Why Marketing Analytics?

Hi, welcome to Marketing Analytics. I'm so glad you're here. I'm Raj Venkatesan. I'm a
faculty at the Darden School, and I've taught marketing analytics for ten years. And I'm as
excited about marketing analytics today as I was when I started it.
Marketing analytics really is a process where you use data to make better marketing
decisions. There are not really any specific definitions of marketing analytics out there,
but there is some common understanding that there are three different kinds of
marketing analytics. Descriptive, predictive, and prescriptive. Now what are they? Let's
look at here.
So descriptive analytics is looking at the past, it's ad hoc reports or standard reports,
where you're looking at the data and seeing, what happened, how long, and how often? Or
even alerts, which says something abnormal is happening and what actions are needed
to address this abnormality. So, descriptive analytics, really, is looking at the history
and seeing what happened in the past.
Now, as you go up the Degree of Intelligence here from Descriptive you get to Predictive
and Prescriptive Analytics.
Now Predictive Analytics is looking at what will happen, say, if you reduce the price of a
product.
And randomized testing also includes, in Predictive Analytics, which looks at, how can we
look at changing the price or increasing promotion advertising? And what will happen
through experiments and AB testing?
And optimization is in the Prescriptive Analytics realm, which looks at, what's the best
that can happen of all the options out there?
So we go from understanding what happened in the past, learning through that,
and looking forwarding using that data, using predictive and prescriptive for planning
purposes.
Now, why is this happening? Why is this interest in analytics? What's driving that? That
is driven a lot by this deluge of data that comes from cloud servers, AWS or Azure, all
these systems that are allowing us to understand more about consumers.
So as a consequence of all of this, there's a large amount of data that is being put out
there. So, if you look at this report by IDC, they talk about how, in 2013, the amount of
data that was put out was about 4.4 trillion gigabytes. Now, the projection is that by
2020, it is going to go up to 44 trillion gigabytes, a tenfold increase.
Now, all of this data deluge doesn't really help firms. So, there was a report in Harvard
Business Review that looked at firms that use analytics and the benefits that they get.
Now, they found that in their sample, 34% of the firm that were in the top of the class in
using analytics, got about 6% more profitability and were about 5% more productive.
And there was another study which looked at people who use analytics, are they really
high performers in their industry?
Now, let's look at what they found.
They found that, in the column, here, you have people who are classified as
high performers in the study and companies that were classified as low performers. Now,
65% of the high performers have significant decision support and analytic capabilities,
36% value analytic insights, 77% have above average analytics capability. 73% make
their decisions based on data and analysis, 40% use analytics across their entire
organization. Now, these numbers in the low performing columns are always lower than
the high performers. Which means that the high performing organizations have
capabilities that they have developed for using analytics in their decision making and are
benefiting from those data driven decisions.
Introduction to the Marketing Process
Let us talk about the marketing process.
So, there are standards steps that marketing professionals follow when they are building
this marketing process. So, in this module, what we want to do is, first, understand the
marketing process. How do people look at marketing? Let's have a common
understanding of that and then try to use data to make this process even better. So, the
marketing process actually starts with the objectives. What is it that we're trying to
accomplish here? And that kind of feeds in using the five Cs. It's about the customer, the
company, competitors, collaborators and content. And now, once we've addressed this
objective that we are trying to solve using the marketing process, the objective could be, I
want to address a customer paying point using a new product. Then, you'll look at the
strategy. What is your strategy going to be? And strategy, basically, comprises of
segmentation, targeting and positioning. And we're going to get into the details of each of
these as we go along this module. But it's good for you to now know that the next step
after objectives is strategy and hat consists of segmentation, targeting and
positioning. And after strategy comes tactics. And what is commonly known as the four
Ps of marketing, product, price, place, and promotion. Place is really about channels and
distributions, but marketing, we like nice acronym, so we wanted the fourth P, so we
called it place instead of channel. And then, from tactics, we go to financials, which is
really about, show me the money. What is the gross margin, return on investments,
customer lifetime value? All those things to see whether this plan that we have put up, is
it feasible or not.
Now, by the end of this week, I hope you will be able to understand the marketing
planning process. See how you can take an objective or a challenge and use the process
to address the marketing challenge. Learn about the marketing planning process using a
case study of Airbnb. Understand how Airbnb may have used data to make this planning
process better. And through that, learn the objectives of marketing analytics and how it
is trying to make the marketing planning process better, and more efficient, and effective.
