Upper Quadrant

An Upper Quadrant Brief

Predicting the Future with Marketing Curves

Predicting the Future with Marketing Curves

Predicting the Future with Marketing Curves

Executive Summary
Farmers plan yield using weather forecasts; marketers plan sales using curves. Though not quite a crystal ball, using curves (often referred to as Flow Curves or Intake Curves) does encourage corrective or compensatory action before its too late to make a difference. Unfortunately, typical processes to produce and implement curves have not moved beyond the desktop computer. And while desktop applications make for great presentations, they are poor proxies for databases when large amounts of information must be processed. Furthermore, since manual processes pump all the data into these applications, the results are error-prone, cumbersome, and rigid in their application. A better approach leverages technology differently to render curves that are easy to create, flexible to use, and engineered for relevance by automated selflearning over time. Tapping the reservoir of historical campaign information, curves can be created, trained, and tuned to specific campaign types and cohorts. Given the right technical foundation, using curves distills down to six easy, bestpractice driven steps: 1. 2. 3. 4. 5. Gather Campaign Data: Identify completed campaigns that best represent the types of campaigns for which curves are needed. Create Campaign Groups: Sort & bucket the chosen campaigns into relevant groups and cohorts. Gather Response Data: Gather response and sales data linked to the chosen campaigns. Build Campaign and Sales Dataset: Build a raw dataset containing campaign information paired to the response and sales data. Generate Response Curves: Calculate the ratio of each weeks combined sales over total combined sales for all campaigns over their collective life spans Evaluate Curves, Retrain as Necessary: As more campaigns complete, more data can feed into the models, and more relevant and accurate curves develop.

6.

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Hand-made curves are error-prone, cumbersome and rigid. But curves resulting from these six steps are easy to use, experiment with, and redevelop as business needs dictate.

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Predicting the Future with Marketing Curves

Response Curves: A Critical Business Tool

Response curves are analytical tools used to predict how responses and sales from marketing campaigns flow in over time. For many marketing organizations, response curves play a critical role in generating a forwardlooking view of anticipated sales, helping them to answer key questions such as: At our current run rate, do we need to accelerate our marketing spend in order to hit our sales target? Should I slow down our marketing spend in order to ensure that we have inventory to satisfy demand generated? Will we have the appropriate staff available at our call centers to field the inbound calls? Im running into my monthly meeting; how can I say with confidence that we will or will not hit our number

Exactly how curves can help answer these questions is demonstrated later in this paper. All the above questions involve issues of time. While a Response Rate anticipates how many sales may arise from a given campaign, a curve anticipates if those sales come at the right time. Too early or too late, and marketing plans, revenue targets, fulfillment, and resource management may all be turned upside down by poor planning. No marketer relishes the idea of spending limited marketing dollars on media that will not provide the results required to hit performance targets. Quite simply, marketers cannot sit on the sidelines until the end of each campaign to understand performance results. With response curves, prior to the completion of a campaign, marketers can readily weigh-in, judge whether a campaign is a success, and, if necessary, take corrective action.

Response Curves in Use: Example

Below is an example that shows the criticality of predicting campaign performance in advance of its completion: Overview ABC corporation has a Q1 Sales goal of 1,000 units. It is only running one campaign in Q1, and it has been delayed by two weeks. ABC is purchasing 100,000 circulation with ValPak, for an advertisement to run on February 1. Originally, the ad was to go out January 15. The response rate is projected at 1%. Based on these assumptions, ABC seems well-prepared to meet its Q1 sales goal: Target Sales = 1,000 sales in Q1 Impressions = 100,000 Response Rate = 1%, or 1,000 sales Campaign Start Date = February 1, in the heart of Q1 ABC applies a response curve spanning ten weeks from drop that projects an equal distribution of sales every week. As applied to this campaign, the ten weeks commence on February 1, and 100 sales accrue in each of the subsequent ten weeks. Analysis Based on the information above, the sales for this campaign would flow in over the following time schedule depicted in Figure 1:

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Predicting the Future with Marketing Curves

