Marketing Analytics

Regressions Slides
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Regression Basics

Video 1: Welcome to Week 5!

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Introduction
• Regression is an important part of an analytics tool kit
that allows us to understand how two variables are
related.
• In this module we will
 Discuss how to interpret regression outputs
 Explore confounding effects and the biases
introduced by missing variables
 Distinguish between economic and statistical
significance

By the end of this module, you will be able to…

• Describe what regressions are and how they are used
in marketing
• Accurately interpret regression outputs
• Make inferences about customer behavior from
regressions and connect them to business decisions

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Video 3: What Regressions

Reveal

Diagnosing Market Response:

Regression Analysis
30
$ Spent by Customer

24
y = 1.4222x + 9.9019

18

12

0
0 2 4 6 8 10
Number of Promotions

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Marketing Analytics
Regressions Slides
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25
y = 1.42x + 9.90
20

1.42
15

$ Spent by 10
Customer
5

0
0 1 2 3 4 5 6 7 8 9
Number of Promotions

Video 5: Multivariable
Regressions

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Marketing Analytics
Regressions Slides
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Example: Simulated Shopper Card Data

Units purchased = a+b1*price paid + b2*feature + b3*display + error
Customer Price Paid Feature Display Units Purchased
1 1.50 0 0 3
1
1
2.56
1.62
1
1
1
0
1
3 Feature and Display
2 2.41 1 0 1
2 2.37 0 1 1 1 = Yes
2 2.23 0 1 1
2 2.65 0 0 0 0 = No
2 2.06 1 0 2
2 2.12 1 1 2
3 2.31 0 1 1
3 1.69 1 1 3
3 1.37 1 1 4
3 1.82 0 0 2
3 1.54 0 1 3
3 1.29 1 1 4
3 1.96 1 0 2
3 2.20 0 0 1
3 1.55 1 0 3
3 2.01 0 1 2
4 2.07 0 1 2
4 2.79 1 0 0
4 2.15 0 0 1
4 2.50 1 0 1

Simulated Shopper Card Data:

Regression Output
True Estimated
Model Model
Intercept 6.28 1.34
Price -2.31 ―
Feature 0.38 0.822
Display 0.48 0.687
R-Squared 0.93 0.188

Why are the coefficients of feature and display different in

the true and estimated models?

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Video 6: Omitted Variable Bias

Omitted Variable Bias

Z
(Price)

– –

X
(Feature / Display)
+ Y
(Units Sold)

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Simulated Shopper Card Data:

Correlation Matrix
Price Feature Display Units Purchased
Price 1 -0.25 -0.24 -0.98
Feature 1 -0.09 0.45
Display 1 0.32
Units Purchased 1

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Survey of Adult Americans (1994)

• Earnings - $s
• Height – inches
• Sex: 1 = men, 2 = female

Source: Gelman, A., and Jennifer Hill, (2007), Data Analysis using Regression and Multilevel/Hierarchical Models, Cambridge University Press,
NYC, NY.

Earnings = f(height) Earnings = f(height, Male)

Regression Statistics Regression Statistics

Multiple R 0.09 Multiple R .09
Observations 1192 Observations 1192

Coefficients P-value Coefficients P-value

Intercept -61,316 <.01 Intercept -10,334 .98
Height 1262 <.01 Height .02
443
Male 9088 <.01

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Marketing Analytics
Regressions Slides
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Omitted Variable Bias

Z
(Male)

+ +

X
(Height)
+ Y
(Earnings)

Earnings Data: Correlation Matrix

Earnings Height Male

Earnings 1
Height .25 1
Male .29 .70 1

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Marketing Analytics
Regressions Slides
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DOES NOT NEED TO BE

REFILMED

Video 7: Using Price Elasticity to

Evaluate Marketing

Price Elasticity
Price elasticity can be
derived as the ratio of
change in quantity
demanded (%∆Q) and
percentage change in
price (%∆P).

