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Marketing Analytics Module 1 Slides

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Marketing Resource
Allocation

Introduction
Welcome to the exciting field of Marketing Analytics!
Marketing analytics helps marketing managers
make decisions.
In this module, we will
Discuss why marketing analytics is important
Review the resource allocation process
By the end of this module, you will be able to use
basic tools to determine effective resource
allocation.

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 1
Marketing Analytics Module 1 Slides
These materials are for your personal use while participating in this course.
Please do not share or distribute them.

Buzz About Big Data and Analytics


From 2013-2020, the digital universe will grow
by a factor of 10- from 4.4 trillion gigabytes to
44 trillion. It more than doubles every two
years.
- The digital universe of opportunities, IDC report, April 2014

Buzz About Big Data and Analytics


Companies in the top 3rd of their industry in the
use of data driven decision making are on
average
5% more productive
6% more profitable
than their competitors.
- The Big Data Management Revolution, Harvard Business Review, 2012

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 2
Marketing Analytics Module 1 Slides
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Please do not share or distribute them.

Buzz About Big Data and Analytics


McKinsey & Co. analystsshowed a typical
range of 15% to 20% of marketing budgets could
be reinvested in other activities or returned to the
bottom line without losing marketing ROI $200
billion of marketing spent annually could be put
to better use.

Source: Smart Analytics can tap up to 20% of lost ROI, The Economist Group, Nov 2013

Buzz About Data and Analytics


High Low
Performers Performers
have significant decision-support/analytical
65% 23%
capabilities
36% value analytical insights to a very large extent 8%
have above average analytical capability within
77% 33%
industry
73% make decisions based on data and analysis 51%
40% use analytics across their entire organization 23%

Source: Thomas Davenport, Competing on Analytics, 2007

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 3
Marketing Analytics Module 1 Slides
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Marketing Analytics?
Optimization Whats the best that can happen?
Predictive and
Predictive Modeling What will happen next? Prescriptive
Randomized Testing What if we try this? Analytics
(the so what)
Degree Statistical Analysis Why is this happening?
of
Intelligence Alerts What actions are needed?

Query/drill down What exactly is the problem? Descriptive


Analytics
Ad hoc reports How many, how often, where? (the what)
Standard Reports What happened?

Metrics, Then Analytics!


Source: Thomas Davenport, Competing on Analytics, 2007

Resources on Marketing Analytics

Resource Videos and Datasets at


http://dmanalytics.org

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 4
Marketing Analytics Module 1 Slides
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45 50
43 42 45
40
35 40
34
35
The 30
30

RANK
25 25
Samsung $ Billions
20
21 20 20 21 21
19 19
25

Brand Value 15
17 20
15
Growth 10 9 8 8 10
5 5
- 0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
YEAR
Brand Value ($millions) Interbrand Global Brands Rank

Optimal Marketing: Misallocations Revealed


30%

25%

Italy

20%
Ideal Alloca on

15%
Spain
USA

10%

Russia

5%
Netherlands

Canada

0% UK
0% 5% 10% 15% 20% 25%

-5%
Current Alloca on
Source: Adapted from, Samsung Electronics Co., Harvard Business Publishing Case, John Quelch, Anna Harrington, Jan 2008.

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 5
Marketing Analytics Module 1 Slides
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Please do not share or distribute them.

Resource Allocation Process


Determine the performance metric?
Market share, profits, customer lifetime value, etc.
Map a system of metrics framework connecting
marketing inputs to the performance metric
Build a econometric (regression) model for the unknown
values in the system of metrics framework
The regression model will be a function of marketing inputs of
interest, e.g., price, advertising, sales calls, etc.

Resource Allocation Process


Once the regression model is obtained, predict
the performance metric using the regression
function
Identify the optimal value of the marketing input
that maximizes the performance metric
Hint: Solver
Hint: Regression function connects marketing inputs to
the components of the performance metric

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 6
Marketing Analytics Module 1 Slides
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System of Metrics for Net Profit

What Is an Empirical Relationship?

