Marketing Analytics

Introduction to Marketing Analytics

• Just as mathematics is the language of science, Marketing analytics
is the instrument for marketing strategy.
• It is not what is important to the analyst but what is impactful for
the business, that is the focus of marketing science.
• Marketing analytics is a branch of marketing that uses statistical
modelling to provide inputs for strategic decisions.
Marketing analytics/ Marketing science
• How, why and what’s next
• Marketing analytics/ Marketing science seeks to quantify causality of
consumer behavior.
• Marketing science cannot replace managerial judgement, but it can
offer boundaries and guard rails to inform strategic decisions.
• Marketing Analytics covers both inter-relational and dependency-
driven analytics and modelling to solve marketing problems.
Users of Marketing analytics/science
• Persons with strong quantitative orientation and consumer behavior
and strategies.
• Marketing analytics practised in firms with CRM or direct/database
marketing component.
• Market research firms which need to undertake analytics for survey
responses.
• Forecasting is a part of marketing analytics, Design of experiments
(DOE), web analytics, choice of behavior (conjoint) analysis.
Consumer behaviour is the basis of marketing strategy
• A marketing orientation is consumer centric, anything else by
definition is not Marketing.
• Marketing concept does not mean giving consumer (only) what they
want bcoz,
1. Consumer wants can be widely divergent.
2. Consumers wants contradict the firm’s minimum needs
3. The consumer might not know what they want. It is the marketing’s
job to learn and understand and incentivize consumer behaviour to
a win-win position.
Overview of Consumer behaviour
• Microeconomic analysis of “ the consumer problem”.
1. What are the consumer’s preferences (in goods/services)
2. What are consumer constraints (allocating limited budgets)
3. Given limited resources, what are consumer choices?
What is an insight?
1. An insight has to contain new information.
An insight has to be new, relevant and non-trivial and not a
mere observation.
2. An insight must focus on understanding consumer
behavior.
Whole point of marketing is an understanding and an
incentivizing and changing consumer behavior for a win-win
condition for the firm and consumer.
3. An insight has to quantify a causality.
An insight needs to measure how a change in one variable
impacts a change in another variable.
4. An insight has to provide a competitive advantage.
An insight has to be a piece of intelligence the firm’s competitors
do not have.
5. An insight must generate financial implications.
 An insight should be measurable. Whether an ROI or contribution
margin or risk assessment there should be some financial implication
with any insight.
6. Ultimately an insight is about actionability.G
NBO(Next best offer)
- In the past, shoppers would rely on a familiar salesperson, like the owner
of a local store, to help them find what they needed.
- Today, with advances in technology, data collection, and analytics,
businesses can now provide even better, more personalized
recommendations.
- By using detailed information about customers, such as their
demographics, interests, and online behavior, businesses can create
highly customized offers. These offers guide customers to the right
products or services at the right time, for the right price, and through the
right channel.These are called “next best offers.”
Framework for crafting NBOs
1. Define Objectives
Increased revenues? Increased customer loyalty? A greater share of
wallet? New customers?
2. Gather Data
To create an effective NBO, you must collect and integrate detailed data
about your customers, your offerings, and the circumstances in which
purchases are made.
3. Know your customers.
Age, gender, number of children, residential address, income or assets,
and psychographic lifestyle and behavior data. Best-Previous purchases
data- use loyalty programs
4. Know your offerings
Attributes narrowed down to product type, style, color, brand, and price.
5. Know the purchase context.
The weather, the time of day or day of the week, and whether or not a
customer is accompanied may affect the design of an offer.
Ex: Women comes with husband to a shoe store- whom to target-Chinese
shoe company?
Air ticket pricing higher on Sunday evenings.
NBOs must take into account factors such as the channel through which a
customer is making contact with a business (face-to-face, on the phone,
by e-mail, on the web), the reason for contact and its circumstances, and
even voice volume and pitch, indicating whether the customer is calm or
upset. (Emotion-detection software is proving valuable for the last
factor.)
