the man

doe s no t l o se re s pon s ib i l i t y or c on t ro l and in s t ea d O f unde rs t anding

le s s unde r s t and s mo re .

S u ch an in t e ra c t i on s h ou l d ,
I b e l i eve , b e th e go a l for muc h Of

o ur no rmat ive mode l b u i ld ing .

 Wh ereve r Ob j e c t ive ac cur acy i s at t a inab l e ,
I f ee l c on f i den t

tha t the v as t maj o r i t y Of manage r s wi l l s e i z e i t eag e r ly . Wh e re i t is

no t ,
wh i ch is mo s t O f the t ime , th e v iew h e re i s t ha t t he manage r

s h ou l d b e l ef t in con t ro l . Thus , t he g oa l O f pa rame t er i z a t ion i s to

rep re s ent the op er a t i on as the manage r s e es i t . I ra th er su sp ec t tha t

i f the ma nage r canno t cont ro l the mode l h e wi l l no t use i t fo r f e ar

i t wi l l coe r c e him in t o ac t i ons he doe s no t b el i eve i n . H oweve r ,

I

d o no t exp e c t t he manag e r to ab us e t he c a pab i l i ty b e cau s e he i s

h ones t ly looking for h e lp .

(4 ) Ad p a t i v e . Th e mod e l sh ou l d b e c ap ab l e O f b e ing up da t e d

a s new inf o rma t i on b e come s ava i l ab l e . Thi s i s e s pe c i al ly t rue Of t he

p ar ame te r s b u t to s ome ex t en t O f s t r u c t ur e too .

(5) C om p le te on im p o r tan t i s s ue s . C omp l e t enes s i s in conf l i c t

w i t h s imp l i ci ty . S t ruc tur e s mus t b e f ound tha t ca n hand le many phenomena

wi t hou t bogg in g down . An impo r t an t a i d to comp l e t ene s s i s the inc o r p o r

a t ion O f s ubj e c t ive j udgmen t s . P eop l e h a ve a way O f making b e t t er

de c i s ion s t han th ei r d a t a s eem to war r an t . I t i s c lear t ha t they are

ab l e to p r o ce s s a var i e ty O f inpu t s and come up wi th agg re g a t e j udgme n t s

abou t th em . SO , if you
' '
can t l i c k em , j o in '
em . S ub j e c t iv e es t imat e s

wi l l b e v a luab l e f or quan t i t i es tha t are d i f f i cu l t to me a s ure or whi ch

c anno t b e me a s ure d i n the t ime ava i l ab le b e f or e a d e c i s i on mus t b e mad e .

O ne pr ob lem po s ed by th e us e O f s ubj ec t ive inpu t s i s tha t t h ey

p ers on a l i z e th e mod e l to t he ind iv i dua l or group t ha t makes the j udgmen t s .

Th i s makes the mode l ,

a t le a s t s up er f i c i a l ly , more f r ag i l e and l e s s to

b e t r us t e d by O t her s than ,
s ay a t o t a l ly emp i r i ca l mod e l . H oweve r ,
the
 10

mode l w i t h s ubj ec t i ve e s t ima t e s may Of ten b e a good de al t oughe r

b e caus e i t i s mo re com p l e t e and c on fo rm s mor e rea l i s t i c a l l y t o t he

wo r l d .

(6) E as y to commun i ca t e w i th . Th e manag e r sh oul d b e ab l e to

change i np u t s eas i ly and ob t a i n ou t pu t s qui c kly . O u- l ine , co nve rs at i on al

I /O and t ime - s hare d com p u t i ng ma k e th i s po s s ib l e .

E ve ry ef f or t shou l d b e mad e to exp re s s i np ut re ques t s i n

Op er a t i on al t e rm s . The in t erna l pa rame t er i z a t ion of t he mod e l c an b e

any t h i ng , b u t the r eque s t s to the use r for da t a s hou ld b e i n h i s

l anguage . Thus , co ef f i c i en t s and cons t an t s w i thou t c le ar O p era t iona l

i n te rp re t a t i on are t o b e d i s courage d . Let t hem b e in f er re d by t he

c omp u t er f rom inpu t s tha t a re eas i e r for the us e r to work w i t h .

Ou- l i ne sy s t ems c ome t hrough as b e ing ve ry e f f e c t i ve i n b r i ng ing

th e mode l t o the manag e r . S ome wr i t e r s have b e l i t t le d the impo r t anc e

O f th i s . They argue tha t de c i s i on s made onc e a ye ar or eve n once a

mon th har d l y re qu i re s ys t em s tha t de l ive r th e answe rs i n t en s e cond s .

Any one wh o ha s us ed a co nve r s a t i ona l s y s t em p e r c e ive s t ha t t h i s

argumen t m i s s es t he p o in t . P ra c t i ca l ly no de c i s io n i s made on a s ing le

run O f a m o de l . A p e r s on d eve l ops h i s under s tand in g of a p rob lem and

i t s s o l u t i on as h e works on it . The c r i t i c al t ime is no t t ha t Of the

de c i s ion d e ad l i ne bu t of t he nex t s t ep in th e '

us e r s t hi nki ng p ro c e s s .