The total sales the Valpak campaign would generate in Q1 would only be 800! The two week delay was more than just a nuisance; it broke the sales plan. Sales for Weeks Nine and Ten occur in Q2, causing Q1 sales to run short of goal. But, lucky for ABC, it is still January when it runs the model. Knowing that that shortfall in sales will occur in advance is invaluable. In January, ABC can still take corrective action: 1) Add another marketing campaign, or expand the spend on the ValPak campaign to generate additional sales in Q1 to shore up the sales shortfall - or 2) Accelerate the in the start date of Q2 campaign (if possible), and swap some anticipated Q2 sales for the 200 additional Q2 sales generated by the ValPak campaign

In reality, this example oversimplifies the challenge. Companies run tens or hundreds of campaigns, and each with different start dates, quantities and response rates. And, not all campaigns will subscribe to same curve, and no curve evenly divides sales for each week. When a dozen curves covering a hundred campaigns begin to overlap, intertwine, and envelop one another, damage from errors and omissions in forecasting may become exponentially more devastating. This is the reason why an automated approach to response curve generation, usage, and training is so important.

How Companies Do It Today?

Today, few organizations use an automated approach to curve generation, usage, and training. Although slide rules have been phased out, desktop spreadsheet applications provide cumbersome and inefficient approaches for curve generation for the vast majority of companies today. In truth, large amounts of data, inter-linked among several vectors, simply break the database-like functionality of standard applications. Although spreadsheets are fantastic tools with great flexibility, they were not designed to support complex data. Indeed, a common practice is to hit F9 and go to lunch. Then click save and go for another lunch. And, if the model needs to be transmitted, then better to put it on CD and overnight it rather than attempt to email it.

Best Practices Approach Six Easy Steps

These traditional pitfalls can be avoided by using a platform for aggregating campaign and sales data. In so doing, the process to generate curves goes from cumbersome to easy, and the resources required go from hardto-pin-down technical personnel to layman. Similarly, having such access to actual data provides for automated curve training that requires little human intervention.

Step 1

Gather Campaign Data

First, Identify completed campaigns that best represent the types of campaigns which curves are needed. Gather descriptive Campaign data normalizing their key markers and identifiers so that they are comparable across more than one dimension. Key identifiers could include: Campaign Name Channel/SubChannel Program Start Date 800# URL

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Predicting the Future with Marketing Curves

Step 2

Create Campaign Groups

Second, logically sort and bucket campaigns of the same types together. These will often be grouped by Channel, Subchannel or even by Program Type. For example, you may group Alternative Media / Coop / Valpak into one group since campaigns have similar design and performance characteristics. Direct Mail may be another cohort, while Print advertising may be yet another.

Step 3

Gather Response Data

Response data must be formatted identically, regardless of source, and link back to campaigns. Fragments of response data often reside in multiple places within organizations and gathering the data may even require help from the third-party vendors that manage the response channels. Only a few dimensions of response data are necessary for a simple sales response curve. Some organizations may go a step further and add raw responses (calls, website visits etc.) and the conversion of those respondents into paying customers. Just for sales, however, weekly data by campaign or marketing tag is suitable: Week Start Date Campaign Name 800# URL Sales

Step 4

Build Campaign and Sales Dataset

In this step, response data links back to campaigns for a comprehensive dataset of all selected campaigns and their performance. In the figure below each line represents the actual sales curve of a specific campaign. Each has its own start date, peak sales date, and lifespan, as shown below in Figure 2:

Step 5

Generate Response Curves

Response curves are represented in terms of the percent allocation of total sales in a given week subsequent to a campaign start date. Having built a campaign and sales dataset, the following steps generate the actual curves:

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Predicting the Future with Marketing Curves

1. 2. 3. 4. 5.

Sum up the total sales represented by all campaigns over their entire durations. Decouple each campaign from its actual calendar time, transforming its representation to the week numbers following the start of the campaign. Superimpose all campaigns on one another, pegged to the start (see Figure 3 below). Sum up the total sales by all campaigns for each of the intervening weeks. Take the proportion of sales for any given week over the total sales as the percent allocation curve value for that week.

