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UBC Theses and Dissertations

Decision making and the brewing industry Spencer-Johnson, Christopher Wilfred 1969

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DECISION MAKING AND THE BREWING INDUSTRY by CHRISTOPHER WILFRED SPENCER-JOHNSON B.A., University of Dublin, 196^ M.A., University of Dublin, 196? A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION in the Department of Commerce and Business Administration We accept t h i s thesis as conforming to the reqjuired standard THE UNIVERSITY OF BRITISH COLUMBIA MARCH, 1969 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r a n a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l 1 m a k e i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d S t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d b y t h e Head o f my D e p a r t m e n t o r b y h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t b e a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f The U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, C a n a d a D a t e i ABSTRACT The nature of the brewing industry in B r i t i s h Columbia i s determined by i t s marketing environment. A l l aspects of the environment have some influence but i t i s the l e g a l variable which i s the dominant factor. There i s no other industry which i s as s t r i c t l y regulated as the brewing industry. This regulation severely r e s t r i c t s the use of the marketing decision v a r i a b l e s , the usual means by which a firm can combat the environment, and thus the industry i s in the peculiar position of being able to do r e l a t i v e l y l i t t l e in order to encourage sales. The marketing environment i s divided into f i v e segments in t h i s thesis and each segment i s investigated i n d e t a i l i n order to determine i t s part in the o v e r a l l picture. The constraints which the environment Imposes on the decision variables are then examined and the means which are l e f t f o r a firm to combat the environment are discussed. The decision to use a p a r t i c u l a r method requires that several a c t i v i t i e s be undertaken f i r s t , in order to ar r i v e at that decision. The sequence of a c t i v i t i e s which lead to a decision constitutes the process of decision making. Such a process i s fundamental to every firm. This thesis examines the theory behind the decision making process and a model i s developed to describe the various steps. This model i s then included in a general procedural i i model f o r systemat ica l ly deal ing with several problems. To tes t theory against p r a c t i c e , th i s l a t t e r model i s compared step-by-step with an actua l problem that occurred in the brewing industry. i i i CONTENTS CHAPTER PAGE I INTRODUCTION 1 Origin of Thesis Topic Purpose and Scope of the Thesis Methodology Organisation of the Chapters II A BRIEF HISTORY OF BREWING IN CANADA AND OF MOLSON'S. BREWERY LIMITED 6 Beer - the Ancient Beverage Brewing in Canada in the Early Days The Foundation of Molson's Brewery Molson's and the Capilano Brewery The Quota System The Growth of the Capilano Brewery Footnotes III THE MARKETING ENVIRONMENT FACING THE BREWING INDUSTRY AND THE CONSEQUENT PROBLEMS FOR ITS MARKETING DECISION VARIABLES 19 Introduction The Marketing Environment The Economic Factors The Demographic Factors The Competitive Factors The Legal Factors The S o c i o l o g i c a l Factors Summary of the Marketing Environment The Decision Variables The Product Promotion Price D i s t r i b u t i o n Summary Footnotes IV DECISION MAKING IN THEORY 41 Introduction C l a s s i f i c a t i o n of Decisions The Decision Maker The Process of Decision Making i v A Model of the Decision-Making Process 1 ) Analysis of the Situation 2 ) D e f i n i t i o n of the Problem 3) C o l l e c t i o n and Analysis of the Data k) Development of Alternative Solutions 5 ) Evaluation of the Alternatives Programmed Decisions: T r a d i t i o n a l Methods Programmed Decisions: Modern Methods Nonprogramraed Decisions: T r a d i t i o n a l Methods Nonprogrammed Decisions: Modern Methods 6) Selection of the Best Solution Condition of Certainty Condition of Risk Condition of Uncertainty 7) Implementation of the Solution A)General Problem-solving Model Summary Footnotes V DECISION MAKING: THEORY VERSUS PRACTICE 73 Introduction Origin of the Problem The Decision-making Process The Survey Analysis of Data-Methodology The Questionnaire and Results R e l i a b i l i t y of the Survey V a l i d i t y of the Survey Conclusions to the Survey Development of Alternative Solutions Evaluation of the Best Alternatives Selection of the Best Alternative Implementation of the Decision Summary Footnotes VI SUMMARY AND CONCLUSIONS 93 BIBLIOGRAPHY 96 APPENDIX A ECONOMIC AND DEMOGRAPHIC DATA FOR BRITISH COLUMBIA AND CANADA 1 0 1 APPENDIX B THE SURVEY QUESTIONNAIRE 1 0 2 APPENDIX C RESULTS OF SURVEY AND ANALYSIS OF DATA 1 0 5 V LIST OF ILLUSTRATIONS FIGURE PAGE 1. Change In Per Capita Consumption of Beer, S p i r i t s , and wine, and i n Personal Disposable Income Per Person in B r i t i s h Columbia 24 2. I l l u s t r a t i o n of How the Price Increase of $0.22 Per Two Dozen Bottles sold f o r Home Consumption i s Divided - 1968 compared with 1958 3° 3. T r a d i t i o n a l and Modern Techniques of Decision Making 50 4. Decision Tree f o r Problem on Size of Salesforce 53 5. H e u r i s t i c Programming Procedures 58 6. C r i t e r i a f o r Selecting the Best Alternative 66 7. A Model f o r Solving Managerial Problems 68 v i ACKNOWLEDGMENT I wish to take t h i s opportunity to thank Molson's Capilano Brewery f o r t h e i r cooperation in allowing me to use t h e i r survey f o r t h i s thesis and f o r allowing me to peruse t h e i r company f i l e s . Much of the data in t h i s thesis comes from t h e i r records. In p a r t i c u l a r I would l i k e to thank the marketing manager, Mr. O.F. Bales, who personally gave me much help and encouragement and spent a considerable time with me answering questions. Also I would l i k e to express my appreciation to Mr. T.H. English, Vice President of Capilano, who generously made himself available in order to t e l l me about the history of the brewery and about the quota system. Without the help of these persons and the s t a f f of Molson's, t h i s thesis could not have been written. My thesis advisor, Dr. F.A. Webster, also deserves s p e c i a l thanks f o r f i r s t suggesting that I combine summer employment with a thesis project and then f o r establishing contact with Molson's which l a t e r l e d to my employment. F i n a l l y I wish to thank my wife who has suffered much during my hours of study but who has always been ready with encouragement and help when needed. CHAPTER I INTRODUCTION Or ig in of Thesis Topic For three months dur ing the summer of 1968 the wr i te r was employed by the marketing department of Molson's Capilano Brewery in Vancouver. The work consisted of a va r i e ty of p ro jec t s ; the main one of which was to conduct a survey in order to gather information f o r a packaging problem with which Molson's was concerned at that time. The packaging problem had ar i sen f i v e months p r i o r to the survey when Labatt Breweries introduced a new design f o r opening t h e i r beer cartons* Before th i s change, a l l the breweries were using the same design f o r t h e i r cartons. Because the breweries are l i m i t e d in the use which they can make of t h e i r dec i s i on var iab les - due to l e g a l r e s t r i c t i o n s and the homogeneity of t h e i r product - the new design na tu ra l l y generated considerable i n t e r e s t . In order to evaluate the impact, i f any, of the new carton top on beer dr inkers , and i n p a r t i c u l a r in order to determine whether Labat t ' s would be l i k e l y to increase t h e i r share of the market because of the new design, Molson's decided to conduct a survey. This project was given to the wr i ter whose task was to design the quest ionnaire, conduct the interv iews, and analyse the r e s u l t s . This thes i s arose out of that survey and the subsequent knowledge about, and in teres t i n , the brewing 2 industry and the decision-making process which developed during the w r i t e r s employment with Molson's Capilano Brewery. Purpose and Scope of the Thesis This thes i s i s e n t i r e l y de sc r i p t i ve , except f o r one chapter, and has two purposes. One purpose i s to descr ibe the nature of the brewing industry in B r i t i s h Columbia, with p a r t i c u l a r emphasis on Molson , s Capilano Brewery. The brewing industry in B r i t i s h Columbia faces many unusual problems in the area of marketing due to the spec ia l c h a r a c t e r i s t i c s of i t s marketing environment. The most notable c h a r a c t e r i s t i c i s the l e g a l f a c to r . There i s no more s t r i c t l y regulated industry in B r i t i s h Columbia than the brewing industry. To overcome the problems created by the environment the brewing industry has to r e l y on i t s dec i s ion va r i ab le s . However, many of these var i ab les are constrained by the environment to the point where they become i n e f f e c t u a l . This i n terp lay of env iron-ment and dec i s ion var iab les leads to fur ther problems. The other purpose of the thes is i s to study the process of dec i s i on making - i n theory and in pract i ce - and to develop a p r e s c r i p t i v e model of the process which can be incorporated into a general problem-solving model. Some k ind of decision-making process i s fundamental to a l l f i rms. In some f irms th i s process i s ca r r i ed out I m p l i c i t l y and l i t t l e recognit ion i s given to the i nd i v idua l steps which thus 3 tend to become i n d i s t i n c t . In other f irms th i s process has reached a h igh ly developed state and very sophis t icated tech -niques are used to a i d in problem so lv ing . Methodology of the Studies In order to describe the nature of the brewing industry, we s h a l l examine the marketing environment which faces the industry. We s h a l l consider separately the main components of the env iron-ment which a f f e c t the industry and s h a l l see how these components constra in the marketing dec i s ion var iab les and l i m i t t h e i r e f fec t i venes s , thus creat ing add i t i ona l problems f o r the Industry. The dec i s ion to use a dec i s ion var iab le can only be made a f t e r the p r e v a i l i n g s i tua t i on has been analysed, data has been c o l l e c t e d , and a l te rna t i ve decis ions have been studied. We s h a l l study the theo re t i c a l decision-making process which l i e s behind such a dec i s ion by reviewing some of the copious l i t e r -ature on the subject. We s h a l l develop a model of t h i s process and then incorporate i t into a general model f o r so lv ing problems. In order to tes t the theory of dec i s ion making, as developed»in the model, with the actua l p rac t i ce of dec i s ion making, we sha l l compare the model step-by-step with Molson's approach to t h e i r packaging problem (mentioned prev ious ly ) . 4 Organisation of the Chapters S p e c i f i c a l l y the contents of the chapters are as follows. Chapter II contains a b r i e f h i s t o r y of beer, and then the h i s t o r y of Kelson 1s i s traced from i t s beginnings i n 1786 to the present position of the Capilano Brewery i n the brewing industry of B r i t i s h Columbia. This chapter i s intended to provide background information about beer, the brewing industry, and Molson's, and to set the scene f o r the description of the marketing environment. Chapter III outlines some of the problems which face the brewing industry i n B r i t i s h Columbia by describing the marketing environment. The environment i s broken down into f i v e groups of fac t o r s : the economic, demographic, competitive, l e g a l , and s o c i o l o g i c a l variables. Each of these i s discussed i n turn to show t h e i r significance i n the environment. The marketing decision variables, the controllable variables which the breweries may use to make use of, or to counteract, the environmental f a c t o r s , are then examined and t h e i r l i m i t a t i o n s are discussed. In Chapter IV the decision-making process, which l i e s behind the decisions to use the decision variables, i s studied and a model of t h i s process i s developed. This model outlines the series of steps which are involved i n making a decision, and describes in d e t a i l some of the techniques which may be used to evaluate a l t e r n a t i v e solutions and to select the best one. This model i s then Incorporated into a broader, problem-solving model which attempts to provide a l o g i c a l sequence of steps f o r dea l ing with a number of problems, such as the d a i l y batch of problems which might confront a manager. In Chapter V Molson's packaging problem i s used as an example of decision-making in p r a c t i c e . The survey, which the wr i te r conducted, i s described in d e t a i l to i l l u s t r a t e one technique which may be used in the decision-making process to gather data. Decis ion making as pract i sed by Molson's i s then compared to dec i s ion making as developed in the model from Chapter IV. The l a s t Chapter, number VI, summarizes the thes i s and draws conclus ions. 6 CHAPTER II A BRIEF HISTORY OF BREWING IN CANADA AND OF MOLSON'S BREWERY LIMITED Beer - the Ancient Beverage It i s not known for certain when man f i r s t began to make beer, but research workers have discovered indications that men were making this beverage 10,000 years ago. References to beer are found in the records of many ancient peoples, among them the Chinese, the Egyptians, the Greeks, the Romans, and the Gauls. The word 'beer1 originally came from the Latin 'bibere* (to drink) and i s f i r s t found in the 8th century in the old High German form 'peer1 or •bior 1. However, the Germanic peoples had known about beer for at least eight centuries prior to that, and i t was probably the Saxons from Germany who f i r s t introduced beer into Britain. The f i r s t recorded reference to this beverage in Britain was in 694 when a fine was Imposed which was payable in 2 Welsh ale. It was not until the Middle Ages that beer really became popular after the monasteries and feudal manors became active in brewing and in improving the beverage. Lager beer, a great improvement of those times, originated when the monks discovered that their brews could be stored by keeping them cool in cellars. By the 14th century brewing had become a well * Throughout this thesis, footnotes w i l l be found at the end of each chapter. X 7 established industry and played a s i g n i f i c a n t part in the commerce of the Northern European countries. Brewing l n Canada in the Ear l y Days As a r e s u l t of t h i s European heritage i t i s not sur p r i s i n g to f i n d the early s e t t l e r s in Canada, and p a r t i c u l a r l y the r e l i g i o u s houses, engaged in the ancient a r t of brewing -although at f i r s t t h i s was not done on a commercial scale. Beer was s t i l l , at that time, mainly the drink of the middle classes, f o r , as the governor of Three Elvers reported i n l663 f the wealthy drank wine, the l e s s fortunate spruce beer, and p r a c t i c a l l y a l l other f a m i l i e s a drink c a l l e d "bouillon" or "chousett" (a con-coction made by dropping a b a l l of raw dough into spiced water and allowing i t to ferment) while the poorest classes drank 3 water, •Fire-water 1 or whisky was also popular i n those days, p a r t i c u l a r l y so among the jndians, and i t s consumption had reached such proportions by 1664- when the new intendent of New France, Jean Talon, arrived, that he founded a brewery in Quebec C i t y i n 1668 i n order to promote temperance (the a l c o h o l i c content of beer being considerably l e s s than that of whisky). It was the f i r s t commercial brewery i n Canada and the beginning of the brewing industry. Today the brewing industry i s Canada's oldest manufacturing industry, and 1968 marked the 300th anniver-sary of i t s foundation. 8 Although Talon 1s brewery was a f a i l u r e and closed down i n 1674, t h i s i n i t i a l venture sparked the inter e s t of other p a r t i e s and several attempts followed, most of them doomed to end i n f a i l u r e , however. I t seems that at that time, those people who wanted beer were prepared to make i t themselves. A f t e r 17 25 there are no records of any new breweries f o r the next s i x t y years, and a v i s i t o r to Canada in 17^9 stated that barley beer was yet to be introduced although spruce beer was brewed in the summer. With the b a t t l e of the Abraham Heights in 1759 and the consequent B r i t i s h occupation there came a profound change. Trade with the West Indes brought i n vast quantities of cheap rum. By 1766, two hundred and three licences had been issued to permit the sale of a l c o h o l i c drinks and rum had taken over h, from whisky as the Indian curse. The Foundation of Molson's Brewery By the 1780's the population of Montreal had increased considerably through the i n f l u x of B r i t i s h and United Empire L o y a l i s t s , and thus the antipathy between Canada and beer changed to one of yearning f o r English a l e . I t was to t h i s climate of change that John Molson came i n 1782 from Lincolnshire, England. He was eighteen years old and the son of a farmer. Although he had no brewery experience he entered, immediately a f t e r h i s a r r i v a l , into a partnership with Thomas Loid, the owner of a rather primitive brewery i n Montreal. In 1785 John Molson became sole owner of the brewery and i n 1786 he started making beer. Since then the Molson family, through s i x generations, have brewed beer continuously at the same loc a t i o n . Thus not only i s Molson*s Brewery one of the oldest manufacturing enter-p r i s e s in North America, but quite possibly i t i s the oldest one conducted at i t s o r i g i n a l l o c a t i o n by descendants of the founder. The f i r s t years were tough years f o r John Molson and hi s brewery, and although he made a small p r o f i t a f t e r the f i r s t season, i t was nearly ten years before his earnings compensated him f o r h i s hard labours. He not only had to act as buyer, maltster, brewmaster, clerk, and salesman, but also as book-keeper Having had no t r a i n i n g ln the a r t of book-keeping, the books went unbalanced f o r twenty years u n t i l 18l6 when he took h i s three sons in t o partnership. However, t h i s was of l i t t l e consequence because he had no one to account to, no returns to make, and no excise or income taxes to pay; but i t does mean that records_.are not very complete f o r these early years. Despite the i n i t i a l hardships the business survived, which was quite an achievement, because few industries have been more at the mercy of unpredictable changes i n public taste and fancy, and few have experienced a higher rate of i n d i v i d u a l mortality, than the brewing industry. This success was l a r g e l y due to the technical and business a b i l i t i e s of John Molson, and l a t e r , to those of h i s descendants. 