Analytics for Strategic

Marketing Decisions
Dr Kiran Desai
Working with Interval Data
Working with Ratio Data
Difference between traditional data and Big
Data
Traditional data Big Data
• maintained by all types of businesses • too large or complex data sets
starting from very small to big which is difficult to manage in
organizations
traditional data-processing
• centralized database architecture used
to store and maintain the data in a
application software
fixed format or fields in a file. • structured, semi structured and
• statistical methods and visualizations to unstructured data.
identify patterns and trends in the data.
• Volume, Velocity and Variety,
• managed by enterprise resource Complexity and Value
planning (ERP) systems
Value
• Traditional data typically has a lower potential value than big data
because it is limited in scope and size.

• Big data, on the other hand, can provide valuable insights into
customer behavior, market trends, and other business-critical
information.
Data types and descriptive analysis
Please note
that Diagnostic
Analytics
informs why
events
happened ?
and
Predictive
Analytics
predict - what
will happen?
 YEAR MONTH SALES BASE 1703392.67
2012 12 1711123 TREND 1.01
2013 1 1789283
2013 2 1703068 MONTH SEASONAL
2013 3 1716989 1 1.02
2013 4 1708337 2 0.97
2013 5 1724525 3 1.01
2013 6 1639834 4 0.97
2013 7 1661124 5 1.01

Predicting 2013
2013
2013
2013
8
9
10
11
1701477
1870595
2116670
1779892
6
7
8
9
0.94
0.96
0.99
1.09

seasonality of 4 2013
2014
2014
2014
12
1
2
3
1720068
1872599
1793933
1946781
10
11
12
1.11
0.97
0.96

wheeler sales 2014

2014
2014
2014
4
5
6
7
1822841
1992358
1851187
1920007
2014 8 1993396
2014 9 2221615
2014 10 2093517
2014 11 1937864
2014 12 1841122
2015 1 1916611
2015 2 1777133
2015 3 1927256
2015 4 1873950
2015 5 1995567
2015 6 1938646
2015 7 1964572
2015 8 1987059
2015 9 2224413
2015 10 2325248
2015 11 1930436
2015 12 1813327
2016 1 1976658
2016 2 1958812
2016 3 2123869
 data,
information technology,
Analytics is the use statistical analysis,
quantitative methods,
of: and
mathematical or
computer-based models

What is to help managers gain improved

Analytics? insight about their business operations
and

make better, fact-based decisions.

1-17
 Importance of Business
Analytics
• There is a strong relationship of BA
with:
• - profitability of businesses
What is Analytics? • - revenue of businesses
• - shareholder return
• BA enhances understanding of data
• BA is vital for businesses to remain
competitive
• BA enables creation of informative
reports
1-18
Decision Models

Model:
 An abstraction or representation of a real system, idea, or object
 Captures the most important features
 Can be a written or verbal description, a visual display, a
mathematical formula, or a spreadsheet representation

1-19
 Predictive Decision Models often incorporate
uncertainty to help managers analyze risk.

Aim to predict what will happen in the

future.
Decision
Models Uncertainty is imperfect knowledge of what
will happen in the future.

Risk is associated with the consequences of

what actually happens.

1-20
Decision Models

Prescriptive Decision Models help decision makers identify the best

solution.
 Optimization - finding values of decision variables that minimize (or
maximize) something such as cost (or profit).
 Objective function - the equation that minimizes (or maximizes) the
quantity of interest.
 Constraints - limitations or restrictions.
 Optimal solution - values of the decision variables at the minimum (or
maximum) point.

1-21
 Retail Markdown Decisions
• Most department stores clear seasonal inventory by
reducing prices. The question is:

Scope of When to reduce the price and by how much?

Business • Descriptive analytics: examine historical data for
Analytics similar products (prices, units sold, advertising, …)
• Predictive analytics: predict sales based on price
• Prescriptive analytics: find the best sets of pricing and
advertising to maximize sales revenue 1-22
 Four Types
Data Based
on Categorical (nominal) data
Measurement
Scale:

Ordinal data
Data for
Analytics Interval data

Ratio data

1-23
Data for  Data placed in categories according to a
specified characteristic
Analytics -  Categories bear no quantitative
Categorical relationship to one another
 Examples:
(nominal) Data
- customer’s location (America, Europe,
Asia)
- employee classification (manager,
supervisor,
associate)
1-24
 Data for Analytics - Ordinal Data

 Data that is ranked or ordered according to some relationship with one another
 No fixed units of measurement
 Examples:
- college football rankings
- survey responses
(poor, average, good, very good, excellent)

1-25
  Ordinal data but with constant
differences between observations
Data for  No true zero point
Analytics -  Ratios are not meaningful
 Examples:
Interval Data - temperature readings
- SAT scores

