Briefly explain four limitations of using Markov analysis in forecasting.

(b)

Three dailies, the Guardian, the Post and the Mirror compete in the same market. During the last

year (2015), total sales for the three dailies were Ksh.348 million and are expected to remain the

same including the next year (2017). The marketing manager for the Guardian feels that an

4additional Ksh.200,000 next year to his department for advertising and other sales promotion

activities would result in a profitable switching of readers from the other two dailies. He recently

conducted a pilot advertising after which he interviewed 2000 readers and hence has the

following data to back up his claim:

TO

FROM

GUARDIAN POST MIRROR

2015

THE GUARDIAN

THE POST

THE MIRROR

2016

348

140

144 58

420

144 174

140

432

632 622 746

580

700

720

Assume that this is a representative sample of the entire market, that the switching patterns can be

described as a Markov process and that the cost of the pilot advertising is negligible.

(i)

(ii)

(iii)

Determine the transition matrix for the above process.

Assess whether the claims by the marketing manager of the Guardian are justified.

On what long-term market shares can each of the three dailies plan?