10 As with Talon's entrance into brewing, so Molson's entry generated renewed i n t e r e s t , and towards the end of the 18th century and at the beginning of the 19th century several breweries started in Quebec, but t h i s time many of them were successful. In 1799 Molson purchased a s t i l l and in the following year he commenced to make whisky, but only sporadically, u n t i l 1821 at which time the demand was so great %that he started i n earnest. For more than f o r t y years u n t i l 18.66 Molson's were Canada's largest d i s t i l l e r s . In 1866 the firm found that i t could no longer make a p r o f i t without adopting the corrupt practices then prevalent in the trade, and so i t discontinued making whisky. In 1911 the company ceased to be a partnership and became a l i m i t e d private company under the name of Molson's Brewery Limited. This was to give the Molson family more protection in the case of the death of eithe r of the two Molson partners. In 19^5 the company went public with the issuance of 750,000 shares. The name of the company remained the same. Since that time expansion into the rest of Canada has been rapid. In 1955 r i s i n g sales i n Ontario prompted the bu i l d i n g of a new brewery in Toronto. In 1959 Molson's took over Sick's Breweries which thus provided Molson's with f i v e breweries i n Saskatchewan, Alberta, and B r i t i s h Columbia. To gain a share of the Manitoba market, Molson1s acquired the Fort Garry Brewery in Winnipeg in I960, and two years later expansion occurred to the East of Quebec when Molson1s purchased the Newfoundland Brewery. Molson 1s and the Capilano Brewery One of the breweries acquired by Molson 'S when they bought Sick's Breweries was the Sick's Capilano Brewery in Vancouver. It subsequently became Molson's Capilano Brewery on September 30th, 1959* and i t i s with this particular brewery that this paper i s mainly concerned. When Molson's took over the Capilano brewery i t was marketing two brands of beer, Old Style (a lager), and Sick's Select (an ale). Old Style was an old and familiar brand having been introduced to the market by Sick's in 193*1-. In 1959 i t accounted for approximately 9&% of the brewery's bottled sales. Sick's Select was a more recent product having been introduced in November of 1957. Capilano's share of the industry market (P.B.W.)^ was approximately 20# (19$ of the bottled market) when Molson's took over. The Quota System Capilano's share of the bottled market at 19$ was in fact down from the previous years when their share, under the quota system, had been 20^. The quota system'', which wqs in operation during the early 1950's, was a system for allocating the industry sales in the province each month between breweries. A l l the Western provinces from Manitoba to British Columbia operated under a quota system at that time. The system was administered by the provincial governments in a l l four provinces except Br i t i s h Columbia. In British Columbia the Pacific Brewers Association (the forerunner of the P.B.W.) administered the quotas for the three companies which owned the P.B.A. -Vancouver Breweries, Lucky Lager Breweries, and Sick*s Capilano." Brewery. At that time P.B.A. accounted for about 88$ of the total industry sales in British Columbia. The quota system was a voluntary scheme in British Columbia that had been in operation since the 1930*s. It was sanctioned by a l l governments up to the time of the Social Credit government. The Social Credit government, however, even though they knew that the quota system existed, would not sanction i t o f f i c i a l l y or unofficially, but even so the system worked well for nearly six years of Social Credit government. Without o f f i c i a l recognition, however, i t was f a i r l y easy for any one company to set about breaking the quota arrangement and this i s just what Vancouver Breweries started to to in 1956. At that time the quotas were Capilano 20%, Lucky Lager k0%, and Vancouver k0%. Also, by mutual agreement, each of the three companies maintained only one salesman. 13 In 1956 Vancouver Breweries started to increase t h e i r s t a f f of salesmen and attempted to disrupt the quota system by Informing various hotel keepers and l i q u o r vendors that the quota system was doomed and persuading them, with minor pay-offs and s i m i l a r methods, that t h e i r cooperation with the P.B.A. was not necessary. Vancouver Breweries were in f a c t preparing the market f o r t h e i r change of name (to Carling's) and the i n t r o -duction of Carling's products. Their main e f f o r t s were directed at the bottled market. As Vancouver Breweries became more aggressive i n the bottled market, Lucky Lager counteracted by concentrating on draught accounts. This was possible because i n the early days various personal transactions with hotel operators had created a moral obligation on the part of the operators which they were now given the opportunity to honour. At the same time Lucky Lager also commenced, as d i d Capilano, to add to t h e i r sales s t a f f and to increase t h e i r advertising budgets. However, by the time they started, Carling's had opened up quite a lead. In May 1957 Carling's introduced t h e i r two national brands to the market (Black Label and Red Cap), and by midsummer both Capilano and Lucky Lager had l o s t a considerable share of the market. At that time Capilano only had only one brand on the market - Old Style. In November of that year they introduced a second brand, Sick's Select, and gained a small share of the market back. However, lack of a proper advertising campaign, due to a l i m i t e d advertising budget, did not help i t s introduction 14 and i t soon l e v e l l e d o f f at s l i g h t l y l e s s than 2% of the (P.B.A.) bottle d market. By early 1958 Capilano was showing signs of strengthen-ing but i t faced a set back in the spring of that year when Labatt*s took over the Lucky Lager Brewery. In August Labatt*s introduced Labatt*s P i l s n e r and 50 Ale and t h i s f i n a l l y caused the end of the quota system. Carling*s, by t h e i r t a c t i c s of upsetting the market and making the balancing of quotas impossible, were obviously looking f o r a reason to break the system. Their P i l s n e r brand had been on the market f o r many years and was t h e i r l a r g e s t s e l l i n g brand. When Labatt*s announced the introduction of t h e i r P i l s n e r , Carling's found t h e i r reason f o r breaking the system and reported to the P.B.A. that a f t e r July of that year they would no longer be a party to the quota system. I t i s i n t e r e s t i n g to note that at the time that the system was abandoned, Carling*s had 46$ of the market. Their share today i s However, whether or not the system would have continued today, even i f Carling*s had not broken i t then, i s a debatable question. In October 1958 0»Keefe*s introduced Old Vienna and 0*Keefe*s Ale onto the market. However, they were brewed in the Caarling brewery u n t i l February 1961 when 0*Keefe*s commenced brewing i n t h e i r own plant. They became a member of P.B.W. In I960. 15 This was the climate of the market into which Molson 1s stepped i n 1959« The competition was intense and no strategy, e t h i c a l , or i n some cases unethical, was l e f t untried. The Growth of the Capilano Brewery On September 1st, 1959» the Capilano plant started brewing Molson 1s national brand, Export Ale. Previously, since 1957* i t had been sent from Montreal and sold at a premium price of 20$ per dozen as was usual f o r ales at that time. I t had not been advertized l o c a l l y except in the national magazines o r i g i n a t -ing from the East. In 1958 i t held 6V7# of the l i g h t ale market. Af t e r commencement of brewing at Capilano i t was expected i n i t i a l l y to gain 11$ of the l i g h t a l e market, but in f a c t i t had ris e n to Jk% by i960. Since then i t has declined s l i g h t l y and has l e v e l l e d o f f at about 31.2# of the l i g h t ale market or about 1% of the industry packaged sales. In February i960 Molson*s other national brand, Molson*s Canadian, was introduced to the B r i t i s h Columbia market and Sick's Select was withdrawn. Despite a massive i n i t i a l advertis-ing campaign Canadian has proved disappointing and has never r e a l l y gained a footing. I t i n i t i a l l y captured 3*8$ of the lager market and by February of 1961 i t had rise n to 5«0#. Since then i t has declined s t e a d i l y to i t s present l e v e l of 2.65$ of the lager market or 2.6$ of the industry packaged sales. Old Style held about 20$ of the lager market i n 1959 and accounted f o r approximately 98$ of Sick's Capilano sales. 16 This l a t t e r percentage has declined s l i g h t l y so that today Old Style accounts f o r about 89% of the brewery's sales (Canadian accounts f o r about 8% and Export Ale f o r about 3%) and holds 32% of the lager market. Since 1959 Molson's have spent an average of $353,200 per year on c a p i t a l expenditures to A p r i l 1968. Although the brewkettle has remained the same size (at 208 b a r r e l s ) , the b o t t l i n g l i n e (which i s also used f o r cans) has been increased from 156 bottles per minute to 550 bottles per minute, and the capacity of the plant (through increased l i n e rate and more e f f i c i e n t production techniques) i s now 350,000 barrels per year (160,000 barrels per year in 1959). The number of hourly workers has increased from 78 in 1959 to 99» and the number of s t a f f workers from 17 to 38. Molson's share of the market (P.B.W.) packaged and draught - has Increased from approximately 20$ i n 1959 to 29$ today (the packaged share has increased from 19$ to 3k%)• In actual volume t h i s represents an increase from 3,380,085 gallons, i n the twelve months p r i o r to September 1959» to 7»956,459 gallons, i n the twelve months p r i o r to July 1968. This i s an increase of 135$ or an average of 15$ per year. The industry (P.B.W.) volume during t h i s time increased from 17, 241,881 gallons in 1959 to 26,955,825 gallons in 1968, or at about 6,2% per year. With t h i s increase in volume, p r o f i t s have also increased f o r the brewery from $251,549 (for the nine months January to September, 1959) to $1,174,946 in f i s c a l 1968. 17 The brewery industry in B r i t i s h Columbia i s showing slow but steady growth with a rate of about 2.9$ per year increase in adult per capita consumption. With the adult population of B r i t i s h Columbia growing at about 2.6$ per year and disposable Income at 3.7% per year per adult, the future f o r the brewing industry in B r i t i s h Columbia looks assured of steady growth. With t h i s i n mind the Capilano brewery plans substantial expansion during the next f i v e years. The c e l l a r s , which have doubled i n size since 1959, were again increased l a s t year (1968). This year work i s expected to s t a r t on a new brewhouse and the brewkettle w i l l be enlarged by three times i t s present size to 624 barrels. This w i l l give an estimated yearly capacity of 300,000 barrels by 1973, and when the b o t t l i n g l i n e i s also increased t h i s could mean an annual capacity of about 560,000 b a r r e l s . Other projects in the present five-year plan include a new bottleshop, a d d i t i o n a l warehousing, new o f f i c e s , and f i n a l l y more c e l l a r space. The l a s t phase of the program w i l l s t a r t i n 1974. When these a l t e r -ations are f i n a l l y completed the present brewery w i l l hardly be recognizable. But that w i l l not be the end of expansion. In order to keep ahead of the s t e a d i l y increasing market, Molson's plan a continuous five-year program which i s reviewed each year and i s revised when necessary. Thus expansion i s a continuous process in the brewery. 18 FOOTNOTES 1. Facts on the Brewing Industry l n Canada (Ottawa: Dominion Brewers Association, 19^8), p. 3» 2. I b i d . . p. 5. 3. M e r r i l l Denison, The Barley and the Stream: The Molson Story (Toronto: McClelland and Stewart, 1955)» P» 24. Ibid., p. 24. 5. This h i s t o r y of Molson's Brewery i s taken from Denison, op.c i t . 6. P.B.W., or P a c i f i c Brewers Warehousing, i s the d i s t r i b u t i o n organisation f o r the four breweries of Carling's, Labatt's, Molson's and O'Keefe's. When the term "industry sales" i s used in t h i s thesis, the sales referred to are those of P.B.W. When the term " t o t a l industry sales" i s used, the sales r e f e r to the t o t a l sales f o r the province. 7. The h i s t o r y of the quota system comes from an unpublished memo by T.H. English, Vice President of Molson's Capilano Brewery. CHAPTER III 19 THE MARKETING ENVIRONMENT FACING THE BREWING INDUSTRY AND THE CONSEQUENT PROBLEMS FOR ITS MARKETING DECISION VARIABLES Introduction There are many fac tors which a f f e c t a company's sa les . Some of these fac tors can be cont ro l led by the f i rm but some are beyond the f i r m ' s con t ro l . Those fac tors which the f i rm can contro l are c a l l ed the marketing dec i s ion va r i ab le s . Those which are outside the f i r m ' s contro l are c a l l ed the environmental va r i ab le s . It i s the marketing environment which def ines the opportuni t ies and constra ints which face the f i rm , and in order to surv ive, the f i rm must cont inua l l y survey the environment and adapt i t s dec i s ion var iab les according to the trends. In th i s chapter we sha l l out l ine the main character -i s t i c s of the marketing environment which the brewing industry must cons ider, and s h a l l b r i e f l y describe any s i g n i f i c a n t trends which these cha rac te r i s t i c s d i sp lay . We s h a l l then examine the dec i s ion var iab les and discuss t h e i r l i m i t a t i o n s due to environmental cons t ra int s . The Marketing Environment There are several ways to c l a s s i f y the external va r i ab les of the environment. In t h i s paper we w i l l d iv ide them into the fo l lowing f i v e categories which contain the 20 f a c t o r s with which the brewing industry i s mainly concerned: the economic, demographic, competitive, l e g a l , and s o c i o l o g i c a l v a r i a b l e s . 1 The Economic Factors Since people in lower-income categories are usually more d i r e c t l y affected by economic slow-downs than those i n higher brackets, and because the majority of beer drinkers are in these categories, i t i s l o g i c a l that the beer market suffers during such times of recession. This can be demonstrated by p l o t t i n g the consumption of wine, beer, and s p i r i t s against 2 employment l e v e l s . Such a graph shows that beer consumption reacts more severely to fluctuations in employment than do the other a l c o h o l i c beverages. Since 1961 the Canadian economy has p a r a l l e l e d the American economy and has shown general expansion, with rapid gains in employment, growth i n personal income, a continuous r i s e i n l i v i n g standards, reductions i n unemployment, and growth i n c a p i t a l investment. The strongest and most d i v e r s i -f i e d gains have been made in the two highest income regions, 3 B r i t i s h Columbia and Ontario. In 1967 B r i t i s h Columbia had an unemployment rate of 5.1$ compared to the national average of 4.7$.** The highest rate in B r i t i s h Columbia since the war was 9»k% i n 1958 and there has been a general downward trend since then although the 21 rates f o r the l a s t two years (1966 and 19&7) have shown a tendency to increase s l i g h t l y . In 1967 only two other areas in Canada, the province of Quebec and the A t l a n t i c provinces, had higher rates (with 5»3% and 6.6% r e s p e c t i v e l y ) . However, employment i n 19^7 increased 6.6% which compares favorably with the national rate of 3»2$. Since the War employment i n B r i t i s h Columbia has increased 85.4$ (19^6-67) which i s the highest percentage gain among the provinces. The Demographic Factors The consumption of beer i s affected by many factors, such as the type of r e t a i l outlets provided, the consumer marketing convenience, the d i s t r i b u t i o n of the population, the growth of the adult population, income growth, the price of beer ln r e l a t i o n to other a l c o h o l i c beverages, the l o c a l l e g i s -l a t i o n r e l a t i v e to beer marketing, the weather conditions, and so on. The three most important f a c t o r s , from regression a n a l y s i s , are 1) the growth rate of the adult population, 2) the b e e r / s p i r i t s price r e l a t i o n s h i p , and 3) the per capita disposable income.^ The f i r s t and t h i r d factors are demographic var i a b l e s . The population of B r i t i s h Columbia increased by 15.0% between 1961 and 1966 and t h i s was the largest percentage 6 increase among the provinces. This increase was mainly due to net migration which was 140,489. As a;^percentage of the p r o v i n c i a l t o t a l , t h i s i s the largest among the provinces. In actual numbers Ontario had the greatest migration but because 22 of Ontario's l a r g e r population, t h i s figure was only about one-third of the percentage figure f o r B r i t i s h Columbia, Since the war the annual net migration figure f o r B r i t i s h Columbia has been increasing from about 20,000 per year i n the logo's to about 28,000 per year in the 1960's. The adult population of B r i t i s h Columbia (over 20 years of age because of the census categories) was approximately 61% of the t o t a l population In 1966. This percentage has declined s l i g h t l y since 1951 when i t was 68% of the t o t a l population. However, the actual number has shown an average yearly growth rate since 1951 of 2.9$ (the average growth rate f o r the t o t a l population was 4.0$ per year). This compares well with the average national figure f o r the same period of 2.2% (2.9% f o r the t o t a l population). The personal disposable income per capita i n B r i t i s h Columbia In 1967 was $2261. This was the second highest figure in Canada and Is well above the national average of $2044. Since the war the personal disposable Income per capita i n B r i t i s h Columbia has grown 172$ and B r i t i s h Columbia has consis-t e n t l y vied with Ontario f o r the highest l e v e l . Although t h i s i s good f o r the people, i t i s not necessarily good f o r the brewing industry. More people in the high-income groups consume wine and s p i r i t s than do those i n the lower categories, possibly to the detriment of beer. The prosperity of the people in B r i t i s h Columbia i s r e f l e c t e d i n the f a c t that B r i t i s h Columbia 23 has had the highest per capita consumption of s p i r i t s i n the g provinces since 1952. The consumption of wine has also been growing r a p i d l y since 1952, the per capita consumption having increased 235.5$ up to 1965, compared to 10.6$ f o r beer, so that B r i t i s h Columbia now has the highest per capita consumption of wine i n Canada. The per capita consumption of beer i n B r i t i s h Columbia, however, f a l l s behind that of Ontario, Quebec, and Manitoba. The r e s u l t of these trends i s that, while personal disposable income per person has increased by more than 50% since 1952 (to 1965), the share of personal expenditures spent on beer has declined i n r e l a t i o n to the t o t a l spent on a l c o h o l i c beverages. These changes f o r B r i t i s h Columbia are shown below and l n Figure 1 (see also Appendix A). TOTAL PER CAPITA 1952-1965 Beer S p i r i t s Wine PDI Beer S p i r i t s Wine PDI Percentage change 64.9 72.2 39^.9 13^.9 106 156 2356 536 Percentage change per year 4.9 5.5 30.4 10.4 08 12 18J. 4> The Competitive Factors In B r i t i s h Columbia there are four major brewing companies: Carling Breweries Ltd., Labatt Breweries Ltd., Molson's Capilano Brewery, Ltd., and O'Keefe Old Vienna Brew-ing, Ltd., which are a l l situated in Vancouver. These four breweries account f o r approximately 95$ of the t o t a l sales f o r the industry (by volume) i n B r i t i s h Columbia. The remaining 24 FIGURE 1. Change in Per Capita Consumption of Beer, S p i r i t s , and Wine, and i n Personal Disposable Income Per Person, i n B r i t i s h Columbia. INDEX R52 = »oo PERSONAL OISP06A8LE INCOME BEER 10 L H5* '53 'SS 'Sb '57 '5a 'SS '60 '61 'bl '63 ""6V — i '65 Source: based on a diagram in Brewing in Canada (with supplement) (Ottawa: Brewers Association of Canada,1965)» p.22. 