Starbucks, Beating The Prisoners DillemaBrooke HatcherEcon 202April 28th, 2012

Game theory

The branch of mathematics concerned with the analysis of strategies for dealing with competitive situations where the outcome of a participant's choice of action depends critically on the actions of other participants. Game theory has been applied to contexts in war, business, and biology

Game Theory Key terms

Dominant strategy: Which strategy is better than the other strategy, no matter what the other component decided in his strategy.

Dominated strategy: The certain choice is superior in every situation, then picking the optional choice.

Simultaneous game: all players move at the same time, represented with a game table.

Prisoner's Dilemma

What is the prisoners dilemma? How does it apply to the game theory in Starbucks marketing? When competion of people, or business need to make a strategy move that plays in their favor. There is three possible scenarios.

Definition: (in game theory) A situation in which two players each have two options whose outcome depends crucially on the simultaneous choice made by the other, often formulated in terms of two prisoners separately deciding whether to confessor not confess, will serve them less time In prison.

Prisoners Dilemma (part of Game theory)

A main point is prisoners dilemma, it trying to figure out what the other flayer (food company) will do, and what play they should make, depending on thief other companies move, for their best outcome “strategy”.

Definition: A paradox in decision analysis in which two individuals acting in their own best interest pursue a course of action that does not result in the ideal outcome. The typical prisoner’s dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. As a result of following a purely logical thought process to help oneself, both participants find themselves in a worse state than if they had cooperated with each other in the decision-making process.

http://www.investopedia.com/terms/p/prisoners-dilemma.asp#axzz1soyRrrIL

Key concept is Game Theory

Nash Equilibrium: In game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his own strategy unilaterally[1]:14

. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium. The practical and general implication is that when players also act in the interests of the group, then they are better off than if they acted in their individual interests alone.

http://en.wikipedia.org/wiki/Nash_equilibrium

The Prisoner’s Dilemma in food companies using media and

marketing1. Both food companies decide not spend their money in

marketing, they will both overall spend less, yet receive same amount of high customers.

2. If one food company decided to spend an excessive amount more in marketing (such as posters, TV commercials) they receive more of the markets customers, then the other food company who didn’t spend their money in media.

2. Both food companies spend an excessive amount in media for, they both fear that the worst outcome would be not putting money into media, while the other did and received more of the markets customers

Prisoners Dilemma table

Both players in the dilemma end up loosing to stay even. “as if their fighting for prison time

As you see, each number (choice) is affected by the decision the other person makes, whether to stay quiet, or to rat out.

The dilemmas!: one person doesn’t know what the other ones decision will be. Therefore, both will pick the dominant strategy in rating out.

The Prisoners Dilemma table always represents the opponents decision, by the row and Coolum. The players utility of each move, when the opponent makes a certain decision (taking in to account the opponents decision) is displayed by the number.

The first number in each cell represents the years of jail time for Bob if he makes that decesion, the second numbers in each column represent the years of jail ted will receive if he makes that decesion.

Ted rats out

Ted stats quiet

Bob rat’s out

5,5 1,8

Bob stays quiet

8, 1 2, 2

Starbucks “The Perfect

Cup of Coffee”

Starbucks beat the prisoners dilemma by not following the rend of marketing/media. The company invested their money not in the quality of their product. From this they hoped popularity, number of customers, and large share of the market would come by “word of mouth” of their quality and service their small business produced (now biggest coffee company in the world).

Graphical representation of Food

Companies

The table displays that both companies cant afford, not to spend in media, for If one does, and the other decides not to, they will loose a large market share of customers.

Food Companies. marketing

McDonalds, invest most money into media

McDonalds does not invest money in media

Domino’s invest money in media marketing

2.4, 2.4 6.5, 1.0

Domino does not invest money into media

1.0, 6.5 2.0, 2.0

Starbuck’s Beating the Prisoners Dilemma

This graph of numbers displays, even though Starbuck spends the least in media marketing, their share of the market ratio is the largest!

Starbuck saves incredible amounts of money, by beating the prisoners dilemma in food companies use of marketing media, by investing in other business qualities of product, service, and creating a customer community to spread the word and popularity of their business.

The success of Starbuck through non-media techniques

Quality of the product= “the perfect cup”

Environment of business “third place” an escape from work and stress

Customer satisfaction

Innovation

Services speech for them selves “ brand marketing”

Creating smart partnerships

Establishing a “starbucks community”

Work Cited

http://www.gametheorystrategies.com/2012/01/05/starbucks-marketing-escapes-the-prisoners-dilemma/

http://www.gametheorystrategies.com/wp-content/uploads/2012/01/sbux_adage_chain1.jpg