14

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 7
Marketing Analytics Module 1 Slides
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Resource Allocation Process Pfizer


Empirical Relationship
Number of New
Prescriptions
Sales Calls
Profit
per
Physician
Direct to
Consumer Retention
Advertising

Empirical Relationship
Marketing
Cost

Maximizing Profits and


Optimizing Marketing Pfizer

Maximum Profits = Sales*Gross Margin %


profits Marketing Costs

Optimal Sales Call Number of sales calls

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 8
Marketing Analytics Module 1 Slides
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Maximizing Sales and


Optimizing Sales Calls Pfizer
Estimated Weights
Number of prescriptions Retention
Intercept Sales Calls Intercept Sales Calls Price Cost of Sales Calls

0.05 1.5 0.006 1.2 300 50

Sales Calls Sales Retention Profit


1 1.09 0.70 109.73
2 1.70 0.79 181.65 Current
3 2.13 0.84 226.31
4 2.46 0.87 252.30
5 2.74 0.90 265.25
6 2.97 0.91 268.74 Optimal
7 3.17 0.92 265.10
8 3.35 0.93 255.94
9 3.50 0.94 242.39
10 3.65 0.95 225.27

Optimizing Sales Force at IBM

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 9
Marketing Analytics Module 1 Slides
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Outcomes of Optimizing Sales Force at IBM


Average Revenue/Customer
(For the same group of customers) Percent of Establishments with Purchase

$10X (2005)
1.6 Y% (2005)

Y% (2004)
Revenue
Percent

$X (2004)

No Sales Call until 2004 Sales Calls in 2005

Incremental revenue attributed to net new accounts targeted by sales force using
customer profit model recommendations = $ 19.2 million.

Half the money I spend on advertising is wasted;


the trouble is I dont know which half
John Wanamaker
Father of Modern Advertising

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 10
Marketing Analytics Module 1 Slides
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ROI
Profit
Financial ROI =
Value of Investment

Return on Marketing Incremental Gross Margin f/Mktg Marketing


=
Investment (MROI) Marketing Investment

Marketing ROI (or ROMI)

The arithmetic is easy


The estimation and definition of effects are not
The same term (ROI) can be used to describe a
multitude of methods

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 11
Marketing Analytics Module 1 Slides
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Common Scenarios for ROI


Nine West shoes customized product listing ads
on Google to individual products and devices
(especially mobile) with the help of RKG group
Nine West Product listing ads registered ten
times higher conversion rates than non branded
keywords on Google AdWords
Source: Google Shopping case study, RKG Group

Common Scenarios for ROI Calculations


A Chief Marketing Officer (CMO) wishes to
convince the Chief Financial Officer (CFO) that
long-term returns to customer acquisition
spending will be justified.
Customer Lifetime Value-based ROI will be useful, but
may not tell the full story of marketing productivity and
costs

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 12
Marketing Analytics Module 1 Slides
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Return on Investment (ROI)


Powerful Power Tools spends $2 million for Search Engine Marketing in 2012, generates
$10 million in incremental sales in 2012 with contribution margins of 50%.

ROI = ($10M * 50% - $2M) / $2M


= ($5M - $2M) / $2M
= $3M / $2M

= 150%

As a marketing manager (or CFO), what questions might you ask?

What Questions Do You Ask?


Powerful Power Tools spends $2 million for Search Engine Marketing in 2012, generates $10 million in
incremental sales in 2012 with contribution margins of 50%. ROI = 150%

Will the investment in 2012 pay dividends in 2013 also?


What is the carryover of marketing investments? Should some new
customer acquisitions in 2013 be attributed to the investment in
2012?
How was incremental gross margin determined? What
is the baseline without the search engine marketing?

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 13
Marketing Analytics Module 1 Slides
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What Questions Do You Ask?


Powerful Power Tools spends $2 million for Search Engine Marketing in 2012, generates $10 million in
incremental sales in 2012 with contribution margins of 50%. ROI = 150%

Will doubling the investment to $4 million double


the returns to $20 million in incremental sales?
Are there diminishing returns to marketing?
What are the longer term effects?
How many new customers did this campaign acquire in 2012,
what is the lifetime value of these new customers?