Ex: Bank of America has learned that mortgage offers presented
through an ATM at the moment of customer contact don’t work well
because customers have neither the time nor the inclination to engage
with them, whereas they might be receptive to the same offers during a
walk-in.
Likewise, someone who calls customer service with a complaint is unlikely
to respond to a product offer, though he or she might welcome it by e-mail
at another time.
6. Analyze and Execute
The earliest predictive NBOs were created by Amazon and other online
companies that developed “people who bought this also bought that”
offers based on relatively simple cross-purchase correlations.
Customer lifetime value (CLV)`
• Customer lifetime value (CLV) is the total revenue or profit
generated by a customer over the entire course of their relationship
with your business.
• The higher the CLV, the more valuable a buyer is to your business.
• CLV can be calculated at a company level (i.e. the average CLV
across all your customers), a customer segment level (the CLV of
distinct groups within your customer base) or an individual level
(the CLV of each individual customer level).
• Average purchase value — the value of all customer purchases
over a particular timeframe (a year is usually easiest), divided by
the number of purchases in that period
• Average purchase frequency — divide the number of purchases
in that same time period by the number of individual customers who
made a transaction over the same period
• Customer value — the average purchase frequency multiplied by
the average purchase value
• Average customer lifespan — the average length of time a
customer continues buying from you
Calculating CLV: The Magic Formula
 • Customer lifetime value (CLV) is the amount of revenue provided
by a customer or group of customers in their entire period of
engagement with the company.
• CLV = customer value X average customer lifespan
• * CLV for customer segments
• CLV = Customer revenue per year * Duration of the
relationship in years – Total costs of acquiring and serving
the customer
• Practice
• Customer A’s revenue per year = ₹500
• Customer relationship duration = 10 years
• Cost of acquisition = ₹50
• Cost to serve = ₹50 per year (₹500 over 10 years)
• Customer revenue per year =₹500 x 10 = ₹5,000
• Total costs of acquiring and serving the customer =₹5,00 +
₹50 = ₹550
• CLV for Customer A = Total costs of acquiring and serving the
customer =₹5,000–₹550= ₹4,450
RFM Analysis
• In the for-profit world, RFM analysis is one of the most used
techniques for customer segmentation. Basically, the RFM analysis
group customers based on their transactional history.
• R stands for Recency: How recently did the customer purchase?
• F stands for Frequency: How often do they make purchases?
• M stands for Monetary Value: How much do they spend in total?
Customer Segmentation & Strategy
• Consumers with an overall high RFM score serve the best
customers.
• Consumers with a high overall RFM score but have a frequency
score of 1 are new. The company can give special offers for these
consumers to enhance their visits.
• You can interpret RFM analysis together with other customers’ data,
such as their income levels, and gender to segment the customer
base.
 • Customers who own a high-frequency score but a low recency score
are those consumers that used to visit pretty often but have not
been visiting recently. For these consumers, the company is required
to give promotions to bring them back to the store or run surveys to
discover why they abandoned the store.
• You can interpret RFM scores together with campaign results to
eliminate non-responsive customers and further enhance the
campaigns.
RFM Scoring Process
• A recency score is assigned to each customer based on date of most
recent purchase. The score is generated by binning the recency
values into a number of categories (default is 5).
• For example, if you use four categories, the customers with the
most recent purchase dates receive a recency ranking of 4, and
those with purchase dates in the distant past receive a recency
ranking of 1.
• A frequency ranking is assigned in a similar way.
• Customers with high purchase frequency are assigned a higher
score (4 or 5) and those with lowest frequency are assigned a score
1.
• Monetary score is assigned on the basis of the total revenue
generated by the customer in the period under consideration for the
analysis. Customers with highest revenue/order amount are
assigned a higher score while those with lowest revenue are
assigned a score of 1.
• A fourth score, RFM score is generated which is simply the three
individual scores concatenated into a single value.