Course Introduction

Marketing Analytics

Professors Asim Ansari & Kamel Jedidi

Columbia University
Agenda
n What is Marketing?
n Course Structure
n Course Requirements
 What is Marketing?
To achieve organizational Marketing is the art and
goals by determining the science of creating value by
needs and wants of designing and manufacturing
customers and delivering
the desired benefits more successful exchanges
effectively and efficiently n Alexander Chernev
than competitors

“Everything starts with the

customer.”
n Lou Gerstner, CEO of
IBM (1993-2002)
Marketing and Firm Value
Market Value

Cash Flows

Customers

Company Competitors

“Creating shareholder wealth is not the purpose of the business. It is the reward
for creating customer value.”
Michael Tracy and Fred Wiersema in CFO magazine
 Strategic Marketing Framework
Identify Market
Opportunities CUSTOMER COMPANY COMPETITION

SEGMENTATION TARGETING POSITIONING

Set Strategy

Formulate
Marketing PRODUCT PRICE PROMOTION PLACE
Program
Outline of Sessions

n Understanding n Marketing Decisions

Consumers n New Product Design
n Modeling n New Product
Perceptions
Testing
n Modeling choices
n Pricing Analytics
n Segmenting
Consumers n Advertising
Analytics
n Customer Lifetime
Value n Modeling Sales
Promotions
Modeling Consumer Perceptions
n Managers need to know how their products are
perceived by consumers so that they can
(re)position them appropriately

n Perceptual Mapping
n Factor Analysis
Perceptual Map
A brand association map drawn from online
commentary about Nike
Modeling Consumer Choices
n How do consumers choose which brand to
buy from a choice set?
n What determines whether a consumer
renews a contract or churns?
n Analytics
n Logistic Regression
n Multinomial Logit Model
Segmentation Analytics
n Market segmentation is the subdividing of
a market into distinct subsets of customers
n Segment members are different between
segments but similar within
n Analytics
n Cluster Analysis
n Finite Mixture Modeling
Segmentation Analytics
n Attribute importance data collected using
the constant-sum method
Attribute Allocation
Trendy/innovative
Styling
Reliability
Sportiness
Performance
Comfort
Total 100 Points

n Are there different benefit segments?

How many segments? How are they
different?
Cluster Analysis
Modeling Customer Lifetime Value
n CLV is the net present value of the future
cash flows generated by a customer over
the duration of the relationship
n Customer Acquisition
n Customer Retention
n Customer Expansion
Product Design Analytics
n What product features to include in a new
product?
n What price to charge?

n Conjoint Analysis
n Product Design
n Product Line Design
Conjoint Part-Worth Plots
New Product Testing
n What would be the market share of the
new product after launch?

n Market Testing
n Simulated Test Markets
Market Testing: Simulated Test
Markets
Market Share

Repeat
Trial
Purchases Market
A
Awareness R
Sampling
Availability S
Pricing Analytics
n Modeling Willingness to Pay
n Modeling Demand Curves
n Optimal Pricing
n B2B Bidding Data
WTP & Demand
n The demand at a given price p is given by
the orange area

f(w) 𝐷 𝑝 = Prob 𝑊 > 𝑝 = 1 − 𝐹(𝑝)

p
w
Advertising Analytics
n Companies spend money on advertising to
impact sales
n Modeling the sales response function
n Computing the causal impact of
advertising
Sales Promotions
n Sales promotions are short term
inducements designed to have a direct
impact on the buying behavior of end-
users and trade
n Assessing the profitability of sales
promotions
n Modeling incremental sales
Course Requirements
n Quizzes
n Assignments
n Final Exam
Customer Analysis

Marketing Analytics

Professor Kamel Jedidi

Columbia University
Agenda
n Customer Analysis
n Sources of value to consumers
n Measuring value
n Using value for marketing decisions
Understanding Customers
n Who are your customers?
n Buyers vs. users
n Whoever influences their decisions

n What do they want/need? How do they

buy?
n What do they value when buying products and
services?
Sources of Value to Consumers

Psychological Value

Economic Value Functional Value

Economic Value to Customers
(EVC)
n The total (life-cycle) cost savings from using a
new product in place of a current product

n EVC = (Total ownership cost of existing product)

– (Total ownership cost of new product)
EVC Example

29
Determining the EVC:
An Example
n The XYZ pipe Co. is about to introduce a new
kind of pipe made of synthetic materials
n The primary use of the pipes is in underground
irrigation and drainage systems
n The new pipe is better than the currently available
substitute, made by ABC Co.
n It reduces the chance of leakage from 5% to 1%

n XYZ’s pipe costs the company $40 per 100 ft.