Are There Diminishing Returns to Marketing?


A CFO is interested in how the total returns to marketing spending
have changed over the last two years since the new CMO was hired.
Average ROI is the right measure to use

For linear models, average and incremental returns are the same.

Sales

Investment

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 14
Marketing Analytics Module 1 Slides
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Are There Diminishing Returns to Marketing?


Sales

5.3M
5M

812K
808K

200K 300K 1M 1.1M Investment

In the presence of diminishing returns the current level of investment


matters when calculating incremental returns.

A Generational Platform Shift


in St. Peters Square

Photo Credit: Ruth Lozano Photo Credit: Flavio Ensiki


https://www.flickr.com/photos/ruthbruin2002/255296864 https://www.flickr.com/photos/flavouz/8643022353

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 15
Marketing Analytics Module 1 Slides
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The Coming of Age of Digital

106 MM+ viewers 350 MM+ views

Image Credit: Austin Kirk


https://www.flickr.com/photos/aukirk/8468823259

Synergy of Offline and Online Advertising


Intuit

Online Ad New Online RFPs

Sales Force New Offline RFPs

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 16
Marketing Analytics Module 1 Slides
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Too Many Paths to Purchase


Customer First Second Third Request
Number Interaction Interaction Interaction Proposal
1 Display ad Organic search Email Yes
2 Sales force 0 0 No
3 Organic search 0 0 No
4 Sales force Organic search Email Yes
5 Email 0 0 No
6 Display ad Sales force 0 Yes

Media Attribution Ladder


Econometric Models +
Experiments
RETURN

ON Econometric Models

MEDIA
Experiments
SPENDING

Rule Based System

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 17
Marketing Analytics Module 1 Slides
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Rule Based System


Media Weight
Attribution Rule
First Second
Last interaction Email Sales force
First interaction Display Sales force
Linear Display, sales force, organic, email
Time decay Email, sales force Organic search

Experiments Customer Purchase Funnel

Without Display With Display


Number of Emails 1,000 Number of Emails 1,000

Impressions 800 Impressions 900

Clicks 200 Clicks 400

Request a Proposal 50 Request a Proposal 150

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 18
Marketing Analytics Module 1 Slides
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Synergy Between Email and Display

Without With Lift in Email Metrics


Email Metric Display Display From Display
Impression rate 80% 90% 112%
Click through
25% 44% 176%
per impression
Click through
25% 38% 150%
conversion
Email conversion 5% 15% 300%

A Media Mix System


of Metrics Intuit TV

Emails
Email Facebook,
Impressions Mobile
Paid Search
Clicks
Paid Search
Price
Spend
Mobile Clicks
Units Sold
Web Visits
TV
Facebook
Clicks

Paid Search,
Mobile reach

TV
Impressions TV Spend Facebook
Spend

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 19
Marketing Analytics Module 1 Slides
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Attribution Model Inferences


Sales = f(lagged sales, web visits from search.)
Web visits from search = f(lagged web visits from
search, paid search clicks,
mobile search clicks)
Paid search clicks = f(lagged paid search
clicks, TV spend, paid
search impressions,
display impressions)

Media Reallocation Increased Unit Sales


Year-Over-Year by 17%
-15.0% print

english radio 2.6%

hispanic radio 1.6%

mobile 1.7%

facebook 12.5%

paid search 1.3%

direct tv 11.7%

-16.4% branded tv

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 20
Marketing Analytics Module 1 Slides
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Continuous Improvement Process


Measure
Performance Metric

Reallocate Media Weights Build System


and Experiment of Metrics

Econometric Model
Optimize Media
to Predict Metric
Attribution Plan

The Three Pillars

Econometrics

Decision
Experimentation
Calculus

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 21
Marketing Analytics Module 1 Slides
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Conclusion
Marketing resource allocation is a process that
requires continuous improvement and feedback
loops.

It requires one to combine intuition, statistical


analysis and experimentation.

The system of metrics is a good first step in the


resource allocation process.

Developed by Raj Venkatesan for the University of Virginias Darden School of Business
Coursera Course: Marketing Analytics 22

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