Airbnb Marketing Process
So, let us talk about the marketing planning process using the Airbnb case study. Now,
Airbnb is a famous vacation rental portal in the sharing economy space. The first step in
the marketing planning process is to talk about the objectives. Now the objectives are
about customer, company, competitor, collaborators, and context. Now, how do this look
in the Airbnb case study? So, the objective could be, how to improve customer
experience? That is the objective of the Airbnb vacation rental portal. Now, that objective
is informed by the customer, company competitors, collaborators, and context. So, who
are the customers of Airbnb?
You and me. Everyone who is looking to travel is a customer of Airbnb.
You could go to Airbnb, find apartments that are available for rent on the Airbnb portal,
choose one of them and use that in your next travel plans. Now the company, Airbnb, what
is their capability? Their capability is the portal itself and allowing customers to look for
these vacation rental places that they could use that are available on the portal.
The competitors are hotels, those are the standard, traditional companies that have these
facilities available with rooms that you can go rent and the competitors could also be
other people like VRBO or Kid & Coe, that are also vacation rental portals. Now, who are
the collaborators? Who are the suppliers to Airbnb? Now, this is where it gets interesting
in the sharing economy space.
Airbnb allows you and me to actually put up our apartments, our houses for rent on their
portal and someone else who's looking to travel or coming to our location could be
looking at the portal and saying, at our apartment and picking it up for rental, so Airbnb
goes around the traditional competitors like hotels and connect suppliers, you and me,
with customers. Again, are those, like you and me who is looking for renters. So that
context is actually the sharing economy context where it allows customers to transact
with each other and share something that they have, maybe an apartment that they're
not using right now. To be able to be rented by someone else using this portal. Now
Airbnb is trying to address the objective of how to improve customer experience under
the context of the sharing economy and informed by the five C's. Now the next step in the
marketing planning process is to look at the strategy.
Now to understand, to improve the customer experience, Airbnb first needs to
understand who the customers are. How can I group my customers who come to my
portal into different categories and the way you categorized the customers is called
segmentation? There may be many ways in which you could categorized this
customers. That could be based on location, where people want to travel. It could be
based on what they look for in their travel like adventure, or food, or whatever they look
for in their travel. It could be based on price. Our customer's looking for cheaper places
to rent or higher places to rent. Can customers be group based on their price sensitivity?
It could be based on the purpose of the travel. Is it for vacation or is it for business? It
could be on who is travelling, the composition. Is it families or singles, that are looking to
travel. Or it could be whether it is students or working professionals that are looking to
travel. So that could be many different ways in which Airbnb can segment its customer
base. And targeting is about looking at which segment to focus on when you do the
segmentation. Does Airbnb want to really focus on people who look at different locations
or does it really want to focus on people who are families who are looking at vacation
rental spaces?
Now, once you identify the target, let's say Airbnb chooses families, it could be based on,
what is the value proposition that Airbnb proposes for these families. One could be
basically, a home away from home. I can speak from my own experience, traveling with
my two boys and my wife. That it's very difficult to have them in one hotel room. I mean,
that just doesn't work for them, and they get very impatient. Now, a room, a whole house,
is better. They're happy. We're all happy. We can actually have a vacation. So that could
be a value proposition that Airbnb provides over and beyond the hotel experience. So
that's an example of positioning to a target segment that is families. Now, the next step
after this is to look at the four Ps, product, price, place, and promotion. So, to do that we
are going to look at an apartment that a colleague of mine, Fred, who has put up for rent
on Airbnb. In my conversations with trusted camera men Kyle indicates that this is a
thumbs up apartment really, and let's look at that apartment. So this is the apartment that
Fred has for rent and here is Fred with his lovely family and he has rented a one-bedroom
apartment that can hold two guests and has the bed. Now, this is the product that Airbnb
makes available for other customers to rent from.
The next step is looking at the price, Fred rents it for $60 per night. Then we go to
location. This is where it's up 29 Knot, here in Charlottesville, which is very close to a lot
of shopping malls. And that's the location of this apartment, and promotion really in the
Airbnb world is from reviews, that if you rented Fred's apartment in the past, you would
provide a review describing your experience. So here this says somebody there posted a
review on March and it says that this was my first experience at Airbnb and it was a
delightful one. So this is kind of the reviews that people post, and you and I look in these
reviews and decide whether we want to rent from Airbnb.
The next step is financials, and the financials are really about margin, ROI, and CLB and
it's really about how does Airbnb make money.
Airbnb's Strategic Challenge
So if you look at the strategic challenge of Airbnb, we first need to understand how they
make money. So Airbnb is a portal that makes guests and hosts come together and Airbnb
charges both sides of this platform. So for guests it charges about 6 to 12% of the
reservation subtotal. And for hosts it charges about 3% of the service fee.
