Quantitative Methods

SESSIONS 1-3
CASE:
Catalog Marketing
CONNECT!
Poll
http://timesofindia.indiatimes.com/home/polls

Social Media Analytics

https://socialblade.com/
 The world’s most valuable resource is no
longer oil, but data
http://www.economist.com/news/leaders/21721656-data-economy-demands-new-approach-
antitrust-rules-worlds-most-valuable-
resource?fsrc=scn/fb/te/bl/ed/regulatingtheinternetgiantsthedataeconomydemandsanewappro
achtoantitrust

http://www.economist.com/news/finance-and-economics/21698656-jacking-up-prices-may-
not-be-only-way-balance-supply-and-demand-taxis?fsrc=scn/fb/te/bl/ed/
 Some useful databases
• data.gov.in – This is the portal of the Indian Government’s open data. You can
check out a few visualizations for inspiration here.

• World Bank – The open data from the World bank. The platform provides several tools
like Open Data Catalog, world development indices, education indices etc.

• RBI – Data available from the Reserve Bank of India.

• Five Thirty Eight Datasets – Here is a link to datasets used in different stories. Each
dataset includes the data, a dictionary explaining the data and the link to the story
carried out by Five Thirty Eight.
COURSE EVALUATION

Specific Assessment Method Weight

Quiz 10%
Homework Assignment 10%
Mid-term Exam 25%
End-term Exam 35%
Group Project 20%
 CASE: Catalog Marketing
Data Types
Scales
Statistic
Data Visualization
Histogram
Bar Chart
Pie Chart
Frequency table
Cross Tabs
SPSS Download :14 days trial
https://www-
01.ibm.com/marketing/iwm/iwmdocs/tnd/data/web/en_US/trialprograms/W110742E06714B2
9.html
Types of Variables
• Elements are the entities on which data is collected.
• A variable is a characteristic of interest for the elements.
• Categorical (qualitative) variables have values that can only be placed into categories,
such as “yes” and “no.” Qualitative data are labels or names used to identify each element
in a variable.
Count the number of elements or proportion of each category.
Even if there is a numeric code, arithmetic operations such as addition,
subtraction…don’t provide meaningful results
• Numerical (quantitative) variables have values that represent quantities (how much or how
many).
Discrete variables arise from a counting process
Continuous variables arise from a measuring process
Types of Variables
Variables

Categorical Numerical

Examples:
 Marital Status
 Political Party Discrete Continuous
 Eye Color
(Defined categories) Examples: Examples:
 Number of Children  Weight
 Defects per hour  Voltage
(Counted items) (Measured characteristics)
Four Levels of
Measurement
Nominal level – data that is Interval level – similar to the
classified into categories and ordinal level, with the additional
cannot be arranged in any property that meaningful amounts of
particular order. differences between data values can
be determined. There is no natural
zero point.

Ordinal level – data arranged in Ratio level – the interval level with
some order, but the differences an inherent zero starting point.
between data values cannot be Differences and ratios are meaningful
determined or are meaningless. for this level of measurement.

1-11
Data Scales
Scale Basic Common Marketing Permissible Statistics
Characteristics Examples Examples Descriptive Inferential
Nominal Numbers identify Social Security Brand nos., store Percentages, Chi-square,
& classify objects nos., numbering types mode binomial test
of football players
Ordinal Nos. indicate the Quality rankings, Preference Percentile, Rank-order
relative positions rankings of teams rankings, market median correlation,
of objects but not in a tournament position, social Friedman ANOVA
the magnitude of class
differences
between them
Interval Differences Temperature Attitudes, Range, mean, Product-moment
between objects (Fahrenheit) opinions, index standard correlation, t
can be compared, Celsius) nos. deviation tests, regression
zero point is
arbitrary
Ratio Zero point is Length, weight Age, sales, Geometric mean, Coefficient of
fixed, ratios of income, costs harmonic mean variation
scale values can
be compared
Descriptive Statistics
 Statistic is a value that summarizes the data of a particular variable.
 The central tendency is the extent to which all the data values group around a typical or
central value.