P e rhap s equa l ly as imp or t an t as t he Op e r at i ona l c onven i ence of

c onve r s a t i ona l p rog rams i s t he i r c on t r ibu t i on to l earn ing . G ood o n- l i ne

-
mode ls are s e l f i ns t ru c t ing and in t rodu c e a pe r s on to t he i s s ue s of the

p r ob l e m an d th e m o d e l mu ch f as t e r than wou ld O the rwi s e be po s s i b l e .

 11

A us e r can rap i d ly ge t a f e e l f o r how the m ode l wo rks t hro u g h p e rs o n a l

us e . Th i s i s i n s harp c o n t ras t t o b a t ch p ro c e s s i ng wi t h i t s l ong t ime

l ag s and im po s i ng t r ib a l r i tua l s o f punc he d car ds , s y s t em s pr og ramme rs

an d com p ut er ope ra t o r s .

I n s umma ry , w e a re l earn ing t e chn i ques o f mo d e l d e s i gn an d

imp l eme n ta t i o n th a t b r ing the m o d e l t o t h e m a na ge r and ma ke i t more a

pa r t o f h im . We a r e c al l i ng s u ch a mo d e l a de c i s i on ca l c u lus .

5 . An Examp le : AD BUDG II

An o n- l i n e ma rke t ing-mix m od e l f o r u s e by pr odu c t mana g e r s i s

curre n t ly b e i ng de vel op ed .

The p rodu c t ma n ag e r is a n i d ea l cus t om er f o r a de c i s i o n ca l c ulus .

He ha s s ub s t a nt i a l r es po n s ib i l i t y f or th e wh o l e mar ke t in g - m ix o f con t r o l

var i ab l e s . He i s b us y and w i l l no t us e a mo d e l u n l es s i t doe s s ome th ing

f o r h im . He i s a t e as e mak ing j udgme n t s a n d , b e i ng a s in g l e pe r s on

ac coun t ab l e f or re s u l t s , he c an g a t her i npu t s a nd make j ud gm en t s

w i t hou t the e lab o rat e coor d i na t i on re qu i r e d in mo s t co m p lex de c i s io n

p ro ces s es .

Th e wo rk i s b e i ng d on e i n c o ope ra t i on w i th th re e d i f f e re n t

produc t m anage r s a t two di f f e r en t c ompan i e s . The va r i e ty i n compan ie s

and manage rs i s he lp f u l f o r g e t t ing pe rs pe c t ive on the man- m ode l

i n t e r f ac e an d i n keep ing th e m od e l s t ruc t ure gene ra l .

T he de v e l opmen t i s b e i ng don e i n evo lu t i onary s t ep s . F i rs t a

ve ry s i m p l e a d ve r t i s i ng b udge t ing mode l wa s b r ough t up an d us e d t o

d emons t r a t e conc e p ts . Thi s was ca l l ed AD BUDG . The n a s omewh a t m o re

c omp l e x mo d e l f o r adve r t i s in g budge t i ng , o ne wi th s uf f i c i e n t de t a i l t o

 13

max

share

mi n

p re s en t +
50%
adve r t i s ing

Fi
gure l . A smoo th curv e o f s hare vs . adve r t i s i ng i s
p u t th rough t w o p o i n t s an d t wo as ymp t o t es .

The c u rve pre s en t l y u s e d i s

s ha re mi n ( max -m in ) - jg!2 (l )
Y
6 (a d v)

Th e co ns t an t s 6 and y a re un i que ly de t e rmi ned b y th e i npu t da t a .

E qua t ion ( 1 ) rep r es en t s a re s t r i c t ed s e t O f r e s p ons e re l a t i ons .

A c t ua l l y I am wi l l i ng to us e any th ing . Th e curve co u ld go d own or

up o r l oop t he l o op f o r a l l I c are . I t s hou ld b e ch ange d when and i f

a p roduc t manag e r wan t s i t chang ed . M eanwh i l e , he can g iv e f our

numbe rs ,
ea ch of wh i c h ha s O p era t i ona l mean ing to h im and wh i ch t oge th e r

wi l l s p e c i f y a curve . I f he g ives re a s onab l e numbe r s , t he c u rve wi l l

g ive b ack r eas onab l e answe rs . F ur the rmo re , f our numbe r s are ab ou t a t

the l imi t Of our ab i l i ty to par ame t er i ze s a le s res p ons e tod ay .

I c l a im t he re l a t i ons h ip is robus t . S upp o s e we d o a two leve l

s pe nd i ng t es t an d r un a reg r es s ion tha t i s l i near in adve r t i s i n g i n

o rde r t o e s t im a t e re s pons e . Th is migh t make r eas onab le s ta t i s t i ca l

 14

s en s e bu t b y i t se l f wou ld hav e ab s u rd no rm a t i ve im p l i c a t i o n s ( adv e r t i s

i ng a 0 or 0 H owe ve r , i f w e u s e the re g r e s s i o n re sul t s t o e s t ima te

th e +
50 % p o in t an d choos e a re a s o n ab l e max a n d m in we c an e x p e c t

r e a s o nab le ans w e rs . T hi s is no t s om e th ing tha t c an b e pr o ved in ge ne r al ,

b u t w i t h a s p e c i f i c ma n a g e r a nd p rod u c t i t can b e e s t ab li sh ed by

s ens i t ivi t y an a l y s is .