1-26
Data for  Continuous values and have a
natural zero point

Analytics -  Ratios are meaningful

 Examples:

Ratio Data - monthly sales

- delivery times

1-27
Segmentation and
Positioning
• In data driven marketing, customer segmentation is important to
effectively deploy targeted and personalized strategies.
One of the methods for customer segmentation is cluster analysis. The
technique facilitates identification and analysis of similar patterns in
customer data. The similar customers are grouped into distinct market
segments with a potential to provide a targeted and customised
product and marketing programs to fulfil the goal of enhanced sales,
customer satisfaction and customer loyalty. Thus, cluster analysis
facilitates bespoke, custom-fit marketing efforts and improve customer
satisfaction.
 How STP Creates Value
Positioning
Segmentation Targeting
Create competitive
Identify segments Select segments
advantage

Marketing resources are focused to better meet customers

needs and deliver more value to them

Customers develop preference for brands that better meet

their needs and deliver more value

Customers become brand/supplier loyal, repeat purchase,

communicate favorable experiences

Brand/supplier loyalty leads to increased market share and

creates a barrier to competition

Fewer marketing resources needed over time to maintain

share due to brand or supplier loyalty

Profitability (value to the firm) increases

 A Four-Phase Process for Successful
Segmentation Analysis Project
Phase I Phase II Phase III Phase IV
Planning and Design Qualitative Assessment Quantitative Measurement Analysis and Implementation

Internal Assessment Qualitative Quantitative

& Planning Research Survey
 Objective(s) of
Interview Materials Sample Design
segmentation
Development ·
 Resources · ·
 Constraints · ·
Qualitative Data
Collection Implementation
· Questionnaire Segmentation Through
Database · Development Analysis Database Tools
·
Review “Deep needs”  Cluster Analysis
Identification ·  Call Center
 Primary data
· ·  Portfolio Analysis
already available  Web
·  Positioning Analysis
 Secondary data  Sales call
Decision-Making patterns
 … Process Data Collection
Assessment ·  Promotion
· ·
 ….
· ·
Prototype
Implementation
Exercises
 What ifs?
 Relevant groups
involved?
 …..
Bases or Response Variables
( alt view)

32
 Primary Characteristics
of Segments
• Bases—characteristics that tell us why segments
differ (e.g., needs, preferences, decision
processes).
• Descriptors—characteristics that help us find and
reach segments.
(Business markets) (Consumer
markets)
Industry Age/Income
Size Education
Location Profession
Organizational Life styles
structure Media habits
33
Descriptor or Identifier variables for consumer
and business markets. (alt view)

How to serve

How to communicate
34
 Managing Segmentation

1. Define segmentation problem

2. Conduct market research
3. Build segmentation database
4. Define market segments
5. Describe market segments
6. Implement results!

35
1. Define Segmentation Problem

• View market segmentation problem as a

series of hierarchical stages -- for example
• Identify broad strategic “macro-segments” that
effectively define market structure
• Industry groups
• Product usage (rate of usage, application, etc.)
• Geographic location, etc.
• Within macro-segments, conduct research to
find “micro-segments” for competitive
advantage
• Segmentation on buyer needs and value
• Segmentation on product benefits
36
 2. Conduct Market Research

Phase 1 Phase 2 Phase 3

Segment
Market Implement
Exploratory Response
Segmentation Marketing
Study Analysis &
Study Program
Planning

Market research supports the segmentation process

37
 4. Define Market Segments

• Assume the following data matrix includes the responses

from six customers on four key components of value (10
point rating scale of importance)
• How would you segment this “market”?

Importance
Importance Importance of Ease of Importance Cluster
Customer of Durability of Service Use of Price Assignment
1 9 4 5 6
2 3 5 10 5
3 4 5 5 10
4 10 6 7 6
5 5 5 7 10
6 6 3 9 5
“Market” 6.2 4.7 6.3 7.0 X

38
 5. Describe Market Segments
• Suppose the market for 300 users of industrial adhesives were
represented by the table below

Organization size Segments based

as a descriptor on needs

Organization Price Durability Service

size sensitive sensitive sensitive
Large 30 20 50

Medium 50 20 30
• What can we conclude from this table?
Small 20 60 20

39
Segmentation: Methods Overview
Segmentation – Analytic Techniques
 Cluster Analysis Issues

• Defining a measure of similarity (or distance) between

segments.
• Identifying “outliers.”
• Selecting a clustering procedure
• Hierarchical clustering (e.g., Single linkage, average linkage,
and minimum variance methods)
• Partitioning methods (e.g., K-Means)
• Cluster profiling
• Univariate analysis
• Multiple discriminant analysis
43
Interpreting Cluster Analysis Results

• Select the appropriate number of clusters:

• Are the bases variables highly correlated? (Should
we reduce the data through factor analysis before
clustering?)
• Are the clusters separated well from each other?
• Should we combine or separate the clusters?
• Can you come up with descriptive names for each
cluster (eg, professionals, techno-savvy, etc.)?
• Segment the market independently of your ability
to reach the segments (i.e., separately evaluate
segmentation and discriminant analysis results). 44
Use of Dendograms in segmentation

• Dendograms provide graphical representations of the loss of information generated by grouping

different clusters (or customers) together. The dendogram is generated only if you choose the
Hierarchical Clustering
• At one extreme (upper part of the dendogram), all customers group into one cluster, and the loss
of information is maximum, because they all receive undifferentiated treatment, regardless of
their characteristics.
• At the other extreme (lower part of the dendogram), customers appear in separate, small
clusters, and only those customers very similar to one another group together (“similar” or
“close” in this context refers to the distance between two customers in terms of the segmentation
variables).
• When reviewing a dendogram, look for significant distances or “jumps” in the distances. Grouping
these three clusters into two generates a significant loss of information; in other words, it results
in grouping within the same cluster customers who are very dissimilar.

45
Profiling Clusters

Two Cluster Solution for PC Data: Need-Based Variables

1
Design

Means of
Variables
0

Business
–1
size power office LAN color storage wide periph. budget
use needs connect.
46
 Managerial Uses of Segmentation
Analysis

• Select attractive segments for focused effort

• Develop a marketing plan (4P’s and positioning)
to target selected segments.
• In consumer markets, we typically rely on
advertising and channel members to selectively
reach targeted segments.
• In business markets, we use sales force and direct
marketing. You can use the results from the
discriminant analysis to assign new customers to
one of the segments.

47
Checklist for Segmentation

1. Is it values, needs, or choice-based? Whose values and needs?

2. Is it a projectable sample?

3. Is the study valid? (Does it use multiple methods and multiple

measures)

4. Are the segments stable?

5. Does the study answer important marketing questions (product

design, positioning, channel selection, sales force strategy, sales
forecasting)

6. Are segmentation results linked to databases?

7. Is this a one-time study or is it a part of a long-term program?

48
Segmentation Summary

In summary,

• Use needs variables to segment markets.

• Select segments taking into account both the

attractiveness of segments and the strengths of the firm.

• Use descriptor variables to develop a marketing plan to

reach and serve chosen segments.

• Develop mechanisms to implement the segmentation

strategy on a routine basis (one way is through
information technology).
49
Which Segments to Serve?
—Segment Attractiveness Criteria
Criterion Examples of Considerations

I. Size and Growth

1. Size • Market potential, current market penetration
2. Growth • Past growth forecasts of technology change

II. Structural Characteristics

3. Competition • Barriers to entry, barriers to exit, position of
competitors, ability to retaliate
4. Segment saturation • Gaps in the market
5. Protectability • Patentability of products, barriers to entry
6. Environmental risk • Economic, political, and technological change

III. Product-Market Fit

7. Fit • Coherence with company’s strengths and image
8. Relationships with • Synergy, cost interactions, image transfers,
segments cannibalization
9. Profitability • Entry costs, margin levels, return on investment

50
Positioning recognises that
• Attention span of the customer is small
• Customers way or highway
• you cannot be everything to everyone

Why Perceptual Maps for Positioning?

• The value of visualisation - Techniques (using

customer-data) that enable managers to develop
differentiation and positioning strategies by helping
them to visualize the competitive structure of their
markets as perceived by their customers.
• Understanding customers perceptions
• Building and understanding positioning maps
human brain is not very good at visualising numbers,
hence it helps to have a method of graphically
represent complex patterns
Perceptual Map of Airlines Data
 Perceptual Map of Beer Market
(This slide shows only the attributes)
Heavy Popular
Full Bodied Heavy with Men

Special
Occasions
Blue Collar Dining Out Premium
Good Value

Budget Premium

Popular
Pale Color with
Women
On a
Budget Light Less Filling
Light
 Perceptual Map of Beer Market
(This slide includes both products and attributes)

Heavy Popular
Heavy with Men
Full Bodied •
Old Milwaukee Budweiser
• Beck’s •
Meister Brau Special • Heineken
• Miller • Occasions
Good Value
Blue Collar • Dining Out Premium
• Coors
Stroh’s
Budget Premium
• Michelob
• Popular
Pale Color
Miller • Coors
Light with