 The variation is the amount of dispersion or scattering of values

 The shape is the pattern of the distribution of values from the lowest value to the highest
value.
 Mean
The arithmetic mean (often just called the “mean”) is the most common
measure of central tendency

◦ For a sample (data) of size n:

The ith value

Pronounced x-bar
n

X i
X1  X2    Xn
X i1

n n
Sample size Observed values
 Mean

The population mean is the sum of the values in the population divided by
the population size, N

X i
X1  X2    XN
 i1

N N
Where μ = population mean
N = population size
Xi = ith value of the variable X
MEAN
The most common measure of central tendency
Mean = sum of values divided by the number of values
Affected by extreme values (outliers)

11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20

Mean = 13 Mean = 14
11  12  13  14  15 65 11  12  13  14  20 70
  13   14
5 5 5 5
Median
In an ordered array, the median is the “middle” number (50% above, 50%
below)

11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20

Median = 13 Median = 13
Not affected by extreme values
Median
The position of the median when the values are in numerical order (smallest to largest):

n 1
Median position  position in the ordered data
2
If the number of values is odd, the median is the middle number

If the number of values is even, the median is the average of the two middle numbers

n 1
2
 Mode

Value that occurs most often

Not affected by extreme values
Used for either numerical or categorical (nominal) data
There may be no mode
There may be several modes

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6

No Mode
Mode = 9
Measures of Central Tendency:
Review Example
House Prices:  Mean: ($3,000,000/5)
$2,000,000 = $600,000
$ 500,000
$ 300,000
 Median: middle value of ranked
$ 100,000 data
$ 100,000 = $300,000
Sum $ 3,000,000  Mode: most frequent value
= $100,000
Measures of Central Tendency:
Which Measure to Choose?

• The mean is generally used, unless extreme values (outliers) exist.

• The median is often used, since the median is not sensitive to extreme values.
For example, median home prices may be reported for a region; it is less
sensitive to outliers.
• In some situations it makes sense to report both the mean and the median.
Measures of Central Tendency:
Summary
Central Tendency

Arithmetic Median Mode

Mean
n

X i
X i1
n Middle value Most
in the ordered frequently
array observed
value
Measures of Variation
Variation

Range Variance Standard Coefficient

Deviation of Variation

Measures of variation give

information on the spread or
variability or dispersion of
the data values.
Same center,
different variation
Range
• Simplest measure of variation
• Difference between the largest and the smallest values:

Range = Xlargest – Xsmallest

Example:

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Range = 13 - 1 = 12
Why The Range Can Be Misleading
• Ignores the way in which data are distributed

7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5
• Sensitive to outliers

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4

1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119
 Variance
Average (approximately) of squared deviations of values from the mean

( xi   )
N 2 n

 (X  X)
  
2
2 i

i 1 N S 2 i1
n -1
X = Sample mean
Where
n = sample size; N = population size
Xi = ith value of the variable X
 = Population Mean
Standard Deviation
Most commonly used measure of variation
Shows variation about the mean
Is the square root of the variance
Has the same units as the original data

  
( xi   )
N 2
 (X  X)
i
2

N S i1
i 1 n -1
Measures of Variation:
Comparing Standard Deviations
Smaller standard deviation

Larger standard deviation

 Example

Sample
Data (Xi) : 10 12 14 15 17 18 18 24
n=8 Mean = X = 16

(10  X)2  (12  X)2  (14  X)2    (24  X)2

S
n 1

(10  16)2  (12  16)2  (14  16)2    (24  16)2


8 1

130 A measure of the “average”

  4.3095
7 scatter around the mean
Measures of Variation:
Comparing Standard Deviations

Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 S = 3.338

Data B Mean = 15.5

11 12 13 14 15 16 17 18 19 20
S = 0.926
21

Data C Mean = 15.5

S = 4.567
11 12 13 14 15 16 17 18 19 20 21
Quartiles
Quartile Measures
Quartiles split the ranked data into 4 segments with an
equal number of values per segment.