I n c id e n t al l y , th e s k e t c h in Fi g u r e 1 s h ows an S - sh a p e d c urv e .

Th is i s no t r eq ui r ed b y If y 1 , t h e curv e w i l l b e S - s hap e d ,

fo r 0 Y s l , a co n c av e f unc t i o n . The p a r t i cu l a r Y wi l l de pen d on

th e i npu t d a t a .

Th e mo d e l ab ov e i s e s s e n t i a l ly t he one us e d i n t he o r i g i na l

ADBUDG . A m a j or l ac k i n t he mode l i s t he cons i d e ra t ion o f t im e e f fe c t s .

To co n s i de r t he se w e a s s ume :

1 . I n th e ab se n ce o f adv e r t i s ing , s h are wi l l de ca y a con s t an t

pe r c e n t a g e i n e a ch t im e p er i od , i . e . d e cay is e x po nen t i a l .

2 . T hi s de cay d e t e rm ine s min i n any t im e pe r i o d .

3 . ( m a x-min ) s t ay s co ns t an t w i t h t i m e .

Let de ca y d eno t e the d e cay cons t an t . Unde r the ab ove as s ump t i ons

de c ay m i n/ c u r r e n t sh ar e

min ( t ) a
d e c ay s hare ( t - l )
Y

(2)
6

Thi s i s a s im p l e dyn am i c m ode l . I t i s un de rs t andab le and i t b e h ave s

r ea s onab ly . I t c an b e f ur th e r ge ne ra l i z e d b y p e rmi t t i ng s ome o f t h e

co ns t an t s t o c ha n ge w i t h t i m e , b u t t h a t do e s n o t s eem d es i rab l e a t t he mome

 15

Bu t no w wha t is me a n t by a dve r t i s i ng ! Do l l a r s ! Ex p o s u r e s !

A p r o du c t manag er wo rr ie s abo u t s p end in g l e ve ls , med ia , and co py .

L e t us c o n s t ru c t two t ime vary in g q uan t i t ie s :

l . A m e d i a ef f i c ienc y i n d e x .

2 . A c o py e f fe c t iv e ne s s i nde x .

Bo t h w il l b e as s umed t o hav e re f e r e nc e va lu es o f W e now h y p o t h es i ! e

t ha t t he de l iv e r ed adv e r t i s ing , i . e . the a dv ( t ) th a t goe s i n t o t h e

r e s pons e f u nc t i o n is g ive n by

adv ( t ) me d ia ef fc y (t) co py ef fc t (t) d o lla rs (t )

The med i a e f f i c ien c y a nd co py ef fe c t iv enes s i nd i c e s c an b e d e t e rmined

s ub j e c t ive l y , bu t mu c h b e t t e r al t e r n at i v e s exi s t . Co p y t es t ing is

he l p f ul and med i a da t a o n co s t , e x p o s u re s b y ma rke t s e gm e n t , an d re la t ive

v alue o f ma rke t s egmen t s can b e u s ed t o d e v e l op a me d i a i nd ex .

So f a r w e hav e in c lu d ed : adve r t i s in g r e s po n s e , m e d i a ef f i c i en c y ,

co p y e f f e c t i v ene ss , a nd share d ynam i c s . C ons id e r ne x t p roduc t c lass

sal es . Th e y may res p o nd t o adve r t is i ng an d h ave dyn ami c s . Th e t re a t me n t

in t he mo d e l is e s s en t i al l y th e s ame a s t h a t f o r s h a re an d s o we omi t

t he de t ai l s .

A va r i e ty o f o t her f a c t o r s a f f e c t b r a nd s ha r e and s al e s and

th ere f o re ind ire c t l y o r d i r e c t l y a dve r t i s i ng b udg e t s . S ome of t hes e

f a c t o rs are : s ales t r end s in th e p r o d uc t c las s , s eas o na l i ty , p r omo t i o ns ,

co mp e t i t i o n , d is t r ibu t i o n ch ang e s , p r i c e , p r o du c t ch a ng e s , and p a c ka g e

ch ang es . Any o r al l of t h es e i t em s m ay a f f e c t t he p r o d uc t ma '

nag er s

t h inkin g a bo u t ad v er t is i ng .
 17

Th e c omp o s i t e i nde x o f no n- adve r t i s ing e f f e c t s is s imp l y the

p rod uc t o f t h e n umb e r s i n e a ch co l umn .

T o s umm ari ! e th e m o d e l :

1 . S ha re

s ha r e ( t ) no n a d v
r
effe ct ind ex (t) r aw s hare ( t )
Y

r aw s ha re ( t ) d e cay r aw s h a re ( t - l ) ( m a x- m i n )
a

a dv ( t ) me d ia e f fcy (t ) c opy e f fc t (t) ad v d o l la r s (t)

2 . B ra n d Sal e s

b r a nd sa l es ( t ) a p ro du c t c l a s s r e f e r e nc e s a l e s p roduc t c la s s

s a l es i nd e x ( t ) s h a re ( t )

3 . P ro f i t s

con t r ib u t i o n t o p r o f i t af t e r adv ( t ) cont r ib u t i on pe r s a l e s

uni t ( t ) b r and sa les ( t ) ad v d o ll a r s ( t )

Th e u n i t s s i tua t ion has no t b een de ve l op ed i n d e t a il and w e h av e

omi t t ed th e e f f e c t o f b rand a d ve r t i s i n g on p roduc t c l a s s s a l es , but

o t he rwi s e the ab ove r e p re s e n t s t h e cur re n t s ta t us of AD B UDG II .