Now if this is how Airbnb makes money, what would be the metric and the strategic
challenge that Airbnb is trying to address? So if you look at Airbnb strategic challenge it
is basically how can I make the properties that are on my portal to be rented as often as
possible? Airbnb really does not want any of the properties that are on its portal to go
unrented. That's their objective. Now, what can they do to address this objective? They
need to see if they can use all the user generated data. The reviews that are coming from
the promotion part of the four P’s and the price. If they can use these two levers, how can
they use these two to improve the rental prospects of the host and the guest. And that is
a strategic challenge that Airbnb's faced with. And that's what we are going to see, how
Airbnb can address this strategic challenge using data that they generate on their
website.
Airbnb's Marketing Strategy with Data
Let's revisit the strategic challenge of Airbnb. Airbnb wants to improve the rental
prospects for hosts and identify better rental options for guests and they want to use the
user generated data, the reviews that are available on the website and price of the
property as levels that they can use to improve their rental prospects for hosts and
guests. Now, let me tell you that we're going to look at data and analytics and how to
improve the marketing planning process. So I have to warn you this is going to be some
hard work and some math, and it is going to be like eating vegetables and we are going to
do this. I am here with you. We're going to get through this. I'm sure you can do this. Let's
get started. So the first step in this analytics process is to construct something called a
mental model. So we're going to work through developing this mental model for Airbnb
and it starts by identifying the metric that Airbnb is trying to maximize, and that metric
is profit per property. Now profit per property is obtained by multiplying gross
margin. What is a margin that Airbnb makes from each property that gets rented? And
the price that the property is charged, the number of rentals that the property gets
rented, and the minimum stay or the minimum duration that the property gets rented for
each time it gets rented. So the product of all these; price, number of rentals, minimum
stay and gross margin gives you profit per property. Now of all of these aspects what is
the one thing that the customer influences? The customer influences number of
rentals. Now how does the customer decide which property to rent? Now that could be
based on the star ratings, whether it is two stars or three stars or five stars. It could be
based on reading the text like we saw in the Fred's apartment we surveyed the reviews
and we saw what people talked about their experience renting from Fred's apartment
and also the properties. What kind of apartment is this? How many bedrooms? What
location? All of these determine whether the customer rents an apartment or a
home from Airbnb and that eventually determines the number of renters of the
property. So here you are. This is the mental model that we are working with for Airbnb.
Now what kind of data is necessary to build this mental model? The first place we look at
is the reviews because that's what we see as say, one of our hypothesis is that customers
read these reviews and then make up their mind as to whether they should rent this place
or not. And here are all the reviews that we had for Fred and his apartment. Now what
we are going to try to do is look at all this information and take that and build it into a
predictive model that will tell us how many renters are possible based on the star
rating, the reviews and the property attributes and that's what we are going to see in the
next video.
Using Text Analytics
So let's start this analytics process. After the mental model we'd looking at reviews. Now
one of the interesting things about this review data is that it's all text. It's not
numbers. Now, when you put numbers into a mathematical model it's easier. It's and- it's
easier for the model to understand. Now, how do you put text into a mathematical model
or predictive model to make it to understand text. Well he issues is predictive models
don't understand text data. You have to process this text data and convert it into a
number. And that's what we're going to look at. And it's commonly called as text analytics
and we're not going to delve deeper into this. That would be an advance marketing
analytics course, but we will give you an intuition as to how that happens. So let's look at
the intuition for this text analytics that we need to do here. Now I looked up one of the
reviews that Fred had, and I put that review up here. And what we're going to look at the
first thing is a positive review. And that's what- let's look at that first. Now it says here
Fred is a great host. Everything was perfect. The flat is amazing, location is in a quiet area
near the subway. I definitely come back here. So some of the things you may notice is that
this is a real review. So you know Truth is stranger than fiction. There are going to be
grammatical mistakes and all of this that the computer has to understand and that are
software like R and other things that use all of this text data and convert it into something
called a review sentiment. And if you send this text into R and into this function it gives
you a number. And that's what we're going to say. So how does that work. Now the first
thing to see is what are the good words. What are the positive words in this review. It is
great. Perfect. Amazing quiet. And another thing to notice is there are no bad words in
this review. So the review sentiment score is positive at 1.22. So it's a good review. So
higher the review sentiments score the more positive the review. Now what I did was dig
this review and really manually bent and changed some of the words to make it bad so
that we can see if the function actually spits out a lower number if we give a bad review.