25% 25% 25% 25%

Q1 Q2 Q3

 The first quartile, Q1, is the value for which 25% of the
values are smaller and 75% are larger.
 Q2 is the same as the median (50% of the values are
smaller and 50% are larger).
 Only 25% of the values are greater than the third quartile.
 Quartile Measures:
Locating Quartiles

Find a quartile by determining the value in the

appropriate position in the ranked data, where:

First quartile position: Q1 = (n+1)/4 ranked value.

Second quartile position: Q2 = (n+1)/2 ranked value.

Third quartile position: Q3 = 3(n+1)/4 ranked value.

where n is the number of observed values.

Quartile Measures:
Calculation Rules
When calculating the ranked position use the following rules:
◦ If the result is a whole number then it is the ranked position to use.

◦ If the result is a fractional half (e.g. 2.5, 7.5, 8.5, etc.) then average the two corresponding data values.

◦ If the result is not a whole number or a fractional half then round the result to the nearest integer to
find the ranked position.
Quartile Measures:
Locating Quartiles
Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data
so use the value half way between the 2nd and 3rd values,

so Q1 = 12.5

Q1 and Q3 are measures of non-central location

Q2 = median, is a measure of central tendency
 Quartile Measures
Calculating The Quartiles: Example

Sample Data in Ordered Array: 11 12 13 16 16 17 18 21 22

(n = 9)
Q1 is in the (9+1)/4 = 2.5 position of the ranked data,
so Q1 = (12+13)/2 = 12.5.

Q2 is in the (9+1)/2 = 5th position of the ranked data,

so Q2 = median = 16.

Q3 is in the 3(9+1)/4 = 7.5 position of the ranked data,

so Q3 = (18+21)/2 = 19.5.
Q1 and Q3 are measures of non-central location.
Q2 = median, is a measure of central tendency.
 Calculating The Interquartile Range

Example:
Median X
X Q1 Q3 maximum
minimum (Q2)
25% 25% 25% 25%

12 30 45 57 70

Interquartile range
= 57 – 30 = 27
Five Number Summary and
The Boxplot
The Boxplot: A Graphical display of the data based on the five-number
summary:

Xsmallest -- Q1 -- Median -- Q3 -- Xlargest

Example:

25% of data 25% 25% 25% of data

of data of data

Xsmallest Q1 Median Q3 Xlargest

 Distribution Shape and
The Boxplot

Left-Skewed Symmetric Right-Skewed

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q 3
Measures of Variation:
Summary Characteristics
• The more the data are spread out, the greater the range, variance, and
standard deviation.

• The more the data are concentrated, the smaller the range, variance, and
standard deviation.

• If the values are all the same (no variation), all these measures will be
zero.

• None of these measures are ever negative.

Measures of Variation:
The Coefficient of Variation
Measures relative variation

Always in percentage (%)

Shows variation relative to mean

Can be used to compare the variability of two or more sets of data measured
in different units

 S
CV     100%

X 
 Measures of Variation:
Comparing Coefficients of Variation

Stock A:
◦ Average price last year = $50
◦ Standard deviation = $5
S $5
CVA     100%   100%  10%
X $50 Both stocks
have the same
standard
Stock B: deviation, but
◦ Average price last year = $100 stock B is less
variable relative
◦ Standard deviation = $5 to its price
S $5
CVB     100%   100%  5%
X $100
 Measures of Variation:
Comparing Coefficients of Variation
Stock A:
◦ Average price last year = $50
◦ Standard deviation = $5

S $5
 
CVA     100%   100%  10%
X $50 Stock C has a
much smaller
Stock C: standard
deviation but a
◦ Average price last year = $8 much higher
◦ Standard deviation = $2 coefficient of
variation
 S  $2
CVC     100%   100%  25%

X  $8
Shape of a Distribution
Describes how data are distributed
Two useful shape related statistics are:
◦ Skewness
◦ Measures the extent to which data values are not symmetrical
◦ Kurtosis
◦ Kurtosis affects the peakedness of the curve of the distribution—that is, how
sharply the curve rises approaching the center of the distribution
Shape of a Distribution (Skewness)
Measures the extent to which data is not symmetrical

