The Marketing Book 5th Edition

226 The Marketing Book

lower to generate more sales so as to minimize
the maximum loss.
A summary of the major stochastic meth-
ods, their possible applications in marketing
(with some references), advantages and limita-
tions is presented in Table 9.10.

Deterministic operational research methods

Deterministic techniques are those in which
chance plays no part and solutions are deter-
mined by sets of exact relationships.

Rough set theory

Rough set theory (RST) is a fairly new approach
to decision making in the presence of uncer-
tainty and vagueness (Pawlak, 1997). Rough set
theory was first introduced by Zdzislaw Paw-
lak in the early 1980s, as a new mathematical
tool to deal with vagueness and uncertainty.
This approach seems to be of fundamental
importance to artificial intelligence (AI) and
cognitive sciences, especially in the areas of
machine learning, knowledge discovery from

databases, expert systems, decision-support

systems, inductive reasoning and pattern rec-

ognition. One of the main advantages of RST

is that it does not need any preliminary

additional information about data, such as

probability distributions or basic probability

assignments, which means RST has numerous

real-world applications (Pawlak et al., 1995).

The main concept of RST is an indis-

cernibilty relation normally associated with a

set of attributes. The key problem in this

description is the informal term ‘normally

associated’. In real life, such an association does

not exist until additional assumptions are

made. The subjectivity issue is more compli-

cated than in other methods for managing

uncertainty, therefore RST is potentially an

important tool in the analysis of data with

important applications in data mining and

knowledge discovery. However, claims of its

superiority (objectivity) over other approaches

remains to be substantiated by scientific evi-

dence (Koczkodaj et al., 1998). The results of

RST are a set of ‘if... then’ rules which enable

prediction of classification of objects.

The critical issues of data mining were

examined by Lingras and Yao (1998), who used

the theory of rough sets, which is a recent

Table 9.10 Continued

Method Based on Marketing applications Advantages Limitations

Game

theory

Constant sum game

solution, use of a

maximum criterion

to determine, for

example, budget/

resources allocation.

Theoretical analysis

of competition/

collusion between

organizations

For decision making

by retailing firms,

mainly on: pricing

(Higgins, 1973),

product stock

determination and

advertising, budget

allocations, also for

better decision on

negotiation

processes

(a) Aids

management in

decision making

(b) Suggests a useful

analytical

approach to

competitive

problems, such

as: pricing,

advertising

outlay and

product

decisions

Does not have much

predictive power

compared with

other quantitative

techniques