n All pipes are sold in 100 feet sections
Life-Cycle Cost of Using ABC Pipes
during their 3 Year Life Span
n ABC pipes sell for $60 per 100 ft. section

n ABC’s pipes have a 5% chance of leakage

n The labor and equipment rental cost for

removing/replacing a leaked pipe is $200

n 20% of leaks cause flood damage

n Cost of flood damage varies by user:

n a leak in an orange grove causes damage of $200
n a leak in an avocado plantation causes damage of $400
n A leak in a chemical factory can cost more than $5000
Summary of Information

Substitute New Product

(ABC) (XYZ)
Price ($/100ft) 60 P
Life Span (years) 3 3
Leakage Probability 5% 1%
Flood Damage Probability (per leak) 20% 20%

What is the maximum amount P that an orange grower

would be willing to pay for a 100 ft section of the XYZ
pipe?
Life Cycle Cost for an Orange Farm
that Requires 100 ABC Pipes
Substitute (ABC)
100 (pipes) x $60 per
Cost of Pipes pipe=$6000
Expected 5 (failed pipes) x $60 per
Replacement Costs failed pipe=$300
Expected Labor and
Equipment Costs for 5 (failed pipes) x 200 $ per
Failed pipes failed pipe
Expected Flood 5 (pipes) x 20/100 x $200
Damage Costs = $200
Expected Life Cycle
Costs $7,500
Life Cycle Costs for an Orange Farm
that Requires 100 XYZ Pipes
New Pipe (XYZ)
100 (pipes) x $P per
Cost of Pipes pipe=$100P
Expected 1 (failed pipes) x $P per
Replacement Costs failed pipe=$P
Expected Labor and
Equipment Costs for 1 (failed pipe) x 200 $ per
Failed pipes failed pipe
Expected Flood 1 (pipe) x 20/100 x $200
Damage Costs = $40
Expected Life Cycle
Costs 101P+$240

101 P + $240 = $7500 è P=$71.88

Issues in Using EVC
n Customer differences

n Convincing customers

n Other (fuzzy, qualitative) benefits ignored

n BUT, EVC can be useful in

n Pricing

n Segmentation

n New product introduction

Perceived Value
n The value customers attach to different
offers based on what they believe they are
getting for what they are giving up

n How can you measure perceived value?

Mini-Case: Designing a Rock
Climbing Harness
Design Task

The Rock Climbing harness redesign team

of Camp USA has been asked to design an
improved Rock Climbing Harness made of
webbing with buckles and gear loops that
will successfully compete with Mammat’s
and Black Diamond’s Harnesses at a price
point that represents value to customers.
What Do Mountain Climbers
Value in a Harness?
Attribute Importance
Easy to put on 2
Comfortable when hanging 5
Fits over different clothes 1
Accessible gear loops 3
Does not restrict movement 5
Lightweight 3
Safe 5
Attractive 2
How Well Does Camp USA
Fare on these Attributes?
Attribute Importance Camp USA
Easy to put on 2 3
Comfortable when hanging 5 4
Fits over different clothes 1 1
Accessible gear loops 3 3
Does not restrict movement 5 2
Lightweight 3 3
Safe 5 4
Attractive 2 2
Quadrant Analysis—Camp USA

Im porta nc e
S afe
Does not
5
res tric t
C omfortable
when hanging

A c c es s ible
gear loops
3 R a ting s
1 2 3 L ightweight 4 5

E as y to put on
A ttrac tive 2

F its over
different 1
c lothes
 How Does Camp USA
Compare to Competitors?

Attribute Importance Camp USA Mammut Black Diamond

Easy to put on 2 3 3 4
Comfortable when hanging 5 4 3 3
Fits over different clothes 1 1 1 5
Accessible gear loops 3 3 3 3
Does not restrict movement 5 2 2 3
Lightweight 3 3 2 5
Safe 5 4 2 5
Attractive 2 2 2 5
 Overall Brand Preference
Attribute Importance Camp USA Mammut Black Diamond
Easy to put on 2 3 3 4
Comfortable when hanging 5 4 3 3
Fits over different clothes 1 1 1 5
Accessible gear loops 3 3 3 3
Does not restrict movement 5 2 2 3
Lightweight 3 3 2 5
Safe 5 4 2 5
Attractive 2 2 2 5
Weighted Average 3.04 2.35 3.92

Preference for Camp USA=(2*3 + 5*4 + 1*1 + … + 2*2)/26=3.04

Value Map

Value Map

Black
80
Diamond

70
Price in $

60 Camp USA

50 Mammut

40
2 3 4
Overall Weighted Preference
 Mini-Case: The Alpha Minicomputer
Company

Source:
McKinsey Quarterly 1997,
Number 1

45
 Value Map: The Alpha
Minicomputer Company

Source:
McKinsey Quarterly 1997,
Number 1
Value Map: The Alpha Minicomputer
Company

Source:
McKinsey Quarterly 1997,
Number 1
Summary
n Customer analysis involves understanding what
customers want and how they value the
competitive offerings
n Three sources of values:
n Psychological
n Functional
n Economic
n Sustained competitive advantage is the result of
creating and delivering customer value either
better or more efficiently than competitors