Marketing Analytics: Marketing Measurement Strategy

Text: Analytics: Strategic Models and Metrics

When you finish this course, you'll be able to answer three essential questions.

How do I predict what will happen in markets?

How should I position my products?
Which metric should I track? And what insight can I glean from them?

To answer these questions, we'll cover

How to size markets and identify their trends?

How to position products as part of the market segmentation process?
How to work with strategic metrics to identify strengths and weaknesses
within the organization?

Module 1: Introduction to Marketing Analytics

Chapter 1 - Marketing Analytics: Strategic Models and Metrics
In this session we will give an introduction to marketing analytics. Upon completing
this lecture you'll become familiar with definitions, drivers, and advantages of
marketing analytics; definitions, styles, forms, and variables used in models;
definitions, families, and dashboards of metrics.
How do we define marketing analytics?

One broad definition states: marketing analytics as data analytics for

marketing purposes from data gathering to analysis to reporting. But that
definition is quite vague, so we prefer the following definition instead.
Marketing analytics is the state of techniques and tools that provide
actionable insight. By techniques and tools we mean models and metrics.
We'll define models and metrics later, but now, understand that models refer
to decision tools such as spreadsheets, and metrics refer to key performance
indicators to monitor the state of the business. In a way, models and metrics
are analogous to common items found in an automobile. Metrics are similar
to automotive gauges, and you see some on the left. They monitor the
situation

and help diagnose problems. For

example, a driver could like down at
her dashboard and notice that the
temperature gauge was reading high.

Based on that information she could

diagnose that something was wrong with
the cooling system. Models, on the
other hand, are similar to global
positioning systems, also known as GPS
units. Models show a representation of
reality to help you decide on a course
of action; so does a GPS. Modern GPSs
represent reality in that they show the
roadways in your current location. They
help you decide on a course of action
by presenting relevant information so
you can make decisions. For example,
the GPS unit could notify the driver of
snarled traffic ahead and she could
decide to use an alternate route. As
we'll show in the course, one should
take care in how metrics are
interpreted. For example, aircraft
returning from battle in World War II
showed significant damage from bullets,
such as holes in the tail section.
Military leaders interpreted this
observation as a requirement to
reinforce the damaged areas.
Statistician Abraham Wald interpreted

the same observation differently,

recommending to reinforce the nondamaged areas. He stated that the
observations included a selection bias.
That is, it only included the aircraft
that returned, not those that did not
make it because they were damaged too
badly. Therefore, be careful how you
interpret data. Now we turn to several
trends that are driving the adoption of
marketing analytics in organizations
across the globe. First we see the
trend of increasing accountability for
marketing performance. CEOs expect
their marketing departments to improve
productivity and reduce costs. Second,
organizational emphasis on data- driven
presentations is increasing the need
for analytics to back up proposed new
plans. Third, data is increasingly
being stored online, also known as the
cloud. With online data storage we get
increased speed and convenience when
accessing data. Fourth, many marketing
departments have reduced resources,
forcing them to do more with less,

making the most of every marketing

dollar. Fifth, thanks to initiatives to
capture customer information, companies
are awash with data. The big question
is: What do we do with all that data?
We analyze it of course. Marketing
analytics offers us many advantages.
First, it can help drive revenue,
positioning the marketing department as
a profit center instead of a cost
center, second, it can save money. CEOs
will no longer tolerate the old
approach where marketing [ sent out
04:02] campaigns hoping for results.
Now marketing analysts can predict the
outcome of their efforts. Third,
executives trust numbers. Analytics is
thus a powerful tool to persuade
executives. Fourth, we can even apply
analytics tools to sidestep politics in
some cases. Some CEOs do not appreciate
marketing departments, especially if
they themselves do not have a marketing
and sales background. But virtually
every CEO appreciates revenue, and
analytics can deliver revenue when used

effectively. Last but not least,

analytics can encourage experimentation
by allowing marketers to test multiple
scenarios before proceeding. That way
they can make their mistakes on paper
where they have little to lose. We now
turn our attention to models and
metrics. We can define a model as a
simplified representation of reality to
solve problems. We simplify reality to
make models easier to use. For example,
we can examine an advertising
effectiveness model. The graph shows
that sales revenue increases as we
increase advertising spending levels.
That should come as no surprise, but we
can see that the effectiveness begins
to level off once we hit the spending
level marked by the letter a. After
that point we actually start to lose
revenue. We can imagine that this level
of spending would create a supersaturation effect where consumers are
overexposed to ads and thus less likely
to purchase from the company. The
purpose of the model is to evaluate the

