OPTIMIZING MARKETING SEGMENTATION THROUGH AN INFORMATION SYSTEM USING VERBAL DECISION ANALYSIS IN THE CHAMBER OF COMMERCE IN RIO DE JANEIRO (CDLRIO)

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1 OPTIMIZING MARKETING SEGMENTATION THROUGH AN INFORMATION SYSTEM USING VERBAL DECISION ANALYSIS IN THE CHAMBER OF COMMERCE IN RIO DE JANEIRO (CDLRIO) Geraldo Rodrigues Faculdades Ibmec, Rio de Janeiro Eric Cohen Faculdades Ibmec, Rio de Janeiro ABSTRACT Organizations today face great challenges in marketing decision making. This study looked at the decision making process in the context of the Chamber of Commerce in Rio de Janeiro (CDLRio) using a formal Verbal Analysis of Decisions method known as ZAPROS-LM. The method was tested, and its feasibility was evaluated in the organization s market segmentation to facilitate marketing management. The study showed that there are clear advantages in the adoption of a formal support method to share decision information throughout the organization in an organized and clear manner. INTRODUCTION Businesses are increasingly dependent on information; for example, retailers need accurate and timely information in terms of seasonality, demand, and credit so as to make decisions (DRUCKER, 1994; NAISBITT, 1982). For companies such as Nielsen or Gallup that help clients make decisions, information is the product itself (FREIDEN, 1998). This article proposes the development of marketing information through market segmentation with support of formal method of decision making, by investigating the domain of pertaining processes and the analyses of results. In this study, we investigate the application of a marketing decision support system in the Clube dos Dirigentes Lojistas do Rio de Janeiro (CDLRio). CONCEPTUAL FRAMEWORK Contemporary Marketing is categorized in terms of production of goods, services, events, financing, organization, information, ideas etc (KOTLER, 2004). A firm must narrowly define its target customers and segmentation strategy to be able to compete in today s competitive scenario, and consider issues such as the alignment of Information Technology, Marketing and corporate strategy as it pertains to the use of the information, return on I.T. investment, and competitive advantage provided by technology (GRAEML, 2000). Information needs to be used as a resource that assists the organization in creating a competitive differential. According to McGee and Prusak (1994), information-based economies are characterized by the fact that technological alternatives and information are viewed as competitive factors, and are the consequence of management s need for information. Shapiro and Varian (1999) state that information industry products carry a value provided to the customer. The value depends on available substitute products, existence of alternative sources of information and user lock in. 432

2 For Gomes (2007), decision is the process that leads direct or indirectly to the choice of one amongst different alternatives in a business problem. For instance, a manager will decide on the sale of a company product based on predefined criteria which deems the sale to be excellent, good, regular and not satisfactory according to these criteria. When making decisions, people evaluate the importance and urgency of the decision, with the person s own subjectivity playing a part. There are four kinds of decision making preferences: indifference; strong preference; weak preference; and incomparability (GOMES, 2007). Most multi-criteria decision methods (such as Promethé, Maut, Hierarchical Analysis, etc.) use quantitative methods to solve structured problems, while Verbal Decision Analysis solves unstructured problems by describing alternatives and using logical sequences in preset and coherent procedures. One VDA method is the ZAPROS-LM used in this study (LARICHEV and MOSHKOVICH, 1997). CDLRio provides information services to its retailer clients. We focused in this analysis on the administration of resources (time, human resources, fixed and variable costs), and other impositions pertaining to statutory questions, and decision making behaviors. These factors were determined by way on internal discussions and analysis with key CDL Managers, and we developed the Table of Criteria described below. The following step consisted of a categorization of prospects with largest business potential based on segmentation and business rules, which resulted in a Decision Matrix (DM). There are five possible decisions: (1) sale; (2) no sale; (3) refer for decision; (4) insufficient information; (5) a situation that is impossible, for instance the company does not manage credit and accepts credit risk. The following criteria were used to build the Decision Matrix: Number of retailer stores; location (mall, street); and purchasing power. Degree of technology development (availability of tools). Credit risk (high propensity to accept business risk vs. medium vs. low). Credit analysis process (done in-house vs. outsourced vs. judgmental). Barriers for entry (easy to purchase I.T. and knowledge). CDLRio membership. Credit behavior (good credit history vs. medium vs. poor). 433

