Chaos Theory and the Dynamics of Marketing Systems

Chaos theory offers a way of improving understanding of marketing systems. Chaos may be defined as a pattern of behavior over time that is generated by a deterministic equation but which is extremely sensitive to the starting conditions such that no matter how close 2 starting conditions are they will diverge exponentially over time. A consequence of the behavior is the impossibility of long-term prediction, which has important implicatons for a firm's forecasting and planning behavior. A study reviews the use of the logistic equation in models of product diffusion and market evolution and analyzes the conditions under which complex dynamics, including chaos, can occur. A more extensive analysis of a nonlinear model of brand competition is presented. The study shows that under plausible conditions, complex dynamics can arise in the market in which brand sales depend on share of marketing effort and marketing effort responds to brand sales. Once indicators of chaos are discovered, a search can be made for the underlying mechanisms at work.