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? Whats 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
While researching a blog post, I came across several articles that purported to tell
me how to use game theory in content marketing. What they were really describing,
as they talked about reward systems for readers, was gamification. Game theory is
not gamification.
Gamification is making non-game activities into a game.
Gamification uses our competitive game-playing instincts to influence and change
behavior through game systems. It adds things like like scoring or achievement
levels to things where such game elements are not normally found. Numbers
become our motivators.
It isnt quite the same as game theory, which probes motivations and strategy.
Gamification works on an individual level (self-motivation) as well as in a group
(competition). It works with one person or more than one person, depending on the
kind of game that is created and the rewards that are doled out.
Game theory is the study of conflict and cooperation between two or more
participants.
Game theory is the study of interdependent rational choice, not independent. More
simply put, it is people making strategic decisions based on how they think someone
in the group will respond to their decision. Game theory is about choices and
outcomes, and can be illustrated in two ways.
If there are two or more people working towards a limited goal, game theory is
possible. They use rationalization to make decisions based on possible outcomes all
while understanding that others are involved and doing the same. There is
competition whether it is just to have the highest accumulated score or, even better,
a zero-sum game where there is only a finite amount available to win. In that case,
you win the same amount the others lost and the sum of the game equals zero (10, -
10). Its a simple shift of the total available from one player to another.
1. Game theory as a tree.
Game theory can be illustrated to look like a tree, where each decision is a branch
and you weigh the options. One decision leads to a new set of decisions. This is for
sequential games, where there are more than one choice to be made be for the
final outcome.
Lets use Robert Frosts famous poem The Road Not Taken to illustrate game
theory as a tree.
In this example, the competitors are One Traveler and Time. The traveler has to
make choices about which paths to take, with each choice leading onto a different
set of options. He cant go back and change his choices, so he needs to think
strategically so he has the best possible outcome at the end.

A tree structure like this is handy when the game is ongoing and you are making
decisions early on that are going to affect the decisions youll be able to make later.
You are trying to think strategically, mapping out the best route.
Game theory as a matrix.
Game theory can also be illustrated with matrices, which merely show the outcome
of different strategies. This is for non-sequential games where the competition isnt
so much a series of choices, but a pass-fail scenario where you choose, and theres
an immediate outcome.
Using the 1993 film The Fugitive as an example, we can see that the competitors
are Deputy U.S. Marshal Sam Gerard and Dr. Richard Kimble (the fugitive). There
are three choices these two can make. Depending upon whether they make the
same choice or not determines the outcome of the game.
In this matrix, the first number in the set is Dr. Kimbles score in that scenario. The
second number is Gerards score. The ultimate win is finding the one-armed man.
Kimble also wants to evade capture, whether he finds the one-armed man or not.
Gerard, of course, wants to capture Kimble.

A matrix like this is handy, quite similar to you making a list of pros and cons for a
single decision. Youre basically creating a tally to determine which is the highest
(best) scoring decision. You list the possible scenarios, score amongst the
competitors and see which one is optimal.




Game theory and marketing: Match or mismatch?
Although its generally agreed that game theory could be an excellent tool, its 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 cant be predicted or quantified.
The problem of competition is important in the marketing area and is often handled
in an unsatisfactory game-theoretic concepts offer for directly addressing
competition. game-theoretic models frequently make assumptions about available
information, about the descriptive nature of market equilibria or about the objectives
of competitive rivals that bear little resemblance to real marketing situations. Cross-
fertilizatiom is needed.
However Game theory can provide an approach for addressing some marketing
problems that the more conventional tools of the marketing scientist do not address.
Game theory also ignores the marketing departments role in creating and protecting
a brand image. The uncertainty of public opinion means that a decision thats
technically the most logical or rational might not actually be the best approach in
terms of publicity.
Its 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.

The empirical focus of marketing science can help provide the tests that are
required for the game theorist to evaluate alternative concepts of equilibria and to
assess the descriptive soundness of game theoretic models elaborated 'below.
Applications of game theory in marketing

As with most methodologies, game theory is being fkst applied in marketing to those
situations where it best demonstrates its value, Indurtrial marketing applications of
bargaining. The bulk of the marketing science literature focuses on situa~om where
there is ample data for analysis and where the number of buyers, at least, is large.
According to Hill, Alexander and Cross '(1975: 83) however, ' most major purchases'
by business, private institutions and numerous government agencies and
departments are probably negotiated'. They go on to note, 'The buyer must be
cognizant of the cost situation of his own firm as well as that of suppliers ( . . . )
[he]mst seek every advantage ( . . . ) to which his company is entitled' (1975: 84).
This quote makes several points that focus on the game theoretic nature of industrial
marketing negotiations. First, the buyer is cautioned to be aware of the cost situation
of his firm andthat of his suppliers. This awareness permits the buyer to assess the
value of a contract to and to his supplier. The value-analysis concept (Lee (1978)), a
seminal idea in the industrial marketing area, teaches the seller how to determine the
value of a product to the buyer. Here symmetry exists to have both
parties calculate contractual equilibria. Second, the stress on 'seeking every
advantage' points strongly toward joint evaluation of contractual benefits. Cases like
Air and Gas Compressors, Inc. (Corey (1976)) demonstrate how buyers and sdlers
use information about each others' costs and objectives to develop fair and profitable
relationships.

The benefit of using game theory in such situations is that it
(a) focuses attention on information that must be collected (costs/value functions of
bargainers) as well as
(b) suggesting fair solutions (e.g., identification of a prtleto frontier). Tools to perfarm
such
analyses are currently under development .

Measurement market effiiency.
In many commodity markets, competition exists among a small number of sellers,
with one of those sellers acting as a price leader. Due to the undifferentiated nature
of the product, competition in those markets incorporates elements such as
assurance of supply that are closely related to a selling industry capacity. Many
chemicals, metallic products and electrical components are examples of products
that complete in such a manner.
One example is titanium dioxide. Over the past 20-25 years, the titanium di oxide
market has been characterized by periodic over-expansion followed by under-
capacity. The mechanism during this vicious cycle seems to be a view that
competition will remain static while each (active) firm independently decides whether
or not to add capacity. The result is that when demand rises, all firm consider adding
capacity. Most do, and periodic overcapacity results (Lilien and on (1985)) .
Improvements in profitability of up to 60% are shown to be possible for a that firm
operates more efficiently in this market. There appear to be major inefficiencies
associated with asymmetric decision-making of this type.
A game theoretic market analysis has the potential to improve overall market
efficiency materially in the market. Such a tool might also provide a case for
information-sharing to produce such efficiency.

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 youre 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 thats 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.

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 doesnt
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 hasnt been used so
much in marketing to date isnt because its impossible, but because its 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 whats needed to give you a competitive edge.