What I did was go in and changed great to bad host, everything was horrible. Flat is dirty
but I still kept some good words like great and quiet. Now when I send this into R, I get a
review of sentiment's score of -0.36. Now compare this to the positive score of 1.22. So
you see that the program is able to take all the stacks and if it sees some bad words
converted into a review sentiment's score that is of a lower value. And if it sees only
positive scores it can then convert it into a review sentiments score of a positive
value. Now what if, we change this into a really bad review score that would give a score
of maybe -1.22. So you would take for each of the property all the reviews that is good
run it through a code in R and come up with this review sentiments score, and you
can take that data and then plug it into a predictive model. And that's what we're going
to see next.
Utilizing Data to Improve Marketing Strategy
So after looking at the mental model, taking all the review text and putting it into a
sentiment score for each property, we are then ready to take the rest of the data that are
all numbers and plug it into this predictive model that we're going to see. So what is the
rest of the data? We have the star rating, we got the price, we have the property
attributes. All of these can then go into a predictive model to predict the number of times
a property is saved on Airbnb. his predictive model, one could use regression which we
will see in the module on regression, and so basically it takes all this information and
historic information about all the properties and sees which of these factors actually
influences you, o say, put a property on the saved wish list or rent the property and that's
what we're going to see here. Now what we did for the purpose of this case study, was
extract this data for all the properties of Airbnb in Miami and Paris from the web. So all
of our public information that is available on Airbnb's website, we downloaded that and
ran some analysis and predictive models on that. And that's kind of what I want to share
with you now as insights as to what does all of this analytics lead to in terms of insights
about our marketing planning process and objectives that we are trying to address in the
first place. You can look at the pictures here. We have, you know, Paris and Miami over
here and we collected data from all of these properties and ran it through integration and
what we found was, in Paris review sentiment and cleaning fees was important. In Miami
price, security deposit and cleaning fees was important. Which is kind of interesting
because you know without data, our intuition or our gut would say, you know, review
sentiment is important. We read reviews and that's what is influencing our decisions. But,
you know, when we take a check here and go look at the data and dig that
information, what it really reveals is that Airbnb needs a regional strategy. Some places
are influenced by review sentiment, some are not. They're influenced by price and if you
look at the sign, cleaning fees, higher cleaning fees means lower rental prospects in both
Miami and Paris which makes sense. And price also has a negative influence on number
of renters. So people, in general, like lower priced properties which, kind of, make sense
and review sentiment was positive. People like to rent properties that have a high review
sentiment. So this kind of makes, you know, this what is called a smell test. It has face
validity. he results make sense that fees have a lower effect and price has a negative effect
and review sentiment has a positive effect and now we can see that using the data from
all of our properties and putting it through an analysis in a predictive model like
regression. We looked at how Airbnb strategy really changes based on the
location. Whether it is Paris or Miami and how data actually improves our marketing
planning process and decisions really.
Takeaways: Improving the Marketing Process with Analytics
So, I hope you had fun. You ran through some numbers, ate your vegetables, did some
predictive models, and you're better off for that and you enjoyed it. And we're going to
see more of this and many of the modules that we're going to look into. Now let's recap
as to what the analytics we looked at in Airbnb. When we started this module, we talked
about three kinds of analytics: descriptive, prescriptive and predictive. Now let's start
with descriptive. Descriptive is really about looking at historic information that Airbnb
has on its website that looks into reports that says how often a property is rented, in
which place, and why and what are happening in terms of some abnormalities in terms
of rental rates over time. This is basically summarizing past information. Now we go up
the level of intelligence into predictive and prescriptive models. In predictive models, we
looked at how we take all the review sentiments, star ratings and property attributes to
predict sales of a property. And then in prescriptive, we are going to look at now that in
Miami price is important, how can we optimize the price in Miami to improve the rental
prospects of properties in Miami? So you can see how analytics allows us to improve the
marketing planning process at different stages. Now in terms of takeaways from this
module, I hope you take away that marketing is both an art and a science. Analytics
provides marketing managers the opportunity to test intuition about marketing. We saw
how without data, we may have said, "Well, reviews and the text in the reviews affects
the rental prospects of all properties." But the data said, "Wait a minute, that's not the
case. It happens only in certain properties, in certain locations, not all the time.". And
insights from analytics can hence challenge our widely held assumptions. And because of
this process, confidence in decisions that flows out of the marketing planning process is
higher when we use marketing analytics. You should now be able to understand the
marketing planning process, explain how data-driven decision-making impacts
marketing, describe how Airbnb used analytics to improve its marketing strategy, apply
the marketing planning process to address your marketing challenges, apply the analytics
process to your marketing challenges. So, we're basically hoping that you understand the
marketing planning process, understand how analytics affects the marketing planning
process, and how you can use analytics to improve the way you address your marketing
challenges.