25 5$ comes from two small breweries, Tartan Brewery Ltd., located ln Prince George, and I n t e r i o r Breweries Ltd., located i n Creston. Thus there exists the c l a s s i c o l i g o p o l i s t i c s i t u a t i o n of few s e l l e r s with a • d i f f e r e n t i a t e d 1 product. However, the s i t u a t i o n i s rather d i f f e r e n t from the usual case because of the many l e g a l regulations (which w i l l be discussed i n the next section). The strategies a v a i l a b l e to the breweries are d e f i n i t e l y lessened by these regulations, but t h i s i s not necessarily a bad thing. By c o n t r o l l i n g the price of beer, the government ensures that there w i l l be no price wars. Because advertising i s regulated, a l l the breweries are l i m i t e d in how much they can spend and t h i s helps to keep costs down. The regulations on d i s t r i b u t i o n tend to l i m i t the sales of the industry as a whole and therefore should possibly be eased, although none of the breweries suff e r i n d i v i d u a l l y and costs are again kept down. However, competition within the industry i s not so serious as that from other i n d u s t r i e s , namely the wine, s p i r i t s , and s o f t drinks i n d u s t r i e s . These industries have been making steady gains since the war, p a r t i c u l a r l y the wine industry (see 9 f i g u r e 1) • These gains have meant that beer, as a percentage of t o t a l a l c o h o l i c sales (ln d o l l a r s ) has declined from k0% in 1952 to 37$ in 1965. 1 0 Although these figures apply to B r i t i s h Columbia, t h i s trend i s evident r i g h t across Canada and must be of some concern to the brewing industry. 26 The Legal Factors There are no other industries in B r i t i s h Columbia which are so s t r i c t l y regulated (they have t h e i r own s p e c i a l act, the Liquor Control Act) and are so discriminated against, as the wine, s p i r i t s , and brewing industries. The type and amount of advertising i s severely r e s t r i c t e d ; d i s t r i b u t i o n i s l i m i t e d to certain places and certain hours; and prices are set by the government. Thus the industry has only one decision variable over which i t has any r e a l degree of control, i t s product. The laws concerning p r i c e , promotion, and d i s t r i b u t i o n , w i l l be examined further when we deal with the industry's decision v a r i a b l e s . In the previous paragraph we described the a l c o h o l i c Industries as being discriminated against. This discrimination occurs i n the manner in which these industries are taxed. Taxes are the strongest influence on the brewing industry; they are the largest cost component and a f f e c t p r o f i t s more than any other f a c t o r . Taxes are l e v i e d on the breweries by a l l l e v e l s of government. The federal government l e v i e s an excise duty of 38^ on each gallon of beer produced and on top of t h i s applies the federal sales tax of 1 2 $ . Each brewery also has to pay a corporation tax to the federal govern-ment. At the p r o v i n c i a l l e v e l , there i s the mark-up applied by the Liquor Control Board of a l i t t l e over 1.9$ (of s e l l i n g p rice to the consumer), the p r o v i n c i a l sales tax of 5%, and the cost of a p r o v i n c i a l brewer's license (which equals \% of 27 the value of the land and improvements on which the brewery stands). At the m in i c ipa l l e v e l there are property and business taxes to ;be pa id. A l l of these add up to a huge burden on the brewer. For every consumer d o l l a r spent on beer in 1967* 33^ went to the government, 3ty to the brewer, and 33{^  to the l i c e n s e e . 1 1 There i s evidence that the growth of the brewing industry since the war, r e l a t i v e to other manu-f ac tu r ing i ndus t r i e s , has been impeded by the weight of taxes 12 (and by the other forms of government con t ro l ) . One other f ac tor has to be considered with regard to taxes. There are few indust r ies whose products are consumed within the l o c a l p r o v i n c i a l boundaries to the same extent as the product of the, brewing Industry. Thus the brewing industry provides a d isproport ionate share of the prov ince ' s sales tax revenue and th i s would seem good j u s t i f i c a t i o n f o r l i gh ten ing the burden. The Soc io l og i ca l Factors I t seems that dr ink ing a l coho l i c beverages in B r i t i s h Columbia i s p o s i t i v e l y discouraged by the p rov inc i a l government. Not only does the government make i t d i f f i c u l t to market a l coho l i c d r inks , but i t does i t s best to dlsuade the publ ic from buying i t . The major i ty of l i q u o r s tores, at l ea s t in Vancouver, are exceedingly drab, the service i s often sur l y , and f o r a year during 1967 through 1968 the stores had no pr inted l i s t s of the ava i l ab le merchandise. This narrow a t t i tude of the government 28 seems to have affected the public with the result that the beer parlors do not have the social atmosphere of the English "pubs" but are s t r i c t l y places where people go to drink. There i s evidence of changing attitudes, but the change is very slow, because there are many people who agree with the govern-ment's attitude towards drink. For this reason the breweries have to tread carefully when pressing for changes in the legis-lation and when designing their advertising programs. Summary of the Marketing Environment The marketing environment facing the brewing industry can be summed up as follows. Br i t i s h Columbia continues to attract large numbers of people. Employment i s growing faster than the national rate, and the per capita personal disposable income i s the second highest in Canada. However, the unemploy-ment rate i s higher than the national figure. Thus, generally, the economic climate i s good for the brewing Industry. Compet-ition within the industry i s intense, but competition with other beverage industries i s even stronger and the other beverage industries seem to be gaining (a trend which is visible through-out Canada). As an industry, the breweries are over regulated by the government and this i s restricting expansion. The sociological climate Is changing slowly, but due largely to the puritanical attitude of the government, drinking tends to be a serious rather than social a f f a i r . 29 The Decision Variables Given the marketing environment, how can the firm help to stimulate i t s sales? I t can do so by the use of i t s marketing decision variables. These variables have been c l a s s i f i e d i n d i f f e r e n t ways by d i f f e r e n t authors. In t h i s paper we s h a l l follow the c l a s s i f i c a t i o n proposed by E. Jerome McCarthy and divide the variables into the 'Four Ps': product, promotion, p r i c e , and place. We w i l l examine each of these in turn. The Product In the brewing industry the product i s of course beer. In B r i t i s h Columbia there are two main types of beer - lager and a l e . Lager accounts f o r approximately 98$ of the t o t a l volume of sales arid ale accounts f o r approximately 2 $ . Porter and stout make up l e s s than There are thirty-one brands of beer f o r sale in B r i t i s h Columbia of which ten are national brands sold r i g h t across Canada. Amongst Molson's three brands, Old Style and Molson's Canadian are lagers, and Export Ale i s , naturally, an a l e . The Canadian and Export brands are national brands. As mentioned previously, the product i s the decision variable over which the firm has the most control. However, because of the nature of the product, i t turns out that t h i s decision variable i s rather i n e f f e c t u a l . Of the two main product strategies, d i f f e r e n t i a t i o n through product modification and d i f f e r e n t i a t i o n through new product development, the f i r s t 30 can not be r e a l l y applied and the second has so f a r proved to be l a r g e l y unsuccessful. Beer i s not regarded as having d i f f e r e n t q u a l i t i e s and i t has no v i s i b l e features, thus i product modification through q u a l i t y and feature improvement i s not f e a s i b l e . The t h i r d frequently used modification, strategy, s t y l i n g improvement, i s also not very applicable. The brewing industry has agreed to use standard sized bottles f o r ease of handling and thus t h i s aspect of packaging can not be a l t e r e d . The lab e l s on the bottles can be used f o r adver-t i s i n g , although the law regulates what can be said, but i t i s doubtful whether many people read the l a b e l s . The cartons can be used f o r advertising, subject to certain regulations, and the method of opening the cartons can be modified but the brew-ing industry has agreed to keep the size of the cartons standard, again i n order to f a c i l i t a t e storing, shipping and repacking them. The e f f e c t of modifying the method of opening w i l l be dealt with further i n Chapter V when we discuss the r e s u l t s of the survey. With the strategy of d i f f e r e n t i a t i o n through product modification being so l i m i t e d in scope, the breweries have t r i e d d i f f e r e n t i a t i o n through new product development, but generally with l i t t l e success. During the past f i v e years there have been three new brands introduced into B r i t i s h Columbia-Stein, Charrington Toby, and Gold Keg. Their present c o l l e c t i v e share of the market i s l e s s than 2%. The reason f o r t h e i r f a i l u r e i s not certain but i t i s probably due to the fac t that 31 the majority of beer drinkers have a d e f i n i t e f a v o r i t e brand (see the r e s u l t s of the survey in Chapter V) and i t i s very d i f f i c u l t to replace t h i s f a v o r i t e . There are probably several reasons why t h i s i s so. The d i f f i c u l t y of producing a beer with a s u f f i c i e n t l y d i f f e r e n t taste to the others could be one reason. The r e s t r i c t i o n s placed on advertising, mentioned i n a l a t e r section, could be another. Another way that the breweries have t r i e d to stimulate sales i s by s e l l i n g t h e i r brands n a t i o n a l l y . This i s based on the theory that because more and more people are moving about the country they represent an expanding segment of the market. If these people are able to obtain t h e i r f a v o r i t e beer in each province, then they w i l l remain l o y a l to t h e i r f a v o r i t e brand and thus sales w i l l at le a s t remain constant and hopefully w i l l expand. However, so f a r t h i s strategy has not been very successful. Different regions have i n d i v i d u a l tastes and brands are more successful i f brewed l o c a l l y according to the p r e v a i l -ing taste. The introduction of new brands into a region, as mentioned above, i s very d i f f i c u l t . Molson*s have examples of t h i s . Their two national brands account f o r only 5% of t h e i r sales in B r i t i s h Columbia. Promotion A l l advertising by the brewing industry, as well as sales methods, are governed by the p r o v i n c i a l a u t h o r i t i e s . In addition to t h i s control by the province, the Board of Broad-32 cast Governors, a federal body, also has a say on the nature of radio and t e l e v i s i o n broa'dcasting. Preparation of advertising programs thus requires an expert in law as well as in copy preparation. The p r o v i n c i a l regulations of course vary from province to province but appear to be more severe i n the West than in the East of Canada. In B r i t i s h Columbia they can only be described as an anachronism. For instance, the size and number of advertisements i n newspapers i s l i m i t e d , and the color must be black and white; the advertisements can not show family groups or children or outdoor scenes; no phrases l n f e r -r i n g price may be used, and so on. Radio and t e l e v i s i o n cannot be used f o r advertising, and neither can b i l l b o a r d s . Magazines may be used and the advertisements are not r e s t r i c t e d i n size or colour - as long as these advertisements originate ± in the East of Canada. In the area of sales methods the breweries again are s t r i c t l y regulated. Salesmen are not allowed to s o l i c i t sales or to take orders f o r purchases. They can not give away free samples and they can not make price concessions. Such r e s t r i c t i o n s only o f f e r f r u s t r a t i o n to the breweries and they have to learn to cope as best they can. Molson's makes extensive use of the newspapers and, through imag-inati v e advertising, they f i n d that they get good r e c a l l . Extensive use i s also made by Molson's, and the rest of the brewing industry, of Channel 12 on Bellingham t e l e v i s i o n . However, again there are r e s t r i c t i o n s in that the breweries are 33 only allowed to advertise between 8 p.m. and 12 p.m. (unless they are sponsoring a l i v e event). Because of the temperate views of a certain segment of the population, the breweries take care to ensure that t h e i r advertising campaigns are i n no way objectionable to t h i s segment. The four major breweries and Tartan Brewery are not allowed to send salesmen into the Kootenays area of B r i t i s h Columbia and are not allowed to advertise there in the l o c a l newspapers. The price of t h e i r beer i s also sold at a premium (but the Liquor Control Board pays the transportation costs from Vancouver and Prince George). This i s due to h i s t o r -i c a l f a c t . O r i g i n a l l y there were three small breweries in the Kootenays. These were ln danger of closing and so they amal-gamated to form I n t e r i o r Breweries Ltd. and the p r o v i n c i a l government gave them protection from the other breweries as outlined above. In f a c t , the four major breweries never did do much business there and so they do not object to the s i t u a t i o n . Because of the r e s t r i c t i o n s on advertising the brew-ing industry i s forced to use other means of promotion, and a l l of the major breweries are heavily involved in sponsoring public projects, p a r t i c u l a r l y sports clubs (such as hockey, f o o t b a l l , baseball, lacrosse, darts, bowling clubs, and so on). Molson's sponsors over 200 l o c a l sporting a c t i v i t i e s but t h i s sponsorship i s not widely known. I t s best known connection with sport i s with the Montreal Canadiens. Since 19^5 Molson*s have extended t h e i r connection with sport by o f f e r i n g ten hockey 3 * s c h o l a r s h i p s a n n u a l l y i n t h e a m o u n t o f $500, t e n a b l e a t a n y u n i v e r s i t y i n B r i t i s h C o l u m b i a w h i c h h a s a h o c k e y t e a m . M o l s o n ' s a l s o c o n t r i b u t e s t o o t h e r c a u s e s , s u c h a s t h e K i n s m e n ' s c o n v e n t i o n s a n d v a r i o u s e t h n i c a s s o c i a t i o n s . T h e b r e w i n g I n d u s t r y a s a w h o l e asejgfiBerQBs c o n t r i b u t o r s t o h e a l t h a n d w e l f a r e , e d u c a t i o n , a n d c u l t u r a l a n d r e l i g i o u s c a u s e s . F igures c o l l e c t e d b y t h e N a t i o n a l I n d u s t r i a l C o n f e r e n c e B o a r d i n d i c a t e t h a t d o n a t i o n s b y t h e b r e w i n g i n d u s t r y a m o u n t t o a r a t e o f 1.87$ o f p r o f i t s b e f o r e t a x e s c o m p a r e d t o t h e a v e r a g e C a n a d i a n i n d u s t r y f i g u r e o f l . l ^ , 1 ^ M o s t o f t h e s e c o n t r i b u t i o n s h a v e , a s t h e i r u l t i m a t e a i m , t h e s t i m u l a t i o n o f s a l e s . P r i c e T h e c o n s u m p t i o n o f b e e r i s g r e a t e r i n r e l a t i o n t o o t h e r a l c o h o l i c b e v e r a g e s a m o n g t h e m i d d l e a n d l o w e r I n c o m e g r o u p s a n d i t i s t h e s e g r o u p s w h i c h a r e m o s t s e n s i t i v e t o l o c a l e c o n o m i c c o n d i t i o n s , p a r t i c u l a r l y t o p r i c e s . B e c a u s e o f t h e i r s e n s i t i v i t y t o p r i c e s , t h e b r e w e r i e s t r y ; >to k e e p t h e p r i c e o f b e e r w i t h i n t h e r a n g e o f t h e a v e r a g e c o n s u m e r . A c t u a l l y t h e p r i c e i s s e t b y t h e L i q u o r C o n t r o l B o a r d a n d t h e b r e w e r i e s h a v e t o m a k e r e p r e s e n t a t i o n t o g e t p r i c e c h a n g e s . T h e g o v e r n -m e n t i s m a i n l y c o n c e r n e d w i t h i t s r e v e n u e s a n d i s n o t p a r t i -c u l a r l y i n t e r e s t e d i n w h e t h e r o r n o t t h e p r i c e i s w i t h i n t h e r a n g e o f t h e a v e r a g e c o n s u m e r . T h i s h a s m e a n t t h a t t h e b r e w -e r i e s , i n o r d e r t o k e e p t h e p r i c e d o w n , h a v e h a d t o a b s o r b t h e i n c r e a s e s i n t a x e s t h e m s e l v e s . I n M a y 1951 t h e r e w a s a n i n c r e a s e 35 in a l l p r i ces (from the manufacturer's to the consumer's) due . . 