Playing 'game theory' as a marketing tool

Playing the 'game theory' as a marketing tool
Playing the 'game theory' as a marketing tool

Ever thought that marketing just feels like one big game? It's not too much of a stretch to see how. There's a strategy, a field of play, actors, goals and rewards. There are winners and losers, cheaters and sticklers, and somewhere down the line people will always end up falling out.

Realising this can, understandably, bring on a sense of hopelessness. Questions begin to surface: "If this is all a game, am I just wasting my time? What’s the point? What am I doing with my life?"

However, once you come to terms with the game, you can then start working out how to beat it. Through strategic decision making based on the analysis of how others play, you can start to maximise your chances of success. This process is known as ‘game theory’.

Game theory is mainly used in economics, politics and psychology. First formalised by Von Neuman and Morgastern in 1944, researchers have since debated whether game theory can solve marketing problems, in particular as a tool to predict competitive behaviour.

Game theory is mainly used in economics, politics and psychology

Although it’s generally agreed that game theory could be an excellent tool, it’s actual use in present day marketing practice is very rare. This is because many see game theory as being too empirical to work with marketing, which by its nature is highly subjective.

The issue is that game theory analyses the behaviour of rational players, whose decisions can be predicted, and any deviation from the norm easily explained. On the other hand, marketing exists to control consumer behaviour, which is usually irrational and affected by many different, often unidentifiable factors - such as feelings and desires - which can’t be predicted or quantified.

Game theory also ignores the marketing department’s role in creating and protecting a brand image. The uncertainty of public opinion means that a decision that’s technically the most logical or rational might not actually be the best approach in terms of publicity.

It’s therefore impossible to apply game theory fully to marketing. However, it can still be used as part of a wider marketing strategy, as a "mixed" approach.

Customer journey

One practical example of how this can be done with inbound marketing is through the use of lead nurturing software like Marketo or Pardot. Lead nurturing is all about creating a ‘customer journey’ and guiding those who enter the journey as prospects to the end of the line, where they finish as customers. This can be achieved by baiting the prospect with different kinds of content and automating further actions based on what they engage with.

The trick is to rationalise the consumers’ 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.

For example, if you’re marketing sports equipment aimed at either golfers, footballers or tennis players, your best bet for getting leads back to your site is to identify which sport they play, and to provide them with content that’s most useful to them. This, in turn, increases the chance of them converting.

So, the first email you send out might have three pieces of content: one aimed at golfers, one at footballers and one at tennis players. If, for example, the lead opens the piece aimed at golfers, the second email they receive can offer them exclusively golfing content - perhaps an article giving tips in how to make the perfect drive.

You can even pigeonhole your leads further at this point. How serious a golfer are they? Are they just starting out, are they hobbyists, or are they pros? This helps you send even more specific content, aimed at helping your lead achieve their goals and overcome their challenges. Crucially, you also tell them at this point how your good and/or services can make them better golfers.

Lead conversion

Game theory can be used in this situation because limits are placed on the number and type of player. In this situation, you can use logic and empirical evidence, in the form of A/B testing, to predict which moves will be made and, ultimately, to maximise the probability that a lead will convert.

Although this is a very specific example of how game theory can be used in marketing, there are several other situations that have also been suggested. In his 2011 paper "Game theory as a marketing tool: uses and limitation", Gandolfo Dominici, from the University of Palermo, explores its use in advertising, pricing, product decisions and distribution.

Perhaps the reason why it hasn’t been used so much in marketing to date isn’t because it’s impossible, but because it’s just very challenging.

Dominici concludes that, despite providing several examples of how it can work, the main issue with using game theory in marketing is that the consumer doesn’t make product choices by considering tangible costs and benefits, but by thinking and choosing according to the emotional and symbolic value of the goods. This defies logic and, therefore, defies game theory.

However, as long as a situation can be rationalised - as in the example above - then game theory can prove very useful. Perhaps the reason why it hasn’t been used so much in marketing to date isn’t because it’s impossible, but because it’s just very challenging.

Whether the potential rewards are worth the effort depends on the individual situation. However, in the notoriously competitive world of marketing, it might just be what’s needed to give you a competitive edge.

Nick Chowdrey is a staff and freelance writer specialising in business and technology. He is currently Technical Writer at Crunch Accounting. Follow Nick on Twitter @nickchef88.

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