C o nve r s a t i o na l I /O . We h ave s ai d t ha t t he mod e l s houl d b e

ea s y t o us e . I t m us t b e eas y t o pu t da t a i n t o th e c om pu t e r . ea sy t o

f ind out wh a t i s i n the re , e as y t o change i t , eas y t o m ake ou t p u t runs ,

e as y t o s ea r ch ove r con t ro l v a r i ab l es and make s ens i t iv i ty an al y s e s .

Cl e ri ca l e r ro r s s h ou l d b e q u i ck l y co r re c t ab l e . The me ch an i c a l op e r a t i ng

de t ail s sh oul d re qu i r e a s l i t t l e t ra i n ing a s po s s i b l e .

 18

Th e b es t way t o sh ow h ow we are app r oach ing t he s e i s sue s i s

b y d em o ns t r a t i o n . Sh or t o f t h a t we can p rov i de an ex amp le . Ta b l e 2

" "
s how s i np u t da t a f o r G roovy a s t r ugg l ing b r and i n the t re a c le mar k e t

T ab l e 3 s how s t he t rac e of the d a t a inp u t q u e s t io n s u s ed t o g enera t e

Tab l e 2 . T a b l e 4 s hows an ou t p ut run .

A f ew e x p l a na t o ry no t es on the inp u t da t a O f T ab le 2 :

1 . The ad v e r t i s ing r e s p ons e p arame t ers a re d e duc e d f rom t he

re f e r en c e c as e da t a . P e r i o ds A and B are two con s ec u t iv e p e r i o d s ,

p o s s ib l y hypo t he t i c a l b u t i n a ny ca s e de f ine d by t h e u s e r . Th e da t a

for A an d B u ni q ue ly de t e rmi ne the s a l es re s pon s e and de c ay co ns t an t s .

See al s o th e q u e s t i on s i n Tab l e 3 .

2 . I n th i s e x amp l e b rand adve r t i s ing i s as s ume d t o h ave no

a p p re c i ab l e e f fe c t on p roduc t c la s s s a l e s .

" " " "

3 . T he l e t t e r M i s us ed t o d eno t e m i l l i on s .

Th e t ra ce o f i np u t i n T ab l e 3 i s r e as onab l y s elf - e x p lana t o ry .

A f ew no t e s on t h e out pu t of T ab l e 4 a r e :

l . SL OP E i s a n a id to s e a r ch ing ove r b ran d ad ve r t i s in g . It

i s in t ende d t o ans we r th e q ue s t i o n th a t a us e r i s mos t l i k e l y t o ask :

Wh i ch way shoul d I ch ang e a d ve r t i s i ng to inc re as e p r o f i t ! Bu t w e mus t

as k : Wha t p ro f i t ! P ro f i t i n th a t p e r i od or ,
s i nc e s a le s cha ng es p ers is t

int o t h e f u t ure , p ro f i t ove r s ever al p e r i o ds ! We h ave ch o s e n t o a nt i c i p a t e

" "
the answe r t o b e c um u l at i ve con t r i bu t i on a f t e r ad v e r t i s i ng in t he las t

p e r i o d o f th e c a l c ul a t i on . Bu t wh i ch adve r t i s i ng ! We e x p e c t th e q ue s t ion

m i g h t b e aske d ab out a dv e r t i s i ng i n any pe r i od . Thus we c a l c u l a t e

S L OP E ( t ) th e change in cumu l a t ion con t r i b u t i o n a f te r a d ve r t i s in

in l as t p e r i o d p e r uni t ch ange in adv do l lar s ( t )
 19

I GR O O V Y - 6 9 /

B R AN D N A M E : GR O O V Y
N NO O P ER I O D S : 4 0 0 0 0

P ER L E N GT H : Q U A R T E R
D
O .

b FI R S T P ER : I S T 6 9 o

M
U AR E A : U S
R EF ER ENC E CA S E B RAN D
7 P ER A SHAR E ( 2 O F
. UN I TS) :

8 P ER . A A DV 0 4 8 6
9 P ER . 8 MI N SHA R E :
10 P ER . B M AX SHAR E :
P ER . B WI T H 50 % ADV :
12 L ON G R UN MI N SHAR E : . 000
14 M ED I A EFFCY :
1 5 CO P Y E F F E C T :
1 6 SA L E S UN I T : H O G S H EA D S
1 7 CO N T R I B U T I O N 0 680
18 BRAN D P R I C E
O TH ER BR AN D DA TA
19 S T AR T I N G S H AR E :
R E F ER E N C E C A S E P RO D CL A S S .