16 to the increase in federa l sales tax from 8$ to 10$. In March 1954 the p r o v i n c i a l sales tax was increased from 3$ to 5$ and the method of l evy ing the exc i s f duty was changed from 21$ per pound of malt used to 3&V per ga l lon of beer produced. The change in sales tax caused the p r i ce of beer to the consumer to be ra i sed but the breweries d id not increase t h e i r f ac tory s e l l i n g p r i ce (even though the new excise duty was more expensive). In 1959 the federa l sales tax was Increased from 10$ to 11$ and again in 1966 i t was increased from 11$ to 12$. In both cases the increases were absorbed by the breweries. In Ju l y 1967» because of increased costs since 195I» the brew-er ie s requested a 2& per dozen increase which the government granted while at the same time increas ing the cost to the consumer by 5^. In December of the same year the excise duty was increased to k2fi per gal lon and th i s 4^ increase was added to the breweries ' s e l l i n g pr i ce per dozen while the government ra i sed t h e i r pr i ce to the consumer by 6<jt>. Thus, of the 11^ increase in p r i ce to the consumer between 1954 and 1968 the federa l government gained 59.6$, the p rov inc i a l government gained 45.4$, and the breweries suf fered a 5.0$ decrease in revenue (see Figure 2). In t h e i r attempt to keep the p r i ce down, between 1951 and 1967» the breweries had to absorb not only the increases in taxes but a lso the cont inua l l y increas ing costs 36 Figure 2 . I l l u s t r a t i o n of how the Price Increase of 11$ Per Dozen Bottles i s divided - 1968 compared with 1 9 5 8 . DECREA5E INCREASE INCREASE Source: from c o n f i d e n t i a l data compiled by the Brewers Association of Canada. of materials and labour. Since the war productivity has improved considerably through the introduction of better production techniques and the broad application of mechanized handling throughout the brewery, and t h i s helped to o f f s e t 37 increasing costs. However, during the l a s t few years tech-n o l o g i c a l improvement has l e v e l l e d o f f and new cost reducing ways w i l l have to be found i f the price i s to be kept down while maintaining the p r o f i t l e v e l at the same time. Id e a l l y the breweries would l i k e to reduce t h e i r abnormally heavy taxation burden. However, i t i s very hard to get taxes reduced and the p r o v i n c i a l government, whose share of the consumer d o l l a r has increased more than Q% since 1951» i s not at a l l receptive to the idea. Consequently, i n order to keep the price of beer at a reasonable l e v e l , the breweries are forced to absorb increases in taxes. D i s t r i b u t i o n The fourth of the 'Four Ps f - place, or rather, d i s t r i b u t i o n - i s also, as we have mentioned previously, regulated by the government,.' ;In B r i t i s h Columbia the only places that may s e l l beer are the p r o v i n c i a l l y owned l i q u o r stores, and licensees (such as hotels, certain clubs, and armed forces messes). There i s also home delivery from certain l i q u o r stores. This r e s t r i c t i o n on d i s t r i b u t i o n impedes the marketing of beer. I t has been shown that the type of r e t a i l outlet and the a c c e s s i b i l i t y of the outlet a f f e c t the consump-tion of beer, and the breweries can do nothing, or very l i t t l e , about these two factors. In B r i t i s h Columbia the l i q u o r stores account f o r 7C$-,.of beer sales i n the province.. This i s , i n part, due to 38 the wide choice of brands that they o f f e r . However, i t i s also due to the wide d i f f e r e n t i a l between the l i q u o r store prices and the licensee prices (at present $1.02 per dozen in favor of the l i q u o r stores). The greater t h i s d i f f e r e n t i a l , the l e s s l i k e l y i s the consumer to buy from the licensee. On the other hand, experience in Manitoba, where the prices are the same in the l i q u o r board outlets and the licensee o u t l e t s , shows that people prefer to buy at licensee outlets. The B r i t i s h Columbia government, by maintaining i t s price advantage, thus u n f a i r l y encourages people to buy from i t s stores and v i r t u a l l y takes choice away from the consumer. I t thus in e f f e c t r e s t r i c t s the breweries' choices of o u t l e t s . Summary Generally the marketing problems facing the brewing industry in B r i t i s h Columbia are irksome, f r u s t r a t i n g , and antiquated. The r i g i d price controls together with the abnorm-a l l y heavy tax load, the excessively r e s t r i c t i v e advertising laws, and the l i m i t e d d i s t r i b u t i n g channels, a l l add up to a d e f i n i t e discouragement to the brewing industry by the govern-ment. The brewing industry can only hope to change the present s i t u a t i o n by educating the government through the publication of unbiased f a c t s and s t a t i s t i c s . The Brewers Association of Canada i s doing a good job i n t h i s respect but one f e e l s that the breweries themselves, through t h e i r l o c a l brewers' organi-sation, are not presenting these f a c t s to the p r o v i n c i a l 39 government as f o r c e f u l l y as i s necessary i n order to obtain a r e v i s i o n of the laws in the not too distant future. FOOTNOTES 1. Based on a c l a s s i f i c a t i o n by P h i l l i p Kotler i n Marketing  Management (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1967), p. 26. 2. In a c o n f i d e n t i a l report by Kappele, Wright, and Macleod, Consultant Engineers, Economic Study of the Brewing Industry  in Western Canada (Toronto, 1966). 3 . Department of Trade and Commerce, Dominion Bureau of S t a t i s t i c s . Canada Year Book. 1968 (Ottawa: The Queen*s P r i n t e r , 1960TI 4. A l l data in t h i s section i s from the Canada Year Book. 1968. 5. Kappele, Wright, and Macleod, op. c i t . 6. Data from the Canada Year Book. 1968. 7. Department of Trade and Commerce. Dominion Bureau of S t a t i s t i c s . National Accounts. Income and Expenditure. 196'7 (Ottawa: The Queen's P r i n t e r , 1967). 8. Data from Brewing ln Canada (with supplement)(Ottawa: Brewers Association of Canada, 1965)» appendix III and Table IV. 9. Comparable data are not available f o r the soft drink industry, but Kappele, Wright, and Macleod, o p . c i t . . estimate the t o t a l consumption growth in B r i t i s h Columbia, 1950-64, at about 6% per year. 10. Data from Brewing ln Canada (with supplement), appendix V and table VII. 11. From c o n f i d e n t i a l data c o l l e c t e d by the Brewers Association of Canada. 40 12. In Kappele, Wright, and Macleod, op.ci t . 13. E. Jerome McCarthy, Basic Marketing: A Managerial  Approach, rev. ed. (Homewood, 111.: Richard D. Irwin, Inc., 1964), pp. 38-40. 14. Department of the Attorney-General, B r i t i s h Columbia. The Government Liquor Act ( V i c t o r i a : The Queen*s Pr i n t e r , 1953). 15. From Kappele, Wright, and Macleod, op. c i t . 16. Data in t h i s section are from c o n f i d e n t i a l records of the Brewers Association of Canada. CHAPTER IV DECISION MAKING IN THEORY Introduction Decisions are made at a l l l e v e l s in the firm and are of varying degrees of complexity. Some decisions are t r i v i a l - such as deciding which magazines the company should subscribe to - and some are major ones - such as deciding whether or not to bu i l d a new plant. Many decisions are routine, but a few only occur once or very Infrequently. Some decisions involve l i t t l e r i s k - such as renting a du p l i c a t i n g machine - but others involve a great deal of r i s k - such as introducing a new product to the market. But whatever the nature of the decision, a decision-making process f o r dealing with problems i s essential to the firm. In t h i s chapter we s h a l l develop a model of the decision-making process which we s h a l l then incorporate into a general problem-solving model. C l a s s i f i c a t i o n of Decisions There have been many c l a s s i f i c a t i o n s proposed f o r the d i f f e r e n t types of decisions. I n i t i a l l y we s h a l l consider the c l a s s i f i c a t i o n proposed by Dale. 1 Because th i s i s a very broad c l a s s i f i c a t i o n , other categories within t h i s c l a s s i f i -42 cation w i l l be developed l a t e r . Dale c l a s s i f i e s decisions into three types: p o l i c y decisions, administrative decisions, and ad hoc decisions. P o l i c y decisions are those which are made when the business commences i t s operations and are the p r i n c i p l e s governing the conduct of business. These decisions are often written in the p o l i c y manual. Administrative decisions are those concerned with the implementation of p o l i c i e s . These decisions translate the p o l i c y decisions into general courses of action. They may be formalized in the procedure manual. And f i n a l l y , the t h i r d type of ad hoc decisions are the day-to-day decisions made at the place where the work i s carr i e d out. The Decision Maker Having presented one c l a s s i f i c a t i o n of decision types, we s h a l l now consider whether or not we can c l a s s i f y the persons who make the decisions. According to c l a s s i c theory decisions should be assigned to the lowest competent l e v e l in the organisation. This i s the lowest l e v e l at which "the jobholder has both access to a l l pertinent a v a i l a b l e information to the decision and the incentive to weigh the fac tors i m p a r t i a l l y " . This i s only a p a r t i a l d e f i n i t i o n , however, because i t implies a l e v e l of r e s p o n s i b i l i t y without questioning whether there i s authority corresponding to the r e s p o n s i b i l i t y . In order that a jobholder may be an e f f e c t i v e decision maker, the ^3 authority that goes with his job must be commensurate with the r e s p o n s i b i l i t y of that job. This i s esse n t i a l because, as c i t e d below, the actual decision (or deciding) i s only one step in a process and the succeeding, and equally impor-tant, step i s the implementation of the decision. This step cannot be carried out i f authority i s lacking. This f a c t o r i s often overlooked i n an organisation although the idea i s not new. As early as 1926 F o l l e t argued that M a person should have as much authority as goes with his function or task". 3 From the previous paragraph i t can be seen that p o l i c y decisions can only be made by the top management i n an organization (such as the board of directors) because only they have the authority to implement such decisions. On the other hand, administrative decisions can be made at a lower l e v e l . The exact l e v e l w i l l depend upon the structure and size of the organisation and may be either a department or d i v i s i o n head. Ad hoc decisions are made by the f i r s t l i n e managers and above. This c l a s s i f i c a t i o n of who makes the decisions i s not a r i g i d one because the d i s t i n c t i o n between p o l i c y , administrative, and ad hoc decisions, may not always be clear. The structure of the organisation and the type of industry w i l l also have a bearing on the c l a s s i f i c a t i o n . What i s important, in order to avoid duplicating decisions, i s that 44 each decision maker in a p a r t i c u l a r organisation knows which decisions he can make himself and which ones have to be made by someone else. The Process of Decision Making The process of decision making i s usually considered to involve a series of steps. The actual act of making the decision (or deciding) i s but one step in the process and, in f a c t , i f the preceedlng steps have been carried out with d i l i g e n c e , the 1deciding* step i s usually self-evident and i s of l e s s importance than the other steps. In f a c t Drucker goes so f a r as to say that the emphasis i n decision making should be on finding the r i g h t question rather than the r i g h t answer. Because the act of making the decision i s only one step in a process, some authors^ have c a l l e d the process the *decisioning process* to d i s t i n g u i s h i t from the *deciding* step. In t h i s thesis we s h a l l use the term •decision-making process* to r e f e r to t h i s series of steps. These steps w i l l be outlined below. We s h a l l r e f e r to the person who makes the decision (that i s , who selects the best alternative) as the decision maker. In some cases the person who ultimately makes the decision may not have been involved in the e a r l i e r steps. This i s not important. However, what i s important, as mentioned previously, i s that the person who makes the 'deciding* step must have the authority to implement his *5 decision (the f i n a l step in the process). The term "theory of decision making" does not re f e r to the process of decision 6 7 making (according to Dale and Edwards ) but to the methods used, at one stage in the process, to evaluate al t e r n a t i v e solutions to the problem. These methods w i l l be examined l a t e r . A Model of the Decision-Making Process The decision-making process consists of anywhere g from one to twenty steps depending upon the author. We w i l l use seven steps in our model and the steps w i l l be a combination of what we consider to be the best steps in the 9 processes described by Duncan, Drucker, Kotler, and Simon. We w i l l not describe t h e i r various steps because many of them are the same and a description of t h e i r models and our model w i l l only lead to r e p e t i t i o n . The seven steps which constitute the decision-making process i n our model are as follows: 1. analyse the si t u a t i o n 2. define the problem 3. c o l l e c t and analyse data 4. develop al t e r n a t i v e solutions 5. evaluate the alt e r n a t i v e s 6. select the best solution 7. implement the solution 1. Analysis of the situ a t i o n The f i r s t step in the process i s the analysis of the s i t u a t i o n . Both Duncan and Drucker place t h i s step a f t e r 46 the d e f i n i t i o n of the problem. The other authors (Kotler and Simon) t a c i t l y place i t in the d e f i n i t i o n step. I t seems to t h i s writer, however, that the l o g i c a l sequence i s f i r s t to analyse the s i t u a t i o n , because only a f t e r an analysis can the problem be c l e a r l y defined. The objective of the analysis step i s to enable the decision maker to become well-informed about the elements i n the s i t u a t i o n . The nature of the problem should be examined. It should be determined whether the •problem 1 (as yet i l l -defined) belongs within the r e s p o n s i b i l i t y of the person making the analysis or whether i t can be delegated or passed upwards. The r e a l problem must be determined. The symptoms of the s i t u a t i o n may be those of a subproblem and may not express the basic, underlying problem. 2. D e f i n i t i o n of the problem Having determined what the r e a l problem i s , i t should now be c l e a r l y defined. This means that the objectives f o r the solution must be c l e a r l y thought through. They should be reasonable tand attainable which means that consideration should be given as to whether or not the objectives are within the boundaries set by the rules and p o l i c i e s of the firm. 10 Drucker suggests the use of four c r i t e r i a f o r examining the problem. The f i r s t c r i t e r i o n i s the f u t u r i t y of the decision and i s concerned with the time span f o r which the decision commits the firm to a course of action. The second 47 c r i t e r i o n i s the impact of the dec is ion on other areas and funct ions in the f i rm. T h i r d l y , the number of qua l i t a t i ve fac tor s ( p a r t i c u l a r l y human beings) that enter into the dec i s ion should be considered. And l a s t l y , the uniqueness or p e r i o d i c i t y of the dec is ion should be examined. By cons id -er ing the problem in the l i g h t of these c r i t e r i a , the dec is ion maker can place the dec is ion to be made in the r i ght perspect-ive with regard to the f i r m ' s viewpoint. Once the problem has been defined i t should be wr i t ten down e x p l i c i t l y . If the d e f i n i t i o n i s changed l a t e r as more data become ava i l ab le , the change should be made e x p l i c i t too. During th i s stage i t should be determined who must be consulted and informed about the problem in order that the process may be expedited. 3. Co l l ec t i on and ana lys i s of the data With the problem c l e a r l y defined the next step i s to c o l l e c t and analyse the data. Data c o l l e c t i o n i s expensive and thus th i s step i s l e f t u n t i l the problem has been c a r e f u l l y analysed and def ined. Thorough work in these two e a r l i e r steps can ensure that only re levant data i s c o l l e c ted . This i s why Drucker emphasized that asking the r i ght questions i s so important. The r i ght questions w i l l p inpoint the root of the problem and w i l l guide subsequent research fo r data along the r i gh t t racks . Of course no one i s i n f a l l i b l e and the dec i s ion maker may f i n d , a f t e r the data has been co l l ec ted and analysed, 48 that the e a r l i e r two steps need to be repeated in order to f i n d a better d e f i n i t i o n to the problem. The model i s not r i g i d in the sequence of steps, and steps may be repeated as many times as i s f e l t necessary and also some steps may be omitted. S k i l l f u l and imaginative analysis of the data i s an ess e n t i a l part of t h i s step. When analysing the data the key variables in the problem should be i d e n t i f i e d . The major areas of uncertainty should also be outlined and the areas where data i s lacking should be defined. This i s important i f the decision maker i s to know the degree of precision and r i g i d i t y which he can af f o r d to give his decision. One frequently used method of c o l l e c t i n g data i s the survey. We w i l l examine t h i s techniquealn d e t a i l in Chapter V, and also some s t i s t i c a l methods fo r analysing data. 4. Development of Alternative Solutions The next step i s very important - developing a l t e r n a t -ive solutions to the problem. A rule of thumb here i s that i f the decision maker can only think of one solution, then that 11 solution i s probably wrong. The only way to develop a l t e r -natives i s to s i t and think. A creative mind i s an asset f o r th i s stage. A thorough search w i l l probably unearth so many choices that i t i s just not p r a c t i c a l to consider and eval-uate them a l l . The s k i l l of the decision maker - in consider-ing the objectives of the decision and the relevant factors i n 49 the problem - i s needed here to discriminate on a prelim-inary basis and to exclude the unsuitable a l t e r n a t i v e s . 12 Barnard stresses that in choosing from among alter n a t i v e s primary attention should be given to those factors that are l i m i t i n g , or s t r a t e g i c , to the decision. That i s , to those factors which are strategic in determining whether the objectives of the decision w i l l be reached. Only those a l t e r n a t i v e s which encompass the strategic factors should be considered. At t h i s step, the alternatives are only l i s t e d and no evaluation (apart from the cursory evaluation to discriminate among the many choices) i s carried out. 5. Evaluation of the a l t e r n a t i v e s . Having l i s t e d the suitable a l t e r n a t i v e courses of action the next step i s to evaluate them. The techniques used to evaluate the alter n a t i v e s w i l l depend upon the type of decision, the nature of the data, and the sophistication of the firm. To f a c i l i t a t e describing the various techniques we 13 w i l l c l a s s i f y decisions according to Simon (s method. He c l a s s i f i e s decisions into programmed and nonprogrammed ones. These two types of decisions are the polar ends of a continuum 14 along which a l l decisions f a l l . Decisions are c l a s s i f i e d as programmed when they are r e p e t i t i v e and routine and a d e f i n i t e procedure (or program) can be developed f o r handling them. Decisions are nonprogrammed i f they are novel, unstructured, and consequential. There i s no set method f o r handling these 50 types of problems because of t h e i r uniqueness or complexity. If the decision can be classed as a programmed decision, then the decision maker should aim to develop a set procedure f o r dealing with s i m i l a r types of problems. Formerly such problems were solved primarily through habit, standard operating procedures, or organisation structure. Today a more sophisticated technique may be used such as a l o g i c a l flow diagram, a mathematical model, simulation, or a systems approach. We can l i s t these techniques in the following diagram. Figure 3. T r a d i t i o n a l and Modern Techniques of Decision Making Decision-Making Techniques Types of Decisions T r a d i t i o n a l Modern Programmed Habit Standard operat-ing procedures Organisation structure Logical flow diagrams Mathematical models Simulation Systems approach Nonprogrammed Judgment and experience Management p r i n c i p l e s Heuristic program-ming Source: based on a diagram in Herbert A. Simon, The New Science of Management Decision (New York: Harper and Bros., I960), p.8. 