On a
• Lite Women
Old
Budget Milwaukee Light Light Less Filling
Light
Perceptual Maps Using
Attribute Ratings
• Generate a matrix of inputs for the analysis consisting of each customer’s (C1,
C2,...) ratings of each brand on each of the attributes (A1, A2, A3,....)
A1 A2 A3 A4............... A15
Audi 90 6 3 7 2 2
C1
Toyota Supra 4 3 4 1 5
New G20 3 6 2 7 7
..
Audi 90
C2 Toyota Supra
New G20
• Compute average ratings of each car on each attribute. Submit data to a
suitable perceptual mapping technique (e.g., Factor Analysis).
• Interpret the underlying key dimensions of the map using the directions of the
individual attributes.
• Articulate the implications of how customers’ view the competing products and
concepts.
Perceptual Maps Using
Attribute Ratings
Example: Positioning of a new car concept
 Select a set of cars which are of interest to the target group of customers (including the new
product/concept of interest).
 Identify a set of key attributes on which these cars are evaluated by the target group (e.g.,
through focus groups).
 Ensure that customers are familiar with all the products of interest (e.g., through video
presentation).
 Have customers evaluate each car on the chosen set of attributes.

Unattractive ...........................… Attractive (A1)

Quiet ..............…............. Noisy (A2)
Unreliable …........................... Very reliable (A3)
Uninteresting …………………... Interesting (A4)
Low prestige ...........…............… High prestige (A5)
.
..
Definitely would
not buy ......................…..... Definitely would buy (Preference)
Mapping Techniques
• Mapping perceptions
• Attribute-ratings methods (particularly useful for
functional products)
• Overall-similarity methods (particularly useful for
image-oriented products)
• Mapping preferences
• Include an overall preference vector in a perceptual
map
• “External” analysis to fit preferences of individuals on
a common perceptual map
Guidelines for Interpreting Perceptual Maps
• The arrow indicates the direction in which that attribute is increasing
(The attribute is decreasing in the direction opposite to the arrow).
Thus, cars positioned farther in the West direction offer more
prestigious and those positioned in the East direction are less
prestigious.
• The length of the line from the origin to the arrow indicates the
variance of that attribute explained by the 2D map. The longer this
line, the greater is the importance of that attribute in helping you to
interpret the map.
• Attributes that are both relatively important and close to the
horizontal (vertical) axis help determine the meaning of the axis.
• To position a car on each attribute, draw an imaginary perpendicular
line from the location of that car onto that attribute. (These are
shown by dashed lines on the map).
Mapping Preferences
Objective—Introduce customer preferences into perceptual maps:

• A simple ideal point method: Introduce an “ideal” brand as an

additional stimulus evaluated by customers.

• A simple vector method: Introduce “preferences” as an

additional variable in the attribute ratings data
Two Preference Models

Ideal-Point Preference Model Vector Preference Model

Increasing
Preference

Preference Preference

Decreasing
Preference

Ideal Point
Attribute Attribute
(eg, sweetness) (eg, service speed)
Interpreting Preference Maps
Ideal-Point Map Vector Map
Ideal
Point (I)
Preference
dIA Vector
dIB
A A
dAC
B dAB
C
B

(a) (b)
A is preferred twice as much as B. A is preferred to B and B is preferred to C.
(dIB = 2dIA) With reference to A, C is preferred half as
much as B.
(dAC = 2dAB)
Uses of Ideal Point Maps
• The ideal point map is useful to understand gaps in the market for
future launches or brand extension exercises.
• It also explains the relative position of current brands in the market
from an ideal brand from the consumers perspective.
• It provides instructions to managers for inclusion of attributes and
association in future brand equity building exercises.

62
Strengths and Weakness of Perceptual Maps

Strengths Weaknesses
1. The need to identify all relevant attributes, and all relevant competitors.
1. The ability to get a visual snap-shot of brand competition as perceived by 2. The need for data collection from relevant customers. In other words, the
customers. customers must belong to the same segment; or else we could have the
possibility of producing an “average” ideal positioning, when there are really
2. The ability to “name” dimensions of the map based on the relevant multiple ideal positionings.
attributes that “load” on the dimensions.
3. The need for appropriate sample size.
3. The ability to identify how each brand is perceived on each attribute, and on
each dimension. Identify product strengths and weaknesses. Determine 4. Maps are a static representation of the marketplace.
how much change is needed on key product attributes to move products to
5. Maps do not explain why customers perceive brands the way they do.
more favorable positions
6. Maps address perceptions (and preferences as well here, in terms of the ideal
brand) but no not directly reflect likely customer choice. Provides a static
4. Check how customer perceptions of client products compare to perceptions model - ignores dynamics of customer perceptions.
of competitors. Select competitors to compete against.
7. Interpretation is sometimes difficult.
8. Does not incorporate cost or likelihood of being able to achieve a desired
5. The ability to identify what re-positioning strategies are practical, and what positioning.
are not. Visually determine impact of communications programs on market
9. Does not incorporate a “probability model” to indicate goodness of a map.
perceptions
10. Generally, need about 6 to 8 products in a category to make the technique
6. The ability to engage multiple decision makers/stakeholders in a common
useful.
view of the marketplace as seen from the customers’ perspective