In Figure 3 above, the total sales for all the campaigns in this cohort are 1,000. There are 100 sales for Week Two among all campaigns. Accordingly, the Week Two allocation of sales for the curve is 10% (100 sales for the entire group divided by 1,000 total sales over the life of the campaigns.) The result is one curve for this cohort. A sample curve is represented below Figure 4 both in terms of week-overweek proportions and cumulative sales by week.

Step 6

Evaluate Curves, Retrain As Necessary

Curve evaluation is an important follow-through to provide smarter and better predictive value. Reviewing curves will either refine the allocations for a given curve (e.g. Week Two gets changed to 12% and Week 10 goes down to 1%), or leads to more curves, as one-size-fits-all campaign cohorts break apart into smaller cohorts. For example, the Newspaper Curve may act differently depending on:

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Predicting the Future with Marketing Curves

1. 2. 3.

Seasonality: Summer behaves differently from Fall. Day of Week: Mondays behave differently from Saturdays. Buy: A placement in USA Today behaves differently than one in The Philadelphia Enquirer.

The process for instituting curve analysis is substantially similar to the processes for initially generating response curves (Steps One through Five above). However, the output shows a comparison of the curve to the run of actual campaigns. It is nearly impossible to execute this step efficiently without visual representations of the comparisons. Visual representations provide for easy scanning of tens or dozens of curves, so analysts can triage only those curves most egregiously out of tolerance (See Figure 5 Below). Generally speaking, as more campaigns accumulate and their actual data is added to the model, the curve becomes smarter, with better predictive value for planning.

Moving one step further, to obtain drill-down into the actual numbers represented by the curve comparison allows for analysts to indentify anomalies and outliers that may skew the results (See Figure 6 Below).

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Predicting the Future with Marketing Curves

Using the Curves to Answer Real-World Questions

Using curves is not just an abstract mathematical exercise. With their predictive value, they help manage realworld planning issues like sales targets, fulfillment and resource allocation. No tool is a crystal ball that will accurately predict the future all the time. But, if curves can help with 75% of an answer, that is 75% less speculation, and loads less anxiety. The beginning of this brief presented four questions that are answerable by effective use of curves. Below are some possible answers to those questions:

At our current run rate, do we need to accelerate our marketing spend in order to hit our sales target? According to the curve models, most of our campaigns are 45% completed, but we are at 50% of our sales target. We actually might come in over target! No need to accelerate spend right now. Should I slow down our marketing spend in order to ensure that we have inventory to satisfy demand generated? Under the current plan, 25 of our 50 campaigns will peak between 3/20 and 4/1 drying up inventory for the campaigns starting later in the month. I should spread out the campaigns to more evenly distribute the load on fulfillment.

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Predicting the Future with Marketing Curves

Will we have the appropriate staff available at our call centers to field the inbound calls? A massive direct mail blitz will mean a huge spike in call volume in about three weeks. We need to make sure Telesales gets a revised forecast to the vendors so they staff accordingly. Its a waste if nobody is there to answer the calls! Im running into my monthly meeting, how can I say with confidence that we will or will not hit our number? Our internal evaluations show that our curve projections are within five to ten percent variance from actual campaign execution. So, even though we are only a third of the way through the quarter, according to current trends I feel 90% confident that we will meet plan.

Summary
Key decisions regarding spend, staffing, and fulfillment need to be made in advance. Curves are the predictive tool for accurate decisions in the future. Given the right technical foundation, six best practice steps, including effective visual depictions and learning models, will inject meaningful predictive value into marketing planning. Organizations that put it all together -- automated data processes, effective visual depictions and learning models -- can all but see the future. They enjoy better planning, effective forecasting and ultimately, a better, more profitable business. For more information about curve generation and visualization through automated processes, contact Upper Quadrant at 703.476.1992, or visit www.upperquadrant.com. Email inquiries may be sent to webmaster@upperquadrant.com.

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