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Marketing Analytics With Multiple Goals: Business Analytics With Management Science Models and Methods

This chapter discusses using linear programming (LP) and goal programming (GP) models to optimize marketing campaigns with multiple objectives. It presents LP models combining two dimensions of the RFM approach (recency, frequency, monetary value), a three-dimensional RFM LP model, and an RFM GP model. The models are demonstrated using an example coffee retailer dataset. The chapter also discusses exploring big customer data using predictive RFM analytics to maximize revenues while staying within budgets.

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32 views29 pages

Marketing Analytics With Multiple Goals: Business Analytics With Management Science Models and Methods

This chapter discusses using linear programming (LP) and goal programming (GP) models to optimize marketing campaigns with multiple objectives. It presents LP models combining two dimensions of the RFM approach (recency, frequency, monetary value), a three-dimensional RFM LP model, and an RFM GP model. The models are demonstrated using an example coffee retailer dataset. The chapter also discusses exploring big customer data using predictive RFM analytics to maximize revenues while staying within budgets.

Uploaded by

sunshine4u
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 9

Marketing Analytics
with Multiple Goals

Business
Business Analytics
Analytics with
with Management
Management Science
Science
Models
Models and
and Methods
Methods

Arben Asllani
University of Tennessee at Chattanooga
Chapter Outline
 Chapter Objectives
 Prescriptive Marketing Analytics in Action
 Introduction
 LP Models with Two RFM Dimensions
 The Recency and Frequency Case
 The Recency and Monetary Value Case
 The Frequency and Monetary Case
 LP Models with Three Dimensions
 Model Formulation
 Solving the RFM Model with Three Dimensions
 Goal Programming Model for RFM
 Exploring Bid Data with RFM Analytics
Chapter Objectives

 Discuss the importance of seeking multiple goals in marketing


campaign
 Demonstrate the process of formulating linear models with a
combination of two and three dimensions of RFM approach
 Demonstrate the process of formulating goal programming models
with assigned priorities to each dimensions of RFM approach
 Demonstrate the use of Solver for solving goal programming
models as a series of several linear programming models
 Discuss the implications of combining mathematical programming
models with RFM approach
Prescriptive Marketing
Analytics in Action
 First Tennessee Bank: a full-service provider of financial products
and services fro businesses and consumers
 The availability of large amount of data
 opportunity to better tailor its marketing strategies
 Goal: “shift from the ‘marketing-as-an expense’ mindset to the idea that
marketing is a true profit driver”
 Using predictive analytics is only the beginning
 “What sets the First Tennessee approach apart is how it applies a
rigorous, systematic approach to prioritizing which opportunities make it
to the campaign stage.”
 Advanced marketing models focus on product revenue and cost
information generated from its data warehouse systems
Introduction
 RFM based optimization models with multiple objectives.
 Specifically, the chapter expands on the single goal RFM based models
discussed in Chapter 8 and introduces the following new set of models.
 The same example from the Online Coffee Retailer (OCR) is used here
as well to demonstrate the proposed models:
 Three two-dimensional RFM LP models which combine any two
dimensions, such as RF, RM, and FM
 A three-dimensional RFM LP model which combines all three dimensions
in one LP model
 An RFM based goal programming (RFM GP) model which incorporates all
three dimensions of the RFM analysis but assigns different weights to each
of them.
LP Model for the Recency and
Frequency Case
Solving the LP Model for the
Recency and Frequency Case
• The parameters of the LP model are calculated
using the same RFM Excel template used for the
single dimension LP models.

• The only difference is that probability that a


customer in a given recency group and given
frequency group will make a purchase is calculated
using two averageifs fucntion, which allow for two
conditions to be satisfied
Calculating Parameters for LP
Recency and Frequency Model
Initial Setup with Decision Variables,
Cost, and Expected revenue
Solver Setup for the
Recency-Frequency Model

The goal is to maximize the expected revenue by changing


binary variables L5:P9 under the budget constraints P18<=E1.
Solution for the 0-1 LP
Recency-Frequency Model
Solution for the Continuous LP
Recency-Frequency Model
LP Model for the Recency and
Monetary Value Case
Solving the LP Model for the
Recency and Monetary Value Case

Parameters for LP Recency and Monetary Model

Solution for the binary LP Recency-Monetary Model


Solution for the Continuous LP
Monetary-Recency Model
LP Model for the Frequency
and Monetary Case
Solving the LP Model for the
Frequency-Monetary Case

Parameters for the Frequency-Monetary Model

Solution for the Binary LP Frequency-Monetary Model


Solution for the Continuous LP
Frequency-Monetary Model
LP Model
with Three Dimensions
 The LP model includes three variables of the RFM framework:
Recency, frequency, and monetary value.
 The objective remains the same—to maximize the expected
revenue from potential customer purchases while not exceeding
the budget constraints.
Solving the RFM Model with
Three Dimensions

Parameters for LP Recency, Decision Variables, Cost, and Expected


Frequency and M=1 Model revenue in the RF1 Worksheet
Template and Solver Setup for
the RFM LP Model
Solution for the three
dimensional LP RFM Model
A Goal Programming Model
for RFM

Cut-off Points, Revenues, Probabilities, and


Numbers of Customers for Each Category
GP Model Formulation
Solving the GP RFM Model

The Initial Template for the GP RFM Model


Solver Parameters for the GP
RFM Model
Final Solution
for the GP RFM Model
New Solution with Different
Priorities
The data analyst can explore possible scenarios by changing the priority values
Exploring Big Data with
RFM Analytics
 The critics of the RFM approach: this methodology is less
likely to be used successfully in predictive and prescriptive
analytics
 The models proposed in the last two chapters, bring the
RFM approach into the era of big data:
 Augment the RFM analysis with predictive modeling, like customer
response rates and prescriptive analytics, such as LP and GP
models.
 The combination of RFM analysis with predictive and
prescriptive analytics utilizes the RFM strengths and avoids
its weaknesses.

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