3 Table 1 Decision Matrix CONCLUSIONS AND MANAGERIAL IMPLICATIONS The method produced 84 customer profiles with high potential for business development. Amongst these, we came up with fifty companies considered to be in advanced negotiations, representing 300 retail points of sales. It the CDLRio implementation, the top 10% clients of the organization account for 86 retail points of sale. Half of the customers are currently operating and control their own credit processes. Twenty five percent of these customers reach faster and more accurate credit decisions; nonetheless, they lack data and consistent reports which would enable them to operate even more efficiently. In this study, we applied ZAPROS-LM to the identification and resolution of complex problems, in order to aid the product commercialization decisions of CDL-Rio. In projects such as this, it is imperative to clearly define the business problem, and to select the choice of the objectives which will guide managerial decisions. 434

4 In small and medium companies, management actions and negotiations are critical for the decision making parameter setting. Marketing and Sales managers of small companies often lack human and financial resources, and need great agility in the decision-making process, but often have limited time to analyze critical questions. We have seen in this study that formal methods of decision making support are helpful, as long as certain criteria are met: 1) does not require substantial financial investment; 2) can be managed by any executive of the company, no special training needed; 3) effectively reduces the decision making time. Widespread use at CDLRio shows that operational and sales staffs are effectively using the Decision Matrix to communicate and make selling decisions. The ZAPROS-LM implementation is cost-efficient and significantly reduced decision time, while also eliminating ambiguity in the process, and is readily applicable to any business. RECOMMENDATIONS FOR FUTURE RESEARCH The creation of a Decision Matrix based on characteristic and benefits of products, characteristics of target customers, and market share can be applied to new product development and market introduction. The objective of the Decision Matrix is to pinpoint the best targets, which can be reached in shorter times, and using less resources. By using formal methods, Product Managers, Advertising Executives, and practitioners in general are in a better position to create and refine products according to customer needs and market objectives. The present work opens a new door for the development of applicable decision making support than can be very relevant for the average Brazilian organization. To probe further, this study suggests that additional research regarding the subject is needed to understand the applicability of formal methods and verbal analysis to the reality of Brazilian companies. This is a new concept both for marketing practitioners and researchers. As other studies advance, we will gain new insights and knowledge of these methods in the Marketing arena. REFERENCES Drucker, P. (1994). The age of social transformation, The Atlantic, 247: November. Freiden, J. (1998). Information as a product: not goods, not services. Marketing Intelligence and Planning, , March. Gomes, L. F. A. (2007). Teoria da decisão. São Paulo: Thomson Learning. Graeml, A. (2000). Sistemas de informação: o alinhamento da estratégia de TI com a estratégia corporativa. São Paulo: Atlas. Grover, V.; DAVENPORT, T. (2001). General Perspective on Knowledge Management: Fostering a Research. Journal of Management Information Systems, 18: 5, March. Kotler, P. (2004). Administração de Marketing: análise, planejamento, administração e controle. 5 TH edition. São Paulo: Atlas. Larichev, O.; MOSHKOVICH, H. (1997). Verbal Decision Analysis For Unstructured Problems. Boston: Kluwer Academic Publishers. McGee J.; PRUSAK, L. (1994). Gerenciamento estratégico de informações. Rio de Janeiro: Campus. 435

5 Naisbitt, J. (1982). Megatrends: Ten New Directions Transforming Our Lives. New York. Warner Books. Porter, M., MILLAR, V. (1992). Vantagem Competitiva. Rio de Janeiro: Campus. Shapiro, C., VARIAN, H. (1999). Information Rules: A Strategic guide to the network economy. Boston: Harvard Business School Press. 436