2 1 P RO D
. CL A S S N AM E : T R EA C L E
2 2 P ER . A CL A S S S AL E S 2 9 0M
2 9 CLA S S P R I C E
TIME VA R I A T I O N S
ER I O D
P 2 3
30 CL A S S SAL E S I N D EX :
0 943 . 9 59
3 1 NON
AD V E F F E C T I N D EX :

32 M ED I A EFFCY :

33 CO P Y E F F E C T :

34 CO N T R I B U T I O N
0 680 . 680 0 68 0 0 680
3 5 BRAN D P R I CE
1 0 8 12
36 CL A S S PRI CE

3 7 BRAN D ADV ( DO L o / P ER O J X
. 4 8 6M . 6 D 6M . 8 7 6M . 4 14M

Tab le 2 . S ummary o f inpu t da t a f o r G roovy b r and .

I t has b een s t o re d i n a f i l e named / G ROOV Y

 O TH ER B R A ND D A T A 21

M AR K E T SH A R E AT S TAR T OF P ER I O D 1:

P R O D U C T CL A S S D A T A FOR R E F E R E N C E CA S E T a o CO N S E C UT I V E T I M E .

P ER I O D S . A I B V I T H S E A S O N AL I T Y . T R E N D A N D O T H E R N O N -A D V
E F F E C T S R EH D V E D .

N AM E OF P R O D UC T CLA S S : < 1 R EA C L E
P R O D UC T C L A S S S AL E S RAT E 1N P ER I O D A

C O N S I D E R R E SP O N S E To P RO DU C T CL A S S AD V 7 , NO .

A V ER A GE PR I CE FOR P R O DU C T CL A S S < DO L L A R S / S AL E S UN I T ) :

T I M E VA R Y I N G DA T A I F T I M E VA R I A T I O N N O T S P E C I F I ED :
.

R E F E R E N C E D A T A H I L L B E C O P I E D I N TO AL L P E R I O D S .

PR O D U C T CL A S S SAL E S RAT E HAS S EA S O NAL O R O T H E R N O N 'A D V

T I M E EF F E C T ( YE S :

I ND EX O F P R O D UC T C L A S S SA L E S ( R E F E R EN C E CA S E3 1 9 0 0 ) FO R P ER I OD :
I : 0 9 4 3

2 3 1 0 0 12
3 3 .0 0 6 5 .

4 : 0 9 59

B RA N D S H A R E HAS A N O N -AD V T I M E E F F E C T TY E S S

I ND EX O F N O N -A D V EF F E C T S ( R E F ER E N C E C A S E -n . 00 ) FO R P ER I O D
1: ,
I . O T
2 :
:
3 3 I '
I .

0
03
0
5
4 3 10 0

M E D I A E F F I C I E N C Y VA R I E S 2 KN O

C O P Y E F F I C I E N C Y VAR I E S 2 N0

C O N T R I B U T I O N V A R I E S 1N O

A V ER A G E BRA N D PR I CE VA R I ES 7 \ NO

A V ER A G E P R I C E FO R P RO DU C T VA R I E S 7 NO

B RAN D AD V R AT E VA R I ES YE S

B R AN D ADV ( D O L L A R S / UN I T ) I N P ER I O D
I :
/ 4 8 6 000 \
 22

I O U TP U T FO R GR O O V Y
2 E R I O D L EN G T H :
P Q UA R T E R
3 S T A R T I N G P ER I O D : I S T 6 9
4 A R EA : US
5 S A L E S UN I T : H O G SH EAD S
6 D A T A F R O M F I L E : I GR O O V Y 6 9 / P

8 P ER I O D 2 3 4
9 M AR K E T S HA R E :
( 2 O F UN I T S )
I O P RO D CL A S S
. 2 7 3M 2 9 3M 309M 2 7 8M
S A L E S ( UN I T S / P E R )
1 1 P R O D . CL A S S $ 14M 5 52 M SB I N 52 3 M
S A L E S ( DO L / P E R )
1 2 B R A N D SA L E S S . O9 M 5 . 7 6M 6 . 3 1M 5 . 59M
( U N I T S / P ER )
1 3 B R A N D SAL E S 9 . 22M I O . AN 1 1. 4M 10 . 1M
( DO L / P ER )
14 CO N T R I B U T I O N 3 . 46M 3 . 9 1M A. 2 9H 3 . B OM
( DOL / P ER )
I S B R AN D AD V . 4 8 6M . 6 C 6M . S T 6M . 4 14 M
( D O L / P ER )
16 CO N T . AF T ER 2 . 9 7M B. 3 I M 3 . 4 1M 3 . 3 9M
A D V ( DO L / P ER )
I 7 C UM U L A T I V E 2 . 9 7M 6 . 2 8M 9 . 7 0M 13 . 1M
CO N T A F T E R A D V
.

2 -
3 S LO P E 0 2 4 1 0 3 79

2 4 B RAN D D E CAY . 048

CO N S T A N T
26 B R AN D A D V .

EX P O N E N T
2 7 B R AN D D E N .

CO N S T A N T

Tab l e 4 . O u tpu t G roovy b rand f o r

fo r
th e i npu t s hown i n Tab le 2 .
 a u v c o c u a c
5 0 v c
, l4 v a n a c L U
, a n J . c t c u uc .

2 . A S EARCH O p t i on i s ava i l ab le t ha t pe rmi t s the au t oma t i c

c a l c u l a t i on o f th e ou t pu t f o r a s e que nce o f va l ue s of any p ar ame t e r

in the m od e l .

