Decision making for marketers follows the same principles as other decision making, except that it concentrates on decisions made for marketing purposes.

Marketing decisions cross all four product life stages, including product design and pricing, the best target market for the product, to decisions about keeping or discontinuing a declining product. To read my series on the Marketing Product Life Cycle, click this link.

Because I’ve covered types of decisions that marketers make in the Life Cycle series, this post concentrates on one type of decision making analysis that is frequently used by marketers – cost benefit analysis. It can help you to become a better decision maker and a better marketer.

Decision Making For Marketers: Cost Benefit Analysis
Introduction

Cost benefit analysis is a business decision making tool used for many business decisions. But because it concentrates on costs and weighs benefits by the costs, it is particularly appropriate for marketers. As a marketer, you must constantly assure that marketing efforts produce profitable results.

But cost benefit analysis goes beyond just assuring that your marketing decisions make your business profitable. It’s about making decisions that squeeze the most possible profit, which involves you choosing between solutions and determining the costs and benefits for each solution.

Decision Making For Marketers
Cost-Benefit Analysis
Concepts And Terms

Cost-benefit analysis builds from several concepts that you need to understand.

The first is that every solution carries opportunity costs as well as actual costs. While actual costs involve the cost of designing, producing, and distributing marketing activities, opportunity costs consider expenses that accrue and benefits that you loose from giving up alternative actions.

When you decide, through your decision making process, to pursue one solution, you give up what you could have got with another solution. So you must consider which solution provides the least lost opportunity costs.

The second concept of cost benefit analysis is that some costs and benefits are intangible and can’t easily be measured. They are qualitative rather than quantitative.

For example, goodwill is an intangible benefit that is difficult to quantify. As a business owner, you know that goodwill is good for your business, but you can’t track specific sales to that goodwill. You can’t attribute a specific part of your business income to goodwill. You can’t assign a dollar figure to it.

The third concept in cost benefit analysis is that what you get from cost benefit analysis is only as good as the information that goes into it. Trash in, Trash out. It takes a lot of time and work to set up a good cost benefit analysis.

Decision Making For Marketers
Cost Benefit Analysis
Process

So how do you conduct a cost benefit analysis? You can use cost benefit analysis software to get a more exact analysis, but just using a table provides much decision making information.

First you have to identify alternative solutions to reach a goal. For example, if your goal is to sell 1000 more products per month, you’ll need to identify all potential marketing solutions that would reach that goal. And list these solutions in column 1 of your table.

You may want to consider marketing media that you presently use and have proven effective. For instance, you may just double your radio advertisements, or you may increase your marketing budget and spend more across media that you’re presently using.

One good point of using marketing media you’re presently using is that you already know costs and benefits. But you also need to consider solutions that are new to you.

For example, you can add media that you’re presently not using. Perhaps you have a Web site and a blog, but want to analyze the costs and benefits of social networking online. You can look at the costs and benefits for your other online marketing and read about other experiences and research on social networking.

Now, you need to identify the benefits to be achieved from each potential solution. Consider both tangible and intangible benefits, quantify all you can and put the tangible benefits into column 2 and intangible benefits in column 3 of the table. Now you need to put actual costs for each solution in column 4 and opportunity costs in column 5.

Next you need to establish the criteria for analyzing the relationship to costs and benefits. Then use the criteria to select the solution that offers the best benefits for the least costs.

If you’re using software, you can develop a model or relationships that explain how each solution impacts costs and benefits. Using a table limits your ability to make predictions, but does provide organized descriptive information that still enhances decision making by letting you see how costs relate to benefits for each potential solution.

If you want to read my complete series on decision making, click the link below and then follow the links at the bottom of each post.

Decision Making In Small Businesses

Discover how to make decisions at 3 Keys to Making Better Decisions More Easily.

If you like this series on decision making, you can assure that you never miss one of my series by subscribing to my weekly blog newsletter. Just complete the form below:

Posted 3-2-09:
Decision Making For Marketers
Cost Benefit Analysis

Bookmark It

This entry was posted on Monday, March 2nd, 2009 at 8:02 am and is filed under Marketing Research. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.