BT4211

Data-Driven Marketing
Marketing-Mix: Advertising, Campaign
Management

March 21, 2018 1

Marketing & Advertising
Communications

 Overview and planning process

– Data-driven marketing communications

• Emphasis on field testing and personalization
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Set Overall Plan of Communications

 Objectives
– Action oriented, similar to sales promotion targets
• Increase sales by 10%; acquire 20,000 customers; or
reduce churn by 5%
– Quantitative vs. qualitative aspects
• Achieve a 1% response rate while reinforcing product
positioning on quality and reliability
• Induce 20% of current customers to sign up for the
reward campaign by emphasizing our quality and
service

3
Set Overall Plan of Communications

 Objectives
– Qualitative goals are important
• Data-driven marketing campaigns often play a dual role
as promotions and advertising
– Promotions are most directly for changing behaviors
– Advertising is often concerned with changing attitudes
• Avoid losing sight of overall marketing strategy, in the
process of evaluating quantitative targets
• Guide the creative, offer, product, and copy elements of
the campaign

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Set Overall Plan of Communications

 Strategy
– Creative
• Overall tone and approach of communication, and
execution in terms of artwork, type font, layout, etc.
– Offer
• Price, promotions, financial terms, shipping charges, etc.
– Product
• Specific product (or service) contained in the offer, and
how it is described (positioned)
– Media
• Choice of media and how they will be scheduled
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Set Overall Plan of Communications

 Budget
– Based on last year’s budget
• If last year’s results were fine, then adjust budget slightly
• If objectives are for marginal growth, or emphasize ROI
rather than absolute sales or profits
– Derived from objectives and strategy
• Determine what it will cost to achieve desired objectives
using the prescribed strategy
– Derived from an optimization process
• Provide a good starting point and can help managers
think “out-of-the-box,” but may omit other strategic and
organizational issues 6
Set Overall Plan of Communications

 Example of overall plan

7
Develop Advertising Copy

 Creative strategy
– Major elements
• The product
– What does it deliver?
• The customer
– How does it make the customer feel emotionally?
• Company credibility
– Does the company have the credibility to deliver what it claims?

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Develop Advertising Copy

 Creative strategy
– Examples
• Informational
– Emphasizes provision of information. This might be appropriate for
a B2B or a “serious” product such as a pharmaceutical drug
• Humorous
– Humor might be appropriate for a gift-oriented catalog
• Testimonial
– Emphasizes testimonials by satisfied customers. This would be
appropriate for a high-risk product such as consumer electronics
• Deal-oriented
– Emphasizes price and getting a good deal. This might be
appropriate when target group is price sensitive 9
Develop Advertising Copy

 Creative strategy
– Examples
• Authoritarian
– Relies on an authoritarian figure such as an expert. For example,
a new drug campaign might use a physician as a spokesperson
• Glossy
– Emphasizes an expensive look. This would be appropriate for a
high-end cataloger or luxury brand
• Personal
– Oriented toward the individual’s needs. This would be appropriate
for a cross-sell appeal
• Comparative
– Compares the company’s product to a competitor’s 10
Develop Advertising Copy
 Offer
– Price communications
• Nine-ending prices (e.g., $49, $99)

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Develop Advertising Copy

 Offer
– Major elements
• Price, promotions, financial terms, shipping charges, etc.
– Price communications
• Nine-ending prices (e.g., $49, $99)
– Nine-ending prices generated on average 35% higher sales,
especially for new items (Simester & Anderson 2003)
• Sales signs
– Sales signs increase demand of items until too many items have
sales signs, at which point its effectiveness per item actually
decreases (Anderson & Simester 2001)
– Sales signs decrease nine-ending effect of prices (Simester &
Anderson 2003) 12
Develop Advertising Copy

 Personalize components of communication

– Elements for personalization
• Creative elements (e.g., text, fonts)
• Price
• Product
• Information (e.g., photos, videos, length & terminology
of product descriptions)
– Methods for personalization
• Customer response models
• Statistical learning techniques
• User-based collaborative filtering
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Select Advertising Media

 Optimize advertising media channels

– Media choices
• Direct mail, catalogs, telephone, e-mail, Internet (web,
search engine, e-commerce), social media platforms,
mobile platforms
– Media selection issue
• How to maximize campaign response rates across
media channels, accounting for substitution and
complementarity of media channels?