3 . I t i s po s s ib le t o pr i nt s e l e c t ed l i ne s on ly of the ou t p u t .

A pp l y ing th e mode l .

O ne m i gh t t h i nk tha t way s t o app ly the mode l woul d b e Obvi ous .

No t re a l ly . Th e mod e l h as t o b e wo rk ed i n t o t h e s y s t em . The r e a re

a numbe r O f way s i n wh i ch t h i s c an an d sh ou l d b e d on e . I sha l l

de s c rib e one wh i ch we hav e j us t b een t h ro u gh : The mode l wa s u s e d t o

as s i s t i n the q ua r t e rl y rev iew of a b rand p l an .

The us ua l pa t te rn o f O pe ra t i ons wi th a con s ume r p rodu c t is to

c ons t ruc t a br and $156} Th i s i s d on e on ce a ye ar . The b ran

d p l an

l a y s ou t th e who le marke t ing p rog ram in c ons i de rab l e de t a i l . H owe v e r ,

as the y ea r p rog re s s e s and var i ous p a r t s O f the pr og ram a re ca rr i e d

o ut , cha ng e s g e t m ade : .
new Op po r t un i t i es ar i s e , a c t ua l r e s u l t s c ome in

and a re no t q u i t e as expe c t ed , and ge ner a l ly a va ri e ty of un fo rs ee n

c i r c ums t an ce s o c c u r . C ons eque n t l y , a se rie s of rev iew and rep l anning

po i nt s are s ch e d ul e d , us u a l l y qua r t e r l y . Th i s does no t p re c lu d e

ac t i ons a t o t he r t ime s ,
wh i c h i n f a c t t a k e p l ac e , b u t i t do e s a t l eas t

s ch e du l e t i m e s i n wh i ch chang e s a re de f i n i t e ly cons i de r e d o r , i f a l r e a dy

m ad e , a re co n s o l id a t ed i n a revi s ed f o re c a s t of re s u l t s .

"
O ur go als i n app ly ing t he mo d e l we re to s t ar t f r om a b ra nd

"
p lan v i ew o f th e ma rke t , mod i fy i t t o a c comoda t e th e new in f o rma t i on

con t ained i n y ear- t o - da te r e s u l t s , the n eval ua te new s t ra t eg i e s and

re p re d i c t f u t ure o ut come s . He re i s wha t we d i d :

 S t ep 2 . U p da t in g th e mo de l on t he b as i s of y ear - t o - da t e res u l t s .

O ur ana l y s is was done a f t e r th e f i rs t qua r t e r da t a we re i n . Two

p ri nc i pal eve nt s had o c cur re d . Fi r s t of a l l , s a l e s wer e Of f f rom

the i r f or e cas t va lue . S e c ond , med i a e xp endi t ur e s h ad b een lowe r than

o ri g i na l l y p l anned . The f i rs t que s t ion to b e as ke d was wh e the r t h e

lower s a le s co u ld b e a t t r ib u t ed to the d e c re as e d med i a e xp end i t ure s .

Th er e f ore , we ran the mo de l w i t h t he new f i r s t '

quar t e r s adve r t i s in g

l eve l . A cc o rd ing t o the mode l , th e change woul d ac coun t fo r s ome b u t no t

a l l O f t he s a l e s di f fe re nces . The ques t i on th en aro s e wh e th e r t h e

adve r t is in g h ad a g re a t e r e f f e c t on s al es t h an we o ri g i nal ly tho ugh t

or wh e the r s ome o th e r f a c t o r s were caus i ng s a le s to be Of f . The p ro d uc t

'
manag e r s op i n i on was tha t o t he r f ac t o rs we re p rob a b ly r e s pon s i b l e .

The ne x t q ue s t ion was wh e t he r t he f ac t o rs wo ul d con t i nue to O p e ra t e an d

he f e l t tha t th e re wa s no re as on to b e l ie ve o the rw i s e .

C ons eq uen t l y w e adj us t ed the no n- adve r t i s i ng e f f e c t s i n d e x t o

ac c oun t fo r t he l os s in s al es Ob s e rved i n the f i r s t q ua r t e r and no t

o th e rw i s e a t t r i b u t ed to the adve r t i s i ng de c re as e . Th e s ame i nde x

was the n c on t inue d th r ough th e ye ar .

At th i s po in t i t was p os s i b le to re run t he b rand p l an w i th the

new p arame t e rs . I t pu t f o r th a r a t he r p es s imi s t i c vi ew of the ye a r .

S t ep 3 . E va l ua t i on O f new s t ra t e g i es . I n th e me an t im e , a numb e r

O f new s t r a t eg ie s had b e e n p ropo s e d . F i rs t of all , b e c aus e of th e l owe r

s al es i n the f i rs t q ua r t e r and the imp l ie d p oo re r p ro f i t p os i t i on , the

adve r t i s i ng l eve ls for the r e s t O f th e ye a r h ad b een re du ce d . S e c ond l y , ch

pa c kag e and p r i ce change und e r c ons ide ra t i on was de c i de d upon and

s ch ed ul ed to be g i n in th e th i r d q ua r t er . I n s up p or t of tha t , t h e t rade
 26

p romo t i o n was change d f rom the s e cond qua r te r to the th i rd q ua r t e r .

