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MARKETING UNDER UNCERTAINTY: A KNOCK ON THE DOOR February 8, 2007 Stuart Read IMD Chemin de Bellerive 23, P.O. Box 915 MARKETING UNDER UNCERTAINTY: A KNOCK ON THE DOOR

February 8, 2007

Stuart Read
IMD
Chemin de Bellerive 23, P.O. Box 915
CH-1001 Lausanne, Switzerland
Tel: + 41 (0)21 618 01 11
Fax: + 41 (0)21 618 07 07
e-mail: Stuart.Read@imd.ch

Nicholas Dew
Naval Postgraduate School
1 University Circle
Monterey, CA 93943
Tel: (831) 656-3622
Fax: (831) 656-3407
e-mail: NDew@nps.edu

Saras D. Sarasvathy
University of Virginia
The Darden Graduate School of Business Administration
100 Darden Boulevard
Charlottesville, VA 22903
Tel: (434) 982-2079
Fax: (434) 243-5020
e-mail: SarasvathyS@darden.virginia.edu

Michael Song
University of Missouri-Kansas City
Henry W. Bloch School of Business & Public Administration
5110 Cherry Street Kansas City, MO 64110
Phone: (816) 235-5841
Email: songmi@umkc.edu

Robert Wiltbank
Willamette University
Atkinson Graduate School of Management
Salem, OR 97301
Tel: (503) 370-6955
Fax: (503) 370-3011
e-mail: Wiltbank@Willamette.edu
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MARKETING UNDER UNCERTAINTY: A KNOCK ON THE DOOR

ABSTRACT

How does one approach marketing in the face of uncertainty, where the product, the
market and the traditional details involved in market research are unknowable ex ante? We use
protocol analysis to evaluate how 27 expert entrepreneurs approach such a problem, compared to
37 novice managers, with all 64 participants being asked to think aloud as they make marketing
decisions in exactly the same unpredictable situation. Our hypotheses are drawn from the
literature in cognitive science on (a) expertise in general and (b) entrepreneurial expertise in
particular. Results show significant differences in heuristics used by the two groups. While
novices rely on predictive techniques, experts invert these. In particular, they use an effectual, or
non-predictive logic to tackle uncertain market elements and construct novel markets. The 27
experts, for example, arrived at 28 different possible product-markets as opposed to only 12
envisioned by the 37 novices.
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INTRODUCTION
A knock on the door. Good morning Professor. I was in your modeling course. I just got
a job offer to run marketing for a startup. Though uncertain, it looks like an exciting opportunity,
and I hope you can introduce me to some best marketing practices in this setting, because I
havent done anything like it before
There is little theoretical foundation to offer a normative articulation of how marketing
strategy decisions should be made in situations of uncertainty.
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Traditional market definition and
segmentation based on market research is problematic when the market is nebulous and the data
anecdotal. In this paper, we begin to fill the gap between existing marketing tools and the needs
of managers facing uncertainty by learning from people who regularly navigate the muddy
waters of marketing under uncertainty: entrepreneurs.
We start by introducing effectuation (Sarasvathy 2001a), a logic of decision-making
under uncertainty. On the one hand, effectuation is rooted in the larger general literatures on
cognitive expertise in general. On the other hand, it offers specific implications for marketing
under uncertainty in particular. We show this two-way linkage through a review of psychological
research on expertise followed by the development of particular hypotheses about marketing
under uncertainty that we empirically test against a contrasting sample of expert entrepreneurs
and novice managers.
The crux of our conceptualization of uncertainty consists in Knights (1921)
demarcation of risk into known, unknown and unknowable distributions. The first two, both in
theory and practice, are conventionally tackled using predictive techniques. The literature on
entrepreneurial expertise claims the third may be tackled using effectual logic, which eschews

