Introduction

Chapter 1
What is analytics?
Models and metrics that provide actionable insight
Models
Tools that aid in decision making; based on data and objectives
Simplify and represent the real world
Allow us to focus our efforts
Example of tool: spreadsheet
Metrics
Measurements representing performance levels of important
variables within an organization
Used to monitor situations and diagnose problems
KPI key performance indicator (E.g. sales)
If you cannot measure it, you cannot improve it. (Lord Kelvin)
 Trends Driving Marketing Analytics Adoption

Accountability Online Data Availability

Improve productivity Cloud-based data storage
Reduce costs
Marketing Online = speed
What gets measured gets done Analytics Online = convenience
Adoption
Data-Driven Presentations Reduced Resources
Data to back up proposals Do more with less
Predict success of plans Massive Data Scrutinized budgets
Marketers must show outcomes
Initiatives to capture customer information
What to do with all that data?
 Marketing Analytics Advantages
Drive Revenue Persuade Executives
Focus on revenue impact from marketing
Marketing as cost center Marketing Correlation between spending & results
Marketing as profit center
Correlation between spending and results Analytics
Advantages
Save Money Side-step Politics
Old way: Execute campaign guess outcome Some CEOs do not appreciate marketing
No longer tolerate such an approach Show impact of efforts with metrics
New way: Predict outcome
Encourage Experimentation
Test multiple scenarios before proceeding
Run simulations
Predict which will work best
What is a model?
Model
Simplified representations of reality used to solve problems and make decisions
E.g. advertising effectiveness model
Purpose
To understand nature of marketing phenomenon and predict outcome of
marketing actions
E.g. how does advertising affect sales?
Accuracy
Approximates reality, does not duplicate it
Decisions
Insight into decisions
E.g. decide on ad budget to achieve sales objectives
Model Styles
Verbal
Expressed in words
E.g. advertising impacts sales
Pictorial
Expressed in pictures
E.g. chart/graph of sales and advertising expenditures
Mathematical
Expressed in equations
E.g. sales = a + b * advertising

Verbal Pictorial Mathematical

Sales = f(advertising)
Model Forms
Descriptive
Characterize (describe) marketing phenomenon
Identify causal relationships and relevant variables
E.g. Sales = a*Advertising + b*Features +c*
Predictive
Determine likely outcomes given certain inputs
Classic What If? spreadsheet exercise
E.g. Sales forecast model
Normative
Decide best course of action to maximize objective, given limits on input variables
(constrained optimization)
Given X, what should I do?
E.g. Determine optimal price using forecasts at different prices
Models: Independent and Dependent
Variables
Variable
Quantity that can be changed, or varied
E.g. Advertising budget, Sales
Independent Variable
Variable whose value impacts dependent variable (x)
E.g. Controllable: Advertising budget
E.g. Non-controllable: Customer age

Dependent Variable
Variable representing marketing objective (y, or output)
Responds to changes in independent variable
E.g. For-profit: Revenue, Profit; Not-for-profit: Donations
What is a metric?
Metric
Business-oriented key performance indicators
E.g. Sales per channel, Cost per sale
Purpose
To quantify the value of advertising, products, customers, and
distribution channels under different scenarios
To monitor and improve marketing effectiveness
To take corrective action as necessary
E.g. Marketing expense as percentage of sales
Benefits
Encourages rigor and objectivity
Makes it possible to compare observations across regions and over time
Provides basis to support decisions
Why are metrics important?
By what metric is success measured?
Example:
How will you measure your life??
Think about the metric by which your life will be judged, and make a
resolution to live every day so that in the end, your life will be judged a
success.
HBR article, Clayton Christensen 2010
Metrics Families and Dashboards
Families
Groups of related metrics
Easier to assess marketing situations and take action
E.g. sales by geography, business unit, product, market segment
Dashboards
Aggregate important metrics on a single display
Often displayed using graphics, trend graphs, dial gauges, pie charts for
easier interpretation; color coding is common
Included in many marketing automation systems
E.g Customer service manager at Verizon Wireless, using a dashboard
that shows:
% of customer calls dropped
Location of repair trucks
# of callers on hold with customer service