Strategy is all about making choices, which market, which customer type, which channel, and so on. Many marketers do this sort of analysis almost on autopilot, when it is in fact the core of a robust strategy, and should be the subject of rigorous consideration.

Sitting behind the choices made, mostly without much fanfare, is the basis on which the choices have been made:

Expected value!.

What is the expected value of choice A

What is the expected value of choice B.

Expected value = Anticipated outcome – Risk

Once you have articulated the value, the choice becomes clearer.

It just gets complicated when you also need to consider the expected value of the following choices that need to be made. A strategy is a series of choices, all separate, but the final outcome is a result of the interdependencies of the choices made.

A part of the process of putting a number on the expected value is the expected risk. Again, this is a cumulative process.

Think about the essential Australian game of two-up. You are betting on the outcome of the flip of two coins, there is only three potential outcomes, a pair of heads, a pair of tails, or a head and tail, which is a foul throw, and is repeated.  It is possible to get a run of heads or tails, and in a modest number of throws, a marked bias towards one or the other. However, over a larger number of throws, the maths takes over and it ends up 50:50.  In this case, the range of outcomes is known, the probability of one or the other after the re-throw of ‘odds’  is exactly 50%.

I watched a mate at University (scary, 45 years ago) win next semesters fees in a run of ‘heads;’ in a two up game in Dubbo. 9 in a row, the odds are .5 X.5 X .5 X and so on, 1 in approx 19,500. Every time he spun the coins everyone was betting that the next fair throw would be tails, but the odds of each throw are exactly the same, 50:50, it is the probability of there being 9 heads throws in a row that is the really long odds, as you would need to make the bet on 9 consecutive heads before the first throw, to get the return from that outcome. In my mates case, he just kept on betting the ring each time that there would be another heads, 50:50 each time, until he had enough.

Building a strategy is similar, there are some knowns that can be calculated, there are some things that can be added in with some level of probability, and there are the random, incalculable events that can throw an unexpected result.

Trick is to know which is which, and calculate the expected value of any set of circumstances as best you can, always being prepared to accommodate the unexpected, that seems to always happen at the worst possible time.

I am tempted to also make the comparison to the state election to be held on Saturday. A choice of two, with the real possibility of a dud throw, which unfortunately cannot be re-thrown for another 4 years, but that may be inappropriate.

Photo credit: Two up at the Ypres front, 23 December 1917, Australian  war memorial.