F i na l l y , m o re re s ul t s we r e ava i l ab l e on the c opy t es t and a s u f f i c i e n t

d i f f e r enc e had shown u p b e twe e n the two a reas tha t i t was p l anne d

to imp l em e n t t he be t t e r one na t iona l ly i n th e f our t h quar te r . An

e s t ima te o f the e f f e c t O f the new C opy on the copy i nd ex was made us ing

the re s u l t s o f the t es t .

Al l the s e chang es we r e made t o th e i npu t . F ur t he rmore a rough

b rand p lan f o r the fo l l owi ng ye a r was p u t i n t o th e analy s is . The n

th e new p lan wa s run . Th i s s ugg e s t ed th e re wou ld b e a s ub s t an t ia l

i mp roveme n t i n s a l es an d p ro f i t comp a re d t o the p rev i ous c as e . It

a ls o s h owe d t h a t c e r t ai n r e a l l oc a t i ons of adve r t i s i ng S pe n d ing du r i ng

th e ye a r and ce r t ain change s i n the b udg e t mi gh t we l l b e war ra n te d .

Th e s e ch ange s we re imp l e me n t e d .

S t ep 4 . P re d i c t i ons O f F u t ure R e s u l t s . A f te r t he ab ove run s

we re m a de a f ew f u r th e r adj us tmen t s to s t ra t egy were de c i d e d up on .

Th us the wh o l e p lan was run agai n . Th i s run th en be came p ar t o f th e

q uar t e r ly review .

The a b ove a pp l i ca t i on i l lus t ra t es the gene ra l way we e x pe c t the

mode l t o e n t e r i n t o t h e p ro duc t '

manag e r s O p er a t i on .

Th e d i s cus s i on s o f a r s e ems t o h ave i gno red the t radi t i ona l

goa l s and c r i t e r i a o f s c i enc e . We have pa ss ed ove r i s s ue s l ik e :

H ow doe s t he wo r l d re a l ly wo rk ! Wh a t i s the b e s t way t o des c r i b e the

wor l d i n a mod e l ! H ow ac c u ra t e i s a g ive n mode l ! H ow d o we mea su re

ac c ura cy !
 27

Cl e a r ly the s e a re impor t an t i s s ue s ,
a l th ough t he re i s an

ex t r eme an d f a i r ly t ena b le pos i t i on tha t s ay s we c an ga in v a l ue f rom

mod e l s , even i f th e y do no t co n t a in rea l wo r l d me as u remen t s . The

a rgume n t i s t ha t a quan t i t a t ive mo de l c an b e us ed as a q ua li t a t ive

dev i c e t o a i d q ua l i t a t ive th in ki ng . I n th i s r o l e the r e i s no ne ed fo r

a one - t o - one c o rre s pond e nce b e twe en rea l wo r ld quan t i t i e s and quan t i t i e s

i n the mode l . M o ran f o r e x amp l e , m ake s t h is p o in t .

H owev e r , th a t i s no t th e i n t en t i on he re . We a s p i re tha t th e

mod e l rep re s en t th e wo r l d we l l . H oweve r , t he s t and ard O f c omp a r i s on

w i l l no t b e pe r f e c t i on b ut r a t he r wh a t the manage r has avai lab le to

h im now . I f y ou l ook a t h i s p re s en t s i t ua t i on y ou f i nd t ha t h e ha s

p r a c t i ca l ly no p re d i c t i v e m ode l s b ey on d s imp le ext rapo la t ion o f the p as t ,

s o t ha t c om p l ex mo d e l s an d de ta i l ed f i de l i ty a re no t ye t req u i red .

I n th i s co nn ec t i on le t me exp res s s ome d i s c om f o r t wi t h t h e

" "
c ur r e n t ly pop u l a r ph ras e mo de l va l i d a t i on . V a l i d i ty means t ru th .

Yo u '
don t have t o va l id a t e you r mode l on my ac coun t I know i t i s f a ls e .

Th e r ea l i s s ue i s us ual l y ac c urac y and the p ro ce s s mi gh t b e t te r b e

ca l l ed eva l ua t io n .

M os t Of t he mode ls we a re p ropos ing h ere t end , a t le as t in i t i a l ly ,

t o b e ove r p a ram e t e r i z e d wi th re s pe c t to the ava i l ab l e d a t a . Tha t is ,

we ten d t o put i n mo re phe nome na t h an we know h ow t o m eas ure , but d o so

anyway b e caus e we b e l i eve th ey a re imp or t an t . As a re s u l t , by s u i t ab ly

p i ck i ng p a r ame t e rs we c an O f t en f i t pa s t da t a f a i r ly eas i l y . The re f o r e

i t may be d i f f i cu l t t o deve lop a good a p ri o r i meas ure of t he ac c ura cy

O f the mo de l .
 29

co l l e c t i on , and up da t i ng t he param e t er s i s an adap t i ve p roc ed u r e

app rop r ia t e f o r m o s t app l i ca t i ons o f mod e l s to o n- g o i ng op e r a t i ons .