impact of its input variables. In our

case we can assess how advertising
affect sales. Models help us make
decisions. They provide guidance on our
marketing actions. In our advertising
effectiveness model we can see that we
do not want to spend beyond the level
represented by a, or we risk losing
money. Models come in different styles.
We start with styles. Styles tell us
how the models are expressed. As we can
see in the image, they can be expressed
in three different ways. First, they
can be expressed verbally. For example,
in the advertising effectiveness model
shown on the previous slide we could
state the expression " Sales is
influenced by advertising." Second,
models can be expressed pictorially in
graphs or charts. For example, we saw
the plot of sales revenue vs.
advertising spending level in the
previous slide. Third, models can be
expressed mathematically. In our
advertising example we could state that
sales equals a plus b multiplied by our

advertising level. We strive to express

models in the mathematical style
whenever possible. Models also come in
different forms. Forms tell us about
the power of the model. At the lowest
level is descriptive forms. Descriptive
forms simply describe the marketing
phenomenon. At the next level comes
predictive forms. With predictive forms
we can determine the likely outcomes
given certain inputs. This is the
classic what if spreadsheet exercise.
For example, we might say " What if we
increased advertising spending by 10%."
With a model in a predictive form we
could see the resulting sales level. At
the highest level we find normative
forms. Normative forms help us decide
on the best course of action to
maximize our objective given the limits
on the input variables. Instead of what
if, we can " Given x where x is a
certain situation, what should I do?"
In the course we'll discuss variables.
Variables are defined as something that
can change, such as advertising and

sales. Independent variables are a type

of variable whose value affects the
dependent variable. Think of
independent variables as the input to
the model. In our advertising
effectiveness model viewed earlier the
independent variable would be
advertising spending. Independent
variables are classified as
controllable or non- controllable.
Controllable variables represent things
we as marketers have some degree of
control over. For example, marketers
can control variables such as
advertising spending levels, features
of the product we sell, stores in which
we sell the products, and so forth.
Conversely, we have no control over
non- controllable variables. Noncontrollable variables include areas
such as customer age, economic
conditions, and so forth. Dependent
variables represent our marketing
objective, which we can think of as
output. In most for- profit companies
our marketing objective would be

related to revenue, such as sales

revenue, units sold, profit, and so
forth. In not- for- profit companies we
could have related objectives such as
donations generated, pledges made, and
so forth. In this slide we review the
terminology around the most basic of
models, the linear response model. Here
we have only one input variable,
similar to the advertising
effectiveness model we reviewed
earlier. As usual, our output variable
is revenue- related, in this case sales
revenue. We express the linear response
model as y equals a plus b multiplied
by x. Where y is our dependent
variable, here representing sales
revenue, a is the perimeter called the
y intercept, b is the coefficient to x
which we can interpret as the slope of
the line, and x is the independent
variable which in our case is
advertising. As shown in the graph, the
y intercept is level of you when x
equals zero. The graph also
diagramically shows slope, defined as

the rise divided by the run of a line.

We'll be using this nomenclature
throughout the course. We end this
module by introducing metrics. We
define metrics as business- oriented
key performance indicators. Examples
include sales per distribution channel,
cost per sale, profit for sale, and so
forth. Metrics help us monitor and
improve marketing effectiveness,
allowing us to take corrective action
as necessary. For example, we could
track marketing expense as a percentage
of sales. If we're trying to maintain a
constant spending level of 10% of
sales, we could monitor it. If it
creeped above 10% we could make a note
of that event and reduce our spending
levels to bring it back down to our
target value. It is rare that companies
only track a single metrics. Metrics
families, which are groups of
controlled metrics, are more common.
These families of metrics offer
diagnostic and predictive information
beyond that provided by a single

metric. Examples include sales metrics

families such as sales per industry,
sales per product, sales per month, and
so forth. Metrics dashboards are groups
of relevant metrics and metrics
families displayed in graphical form.
Marketing automation systems such as
those offered by Eloqua, Marketo, and
Pardot, as well as sales force
automation systems such as those of
Netsuite and Salesforce. com offers
metrics dashboards as part of their
core functionality. We close the module
by looking at our check for
understanding. Number one: Do you
understand the definitions of marketing
analytics, models, and metrics? Number
two: Can you discuss the advantages and
trends driving marketing analytics?
Number three: Can you explain model
variables, model styles, model forms,
and the linear response model equation?