Left-Skewed Symmetric Right-Skewed

Mean < Median Mean = Median Median < Mean

Skewness
Statistic <0 0 >0
Coefficient of Skewness
Summary measure for skewness

3  Md 
Sk 

Coefficient of Skewness (Sk) - compares the mean
and median in light of the magnitude to the standard deviation;
Md is the median; Sk is coefficient of skewness; σ is the Std Dev

If Sk < 0, the distribution is negatively skewed (skewed to the left).

If Sk = 0, the distribution is symmetric (not skewed). If Sk is close to 0, it’s almost
symmetric
If Sk > 0, the distribution is positively skewed (skewed to the right).
However, when our data is skewed, for example, as with
the right-skewed data set given here.

The mean is being dragged in the direct of the skew.

In these situations, the median is generally considered to

be the best representative of the central location of the
data.

The more skewed the distribution, the greater the

difference between the median and mean, and the greater
emphasis should be placed on using the median as
opposed to the mean.

A classic example of the above right-skewed distribution

is income (salary), where higher-earners provide a false
representation of the typical income if expressed as a
mean and not a median.
Skewness – An Example
Following are the earnings per share for a sample of 15
software companies for the year 2010. The earnings per share
are arranged from smallest to largest.

4-48
Step 1 : Compute the Mean

X
 X

$74.26
 $4.95
n 15

Step 2 : Compute the Standard Deviation

s
 X X  
2


($0.09  $4.95) 2  ...  ($16.40  $4.95) 2 )
 $5.22
n 1 15  1

Step 3 : Compute Median  $ 3.18

4-49
Sample Skewness

Step 4 : Compute sk
3( X  M )

s
3 * (4.95  3.18)

5.22
1.017241
However, when our data is skewed, for example, as with
the right-skewed data set given here.

The mean is being dragged in the direct of the skew.

In these situations, the median is generally considered to

be the best representative of the central location of the
data.

The more skewed the distribution, the greater the

difference between the median and mean, and the greater
emphasis should be placed on using the median as
opposed to the mean.

A classic example of the above right-skewed distribution

is income (salary), where higher-earners provide a false
representation of the typical income if expressed as a
mean and not a median.
Kurtosis
Kurtosis measures how peaked the histogram is

 (x  x)i
4

kurtosis  i
4
ns
The kurtosis of a normal distribution is 3
Kurtosis characterizes the relative peakedness or flatness or
tailedness of a distribution compared to the normal distribution
Shape of a Distribution -- Kurtosis

Sharper Peak
Than Bell-Shaped
(Kurtosis > 0)

Bell-Shaped
(Kurtosis = 0)
Flatter Than
Bell-Shaped
https://upload.wikimedia.org/wikipedia/commons/e/e6/Stand (Kurtosis < 0)
ard_symmetric_pdfs.png
Mean=0; Standard Deviation=1; Skewness=0

Uniform(min=−√3, Normal(μ=0, σ=1) Logistic(α=0, β=0.55153)

max=√3) kurtosis = 3, excess = 0 kurtosis = 4.2, excess = 1.2
kurtosis = 1.8, excess = −1.2
Marks Number of students
10 5
15 10
20 16
25 20
30 14
35 8
40 4
WORKING WITH GROUPED DATA
Calculation of Grouped Mean
Sometimes data are already grouped, and you are interested in
calculating summary statistics

