The better we understand the theory, the better our decision-making becomes, without even having to think about it. Marketing is the psychology behind selling more products or services. By understanding more about consumption and the thought processes behind it for customers, the better we can please them. The more we understand about how businesses work, the more we can improve the processes. The more chances of success! This article explores five theories and models that all business owners and marketers should understand. The 80/20 rule, The Expectancy Disconfirmation Theory, The Product Life Cycle, Porter's Five Forces, and The Ansoff Matrix.

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The 80/20 rule suggests that 80% of sales come from 20% of customers.
Conceived by Italian economist Vilfredo Pareto in the 1890s, to explain wealth distribution when he noticed
that 80% of Italy’s land was owned by approximately 20% of the country’s total population. It is thought that
his initial observation was that 20% of the pea pods in his garden produced 80% of the peas!
Also called the Pareto Principle; the underlying belief is the relationship between inputs and outputs is
imbalanced and unequal. 80% of the output or effects are produced by 20% of the input or causes.
“The Pareto Principle, which is sometimes called the 80/20 rule, states that a small proportion (e.g., 20
percent) of products in a market often generate a large proportion (e.g., 80 percent) of sales.” (Brynjolfsson,
Hu & Simester, 2011).
THE 80/20 RULE

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Expectation confirmation theory is a popular model used in services marketing for measuring customer
satisfaction. The performance of a product or service is compared or measured against the customer’s
expectations. Those expectations (or desire) of performance (or experience) are subjective to everyone, based
on their prior knowledge of that product.
Performance becomes the mediator for satisfaction. The evaluated performance or experience influenced by
previous experiences with that brand and consumers without prior expectations base their satisfaction
judgements solely on the performance of the product.
The resultant difference between expectations and performance the basis for the disconfirmation of
expectation (or desire) and can be positive or negative. Negative disconfirmation meaning the customer is left
dissatisfied.
EXPECTANCY DISCONFIRMATION THEORY

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The lifecycle of a product is the length of time it is on the market. Beginning when it is introduced into the
market and lasting until it is taken off the shelves.
When a product is introduced to the market if successful, demand increases. Then, as new products enter the
market and become successful, they push more dated ones from the market, replacing them.
Commonly used in marketing management, it helps to inform the decision-making of business, such as pricing,
when to increase spending on advertising, expand to new markets, redesign packaging and cost-cutting.
This life cycle has four or five stages, depending on the source — Market Development, Introduction, Growth,
Maturity, and Decline.
THE PRODUCT LIFE CYCLE

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To better understand and assess the competitiveness of an industry, Porter’s Five Forces model analyses the
level of competitive intensity of an industry, it will identify the attractiveness of entering that market.
Attractive markets have few competitors that a business can target with strategic positioning.
By identifying imperfect markets offering more opportunities that are profitable, the model provides useful
information to direct a businesses’ strategic approach and marketing.
If an existing firm and want to a better understanding of the current market, they can analyse their current
position and plan their future direction, by aligning with their strengths and addressing their weaknesses. If a
new business or entering a new industry, they can highlight how they are most likely to succeed.
PORTER’S FIVE FORCES

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A popular framework for decision-making about growth and expansion strategies is the Ansoff Matrix.
Developed by H. Igor Ansoff, his perspective was that firm must continuously grow and change to create a
competitive advantage.
By analysing their market through the four components of the matrix: market penetration, market
development, product development and diversification; firms identify strategic alternatives to accomplish their
growth objectives.
Also referred to as the Product/Market Expansion Grid, the Ansoff Matrix also helps businesses to better
understand the risks of different growth strategies.
Of the four strategies, market penetration hosts less risk and diversification the most risk.
ANSOFF MATRIX

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PORTER’S FIVE FORCES & ANSOFF MATRIX

8. Daniel Hopper
Marketing Specialist - BYB MARKETING
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