51 Programmed Decisions: T r a d i t i o n a l Methods Habit i s formed through r e p e t i t i o n and thus r e p e t i t i v e decisions tend to lead to habit forming methods f o r t h e i r solution. Such methods r e l y on the f a c t u a l knowledge and experience of the firm's s t a f f , and when a member of the s t a f f leaves the firm the cost of providing h i s replacement with t r a i n i n g and experience can be very large. An improvement i s made on habit methods when the habits become recorded. They are then known as standard operating procedures. The only difference between habits and standard operating procedures i s that the l a t t e r are formal, written programs. That i s to say, they are decision r u l e s . The advantages of standard operating procedures are the reduction ln costs associated with indoctrinating new members into the firm, and the opportunity f o r modification and improvement afforded by exposing habitual patterns to scrutiny. Organisation structure i s also a method ln so f a r as i t establishes expectations and subgoals which serve as c r i t e r i a of choice. It also breaks down problems into component parts, through the delegation of r e s p o n s i b i l i t y f o r decisions, when appropriate. Programmed Decisions: Modern Methods The modern methods f o r solving programmed problems arose l a r g e l y out of the needs of World War II f o r techniques 52 to solve increasingly complex, although often routine, problems. The development of the computer during the war aided the application of mathematical methods. When problems become more complex and require several decisions to be made, a l o g i c a l flow diagram may be 15 used. This i s e s s e n t i a l l y a sequence of decision rules and, by representing them in diagramatic form, c l a r i t y i s added to the decision making process. There are two basic operations which l i n k the decisions in a flow diagram. One operation i s c a l l e d branching and t h i s occurs when there are a l t e r n a t i v e courses following a decision. The other operation i s c a l l e d looping and t h i s occurs when the course of action following a 16 decision i s to return to an e a r l i e r decision step. Magee has developed a special type of flow diagram based on branch-ing c a l l e d the decision tree. This procedure i s best suited to a s i t u a t i o n involving a sequence of decisions and/or where there are more than three chance variables a f f e c t i n g decision a l t e r n a t i v e s i n d i f f e r e n t ways. The decision a l t e r n a t i v e s are l i s t e d at the f a r l e f t and branches are used to depict the set of possible events that could follow each decision (see Figure 4). For even more complex problems a mathematical model 17 may be used. The development of operations research tech-niques - such as l i n e a r programming, dynamic programming, and integer programming - has greatly aided i n solving complex 53 FIGURE 4. Decision Tree for Problem on Size of Salesforce hire 4 sales-men market otential 3000 market potential 5000 competition ^reacts ^competition doesn't react competition Teac t s .competition doesn't react Maintain salesforce Increase salesforce market potential A3000 competition rreacts .competition doesn't react hire 8 sales-1 men market potential' 5000 competition 'reacts [Competition doesn' t react Source: based on a diagram in P h i l l i p Kotler, Marketing  Management (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1967), p. 181. 5^ problems. In a l i n e a r programming model the objective function and the constraints are expressed as s t r a i g h t - l i n e r e l a t i o n s h i p s . I f i t i s f e l t that the relationships are not l i n e a r , then nonlinear programming i s used. These models are considerably harder to solve and so f o r s i m p l i c i t y , r e l a t i o n -ships are often assumed to be l i n e a r . Dynamic programming i s the most complicated of the programming techniques and i s applied to those problems where a series of consecutive, interdependent decisions have to be made. Integer programming i s a technique used to ensure that the optimal solution consists of integers rather than f r a c t i o n s . These methods often require "high-level" mathematics f o r t h e i r solution, and a computer may be used f o r the ca l c u l a t i o n s . Sometimes the problem i s too complicated to be represented by a standard mathematical model. For such problems the technique of computer simulation i s being 18 increasingly used. The problem i s f i r s t stated as a set of mathematical or l o g i c a l r e l a t i o n s which represent the essential features of the system. The computer then car r i e s out step-by-step computations with these re l a t i o n s which imitate the manner i n which the r e a l system, being simulated, might perform. The values of the variables are changed and the calc u l a t i o n s r e i t e r a t e d many times. The most l i k e l y solution i s then selected. 5 5 A technique which extends beyond the manager's point of view and looks at problems from the total company 19 viewpoint i s the systems approach. This i s not a specific method for decision making but rather i s a procedure for-; examining the process of problem solving as a whole. The term 'system' may refer to the total organi-sation, to a functional area within the organisation, or to an aspect of the functional area. Whatever the system refers to, i t i s always composed of several elements. These elements may be grouped into five classes: 1) input, 2 ) output, 3 ) transformation, 4 ) control, and 5 ) feedback. In a large complex organisation, different parts of the decision-making process may be performed by different personnel and thus consideration of these elements allows useful analysis of decisions. The input element represents data received from outside the system (either from other systems within the firm or from outside the organisation). The transformation element i s concerned with the transformation of the input element into the output element (usually a plan of action). The transformation may be performed by individuals, groups, or machines. The method of transformation i s governed by the control element (which may consist of decision rules, company objectives and policies, programs, models, and so on). One important feature of the systems concept i s the feedback element. This i s the flow of data back to the system concern-56 ing the re s u l t s a f t e r the decision has been implemented. Such feedback allows adjustments to be made to the system in order to make future decisions more e f f e c t i v e . Nonprogrammed Decisions: T r a d i t i o n a l Methods Nonprogrammed problems, as t h e i r name suggests, are problems that cannot be solved by a s p e c i f i c , programmable technique. Instead we have had to r e l y in the past on what we have c a l l e d judgement and experience, or on management p r i n c i p l e s . The judgement and experience technique, i f i t can be c a l l e d a technique, i s rather vague and the psychological processes behind i t are s t i l l not very well understood. However, many nonprogrammed problems are solved by using t h i s technique. There are several reasons f o r i t s wide spread use. For day-to-day problems decisions may be required quickly and there may not be time to apply more rigorous s c i e n t i f i c analysis. This supposes that there are s c i e n t i f i c methods f o r solving these problems, but ln many cases t h i s i s not so. And even i f such methods are ava i l a b l e , i t may be more expedient from the economic and the time point of view not to use a s c i e n t i f i c method. The time and expense involved in developing an a n a l y t i c a l solution may not be j u s t i f i e d by i t s contribution to the decision. Decisions based on experience and judgement are subject to the li m i t e d experience of the decision maker and to the extent of his memory and his powers of observation. 57 They are also l i m i t e d to his interpretation of the problem, and i f h i s interpretation i s wrong i t may mean the application of judgement based on an i r r e l e v a n t experience. Management p r i n c i p l e s are "rules of thumbw that have evolved from experience but which have been made more e x p l i c i t than i n the above technique. They may be written down or they may be t a c i t l y acknowledged by management. Such p r i n c i p l e s can also be developed through experimentation, under controlled conditions, through research by observational and experimental means, or through deduction from general theories. As i n the preceeding technique, management p r i n c i p l e s are l i m i t e d by the Interpretation of the problem. Nonprogrammed Decisions: Modern Methods I l l - s t r u c t u r e d problems generally have the following c h a r a c t e r i s t i c s : 1) the objective or goal of the problem i s not well defined or i s non-quantifiable 2) many of the independent variables are q u a l i t a t i v e , symbolic or verbal rather than quantitative 3) computational means or algorithms are not a v a i l a b l e . 2 0 To £§lp solve these types of problems a technique c a l l e d the h e u r i s t i c problem solving method has been developed. This technique attempts to simulate the processes of human problem-solving. Several studies have been carried out to determine the nature of human problem-solving processes and advances 21 have been made but progress i s slow. What has emerged so ,0 58 f a r i s that human thought-processes e s s e n t i a l l y appear to go through three processes when tr y i n g to solve a problem: the problem i s f i r s t c l a s s i f i e d into a type; the problem i s then broken down into subproblems i f the larger problem cannot be solved; and l a s t l y , techniques are applied to solve the sub-22 problems. The h e u r i s t i c technique based on these processes i s shown schematically in Figure 5-FIGURE 5« Heuristic Programming Procedures Start i - ^ C l a s s i f y the (sub)problem < r—>Apply a problem-solving technique > Solution of (sub)problem Next (sub)problem NO S U C C e S S f U ^ -NO MO • A l l technic ues tried? •>Last (sub)problem? Y E S Attempt to break down the (sub)problem YES „ "1 N O Successful? -> Incomplete solution End Source: from Max D. Richards and Paul S. Greenlaw, Management Decision Making (Homewood, 111.; Richard D. Irwin, Inc., 1966), p. 93. 59 The problem-solving technique which i s applied to a subproblem i s any of the previously mentioned,, techniques that w i l l solve the problem. The subproblem i s c l a s s i f i e d in order to a i d the decision maker in selecting the most appropri-ate problem solving technique f o r that type of problem. The h e u r i s t i c technique does not guarantee a solution - t h i s depends on solving a l l the subproblems. Neither does i t guarantee the optimal solution because there may be suboptimisation of the smaller problems. However, i t can lead to a s a t i s f a c t o r y and e f f e c t i v e solution to very complex problems. 6 . Selection of the Best Solution The f i f t h step in the decision-making process i s the selection of the best al t e r n a t i v e that w i l l contribute most to the attainment of the objectives set f o r the decision. Various ways of doing t h i s have been suggested by d i f f e r e n t 23 authors. Drucker suggests four c r i t e r i a f o r picking the best solution: 1) r i s k , 2) economy of e f f o r t , 3) timing, and 4 ) l i m i t a t i o n s of resources. The f i r s t c r i t e r i o n e n t a i l s weighing the r i s k s of the decision against the expected gains. Although Drucker does not elaborate on the types of r i s k , we s h a l l see l a t e r that r i s k s may be c l a s s i f i e d into three categories. Drucker*s second c r i t e r i o n i s concerned with the course of action which w i l l give the greatest gains, or the needed change, with the l e a s t e f f o r t or the l e a s t disturbance 6 0 to the organization. Implied in t h i s c r i t e r i o n i s the notion of looking at the decision from the firm's point of view i n order to minimize suboptimisation. The t h i r d c r i t e r i o n , timing, deals with how quickly the decision must be implemented and whether i t i s to be f i n a l or not. The l a s t c r i t e r i o n considers whether the necessary resources ( p a r t i c u l a r l y q u a l i f i e d people) 2k are available to Implement the decision. Koontz and O'Donnell stress that the tangible and intangible factors must be weighed when sele c t i n g the best a l t e r n a t i v e . The tangible factors can frequently be quantified which makes comparison between alt e r n a t i v e s straightforward. Intangible factors, however, are usually q u a l i t a t i v e and judgement i s required to make comparisons. Koontz and O'Donnell state that there are three bases f o r s e l e c t -ing alternatives? experience, experimentation, and research. Experience, based on past successes and mistakes, may not always be applicable. Experimentation i s expensive and should generally be used only a f t e r other techniques have f a i l e d , although in some cases i t i s necessary. Research, to establish the l i m i t i n g variables and parameters that bear on the solution, may enable a selection to be made at l e s s cost than by experimentation and more s c i e n t i f i c a l l y than by experience. A more sophisticated method f o r selecting a l t e r n a t i v e s 25 has evolved-from game theory. The purpose of the theory of games i s to analyse mathematically a general class of problems, c a l l e d strategy problems, by studying games. Game theory 61 recognizes that competitors have strategies which must be taken into account in order f o r an i n d i v i d u a l (or firm) to a t t a i n the best solution to a strategy problem. Under these circumstances game theory attempts to work out the optimum strategy that an i n d i v i d u a l (or firm) can follow i n a certain s i t u a t i o n so that, no matter what the competitor does, he 26 (or i t ) can minimize the maximum expected f i n a n c i a l l o s s . From the theory of games come various p r i n c i p l e s or c r i t e r i a which may"be used to select a l t e r n a t i v e decisions (or s t r a t e g i e s ) . Before these c r i t e r i a can be used, however, there i s one more aspect of decisions to examine f i r s t . When an i n d i v i d u a l (or firm) makes a decision there are two classes of factors which may prevent the decision from achieving i t s objectives. One class contains the competitors' strategies which we have already discussed. The other class i s c a l l e d the state of nature. This class contains the natural and • society factors which a f f e c t the outcome of a decision. Any s p e c i f i c combination i s c a l l e d a state of nature. Both these classes of factors are uncontrollable from the point of view of the decision maker. The states of nature or the competitive strategies may occur in three forms depending upon how much we know about 27 them. These three forms are certainty, r i s k , and uncertainty. I f a decision i s made under a condition of certainty, then the state of nature (or the competitive strategy) which w i l l occur i s known with certainty. If there are several states of nature 62 (or competitive strategies) but the decision maker knows the pr o b a b i l i t y of occurrence of each state, then the decision i s said to be made under a condition of r i s k . In the t h i r d form, uncertainty, the p r o b a b i l i t i e s of occurrence of the various states of nature (or competitive strategies) are not known. This condition i s sometimes therefore c a l l e d Ignorance. These d i s t i n c t i o n s of form are made primarily to ascertain the appropriate c r i t e r i o n to be used. The most frequently used c r i t e r i a to help select the optimum among the alt e r n a t i v e s are the expected value, the expected u t i l i t y value, the Laplace c r i t e r i o n , the c r i t e r i o n of pessimism, the c r i t e r i o n of optimism, the alpha c r i t e r i o n , 28 and the regret c r i t e r i o n . Condition of Certainty Under conditions of c e r t a i n l y there i s only one state of nature or competitive strategy. The task of selecting the best a l t e r n a t i v e i s therefore simply one of selecting that a l t e r n a t i v e which provides the highest return In terms of the objective of the decision. Condition of Risk When the decision i s made under a condition of r i s k , one of two c r i t e r i a are frequently used. The two c r i t e r i a are the expected value of the decision and the expected u t i l i t y 29 value of the decision. The expected value of an event i s the value i f i t occurs (the conditional value) multiplied by i t s p r o b a b i l i t y of occurrence ( i . e . the p r o b a b i l i t y of the state of nature). In a set of al t e r n a t i v e s , that a l t e r n a t i v e i s chosen which has the highest expected value. This i s based on the f a c t that i f the decision maker has many such decisions and the conditional value and p r o b a b i l i t i e s remain the same, then over the long run the selection of the decision with the greatest expected value w i l l lead to the objective with the maximum value. However, i f the decision does not occur very often and i f the decision i s l i k e l y to have a large impact on the firm (in terms of a large gain or l o s s ) , then the decision maker may prefer to use the u t i l i t y theory of the economists and to maximize hi s expected u t i l i t y rather than h i s expected (monetary) value. In th i s technique u t i l i t y values are assigned to the outcomes of decisions in place of monetary values. This allows recognition to be given to the fac t that a certain sized l o s s , i f i t occurred, would be c r i p p l i n g to the firm. Condition of Uncertainty Both of these c r i t e r i a are suitable only when the decision i s made under a condition of r i s k in which the p r o b a b i l i t i e s of the states of nature occurring are known. When these p r o b a b i l i t i e s are not known, we have a condition 64 of uncertainty. It is under this condition that the cr i t e r i a developed from game theory have been extensively used. A l l of the c r i t e r i a require that conditional values be derived for the outcomes. The different c r i t e r i a then handle the conditional values in the following ways. If the decision maker has no reason for supposing that one state of nature (or competitive strategy) is more l i k e l y to occur than another, he may decide to use the Laplace criterion (also known sometimes as the criterion of ration-a l i t y ) . This technique applies equal probabilities to the various states of nature, and the expected value of the decision i s then calculated as previously explained by multiplying the conditional values by the probabilities. The decision with the highest expected value i s then selected. If, however, the decision maker tends to be pessimistic by nature, he may prefer to use the criterion of 30 v pessimism (also known as the minimax criterion ). This criterion looks at the pessimistic side of the decision, assumes that the worst state of nature or competitive strategy w i l l occur, and attempts to minimize the maximum possible loss under such conditions. The alternative which achieves this i s therefore selected. Many people are optimists, however, and i f the decision maker is such a person and is optimistic about which state of nature or competitive strategy w i l l occur, then he w i l l probably choose the criterion of optimism (also known 65 31 as the maximax c r i t e r i o n )• This c r i t e r i o n leads to the selection of the al t e r n a t i v e which has the maximum possible gain on the optimistic assumption that i t w i l l occur. A v a l i d c r i t i c i s m of the two preceeding c r i t e r i a i s that not everyone can be categorized as either a pessimist or an optimist. In f a c t , the majority of people probably f a l l between these two extremes and at d i f f e r e n t times tend 32 towards either one. Hurwicz therefore proposed a combi-nation of the two c r i t e r i a which has been c a l l e d the Hurwicz 33 alpha c r i t e r i o n • This c r i t e r i o n assumes that the decision maker has some degree of optimism. This degree of optimism i s expressed on a scale from 0 to 1. If he i s completely o p t i m i s t i c about the occurrence of a state of nature he would specify 1 on the scale. I f he i s completely pessimistic about the occurrence he would specify 0. For any other f e e l i n g he would choose a decimal between 0 and 1. He then m u l t i p l i e s the conditional value under the most optimistic state of nature f o r each strategy by h i s c o e f f i c i e n t of optimism. Next he mu l t i p l i e s the conditional value under the most pessimistic state of nature f o r each strategy by his c o e f f i c -ient of pessimism. F i n a l l y these two values f o r each strategy are added together to give an index f o r each strategy. The strategy with the highest index i s then selected as the best. A f i f t h c r i t e r i o n may be used f o r decisions under uncertainty, namely the c r i t e r i o n of regret (also known as 34 the minimax regret c r i t e r i o n ). The regret of a strategy 66 i s defined as the difference between the gain from that decision and the maximum gain that i s possible under the same conditions. The decision maker calculates the d i f f e r -ence between the maximum and minimum outcomes fo r each a l t e r n a t i v e under each state of nature or competitive strategy. He then l i s t s the maximum regret that could occur f o r each a l t e r n a t i v e , and selects the a l t e r n a t i v e which has the minimum such maximum regret (the minimax). FIGURE 6. C r i t e r i a f o r Selecting the Best Alternative Under conditions of c e r t a i n t y Select decision with optimum outcome Evaluate the a l t e r n a t i v e s Under conditions of r i s k Select decision with greatest expected value or expected u t i l i t y Under conditions of uncertainty Select c r i t e r i o n Laplace Maximax Minimax Minimax regret Hurwlcz alpha Select decision with outcome best meeting c r i t e r i o n Source: based on a diagram in Max D. Richards and Paul S. Greenlaw, Management Deoision Making (Homewood, 111 Richard D. Irwin, 1966), p. 53. 