Interval Frequency (f) Midpoint (M) f*M

20-under 30 6 25 150
30-under 40 18 35 630
40-under 50 11 45 495
50-under 60 11 55 605
60-under 70 3 65 195
70-under 80 1 75 75
50 2150

  f * M 2150
  43.0
f 50
 Median of Grouped Data - Example

Select the class interval with cumulative frequency just greater than N/2

Cumulative
Class Interval Frequency Frequency
20-under 30 6 6
N
30-under 40 18 24  cfp
40-under 50 11 35 Md  L  2 W 
fmed
50-under 60 11 46
50
60-under 70 3 49  24
70-under 80 1 50  40  2 10
11
N = 50  40.909
L: Lower limit of the median class
cfp : cumulative frequency of the previous class to the median class
fmed : frequency of median class
W: Length of the class interval
Mode of Grouped Data
Midpoint of the modal class
Modal class has the greatest frequency

Class Interval Frequency 30  40

20-under 30 6 Mode   35
30-under 40 18 2
40-under 50 11
50-under 60 11
60-under 70 3
70-under 80 1
Variance and Standard Deviation
of Grouped Data

 f M     M  X 
2 2
f
 
2

2

N S n1
  
2
S 
2
S

M is the mid point.

Population Variance and Standard
Deviation of Grouped Data
f M M  M    M 
2
fM
2
f
Class Interval
20-under 30 6 25 150 -18 324 1944
30-under 40 18 35 630 -8 64 1152
40-under 50 11 45 495 2 4 44
50-under 60 11 55 605 12 144 1584
60-under 70 3 65 195 22 484 1452
70-under 80 1 75 75 32 1024 1024
50 2150 7200
2
f  M  
   2  144  12
7200
2   144
N 50
 Chebyshev Rule

Regardless of how the data are distributed, at least (1 - 1/k2) x 100% of the
values will fall within k standard deviations of the mean (for k > 1)

◦ Examples:

(1 - 1/22) x 100% = 75% ….............. k=2 (μ ± 2σ)

(1 - 1/32) x 100% = 88.89% ……….. k=3 (μ ± 3σ)
The Empirical Rule

The empirical rule approximates the variation of data in a bell-shaped

distribution
Approximately 68% of the data in a bell shaped distribution is within 1
standard deviation of the mean or

μ  1σ

68%

μ
μ  1σ
The Empirical Rule

Approximately 95% of the data in a bell-shaped distribution lies

within two standard deviations of the mean, or µ ± 2σ

Approximately 99.7% of the data in a bell-shaped distribution

lies within three standard deviations of the mean, or µ ± 3σ

95% 99.7%

μ  2σ μ  3σ
Using the Empirical Rule
Suppose that the variable Math SAT scores is bell-shaped with a mean of 500 and a standard
deviation of 90. Then,

 68% of all test takers scored between 410 and 590 (500 ± 90).

 95% of all test takers scored between 320 and 680 (500 ± 180).

 99.7% of all test takers scored between 230 and 770 (500 ± 270).
The Covariance
The covariance measures the strength of the linear relationship
between two numerical variables (X & Y).

The sample covariance:

 ( X  X)(Y  Y)
i i
cov ( X, Y)  i1
n 1

Only concerned with the strength of the relationship.

No causal effect is implied.
Interpreting Covariance
Covariance between two variables:
cov(X,Y) > 0 X and Y tend to move in the same direction.

cov(X,Y) < 0 X and Y tend to move in opposite directions.

cov(X,Y) = 0 X and Y are independent.

The covariance has a major flaw:

◦ It is not possible to determine the relative strength of the relationship from the size of
the covariance.
Coefficient of Correlation
Measures the relative strength of the linear relationship between two numerical
variables.
Sample coefficient of correlation:

cov (X, Y)
r
SX SY
Where,

 (X  X)(Y  Y)
n n
i i  (X  X)
i
2
 (Y  Y)
i
2

cov (X, Y)  i1

SX  i1
SY  i1
n 1 n 1 n 1
 Scatter Plots of Sample Data with Various
Coefficients of Correlation
Y Y

X X
r = -1 r = -.6
Y
Y Y

X X X
r = +1 r = +.3 r=0
 Calculate Mean, Median, mode, standard deviation, coefficient of
variation for a sample of usage times of 50 ATM customers.

Time Frequency

20-25 1
25-30 7
30-35 10
35-40 9
40-45 9
45-50 6
50-55 5
55-60 3