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There is, however, useful practitioner literature on this topic (Jagpal 1998)
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prediction. Our aim in this study is to take a first step toward generalizing this non-predictive
logic to marketing in any firm, large or small, new or old, faced with marketing decisions under
uncertainty. Therefore, we proceed to derive a set of propositions on how experts using effectual
logic and novices schooled in contrasting predictive techniques might differentially solve
marketing problems in uncertain situations.
The heuristics embodying these propositions constitute a theoretical foundation for
marketing strategy decisions under uncertainty. We use comparative verbal protocol analysis to
test the propositions. The method involves presenting both expert entrepreneurs and novice
managers with a hypothetical business scenario involving the creation of a new product and
asking them to think aloud as they make specific marketing decisions such as selection of
markets, channels and pricing. Results show that whereas novices follow predictive techniques
presented in marketing textbooks, experts often invert these techniques through effectual logic.
The fundamental difference in the way the two groups make decisions outlines a distinctive
model for marketing strategy under uncertainty.
LITERATURE REVIEW

Effectuation: A Logic of Entrepreneurial Expertise
Developed as a baseline against which to evaluate entrepreneurial expertise, effectuation
theory inverts several principles central to normative theories of predictive rationality.
Particularly in the second half of the twentieth century, predictive rationality has been questioned
in a variety of ways. Simons (1991) assaults on its empirical validity, based on the cognitive
bounds of the human mind, inspired research on heuristics and biases that deviate from
rationality. Effectuation theory was inspired by Simons work and was developed in close
collaboration with him (Sarasvathy 2002; Sarasvathy and Simon 2000). While bounded
rationality has been construed by some as a subset of predictive rationality, and the vast literature
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on heuristics and biases is considered a set of deviations from rationality, effectuation is an
inversion of predictive rationality. In a nutshell, as Sarasvathy and Simon (2000) put it,
effectuation turns rationality upside down to answer the question:
Where do we find rationality when the environment does not independently
influence outcomes or even rules of the game (Weick 1979), the future is truly
unpredictable (Knight 1921), and the decision maker is unsure of his/her own
preferences (March 1982)?

A static outline of the theory can be found in Sarasvathy (2001a/b) and its dynamics have
been worked out in Sarasvathy and Dew (2005b). Applications of effectual logic to firm strategy
are examined in Wiltbank et al. (2006) and a book-length exposition is forthcoming in
Sarasvathy (Sarasvathy 2007). For the purposes of our study, we begin with a concise summary
of effectuation including five key constructs that differentiate it from normative theories based
on predictive rationality, as described in Table 1.
- - - - - - - - - Insert Table 1 about here - - - - - - - - - -
Effectuation inverts the problem space, solution process, fundamental principles and
overall logic of predictive rationality. Predictive rationality rests on a logic of prediction i.e. to
the extent we can predict the future, we can control it. Effectuation rests on a logic of non-
predictive control i.e. to the extent we can control the future, we do not need to predict it.
Predictive rationality takes the environment as largely outside the control of the decision-maker
and, therefore, seeks to predict and adapt to changes in it. Effectuation considers the environment
endogenous to the actions of effectuators and therefore seeks to fabricate it through
commitments from stakeholders.
Predictive Rationality and Effectuation: Empirical Examples
In Table 1, we present a series of constructs from predictive rationality that are inverted
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in effectuation; however, it may be useful to cite a concrete example. One major thread of
research in entrepreneurship sets out a predictive process that begins with the identification,
recognition or discovery of an opportunity, followed by a series of tasks that include (a)
developing a business plan based on (b) extensive market research and (c) detailed competitive
analyses, followed by (d) the acquisition of resources and stakeholders for implementing the
plan, and then (e) adapting to the environment as it changes over time with a view to (f) creating
and sustaining a competitive advantage (Gartner, 1985; Varadarajan and Jayachandran 1999). In
this predictive view, if an entrepreneur wanted to start a restaurant, she would start by identifying
a high potential location, analyzing the competition in the area, identifying particular target
segments, developing marketing strategies to fit the targets, obtaining necessary funding, hiring
the appropriate chef to develop the right menu and then opening the doors to the restaurant.
- - - - - - - - Insert Figure 1 about here - - - - - - - - - -
As Figure 1 shows, effectuators, in contrast, would start