Game Theory and Marketing: A Contentious Relationship
Playing the ‘game theory’ as a marketing tool (campaignlive.co.uk)
Marketing is not a tried and true science. The world of marketing is constantly changing and responding to developments in consumer behavior, taste, and technology. New techniques and strategies are constantly developed and tested to maximize companies’ abilities to connect with and sell to potential customers. With companies’ reliance on continuing to improve their bottom line, attempting to develop dominant marketing strategies is becoming more and more important.
As such, some have considered turning to game theory to help inform their marketing decisions. The article “Playing the ‘game theory’ as a marketing tool” by Nick Chowdrey considers this tactic. In this article, one example of how game theory can be utilized in marketing strategies is by utilizing lead management software. Lead nurturing in marketing is the concept of manufacturing a customer journey by bringing in customers to see your marketing content, getting them to engage with the content and having them become familiar with the product, and then converting them into customers and having them actually complete the purchase. Along the way of that journey, there are game theory considerations. The article claims that the trick to utilizing game theory in this situation is to “rationalize consumer’s decisions as much as possible, leading them down a controlled path where their actions can be predicted and responded to in the most effective way possible.” This involves gathering information on the types of customers that you have so that you might anticipate how to better attract those customers back to your site. Once you can create specific profiles of your customers, anticipating how they may react to your content and then using that information to create your company’s best marketing response will help drive sales.
Similar logic can be applied to lead conversion in marketing. By separating acquired leads into groups with similar behaviors, applying a game theory approach can help marketers evaluate and predict customer behavior, and hopefully turn leads into sales. Using A/B testing, logic, and gathered customer evidence, applying game theory can help marketers maximize the chance that they can get an interested customer to make a sale by considering how they may respond to further marketing materials. For instance, by grouping a lead into a group that is assumed to prioritize cost as their primary consideration when making a specific purchasing decision, utilizing marketing communications geared towards that group with a strong underlying message about relative cost will likely be an optimal strategy for marketers.
Outside of specific marketing strategies regarding lead conversion and lead management, game theory also applies to macro-level marketing decisions as well. For instance, within marketing there is a period of a product’s life cycle where the product’s market develops rapidly as the product gains popularity and usage. During this time, buyers consider multiple products as they do not have a go-to-brand. However, due to the rising popularity of a product and the potential to make a lot of profit if any company is able to secure a lot of a product’s market share, many firms enter the space during this period. Between firms in a certain marketing space, game theory considerations come into play. Decisions of whether to enter the space, how much money to invest, and how early or late to enter the market during a product’s life cycle are important decisions. These decisions must also be weighed against what you anticipate your competitors will do. If a company invests heavily in a product, only to be out invested by a company with more financial resources, customers will be more likely to see and engage with your competitors’ marketing content than your own. As such, it is incredibly important for companies to consider their best strategies in relation to their competitor’s likely best strategies.
However, despite its numerous applications, game theory is rarely used in marketing considerations. This is because as useful as game theory can be towards rationalizing marketing decisions and anticipating customer and competitors responses to your own marketing strategies, marketing is rarely a rational field. As marketing involves people’s feelings and desires, concepts that are incredibly hard to measure, understand, and predict, especially on large scales, game theory considerations of marketing can often fail to account for the whimsical nature of customer’s buying behavior. The article also mentions how game theory does not account for morality in its decisions. What may be considered the best financially strategic decision from the perspective of game theory may ultimately be morally incorrect and be detrimental to a brand or company’s public perception. As such, despite the potential to apply game theory as a powerful tool in marketing, outside of specific markets or marketing strategies, it is quite hard to actually implement game theory in marketing in a financially advantageous way.