Market structure analysis using managerial judgments: Toward development and validation of an expert system for competitive strategy decisions.

Abstract

This research aims to develop and empirically validate an approach to using managerial judgments as a basis for competitive strategy decisions. Our premise is that by using structured elicitation methods that rely on the underlying logic of competitive market structure analysis (CMSA) models (e.g., perceived competitive similarities (PS) and forced choice (FC)), it may be possible to effectively extract and organize managers' knowledge of competitive relationships. Moreover, these judgments may be primed using competitive criterial cues such as brand image, features and usage situation. Based on psychological theories, we offer hypotheses (about how managerial judgments will be influenced by different elicitation methods and priming cues) which are tested in an experiment where subjects gained experience in a simulated market with a pre-specified structure (based on overall similarity (OS) of the products). We also test for experiential learning of this structure. The findings suggest that unaided judgments did not change as a function of outcome feedback. However, structured judgments showed significant effect of both feedback and elicitation method. Initially, OS-based structure measures received high ratings, suggesting that subjects may have recognized the 'true' structure. However, with feedback, they placed greater emphasis on the usage situation-based measure which were more concrete in their extra-experimental experience. Relative to the PS method, the FC method helped subjects articulate better that the market was partitioned on the basis of OS. Also, subjects who gave FC judgments first, provided concordant judgments when given the PS method thereafter. In contrast, subjects' judgments were more susceptible to change when the method order was reversed. Thus, the FC judgments produced both more veridical and more stable perceptions of market structure. Subject to study limitations, the findings provide a basis for incorporating even partially fallible managerial judgments in CMSA tasks (and toward development of an expert system). It shows how structured methods for eliciting such judgments can be meaningfully implemented and suggests that these methods may elicit both veridical and stable judgments of competitive relationships in a market. Moreover, the study examines the convergent validity of different methods and priming cues on managerial judgment as well as its potential biases and inconsistencies.