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Select Advertising Media
 Optimize advertising media channels
– Maximize average response rate, i.e., total
number of responses

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Select Advertising Media

 Optimize advertising media channels

– Sherman & Deighton (2001)
• Objective
– Select which websites to place advertisements of online store
Drugstore.com for a banner advertising campaign, in order to
maximize visits to the e-commerce website
• Approach
– Estimate a predictive model predicting visits to Drugstore.com
website as a function of visits to other websites, yielding an
“affinity” score between websites and Drugstore.com
– Cluster analysis to group websites by site attributes, yielding an
“affinity” score for each cluster
– High affinity websites were targeted with banner ads
» 10 times the purchases per impression relative to low-affinity sites 20
Select Advertising Media

 Integrated marketing communications

– Objective
• Manage and organize all marketing communication
tools (media, messages, promotions and channels)
• Coordinate content of ads across media channels
• Deliver a clear and consistent message
• Benefit by consistency, or at least complementarity, in
advertising messages

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Evaluate Communication Programs

 Evaluation methods
– Embedded testing
• Embed a control group to provide an experimental test of
the campaign treatment
– Control group that does not receive marketing communication
should be randomly selected from all eligible customers
– Sales data need to be collected for customers across all channels
– Sample size for control group is smaller than treatment group
– Surveys
• Evaluate qualitative aspects of the campaign such as
reinforcing product positioning
• Ensure marketing efforts are not leading firm astray from
its desired positioning and target group 22
Evaluate Communication Programs

 Evaluation methods
– Profit and ROI

– Statistical analysis or marketing mix modeling

– For each media channel or for all channels simultaneously

(account for substitution & complementarity across channels)
– Controls: product quality, distribution, brand life cycle,
competition, advertising carry-over, GDP, socio-demographics 23
Evaluate Communication Programs

 Evaluation methods
– Marketing mix model: fixed effects specification

• capture time-invariant, unobserved individual

heterogeneity
• can be parameters that are estimated or eliminated
• can be correlated with observed xi
• Identifies only parameters for time-varying regressors
• Prediction using FE parameter estimates is restricted to
within specific data sample only 24
Evaluate Communication Programs

 Evaluation methods
– Marketing mix model: random effects specification

• is distributed independently of regressors

• is uncorrelated with observed xi
• Identifies parameters for both time-varying and time-
invariant regressors
• Prediction using RE parameter estimates can be
applied to outside the specific data sample, i.e., random
sample of entire population
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Evaluate Communication Programs

 Evaluation methods
– Choose FE/RE model: Hausman specification test
• FE time-varying estimates are consistent if
individual effects are fixed
• RE time-varying estimates are inconsistent if
individual effects are fixed
• Null hypothesis
– RE model parameters are consistent and efficient
– Reject if Hausman test statistic is large (p-value is significant)
• Alternative hypothesis
– RE model parameters are inconsistent (i.e., FE model
parameters are consistent, but potentially less efficient)
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Campaign Management

 Overview
– Optimize multiple contacts across various
campaigns over different media channels
– Manage campaigns by optimal contact models
• Specify number and/or schedule of communications over
single medium or multiple media channels
• Challenges
– Customer response to a contact changes over time, depending on
the customer’s previous contact and response history
– Optimize schedule of contacts over time to be “forward looking,”
i.e., recommend decisions for period t taking into account the
impact this has on customer response and hence, future profits in
period t+1, t+2, etc. 27
Dynamic Campaign Responses

 Wear-in
• Takes several contacts before the customer responds
 Wear-out
• Once a critical number of contacts is reached,
subsequent contacts produce lower response rates
 Forgetting
• Once contacts are halted, response does not instantly
go to zero but decays gradually

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Dynamic Campaign Responses

 Wear-in, wear-out, forgetting

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Dynamic Campaign Responses

 Modeling wear-in and forgetting

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Dynamic Campaign Responses

 Modeling wear-in and forgetting

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Dynamic Campaign Responses

 Modeling wear-out and forgetting

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Dynamic Campaign Responses
 Modeling wear-in, wear-out and forgetting

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Dynamic Campaign Responses
 Aggregate customer responses

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Optimal Contact Models

 Overview of optimal contact models

– Objective
• Determine number and/or schedule of communications
to be delivered to each customer in a given time frame
– Response model
• Predicts how a customer will respond to a contact
• Depends on the state the customer is in at a given point
in time, e.g., how recent since the last contact
– Optimization model
• Often forward looking because actions the firm takes in
the current period may influence the actions it should
take in future periods 39
Optimal Contact Models

 Hazard response model (Gonul, et al. 2000)

– Response model

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Optimal Contact Models

 Hazard response model (Gonul, et al. 2000)

– Optimization model
– Recommend mailing at time x if expected profit over the period
t+x is greater with a mailing than without, where x = time horizon

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Optimal Contact Models

 Hazard response model (Gonul, et al. 2000)

– Optimization model
• Results

– Total expected profit is $6,327 under the optimal policy compared

to $5,968 under the actual policy

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