67 Figure 6 shows the various c r i t e r i a that may be used to select the best a l t e r n a t i v e . The selection of the c r i t e r i o n to be used f o r alt e r n a t i v e s under a condition of uncertainty i s l e f t to the judgement of the decision maker. Attempts have been made to develop a set of c r i t e r i a - e v a l u a t i n g 35 c r i t e r i a . In one set, devised by Milnor , the c r i t e r i o n of regret s a t i s f i e d more of his c r i t e r i a than d i d the other four c r i t e r i a which we have presented here. Generally, however, i t can be said that there i s no single best c r i t e r i o n . 7. Implementation of the Solution The f i n a l step in the decision-making process i s implementing the decision. L i t t l e can be said about t h i s except to r e i t e r a t e what we said e a r l i e r , that the decision maker (the one who selects the best alternative) should be the one who implements the decision. A General Problem-solving Model The decision-making process which we have described i s the step-by-step process f o r handling a p a r t i c u l a r problem. To be of p r a c t i c a l use to the decision maker who i s faced with many problems during the day, our model has to be expanded (see Figure 7). When the decision maker i s faced with several problems that need to be solved he should approach them in a methodical manner. After a preliminary analysis of the problem FIGURE 7. A Model f o r Solving Managerial Problems 68 Start Select problem * from 'intray* Preliminary analysis Can problem be delegated? no Can problem be programmed? no Can problem be solved at l a t e r date? no Last problem i n 'intray'? no Set aside i n •pending tray' yes yes yes yes Develop alternate solutions Evaluate the alt e r n a t i v e s Select best one Delegate and set a deadline Assign research to develop a decision model Place on calendar f o r future action I n i t i a t e decision-making process Select a problem from 'pending tray' Analyse problem Define the problem C o l l e c t and analyse data Implement decision or defer t i l l a t e r date Go to the next problem HO Last problem in 'pending tray'? Source: in part based on Figure 8-5 in P h i l i p Kotler, Marketing Management (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1967), p. Stop 187. (which should l a s t only a few minutes), the decision maker must decide whether or not i t can be delegated. I f i t can be, he delegates the problem and sets a time l i m i t f o r i t s solution. If i t can not be delegated, the decision maker determines whether the problem i s routine or r e p e t i t i v e and hence whether i t can be programmed. If i t can be, he assigns the problem to someone (perhaps the research department) to develop a decision model. Should the problem be a non-programmable one, the decision maker has to decide on i t s urgency. If the problem can be l e f t u n t i l a l a t e r date, then i t i s 'shelved* and a date i s set f o r future action. If the answer has been 'no* to a l l these queries, the problem i s put in the "pending tray". The decision maker then returns to the remaining problems and repeats these steps. Eventually he w i l l have no problems l e f t except those in his "pending tray". He now s t a r t s to work on these, proceeding through the steps of the decision-making process as we have described them. Summary The model of the decision-making process presented here i s an attempt to provide a l o g i c a l , step-by-step procedure f o r analysing and solving problems. The sequence of steps i s not a r i g i d one. Steps may be omitted, or reversed, or repeated several times as the decision maker gains insight into the problem and s t r i v e s f o r i t s solution. 70 This model, however, i s e s s e n t i a l l y designed f o r dealing with one problem at a time and may be time consuming f o r the more t r i v i a l problems. To overcome t h i s , the decision-making model i s incorporated into a problem-solving model. This l a t t e r model outlines a procedure f o r dealing with several problems, s t i l l one at a time, but in a manner which w i l l expedite the t o t a l time required f o r t h e i r solution. FOOTNOTES 1. Ernest Dale, Management: Theory and Practice (New York: McGraw-Hill Book Co., 1965), p. 551. 2. Dale, o p . c i t . , p.553» 3. Mary P. F o l l e t , "The I l l u s i o n of F i n a l Authority" i n Readings ln Management, ed. by Ernest Dale (New York: McGraw-Hill Book Co., 1965), p.384. 4. Peter F. Drucker, The Practice of Management (New York: Harper and Row, 1954), p.353. 5. See P h i l l i p Kotler, Marketing Management (Englewood C l i f f s , N.J.: Prentice-Hall, Inc. ,1967 ), p.176. 6. Dale, o p . c i t . . p.554. 7. Ward Edwards, "The Theory of Decision Making", Psycho-l o g i c a l B u l l e t i n . Vol.51 (July 1954), p.380. 8. Max D. Richards and Paul S. Greenlaw, Management Decision  Making (Homewood,111.: Richard D. Irwin,Inc.,1966),p.30. 9. A.R.C.Duncan, "Techniques of Decision Making" in Readings  in Management, ed. by Ernest Dale (New York: McGraw-Hill Book Co., 1965),p.387; Drucker, op.cit..p.353: Kotler, o p . c i t . t p . l 7 6 ; Herbert A. Simon.The New Science of Manage-ment Decision (New York: Harper and Bros, I960), p.2. 71 10. Drucker, op. c i t . . p.357. 11. Harold Koontz and C y r i l O'Donnell, P r i n c i p l e s of  Management, 3rd ed. (New York: McGraw-Hill,Inc., 1964), p.135. 12. Chester I. Barnard, The Functions of the Executive (Cambridge, Mass.: Harvard University Press, 1938), pp. 202-203. Note that Barnard att r i b u t e s the term "st r a t e g i c f a c t o r " to John B. Commons. 13. Simon, op.cit . , p.5. 14. For further discussion of these types of decisions see James G. March and Herbert A. Simon, Organisations (New York: John Wiley and Sons, Inc., 1958),pp.177-180. 15. See William F. Massey and Jim D. Sawas, "Logical Flow Models f o r Marketing Analysis", Journal of Marketing. Vol .28 (January 1964), pp.30-37. 16. John F. Magee, "Decision Trees f o r Decision Making", Harvard Business Review, Vol .42 (July-August 1964), pp. 126-138. 17. See f o r instance Robert D. Buzzell, Mathematical Models  and Marketing Management (Boston: Graduate School of Business Administration, Harvard University, 1964). 18. For a detailed description of simulation see Thomas H. Naylor, Joseph L. B a l i n t f y , Donald S. Burdick, and Kong Chu, Computer Simulation Techniques (New York: John Wiley and Sons, Inc., 1966). 19. See Standford L. Optner, Systems Analysis (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., I960). 20. From Fred M. Tonge, A Heuristic Program f o r Assembly  Line Balancing (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1961), p.49. 21. See Donald M. Johnson, The Psychology of Thought and  Judgement (New York: Harper and Bros., 1955) 22. According to Simon, o p . c i t . t p.23. 23. Drucker, op. c i t . . p.357. 24. Koontz and O'Donnell, o p . c i t . t p.138. 72 25. See R. Duncan Luce and Howard Raiffa, Games and Decisions • (New York: John Wiley and Sons, 1957). 26. Edwards, op.cit.« p.408. 27. See David W. Miller and Martin K. Starr, Executive  Decisions and Operations Research (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., I960), p.80. 28. See Miller and Starr, op. c i t . , Chapter 5 ; and Richards and Greenlaw, op. c i t . , Chapter 2. 29. See Schlaifer, Probability and Statistics for Business  Decisions (New York: John Wiley and Sons, 1950). 30. Developed by Wald. See Abraham Wald, S t a t i s t i c a l . D e c i s i o n  Functions (New York: John Wiley and Sons, 1950). 31. F i r s t suggested by Hurwicz. See Leonid Hurwicz, " A Criterion for Decision Making under Uncertainty", Cowles Commission Discussion Paper, Statistics, No.355, 1950. (Mimeographed). 32. See Leonid Hurwicz, "Optimality Criteria for Decision Making under Ignorance", Cowles Commission Discussion  Paper. Statistics, No. 370, 1951. (Mimeographed). 33. So named in William R. King, Quantitative Analysis for  Marketing Management (New York: McGraw-Hill Book Co., 1967), P.57. 34. Proposed by Savage. See L.J. Savage, "The Theory of St a t i s t i c a l Decision", Journal of the American Sta t i s t i c a l Association. Vol.46 (March 1951). 35. John Milnor, "Games Against Nature", in Decision Processes ed. by Robert M. Thrall, Clyde H. Coombs, and Robert L. Davis (New York: John Wiley and Sons, Inc., 1954), p.49-59. 73 CHAPTER V DECISION MAKING: THEORY VERSUS PRACTICE Introduction The decision variable over which the breweries have most control i s , as previously mentioned, the product. Consequently strategies are always being sought which use t h i s decision variable to gain a competitive advantage. At ibhe same time a close watch i s kept on competitors' strategies. In Chapter I I I i t was pointed out that s t y l i n g improvement i s a frequently used modification strategy in the brewing industry, with changes in the package being the commonest type of Improvement. In t h i s chapter we s h a l l discuss a s t y l i n g improvement which was used by one of Molson's competitors. We s h a l l examine the consequent problem which arose f o r Molson's, and how they went about finding a solution. We s h a l l use the problem solving model which we developed i n Chapter IV as a framework f o r examining how c l o s e l y Molson's decision-making process corresponds to our model (see Figure 7» page 6 8 ) . That i s to say^ how well does the practice of problem solving in Molson's relate to the theory. Much of t h i s chapter w i l l be concerned with describ-ing a survey which was used by Molson's, at the t h i r d step of the decision-making process, f o r the c o l l e c t i o n and analysis of data. This description w i l l complete the discussion of 74 the various techniques which may be used in the decision-making process. Origin of the Problem Although a brewery i s l i m i t e d in the changes which i t can make to the package (or carton, as i t i s known in the brewing industry) - f o r d i s t r i b u t i o n convenience the o v e r a l l dimensions are standardized throughout the industry - the method of opening the carton, the type of handle used, the use of separators between the b o t t l e s , and other such features, are open to changes. This allows some d i f f e r e n t i a t i o n of an 1 otherwise f a i r l y homogeneous product and so the breweries understandably show considerable interest in t h i s aspect of the product decision v a r i a b l e . In January 1968 Labatt 1s introduced a new, zip-type top f o r use on i t s twelve bottle cartons. Up to that time the method of opening the cartons was by taking hold of one end of the top, which was perforated along a l l edges, and tearing i t off e i t h e r p a r t i a l l y , or completely ( i f a l l bottles were to be removed). As the top was torn back both rows of b o t t l e s were uncovered. Labatt's new top had a thin perfor-ated s t r i p running the length of the box in the centre of the top. To open the top, the z i p was completely torn o f f . This l e f t the two rows of bottles s t i l l covered, and either side could then be opened by unfolding the two remaining f l a p s 75 which were l i g h t l y held in place. Labatt's claimed ease and speed of opening as features of t h e i r new top. The Decision-making Process Practice Normally a si t u a t i o n l i k e t h i s would be brought to the attention of Molson*s marketing manager through the weekly reports of the salesmen, or from the observation of one of Molson's employees. In t h i s instance, however, there was a leak of Information through a v i s i t i n g representative of one of the packaging companies. A f t e r hearing about the new carton, and before i t had been introduced to the market, the marketing manager talked to the vice-president of Capilano. I t was decided that, as Molson's had no immediate plans f o r changing t h e i r carton, any further decision should wait u n t i l there was some feedback on consumer opinions about the new carton. Accord-i n g l y the matter was set aside f o r the time being. Theory I t can be seen that the above procedure e x p l i c -i t l y went through two steps in our model - preliminary analysis of the s i t u a t i o n , which led to the decision being deferred u n t i l a l a t e r date. I m p l i c i t l y the procedure went through two other steps before the decision was set aside. Prelim-inary analysis showed that the 'problem' was not a routine one and therefore i t could not be programmed. Furthermore the 'problem' could not be delegated because changes i n carton design have to be authorized by the marketing manager. 76 The only difference between the procedure in practice and our model i s that no deadline was set f o r future action as i s s p e c i f i e d in the model. I t seems advisable to set a d e f i n i t e date f o r review of the problem as t h i s prevents the problem from being pushed back too f a r and ensures that some future action w i l l be taken on a s p e c i f i e d date. Practice A f t e r two months there had been a f a i r amount of feedback from the consumers. On the whole the reports were favorable - people l i k e d the easy method of opening the carton. The marketing manager therefore contacted the v i c e -president of Capilano to discuss the situation and to decide what should be done about i t . I t was decided that more information was needed about the new top - p a r t i c u l a r l y about i t s acceptance by the consumers. Information was also needed about any f a u l t s that the new carton might have, together with any suggestions that consumers might have regarding improve-ments. The marketing manager suggested that a survey should be conducted in order to determine t h i s information. Accord-in g l y permission was sought, and granted, from the d i v i s i o n a l o f f i c e i n Calgary. Theory Having decided that i t was now time f o r action, the procedure described above went through the f i r s t two steps of the decision-making process in the lower half of the model. The f i r s t step, further analysis of the s i t u a t i o n , l e d to the problem being e x p l i c i t l y defined as "W i l l Molson's share of the 77 market s u f f e r because of Labatt's strategy?" The sit u a t i o n could now be c a l l e d a problem, and the t h i r d step in the process, c o l l e c t i o n and analysis of data, could be imple-mented. The objective of the solution was "to maintain Molson's market share". Before continuing to describe the remaining steps ln the decision-making process, we w i l l f i r s t describe in d e t a i l the method used to c o l l e c t and analyse the data. The Survey As mentioned above, i t was decided that a survey should be conducted to gather data f o r the problem. The writer was asked to design a questionnaire, and then to 2 conduct the survey and analyse the r e s u l t s . A f t e r the questionnaire was designed, i t was submitted to Molson's f o r comments. I t was accepted f o r the survey with two minor alte r n a t i o n s . The survey was conducted, over three days, from the 13th to 15th June, 1968, at the V i l l a Motor Inn in Burnaby, B r i t i s h Columbia. The general purpose of the survey was to determine whether the type of carton top has any impact on the purchasers of bottled beer. S p e c i f i c a l l y the objectives of the survey were to f i n d out: 1) Whether the zip type of top, as used by Labatt's, has any influence on why people choose Labatt's; 2) whether present purchasers of those brands using 78 t h e n o n - z i p t y p e o f t o p ( C a r l i n g ' s , M o l s o n * s , a n d O ' K e e f e ' s ) w o u l d p r e f e r t o s e e t h e z i p t o p u s e d b y t h e i r f a v o r i t e b r a n d s ; 3) w h e t h e r p e o p l e h a v e a n y c o m m e n t s a b o u t t h e c a r t o n s i n g e n e r a l . A r e n t e d s t e p - i n v a n , e q u i p p e d w i t h a t a b l e a n d c h a i r s a n d p l a i n s a m p l e c a r t o n s o f t h e t w o t y p e s u n d e r i n v e s t i g a t i o n , w a s u s e d f o r t h e s u r v e y . T h e v a n w a s p o s i t i o n e d c l o s e t o t h e b e v e r a g e r o o m a n d t h e r e s p o n d e n t s w e r e a p p r o a c h e d a s t h e y e n t e r e d o r l e f t t h e r o o m . C o - o p e r a t i o n o n t h e w h o l e w a s g o o d . O n l y s e v e n w o m e n , o u t o f a t o t a l o f 100 r e s p o n d e n t s , w e r e i n c l u d e d i n t h e s u r v e y . T h i s w a s b e c a u s e , a f t e r a p p r o a c h -i n g s e v e r a l w o m e n , i t w a s f o u n d t h a t f e w o f t h e m b o u g h t b o t t l e d b e e r t h e m s e l v e s b u t i n s t e a d l e f t i t t o t h e i r h u s b a n d s . A l t h o u g h t h e r e a r e n o s t a t i s t i c s a v a i l a b l e , t h e p r o p o r t i o n o f o n e w o m a n t o a b o u t f o u r t e e n m e n i s p r o b a b l y n e a r t h e t r u e p r o p o r t i o n o f w o m e n / m e n t h a t b u y b o t t l e d b e e r . A l s o i t w a s f o u n d t h a t o f t h e s e s e v e n w o m e n , f o u r w e r e u n c o m m i t t e d t o a n y p a r t i c u l a r b r a n d ( t h a t i s , t h e y h a d n o f a v o r i t e b r a n d ) . A l t h o u g h t h e r e w e r e n i n e u n c o m m i t t e d r e s p o n d e n t s a n d 6heir i n t e r v i e w s t e n d e d t o b e r a t h e r n e g a t i v e - t h e s e r e s p o n d e n t s g e n e r a l l y h a d f e w o p i n i o n s . A s t h e r e w e r e n o p r e v i o u s l y e s t a b l i s h e d p r o p o r t i o n s w i t h w h i c h t o c o m p a r e t h e s u r v e y r e s u l t s , t h e d a t a w e r e a n a l y s e d b y d e r i v i n g c o n f i d e n c e i n t e r v a l s f r o m e s t i m a t i o n s o f 3 t h e p r o p o r t i o n s ( s e e A p p e n d i x I I I f o r d a t a a n d a n a l y s i s ) . Q u e s t i o n s 4, 5, 10, 11, a n d 13, w e r e a n a l y s e d u s i n g t h i s 79 technique. Some of the questions, f o r example numbers 1, 2, 6, 7. 