A Rationale for Using System Dynamics in Marketing Analysis

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Marketing today combines both art and science: marketers must combine creative thinking with rigorous analysis when making decisions because situations are characterized by rapid change, high technological developments, high complexity and limited resources. Marketing analysis methodologies used are not adequate in today’s highly volatile, competitive environment and different ones are needed. Many new ideas about the nature of modelling and how to assess performance have been put forward over the past few years, and this paper would like to make use of them. Other criticisms are the reliance on equilibrium as the basic belief was that markets, industries always achieve equilibrium in the long run, the belief that if conditions were perfect an ideal equilibrium state would exist. Also existing methodologies are based on defined relationships and fixed values of parameters which cannot enable the values to change as the model is running. Whatever methodology is chosen, it must be capable of easily incorporating non-linearity, delays and lags, feedback phenomena and chaotic behaviour. There would also be advantages if it were dynamic and constructive in the sense that the users actively build their own models rather than passively incorporating readymade models. It is now becoming accepted that we live in a non-linear world and that simple models can generate complicated behaviour. There is no need for models with 200 variables and 200 equations, which take 24 hours to run and require mountains of precise data. Models using three or four variables with real-time delays can provide similar behavioural output but with the advantage of being able to predict much from little. There has been a scientific paradigm shift in the last thirty years from the Newtonian paradigm to the Systems paradigm. These elements of system thinking should be incorporated into marketing analysis. The paper researches the different types of thinking that are involved in the new paradigm and shows how systems thinking involves these new approaches. It concludes by making the case for this type of thinking in marketing analysis. There is a need for an approach that encourages the use of divergent, holistic thinking rather than convergent reductionism. It should also provide the opportunity to answer questions such as “What if?” Time spent analyzing past data may be of no relevance to the present time because of the accelerating nature of change. Dynamic models can reveal much more but have been hampered by the scarcity of good interactive software. The current development of such modelling tools, especially in the general area of Systems Dynamics, has provided the means to overcome these problems. It is also becoming more widely believed that the inner structure determines the behaviour of the system. Models that diagnosis the whole system to give the modeller a view of the relations between the components of the system is essential in designing and setting the strategies that boost performance.