7 . D i s cus s ion

The th re e p r odu c t manag e rs we hav e b ee n wo rk ing wi th ha v e e ac h

re s po nde d i n d i f f e ren t way s . Al l h ave b e en i n t e re s t ed a nd ve ry e ag e r

ab ou t t ry ing the m o d e l on th e i r b r ands . O ne ha s d eve l op ed an e x c e l l en t

g r as p o f wha t we ar e do ing and i s an im p or t a n t s our ce o f m o de l id e a s .

Ano t he r h a s s p e n t con s i d e rab le t ime wor ki ng wi th t he m od e l i n c oo pera t i on

wi th ano t he r m a n a t h i s comp any . Tog e the r they h av e deve l op ed the

app l i c at ion d i s cus s ed ea r l i e r . Th a t work i s c l e ar ly a f fe c t i ng O p e r a t i on s .

I n the t h i rd c a s e , we en t er e d the s c ene j us t as t he p rod uc t ma nag e r wa s

s t rugg l i ng wi t h an adve r t i s i ng b u d ge t p rob lem . I n a c ras h p ro g ram we

pu t t oge the r da t a and made s ever a l r un s . The s e ce r t ain ly af f e c t ed hi s

re c ommenda t io ns . H oweve r , I do no t fe e l tha t h e ha s y e t ma de the m o de l

his ow n . We ar e c on t i nuin g w i th a l l t h ree and p lan t o add a t l ea s t one

more s ho r t ly .

A l t ho ugh i t i s re a l l y t o o ear l y to t ell , I wou l d l i k e to pr e d i c t

h ow the mode l w i l l en t e r the s e c omp an i es and h ow the compan ie s w i ll

o rg an i z e to make us e o f i t . Firs t of al l , th e p roduc t m a nag e r s w i l l

h ave t o learn h ow t o us e the mod e l . Th i s re qu i res t e ch ni ca l a s s i s t an c e

and a t e a ch ing p rogr am . Te chn i ca l as s i s t an c e i s req u i re d for p rob l em

f o rmul a t io n and da t a ana ly s i s . As f o r a t ea ch ing p rogram , our exp er i ence

sugge s t s t ha t the b es t app roa ch i s t o l ead the po t en t i a l us e r th ro ugh a

s e que nc e O f mode ls o f i nc re as i ng s cop e an d c omp l ex i t y . Th i s i s e s s en t i al ly

wha t we have don e w i th AD BUDG and i t i s exac t ly wha t G l e n U rb an d o es wi th

 30

hi s S P R I N T E R [ 3 ] new p roduc t mod e l . O f t en a us e r , hav i ng l earne d a s imp l e

mode l ,
w i l l s t a r t t o as k f o r j u s t the a dd i t i ona l c on s ide r a t i ons f o u nd

in t he adv an c ed m o d e l s .

As f o r o rgan i z a t i on , th e ma t r ix f o rm s e ems b e s t . U nd e r th i s s e t

up th e p ro d uc t m anag e r h as l ine re s pons ib i l i t y bu t a l s o ha s a commi tme nt

f rom op e ra t i ons r e s e a r ch an d / o r m ar k e t re s ea rch in t e rm s o f s om eb ody

as s i gned t o h i s p ro d uc t . Th e p ro d uc t m a nage r nee d s a p e rs o n t o whom he

can add re s s q ue s t i o ns ab ou t m ode l beh av i or and a pe r s on wh o c an h e lp

de s i gn me as u remen t s a nd do d a t a a na lys i s .

O ne o f th e m os t ev i d en t con s eq uen c e s o f th e mo d e l i s tha t i t i s

a s t on e i n the s h oe f or b e t t e r d a t a . Und e r p re s e n t p l ann i n g p r oc e d ure s ,

many me a s ure m en t p ro b l em s a r e g l o s s ed ove r or s upp r e s s e d . Th e m ode l

f ac es exp l i c i t cons i d er a t io n o f eve ry f a c t or i t con t ai ns an d s o

p i np o in ts da t a nee ds .
 31

R e f ere nc e s

'
A . M . S ch l e s inge r J r , .
, A T h o u s a n d Da 5 H o u gh t on M i f f l i n
CO .
,
B o s ton 1 9 6 5 p , . 6 44

g Cal cu lu s
" "
J . D . C . L i t t l e and L . M . L o d i sh , A M e d ia P l ann i n ,

Op e ra t ions Re s ea r ch , 11 , No 1 ,
. ( J an .
- Fe b . pp . 1- 3 5

"
G . L . Urb a n , SP R I NT ER : A M ode l
f o r the An aly s i s o f N ew
"
F reque n t ly P u rchas e d C ons um e r P ro d u c t s , SSM Wo r ki ng
P ap e r 3 6 4- 6 9 C amb ri dge M as s , 1 9 6 9 ) , .

" "
W . T . Mo r an , G rea t E xp e c ta t i ons , pape r d e l ive r e d a t T I M S
M e e t i ng , M e x i co C i t y ( Au g u s t 1 9 6 7 )

"
J . 8 . A rms t rong , L ong R ange Fo r c a s t i ng f o r a C ons um e r
"
Du rab l e i n an I n t erna t i ona l M a rke t , Ph D. Th es is ,
.

M I . . T . 196 8
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