8, 9, and 14, were not s t a t i s t i c a l l y analysed, either because such analysis would not be meaningful or because the samples were too small to give r e l i a b l e r e s u l t s . I t was found that s t a t i s t i c a l analysis of some of the questions was hindered by the small size of the sub-samples. For instance, i n question three, i t would be i n t e r e s t i n g to know i f those respondents whose fa v o r i t e brand was Old Style were more l o y a l to that brand than the other respondents were to t h e i r f a v o r i t e brands. A test of the difference between the proportions would indicate whether t h i s was true or not, but the small size of the subsamples precludes any meaningful r e s u l t s . S i m i l a r l y in question eleven i t would be i n t e r e s t i n g to see i f there i s any s i g n i -f i c a n t difference between the answers given by the drinkers of Molson's brands and those given by the other respondents. A chi square test could show t h i s , but again the smallness of the subsamples makes any conclusions unreliable. Examples can be found f o r other questions. 80 The Questionnaire and Results A copy of the questionnaire w i l l be found i n Appendix I I . The re s u l t s w i l l be found in Appendix I I I . The f i r s t question was designed to f i n d out whether the respondents were suitable f o r the survey or not. The terms 'often* and 'sometimes' are subjective terms and t h e i r meaning d i f f e r from person to person, and so they cannot be used as r e l i a b l e indicators of the frequency with which the respondents buy bottled beer. The second question was asked in order to determine whether or not beer drinkers tend to have favorit e brands and i f they do, to determine which brands are favored the most. The respondents, who had a fav o r i t e brand, were also asked whether they knew the name of the brewery which made t h e i r f a v o r i t e . This was to measure the awareness of the respondents to the brewery which made his favorit e brand. If the respon-dent had no fa v o r i t e brand ( i . e . he was uncommitted), the next question which he was asked was number s i x . The answers to the second question showed that there were nine respondents in the sample who were uncommitted to any p a r t i c u l a r brand. The other respondents favored Molson's, Carling's, Labatt's and O'Keefe's, in that order. Of these 91 respondents, 70% knew the name of the brewery which made t h e i r f a v o r i t e brand, and the remaining 30$ were either uncertain or did not know. From these percentages i t 81 seems that the majority of beer drinkers are aware of the brewery which makes t h e i r f a v o r i t e brand. Question three was asked in order to determine the respondent's l o y a l t y to his f a v o r i t e brand; that i s to say, whether or not he was f i r m l y committed to a p a r t i c u l a r brand. The answers to t h i s question might give)' an Indication as to the percentage of the market that might be persuaded to change t h e i r f a v o r i t e brand. The results show that only 57% of the respondents 'always' asked f o r t h e i r f a v o r i t e brand, while 36$ asked f o r i t 'most of the time' and 7% asked f o r i t 'sometimes'. This appears to indicate that there i s hy% of the market which might be persuaded to change from t h e i r f a v o r i t e brand. The fourth question was designed to f i n d out whether the respondent could remember the way in which the carton of h i s f a v o r i t e brand opens. From t h i s question i t was hoped to es t a b l i s h the degree of importance of the carton top, as a feature, to beer drinkers. From a hypothesis test of the r e s u l t s , s t a t i s t i c a l l y 95% of those people who have a favor-i t e brand can describe the way in which the carton opens. Thus the top appears to be a s i g n i f i c a n t feature of the c a r t o n r and any change by Molson's would be noticed (at l e a s t by Molson's customers). The f i f t h question, which only applied to those whose fav o r i t e brand uses the non-zip top (henceforth these respondents are referred to as non-zip users in t h i s paper) was designed to measure the awareness of non-zip users to the new z i p top. I t was found that, despite the fa c t that the new zip top had been on the market f o r six months at the time of the survey and i t had been extensively advertised by Labatt's, a hypothesis test indicates that, s t a t i s t i c a l l y 60$ of the non-zip users are unaware of the zip top. This would appear to r e f l e c t on the effectiveness of Labatt's advertising program. The r e s u l t s of t h i s question have implications f o r question eight. Question s i x , which only applied to the uncommitted respondents, was asked in order to determine whether or not the type of carton top was a s u f f i c i e n t l y important feature f o r i them to remember i t . The r e s u l t s show no trends and no further analysis appears meaningful. In order to determine experimentally which of the two cartons the respondents found easier to open, they were a l l given an opportunity to open a sample of each i n question seven. To help diagnose what aspects of the two types of tops the respondents l i k e d or d i s l i k e d , they were asked f o r comments about the tops. The answers show that 90$ of the respondents found the zip top easier to open than the non-zip top. In f a c t , however, from the comments that the respondents made at the time, some of the seven who r e p l i e d that they found the non-zip easier to open were in fa c t measuring t h e i r f a m i l i a r i t y with, or preference f o r v the 83 non-zip top. If th i s was the case, then the f igure of 90% should probably be higher. The next question, which appl ied only to z ip users who answered in the preceeding question that they found the z i p top eas ier to open, was b a s i c a l l y to f i n d out i f any of the respondents had changed to t h e i r present f avor i te brand because of the type of top. A l l of the respondents answered that the top had no inf luence on why they drink Laba t t 1 s . None of these respondents had switched from another brand. However, as ind icated in question four, only k0% of non-zip users knew about the new top. Therefore the smallness of the sample in t h i s question together with the ind ica t ions from question four , cast doubt on the r e l i a b i l i t y of any conclus-ions. ' Question nine was asked f o r the techn ica l reason that removal of the f l aps f a c i l i t a t e s the repacking and s tor ing of the empty bo t t l e s . The answers show that the major ity of the respondents never tear the f laps o f f . This information may be of use in future carton designs, although again the smallness of the sample s ize casts doubt on the r e l i a b i l i t y of any conclusions. A poss ib le inconvenience with the non-zip top i s the d i sposa l of the top. Question ten was asked in order to determine whether in fact the respondents d id f i nd th i s to be an inconvenience or not. The re su l t s of a Hypothesis 84 t e s t indicate that, s t a t i s t i c a l l y 5 0 $ of non-zip users do f i n d i t inconvenient to dispose of the top. The next question, number eleven, was designed to measure the respondent's preference f o r the two types of top. A hypothesis test indicates that, s t a t i s t i c a l l y 80$ of the people who buy bottled beer would prefer the cartons to use the zip top. There was a high preference of 'no opinions' to t h i s question. The l a s t three questions were general ones to f i n d out what aspects of the cartons the respondents did not l i k e , what t h e i r views were about the handles, and whether they had any suggestions f o r improvements. Generally the respond-ents had c r i t i c i s m s of only a few features and were unimaginative regarding changes. S t a t i s t i c a l l y , 35$ of those people who buy bottled beer f i n d nothing wrong with the cartons, but 5 5 $ of the people who buy bottled beer have a complaint about the handle (usually that i t was too weak). When the respondents were asked i f they would recommend any changes to the cartons, apart from wanting the zip top and stronger handles, 57 recommended no changes and the majority of the others suggested d i v i d e r s between the b o t t l e s . R e l i a b i l i t y of the Survey The r e l i a b i l i t y of the survey may be questioned on three grounds: i t s representativeness of the universe from which the sample was drawn; the size of the sample; and the 85 p o s s i b i l i t y of bias in the questions. Because the survey took place at only one lo c a t i o n , the sample can only be claimed to be representative of the population who drink at the V i l l a Motor Inn. This population may not be representative of the people who buy bottled beer at the main l i q u o r outlets (the l i q u o r stores). An indication that t h i s may be the case i s given by the percentages i n question two which d i f f e r s l i g h t l y from the market share figures f o r the breweries. However, t h i s bias could not be overcome because i t i s against the law to conduct surveys inside or outside l i q u o r stores. Many of the subsamples are too small to be able to draw any r e l i a b l e conclusions and so in general, no attempt was made to analyse those questions containing small sub-samples. In order to obtain subsamples of s u f f i c i e n t size that some confidence could be placed i n conclusions based on them, a sample size of about 500 - preferably at f i v e d i f f e r e n t l o c a t i o n s - would have been required. However, t h i s would have meant both extra time and extra expense. It was f e l t that a sample of 100 at one location was adequate f o r Molson*s purposes. The questions appear to be free of bias. In question four, the word Hop 1 may be thought to be leading, but as a l l cartons in B r i t i s h Columbia open at the top t h i s i s not a leading question. S i m i l a r l y in questions f i v e and 86 s i x , the word 'top' may be considered to be leading, but as the top i s the only distinguishing feature between the two boxes again there i s no bias. In f a c t , the word 'top' focusses the attention of the respondent who might other-wise reply 'no' to the question because he does not, at the time, observe the d i f f e r e n t tops. For continuity in the questionnaire, questions f i v e and six might be better placed a f t e r question seven. However, the only r e a l l y desirable a l t e r a t i o n in the questionnaire should be in question eight. This d i r e c t question may automatically get the response 'no*, whereas an i n d i r e c t question might be able to uncover hidden f e e l i n g s . V a l i d i t y of the Survey It i s hard to judge the v a l i d i t y of the survey because of the lack of published data with which to compare r e s u l t s . However, the survey method seems a v a l i d way to c o l l e c t the required data, and the questions seem relevant f o r the purpose of the survey. The questionnaire was too short to b u i l d in any checks of the answers, but nevertheless, the data i s probably as v a l i d as i s necessary f o r the purposes of the survey. Conclusions to the Survey Recognising the p o s s i b i l i t y that the survey may not be t o t a l l y r e l i a b l e and v a l i d , the following tentative conclusions regarding the objectives set at the beginning of the survey may be reached: 1) The smallness of the subsample of respondents who drank a Labatt*s brand and the fact that only k0% of non-zip users knew about the new top, precludes any r e l i a b l e conclusion being reached regarding whether or not the zip-top has any influence on why people drink Labatt*s. 2) From the experiment with the samples, 90% of a l l beer drinkers f i n d the zip top easier to open than the non-zip top, and 80$ of a l l beer drinkers prefer the zip top because of i t s ease of opening, i t s neatness, and the small amount of cardboard that has to be disposed of. The top, as a feature of the carton, i s s u f f i c i e n t l y s i g n i f i c a n t that any change by Molson's would be noticed, at l e a s t by Molson's customers. From the experience of Labatt's, a considerable e f f o r t would have to be made in order to make drinkers of other brands aware of the change. The e f f o r t may not be worth i t because there i s SJ% of the market which i s not firmly committed to any one brand. The strong preference shown for the zip top, and the fac t that 50% of non-zip users f i n d the non-zip top inconvenient to dispose of, may act as hidden persuaders to capture t h i s segment. However, as mentioned in the previous paragraph, there i s lack of conclusive evidence to confirm whether or not people would change to Molson's because of the top. 88 3) Nearly half of the people (45$) who buy bottled beer have no complaints about the carton while 35$ complain that the handle i s too weak or too t h i n . When s p e c i f i c a l l y asked about the handles, i f not already mentioned, a further sixteen respondents said that the handle was too weak. Thus, o v e r a l l , 35$ of the people have no complaints at a l l about the box while 55$ f i n d the handle unsatisfactory. Regarding Improve-ments to the cartons, 57 respondents recommended no changes while 24 suggested dividers between the bo t t l e s . Having described the survey and i t s r e s u l t s , we can now continue to follow Molson*s steps through the decision-making process. The steps which they a c t u a l l y took are co n f i d e n t i a l because t h e i r f i n a l decision has yet to be implemented. The remainder of t h i s paper w i l l therefore be hypothetical in content and w i l l describe how a solution might be arrived at i f the steps outlined in our model are followed. Development of Alternative Solutions - The next step a f t e r c o l l e c t i o n and analysis of data, i s the development of al t e r n a t i v e s . The problem, as previously mentioned, was defined as " W i l l Molson*s share of the market su f f e r because of Labatt*s strategy?". The res u l t s of the survey indicate that the answer to t h i s question i s probably 'no*, but the re s u l t s are not conclusive. The objective of the solution i s to 'maintain Molson*s market share*. With the 89 r e s u l t s of the survey and the objective of the solution i n mind, we can set about developing a l t e r n a t i v e s . A f t e r some consideration there appears to be four alternatives which merit further attention. One a l t e r n a t i v e , bearing in mind the inconclusive r e s u l t s of the survey, i s to do nothing but wait f o r a few months in order to see whether Labatt's d e f i n i t e l y gain i n market share as more non-zip users become aware of the zip top. However, although the r e s u l t s of the survey are inconclusive, they did indicate that people prefer the zip top and so i f Molson's wish to be safe, they could come out with an i d e n t i c a l carton to Labatt's as one solution. An al t e r n a t i v e solution would be to retain the z i p feature of Labatt's design, but to add some new features - such as a stronger handle and dividers between the bottles - so that people w i l l not think that Molson's are just copying Labatt's design. A fourth solution would be for Molson's to design a completely new carton. Evaluation of the Alternatives Because t h i s problem i s of the nonprogrammed type we have to r e l y on judgement and experience to evaluate the a l t e r n a t i v e s . The f i r s t a l t e r n a t i v e suggested i s to do nothing. This does not seem to be a good solution, however, because even i f Molson's market share does not decline, the over-whelming preference shown f o r the new top suggests that i t s use by Molson's would at l e a s t create goodwill. This i s a valuable asset and i t may help to a t t r a c t new customers. The next solution i s to copy Labatt's design d i r e c t l y . This i s possible because i t i s very hard to patent carton features. However, some of the goodwill that might be gained by using the zip feature could be l o s t i f people think that Molson's i s merely copying Labatt's design. An a l t e r n a t i v e solution to t h i s l a s t one i s to r e t a i n the zip feature but to add some extra features to the design. The carton w i l l then derive any goodwill that the zi p feature might bring but at the same time the design w i l l be d i s t i n c t to Molson's products, and people w i l l not think that Molson's are only copying Labatt's. The extra features, which the survey showed people wanted, should enhance any goodwill generated by the zip feature. The fourth a l t e r n a t i v e i s to come out with a completely new design. However, new designs take a long time to develop and there i s no guarantee that such a design w i l l be successful, whereas the zip design has been proven popular. Selection of the Best Alternative To select the best solution we s h a l l follow the advice of Koontz and O'Donnell and c a r e f u l l y weigh the tangible and intangible factors of each alternative (see Chapter IV). The intangible factors seem to be p a r t i c u l a r l y important in t h i s problem. Experience and the research findings of the survey w i l l be our main guidelines in judging the merits of these factors. A f t e r careful consideration i t appears that the t h i r d a l t e r n a t i v e i s the best solution. Implementation of the Decision Not much can be said here about t h i s l a s t step l n the decision-making process except that, in order to fore-s t a l l the p o s s i b i l i t y of Labatt's increasing t h e i r market share as more people become aware of the zip top, Molson's should implement t h e i r decision as soon as possible. Summary It appears that the process of problem solving as practised by Molson's follows the theory f a i r l y c l o s e l y , at l e a s t i n the early stages. The only c r i t i c i s m of the practice i s that some of the steps are made i m p l i c i t l y . This may lead to steps being missed out. In order that the maximum benefit be derived from the l o g i c a l sequence of steps in the problem solving model, i t i s recommended that each step be made e x p l i c i t l y . 92 FOOTNOTES 1. See Ralph I. A l l i s o n and Kenneth P. Uhl, "Influence of Beer Brand I d e n t i f i c a t i o n on Taste Perception" i n Readings in Market Research, ed. by Keith K. Cox (New York: Appleton-Century-Crofts, 1967). 2. The questionnaire was designed a f t e r consulting several books on the subject. One p a r t i c u l a r l y h e l p f u l one was by Stanley L. Payne, The Art of Asking Questions (Princeton: Princeton University Press, 1951)• 3. See any general s t a t i s t i c s book fo r a description of t h i s technique; f o r instance John E. Freund and Frank J . Williams, Modern Business S t a t i s t i c s (Englewood C l i f f s , N.J.: Prentice-Hall, Inc., 1958), Chapters 10 and 11. 