PED = [Change in Sales/Change in Price] × [Price/Sales] = (∆Q/∆P) × (P/Q)

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Marketing Analytics
Regressions Slides
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Belvedere Vodka
Sales Price Advertising
Year (units) Ln(Sales) (US dollars) Ln(Price) (US dollars) Ln(Advertising)
2007 410 6.016 215.44 5.373 20486.1 9.93
2006 381 5.943 211.45 5.354 2923.5 7.98
2005 365 5.900 207.45 5.335 4826.3 8.48
2004 369 5.911 240.87 5.484 13726.6 9.53
2003 339 5.826 241.33 5.486 10330.2 9.24
2002 306 5.724 247.55 5.512 13473.6 9.51
2001 273 5.609 240.48 5.483 9264.6 9.13

Belvedere Price Elasticity

Regression Statistics 6.15
Multiple R 0.67536
6.00
Ln (Sales)

R-Squared 0.45611
5.85
Adjusted R
5.70
Square 0.34733
5.55
Observations 7
5.30 5.40 5.50 5.60
Ln (Price)

Standard
Coefficients Error t Stat P-value
Intercept 12.686 3.340 3.798 0.013
Ln(Price) -1.259 0.615 -2.048 0.096

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Marketing Analytics
Regressions Slides
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Video 8: Understanding Log-Log

Models

What Is Log?
Population
Year (millions) Ln(population)
1 170 5.14
400 190 5.25
800 220 5.39
1200 360 5.89
1600 545 6.30
1800 900 6.80
1850 1200 7.09
1900 1625 7.39
1950 2500 7.82
1975 3900 8.27
2000 6080 8.71

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Marketing Analytics
Regressions Slides
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What Is Log?

Log and Percentage Change

• First difference of natural
LOG = percentage change:
 Logging converts absolute
differences into relative (i.e.,
percentage) differences.
 The series DIFF(LOG(Y))
represents the percentage
change in Y from period to
period.

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Elasticity – Log/Log Models

Dependent Variable : ln ($ Spent)

Coefficients Standard Error t Stat P-value

Intercept 2.24 0.07 32.06 0.00
log(num promo + 1) 0.32 0.05 6.44 0.00

0.317 = change in log ($ spent) when log(num promo) increases by 1 unit

log($ spent) when log(num promo) is 0 = 2.236 (1)

log($ spent) when log(num promo) is 1 = 2.553 (2)
(1) – (2) = 0.317

Price Elasticity
Price elasticity can be
derived as the ratio of
change in quantity
demanded (%∆Q) and
percentage change in
price (%∆P).

PED = [Change in Sales/Change in Price] × [Price/Sales] = (∆Q/∆P) × (P/Q)

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Video 9: Marketing Mix Models

Common Variables to Consider in

Marketing Mix Models
Factor
Product quality
Distribution
Brand life cycle – early
Price
Promotion
Include carryover

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Statistical and Economic Significance

• Statistical significance
 Is the relationship observed in the sample likely to be
observed in the population as well
 Look for p–value < .10 for the coefficient of interest
• Economic significance
 Does the benefit from a marketing intervention (i.e., the
size of the coefficient) justify the expense?

Diagnosing Market Response:

Regression Analysis
30
y = 1.4222x + 9.9019
$ Spent by Customer

24

18

12

0
0 2 4 6 8 10
Number of Promotions

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Diagnosing Market Response:

Regression Analysis
Regression Statistics ANOVA
Multiple R 0.775 df SS MS F Sig F
R-Squared 0.601 Regression 1 267.28 267.28 40.60 0.00
Adjusted R-Squared 0.586 Residual 27 177.75 6.58
Standard Error 2.566 Total 28 445.03
Observations 29

Standard
Coefficients Error t Stat P-value
Intercept 9.90 0.85 11.60 0.00
Number of Promotions 1.42 0.22 6.37 0.00

Economic Significance
• A unit increase in number of promotions increases
units purchased by 1.42
• Assume gross profit per unit is $5
• Cost of promotion is $0.50
• Profit = (units purchased * gross profit) –
(cost of promotion * number of promotions)
• Profit = (1.42 * 5 - 0.50 * 1) = (7.1 - 0.5) = 6.6

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Video 10: Regressions

Takeaways

Conclusion
• Regressions are about what you include and also what
you DON’T include in the model.
• Logarithm is a useful transformation for calculating
elasticity from regression.
• Connecting regression to business decisions requires
understanding economic significance.

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Marketing Analytics
Regressions Slides
These materials are for your personal use while participating in this course. Please do not share or distribute them.

Now that we’re done, you should be able to…

• Describe what regressions are and how they are used
in marketing
• Accurately interpret regression outputs
• Make inferences about customer behavior from
regressions and connect them to business decisions

Video 11: Course Conclusion

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