93 CHAPTER VI SUMMARY AND CONCLUSIONS In t h i s thesis we have examined some of the marketing problems which confront the brewing industry i n B r i t i s h Columbia. We have investigated the marketing environment which i s the cause of most of these problems and we have discussed some of the means by which the brew-ing industry can overcome them. Generally we have seen that the nature of the brewing industry i s l a r g e l y determined by the l e g a l regulat-ions which control three of the industry's four marketing decision variables. Thus the breweries have only one variable over which they have any measure of control, and because of the homogeneity of the product t h i s variable i s in fac t l a r g e l y i n e f f e c t i v e . It would seem that the brewing industry should be in r e v o l t . However, what at f i r s t sight appears to be excessive interference by the government on closer examination does reveal some benefits. The regulations concerning advertising mean that the breweries are l i m i t e d in how much they can spend and t h i s tends to encourage c r e a t i v i t y while keeping costs down. In most industries today advertising i s an increasing costly expense. S i m i l a r l y the regulation control-94 l i n g the price of beer can be regarded as a blessing l n that i t prevents price warfares. The regulation of d i s t r i b u t i o n i s the one area which would benefit the industry i f the government were to r e l i n q u i s h control. The present system ensures that the d i s t r i b u t i o n of bottled beer i s mainly l i m i t e d to the l i q u o r stores and hence choice of outlets i s r e s t r i c t e d . Even more serious from the industry's point of view, however, i s the f a c t that because the government controls d i s t r i b u t i o n i t adds i t s own mark-up to the price of beer (at present 19% of the s e l l i n g price) as well as charging sales tax. The e f f e c t of t h i s mark-up i s to r a i s e the price of beer to the consumer which ln turn l i m i t s the growth of the brewing industry. The industry may benefit to some extent i n that bulk shipping to one point in an area saves costs. However, t h i s i s i n s u f f i c i e n t cause to j u s t i f y govern-ment interference when the deleterous e f f e c t s are considered. Thus, the only regulations which the brewing industry would r e a l l y l i k e to change are those governing d i s t r i b u t i o n . In order to change these the industry must make representation to the government. However, the govern-ment, which gets 7% of i t s t o t a l revenue from the sale of beer, i s not going to r e l i n q u i s h control without a f i g h t . The model which we developed in Chapter IV brings together the several a c t i v i t i e s which are involved in the process of decision making and arranges them in a l o g i c a l order that w i l l lead the decision maker towards a solution. However, as was emphasized at the time, the order i s not a r i g i d , u n i d i r e c t i o n a l one, and steps may be reversed or omitted i f the decision maker f e e l s that t h i s w i l l lead more e f f e c t i v e l y to a solution. This model i s e s s e n t i a l l y concerned with solving one problem at a time. To expedite the handling of several problems, although s t i l l only one at a time, the decision-making model was incorporated into a general problem solving model. This model outlines a series of steps f o r r a p i d l y sorting through a batch of problems so that those which can be solved quickly, or delegated, or set aside f o r a l a t e r date, are dealt with f i r s t . From a comparison of the general problem-solving model with the actual practice of problem solving, as evidenced by Molson's approach to t h e i r packaging problem, i t appears that our model and'Molson's approach are i n close agreement - as f a r as we are able to compare them. However, from t h i s one example we can not draw firm conclusions as to whether the model i s e n t i r e l y p r a c t i c a l or whether Molson's approach i s sound. In order to be able to draw v a l i d con-clusions we would have to compare the model to several of Molson's decisions. However, from a test of common sense the model appears to be p r a c t i c a l and the one example of the packaging problem appears to support t h i s view. 96 BIBLIOGRAPHY BOOKS About Beer and the Brewing Industry. Ottawa: Brewers Assoc-i a t i o n of Canada, 1966. A l l i s o n , R.I. and Uhl, K.P., "Influence of Beer Brand I d e n t i f i c a t i o n on Taste Perception" in Readings i n Market Research, ed. by K.K. Cox. New York: Appleton-Century-Crofts, 1967. Barnard, C.I., The Functions of the Executive. Cambridge, Mass.: Harvard University Press, 1966. Bierman, H., Fouraker, L.E., and Jaedicke, R.K., Quantitative  Analysis f o r Business Decisions. Homewood, 111.: Richard D. Irwin, 1961. Braybrooke, D. and Lindblom* C.E., A Strategy of Decision. New York: Free Press of Glencoe, 19o3. Brewing i n Canada (with supplement). Ottawa: Brewers Association of Canada, 1965. Bross, I.D.J., Design f o r Decision., New York: The Macmillan 'D.J., Design Dec Co., 1959 ( 5 t h ed.). Bu z z e l l , R.D., Mathematical Models and Marketing Management. Boston: Graduate School of Business Administration, Harvard University, 1964. Chernoff, H. and Moses, L.E., Elementary Decision Theory. New York: John Wiley and Sons, 1959. Churchman, C.W., Ackoff, R.L., and Arnoff, E.L., Introduction  to Operations Research. New York: John Wiley and Sons, 1957. Churchman, C.W. and Ratoosh, P., eds., Measurement: Definitions and Theories. New York: John Wiley and Sons, 1959. Dale, E., Management: Theory and Practice. New York: McGraw-H i l l Book Co., 1965. Dale, E., ed., Readings.in Management. New York: McGraw-Hill Book Co., I965. 97 Denison, M., The Barley and the Stream: The Molson Story. Toronto: McClelland and Stewart, Ltd., 1955. Department of the Attorney-General, B r i t i s h Columbia. Government Liquor Act. V i c t o r i a : The Queen's Pr i n t e r , 1953. Department of Trade and Commerce. Dominion Bureau of S t a t i s t i c s . Canada Year Book. 1968. Ottawa: The Queen's Prin t e r , 1968. Department of Trade and Commerce. Dominion Bureau of S t a t i s t i c s . National Accounts. Income and Expendi-ture. 1967. Ottawa: The Queen's Prin t e r , 1967. Drucker, P.P., The Practice of Management. New York: Harper and Bros., 1954. Duncan, A.B.C., "Techniques of Decision Making" in Readings  in Management, ed. by E.Dale. New York: McGraw-Hill Book Co., 1965. Economic Study of the Brewing Industry In Western Canada, by Kappele, Wright, and Macleod, Ltd. Toronto: i960. Facts on the Brewing Industry in Canada. Ottawa: Dominion Brewers Association, 1948. F o l l e t , M.P., "The I l l u s i o n of F i n a l Authority" in Readings  in Management, ed. by E.Dale. New York: McGraw-Hill Book Co., 1965. Howell, J.E. and Teichroew,D., Mathematical Analysis f o r Business Decisions. Homewood, 111.; Richard D. Irwin, _ 6 _ Johnson, D.M., The Psychology of Thought and Judgement. New York: Harper and Bros., 1955. King, W.R., Quantitative Analysis f o r Marketing Management. New York: McGraw-Hill Book Co., 1967. Koontz, H. and O'Donnell, C., P r i n c i p l e s of Management. New York: McGraw-Hill Book Co., 1964 (3rd ed.). Kotler, P., Marketing Management. Englewood C l i f f s , N.J.,: Prentice-Hall, 1967. 98 Kuehn, A.A., "Heuristic Programming: A Useful Technique f o r Marketing" in Marketing Precision and Executive  Action, ed. by CH. Hindersman. Chicago: American Marketing Association, 1962. Luce, R.D. and E a i f f a , H., Games and Decisions. New York: John Wiley and Sons, 195?. McCarthy, E.J., Basic Marketing: A Managerial Approach. Homewood, 111.: Richard D. Irwin, 1964 (rev.ed.). March, J.G., ed., Handbook of Organisations. Chicago: Rand McNally and Co., 1965. March, J.G. and Simon, H.A., Organisations. New York: John Wiley and Sons, 1958. M i l l e r , D.W. and Starr, M.K., Executive Decisions and Operations Research. Englewood C l i f f s , N.J., Prentice-H a l l , I960. Mlln@r, J . , "Games Against Nature" in Decision Processes.ed. by R.M. T h r a l l , C H . Coombs, and R.L. Davis. New York: John Wiley and Sons, 1954. Naylor, T.N., B a l i n t f y , J.L., Burdick, D.S., and Chu, K., Computer Simulation Techniques. New York: John Wiley and Sons, 1966. Optner, S.L., Systems Analysis f o r Business Management. Englewood C l i f f s , N.J.: Prentice-Hall, I960. Payne, S.L., The Art of Asking Questions. Princeton: Prince-ton University Press, 1951. Salomon, E. von, The Questionnaire. New York: Doubleday, 1955. Schaifer, R., P r o b a b i l i t y and S t a t i s t i c s f o r Business Decisions. New York: McGraw-Hill Book Co., 1959. Simon, H.A., Administrative Behavior. New York: The Macmillan Co., 1961. Simon, H.A., The New Science of Management Decision. New York: Harper and Bros., I960. T h r a l l , R.M., Coombs, C.H., and Davis, R.L., eds., Decision  Processes. New York: John Wiley and Sons, 1954. Tonge, F.M., A Heuristic Program f o r Assembly Line Balancing. Englewood C l i f f s , N.J.,: Prentice-Hall, 1961. 99 Wald, A., S t a t i s t i c a l Decision Functions. New York: John Wiley and Sons, 1950. Wasserman, P.S. and Silander, F.S., Decision Making: An  Annotated Bibliography. Ithaca, N.Y.: Graduate School of Business and Public Administration, Cornell University, 1958. Weiss, D.L., "Simulation f o r Decision Making in Marketing" in Readings in Market Research, ed. by K.K. Cox. New York: Appleton-Century-Crofts, 1967. PERIODICALS AND ARTICLES Bu z z e l l , R.D. and Sla t e r , CD., "Decision Theory and Market-ing Management". Journal of Marketing, Vol.26, July 1962, pp. 7-16. Cyert, R.M., D i l l , W.R., and March, J.G., "The Role of Expectations i n Business Decision Making". Administrative Science Quarterly. December 1958, PP. 307-340. Cyert, R.M., Simon, H.A., and Trow, D.B., "Observation of a Business Decision". Journal of Business, Vol.29. October 1956, pp..237-248. Duncan, CP,.,. "Recent Research on Human Problem Solving". Psychological B u l l e t i n . Vol.56, #6, 1959, pp. 397-Edwards, W.., "Behavioural Decision Theory". Annual Review  of Psychology. Vol.12, 1961, pp. 473-498. Edwards, W...... "The Theory of Decision Making". Psychological B u l l e t i n . Vol.51, July 1954, pp. 380-417. Henderson, A. and S c h l a i f e r , R., "Mathematical Programming: Better Information f o r Better Decision Making". Harvard Business Review, Vol.32, May-June 1954, PP. 73-100. Hurwicz, L., "A C r i t e r i a f o r Decision-Making under Uncertain-ty". Cowles Commission Discussion Paper, S t a t i s t i c s No, 355, 1950. Mimeographed. Hurwicz, L., "Optimality C r i t e r i a f o r Decision-Making under Ignorance". Cowles'Commission Discussion Paper. S t a t i s t i c s No. 370, 1951. Mimeographed. 100 Jones, CH., "The Money Value of Time". Harvard Business Review, Vol.46, July-August 1968, pp. 94-101. Magee, J.F., "Decision Trees f o r Decision Making". Harvard  Business Review. Vol.42, July-August 1964, pp. 126-138. Mansfield, E. and Wein, H.H., "ALStudy of Decision-Making within the Firm". Quarterly Journal of Economics. Vol.72, November 1958, pp. 515-536. Massy, W.F. and Sawas, J.D., "Logical Flow Models f o r Marketing Analysis". Journal of Marketing, Vol.28, January 1964, pp. 30-37. Savage, L.J., "The, Theory of S t a t i s t i c a l Decision". Journal  of the American S t a t i s t i c a l Association. Vol.46, March 1951, pp. 55-67. Simon, H.A. and Newell, A., "Heuristic Problem Solving: The Next Advance in Operations Research". Operations  Research. Vol.6, January-February 1958, pp. 1-10. Shubik, M., "Studies and Theories of Decision Making". Administrative Science Quarterly. Vol.3, December 1958, pp. 289-306. Wiest, J.D., "Heuristic Programs f o r Decision Making". Harvard Business Review. Vol.44, September-October 1966, pp. 129-143. APPENDIX A ECONOMIC AND DEMOGRAPHIC DATA FOR BRITISH COLUMBIA AND CANADA BRITISH COLUMBIA CANADA Unemployment rate H II Employment increase II II Employment rate Population increase (total) " " (tota l ) " n (adult) Population (adult) " (adult) P.D.I, increase (per capita) " " (per capita) P.D.I, (per capita) 1958 196? 1946--1967 1952--1967 1967 1951--1966 1961--1966 1951--1966 1951 1966 1946--1967 1952--1967 1967 9.4$ 5.1# 85.4$ 68.5$ 6.6$ 3-9$ P.a. 15.0$ 2.9$ p.a. 68$ of t o t a l 6l$ of t o t a l 171.4$ 73.4$ &2261 7.1$ 4.7$ 58.1$ 42.8$ 3.2$ 2.8$ p.a. 10.1$ 2.2$ p.a. 62 $ of total 58$ of t o t a l 181.5$ 83.8$ &2044 Consumption n •t •1 •1 •1 increase, 11 n 11 beer (total) s p i r i t s (total) wine (total) beer (per cap.) s p i r i t s (per cap.) wine (per cap.) 1952-1965 n n 11 11 n 64.9$ 12.2% 394.2$ 10.6$ 15.6$ 235.5$ 41.1$ 89.1$ 127.4$ 38.6$ 39.2$ 69.2$ Source: Canada Year Books; National Accounts; and Brewing in Canada. o APPENDIX B 102 THE SURVEY QUESTIONNAIRE 1. Do you buy bottled beer? Often Sometimes Never Terminate 2. Do you have a favorite brand of beer? If yes, what i s i t ? Do you know the name of the brewery which makes (favorite)? Carling's Labatt's Molson's O'Keefe's Uncommitted* 3. Do you ask fo r (favorite) - always, most of the time, or sometimes? Always Most of the Time Sometimes 4. Can you describe the way in which the box top of (favorite) opens? Yes No Wrong 5. Show exhibits ( i f non-zip user) Have you seen the other type of box top before now? Yes No Can't Remember 6. *Show exhibits ( i f uncommitted) Have you seen either of these box tops before now? Non-zip Zip Both Can't Remember 7. Let respondent open both Which of the two boxes do you f i n d easier to open? Non-zip Zip No Opinion Verbatim: 103 8. (If answer zip to 7. and Is regular zip user) Does the type of top have any influence on why you drink Labatt 1s? Yes No No Opinion 9. (If regular zip user) Do you tear the flaps o f f a f t e r you open the box? Always Sometimes Never If yes, what do you do with them? Verbatim: 10. (If regular non-zip user) Do you f i n d i t inconvenient to dispose of the top a f t e r opening? Yes No No opinion 11. Would you l i k e to see the other type of box top used by (favorite)? (or i f uncommitted) Which type of top do you prefer? Yes No No opinion 12. Is there anything you don't l i k e about the box used by (favorite)? (or i f uncommitted) Is there anything you don't l i k e about these boxes? No Yes - verbatim: 13. (If not mentioned i n 12) Could you comment on the handle and on the f l a p . Verbatim: Would you recommend any changes to these boxes? Verbatim: Male: Female: Occupation: Age: 25-under 3 5 - 4 4 2 6 - 3 4 45-over.... 105 APPENDIX C RESULTS OF SURVEY AND ANALYSIS OF DATA 1. Do you buy bottled beer? Often Sometimes Never No. of Respondents 59 41 5 105 Terminate 2. Do you have a favorite brand of beer? If yes, what i s i t ? Do you know the name of the brewery which makes (favorite).? C L M 0 Uncommitted* No. of Respondents 27 21 35 8 9 100 Old Style 34 23 1 10 certain uncertain don't know Export Ale 1 certain Carling P i l s n e r 13 certain Black Label 11 9 certain 2 don't know Old Country Ale 2 certain Toby 1 don't know Lucky Lager 14 5 3 6 certain uncertain don't know Labatt's P i l s n e r 5 certain Labatt's 50 1 certain Gold Keg 1 certain Old Vienna 8 4 certain 4 don't know •Certain', 'Uncertain'^ and 'don't know*, re f e r to whether the respondent knows which brewery makes his fav o r i t e brand. Out of 91, 64 were certain (70$); 4 uncertain (5$); 23 don't know (25$). 1 0 6 3 . Do you ask f o r (favorite) -always, most of the time, or sometimes? No. of Always Most of the Time Sometimes Respondents 5 2 3 3 6 91_ Molson • s 1 9 14 2 3 5 " Out of 9 1 , 5 2 ask always ( 5 7 $ ' } ; 3 3 most of the time ( 3 6 $ ) ; 6 sometimes ( 7 $ ) . 4. Can you describe the way i n which the box top of (favorite) opens? yes No No. of Respondents 8 5 6 9JL_ Molson's 5 3 2 3 5 ~ Using the formula: where p i s the true proportion, and the degree of confidence i s 9 5 $ (approximating and substituting -jy- f o r p where x*85,n=Sl ) .-. -88KK ^ With a p r o b a b i l i t y of 9 5 $ , we estimate that between 8 8 $ and 9 9 $ of those people who have a favorit e brand can describe the way the box top opens. 1 0 7 5 . (If non-zip user) Have you seen the other type of box top before now? No. of Yes No Can't Remember Respondents 27 42 1 70 Molson • £3 14 21 - " 3 5 n ^ 70 x = 27 .-. -27i<K -50| With a p r o b a b i l i t y of 9 5 $ , we estimate that between 2 7 $ and 5>1$ of those people whose fav o r i t e brand uses the non-zip top are aware of the z i p top. 6. (If uncommitted) Have you seen either of these box tops before now? No. of Can't Remember Non-zip Zip Both Respondents 2 2 2 3 9 No trends evident. 7. Which of the two boxes do you f i n d easier to open? Non-zip Zip No Opinion No. of Respondents 7 9 0 3 1 0 0 Mol son' i 4 3 0 1 3 3 Verbatim: Zip i s good. I t i s easier, neater, and handier than the non-zip type, but i t often breaks at the handle. The non-zip top tends to catch the n a i l s of women. From the r e s u l t s , 9 0 $ of those people that buy bottled beer f i n d the zip top easier to open. 108 8. (If answer z i p to 7. and Is regular z i p user) Does the type of top have any influence on why your drink Labatt's? Yes No No Opinion No. of Respondents 20 20 9. (If zip user) Do you tear the flaps o f f a f t e r you open the box? Always Sometimes Never No. of Respondents 1 3 17 21 If yes, what do you do with them? Verbatim: Throw them in the garbage or f i r e . 10. (If non-zip user) Do you f i n d i t inconvenient to dispose of the top a f t e r opening? Yes No No Opinion No. of Respondents 33 35 2 70 Mol son • s—13 213 - 33~~ n="70 X = 33 * 70 I U J 7 0 • .-353<K S87 With a p r o b a b i l i t y of 95$» we estimate that between 35$ and 59$ of those people whose fav o r i t e brand uses the non-zip top f i n d i t inconvenient to dispose of the top. 109 11. Would you l i k e to see the other type of box top used by (favorite)? (Or i f uncommitted) Which type of top do you prefer? No. of Yes No No Opinion Respondents Zip Users - 20 1 21 Non-zip Users 54 7 9 70 Un comm i t ted 7(zlp) 2 9_ Molson's t*?7 5 3 35 n = too DC= $ i With'a p r o b a b i l i t y of 95$, we estimate that between 73$ and 89$ of the people who buy bottled beer prefer the z i p top. 12. Is there anything you don't l i k e about the box used by (favorite)? (Or i f uncommitted) Is there anything you don't l i k e about the boxes? No No. of Respondents Zip users 12 21 Non-zip users 27 70 Un comm i tted 3 9_ Molson's T3 35 No. of Respondents 58 Yes: Verbatim: 33-handle too weak; 3-handle too thin and sharp; 9-no divi d e r s ; 14 (non-zip users)- top hard to open and doesn't tear well; 2-boxes bulky and can't store i n fridge; 2-cardboard t h i n . 110 1 3 . (If not yet mentioned) Could you comment on the handle and on the f l a p . No. of Respondents 64 (100 f o r flap) Verbatim: 46-handle i s O.K.; l6-handle too weak; 2-no comment; 29-flap i s O.K.; 28-flap better f o r fingers; 3 8-flap makes no difference or i s not necessary; 5 - f l a p occassionally catches on bot t l e s . r\=ioo x=52 With a p r o b a b i l i t y of 9 5 $ , we estimate that between 42$ and 62$ of the people who buy bottled beer f i n d the handle unsatisfactory. n-100 x = 3* With a p r o b a b i l i t y of 9 5 $ , we estimate that between 23$ and 43$ of the people who buy bottled beer f i n d nothing wrong with the boxes. 14. Would you recommend any changes to these boxes? No. of Respondents 100 Verbatim: (besides changing to the z i p top and stronger handles) 57-wanted no changes; 24-wanted dividers; 2-bottles arranged three by four; 2-more compact boxes; 1-stronger boxes; 1-opening at end of box; 1-box made of aluminum. I l l Male: 93 Female: 7 Age: 25-under: 30 35-44 . : 26 26-34 : 36 45-over: 8 Occupations E l e c t r i c i a n s , e l e c t r i c a l apprentices 14 Insulator 1 Salesman, sales engineer 12 Factory worker 1 Truck d r i v e r 7 Export t r a f f i c coordinator 1 Clerk 5 Fireman 1 Mechanic 4 Merchant 1 Contractor . 4 Taxi-driver 1 Foreman, supervisor 4 Operating engineer 1 Shipper and receiver 3 Wine maker 1 Welder 2 Glass worker 1 Bank t e l l e r 2 Pipe f i t t e r 1 Student 2 3 r i c k layer 1 Surveyor 2 Service technician 1 Estimator 2 Millwright 1 Nurseryman 2 Gas f i t t e r 1 Carpenter 2 Boatman 1 Longshoreman 2 Machine engraver 1 Housewife 2 Machinist 1 Steam f i t t e r 1 Chef 1 Sheet metal worker 1 Seamstress 1 Millworker 1 Secretary 1 Commercial a r t i s t 1 X-ray technician 1 Bartender 1 Labourer 1 Warehouse worker 1 

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