Sumanta Basu

Professor

Indian Institute of Management Calcutta

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Introduction to
Business
Analytics
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Introduction

§ One day, a person rented Apollo 13 from a video rental chain on the block
and forgot to return on time.

§ Blockbuster (the video rental company) charged him $40 as the late fee.

§ The person pondered about a rental fee model for procuring movie DVDs.

§ The person thought about a business where customers will choose the movie
online and the DVD will be delivered by US postal service.

§ Pure folly? Right? Block buster is earning $3 billion / year by selling DVDs

§ Why people will wait for US postal service after ordering the movie online?
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Introduction

§ The person was Reed Hasting and company he formed is Netflix

§ $5 mn revenue (in 1999) to $32 bn revenue (in 2022)

§ Why Netflix is successful?

§ Breadth and Depth
• A romantic high-school comedy severely criticises by
critiques and viewed by 20 mn households
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How did Netflix perform?

§ Analysis on consumer choice and feedback on movies rented (now viewed)

§ Recommender system based on personalized search results

§ Pushed low-viewed movies with a mild fit sometimes

§ So what types of analytics techniques Netflix deploy?

§ Primary survey, Web site user rating, concept development and testing,
advertisement testing, subscriber satisfaction, channel analysis, marketing mix
optimization, understanding customer segments etc.
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Myths about Business Analytics
• You need to understand
the relevant business
problem
• You also need to look
for the right people who
can lead this job
internally and right set of
people with tools who
will do the job.
• Internal data should be • Once the business
stored based on objective is clear, it is
problem objective advised to choose
• With data stored in relevant methodology.
cloud, connecting data • Slicing and dicing of
from multiple sources is data beyond a point
not difficult. may not be of much
help.
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Myths about Business Analytics

• Enterprise level • It is a tool. • Analytics doesn’t

success may take time. • Clarity of business require a large
• Starting with small scale objective is more investment in people,
with a specific focus will important than using the processes or
help to get quick results software and getting technology.
to convince fancy charts. • Smaller businesses has
stakeholders advantage to be more
flexible in the ways of
collection and
assessment of data.
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Functional Areas for Analytics

• Financial
• Manufacturing • Customer
• R&D • Supplier
• Human Resource

Internal External
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Challenges in Manufacturing and Supply Chain
§ How to tackle the demand uncertainty?
§ Identify a specific methodology to accurately predict the sales volume
§ Improve target setting for the sales team by recognizing the market structure and
conditions

§ How to make an effective inventory planning?

§ Alignment of forecasting, inventory planning and execution

§ How to understand the impact on sales for a change in price?

§ Capturing the price elasticity

§ How to predict the machine disruption to make contingency plans?

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Challenges in Manufacturing and Supply Chain

§ How to decide on the optimal level of warranty to be provided on every

product type?
§ Improving the accuracy of warranty forecasts

§ Improving supplier chargeback process by tracking supplier of faulty parts

§ How to choose the right vendor for upstream procurement?

§ Identifying the parameters and methodology for vendor selection

§ How to create a production plan consistent with forecasted demand?

§ Optimizing production process with constraints
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Challenges in Marketing

§ How to understand the customer’s requirements?

§ Developing customer insights from primary or secondary survey and interpreting the results for
accurate decision making – understanding the willingness to pay of customers

§ Developing customer segments

§ Analyzing the value of the customer

§ How to understand whether the trade promotion expenditure is going to the right direction
or not?

§ Half the money we spend on advertising is wasted; the trouble is, we do not know which
half.
§ Identifying the most effective medium of advertising

§ Additional cost of colour in print media is worthwhile or not?

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Challenges in Marketing: Pricing

Demand Time

P Product type
Inventory r
i Customer
Competition c Segment
e
Channel
Customer
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Challenges in Human Resource Management

§ How do we make sure that we find out and hire the most suitable candidate?

§ How do we ensure that the employees are up and running?

§ How do we identify the unhappy employees?

§ How do we retain employees over years?

§ Basic HR transactions include:

§ Number of years in the organization and total work experience
§ Compensation
§ Promotion
§ Performance rating etc.
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Industry Specific Challenges
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Business Analytics in Consumer Goods Industry

Question Business Problem Analytics Solution

• Identify the right price

and discount point that • Build a regression
maximizes sales lift model to understand
• What is the of right and return on the impact of demand
price and promotion investment. drivers on historical
strategy? • Optimize promotions sales volume
to improve sales • Calculate the true cost
performance of newly of promotions
launched products

Analytics of Trade Promotions

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Business Analytics in Consumer Goods Industry

Question Business Problem Analytics Solution

• Calculate ROI of
advertisement spend • Develop an analytic
across various model showing impact
• How do we know the channels like of various marketing
effectiveness of television, print and campaigns on sales
various advertisement web • Evaluate media
strategies? • Understand consumer effectiveness, ROI and
behaviour with regard simulate what-if
to exposure to scenarios
advertising

Marketing Mix Modeling

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Business Analytics in Consumer Goods Industry

Question Business Problem Analytics Solution

• Find a vendor • Analytic hierarchy

evaluation method to process (AHP) is a
facilitate an objective, prominent approach in
• What are the unbiased selection solving multi-criterion
performance process decision-making
measures to evaluate • Identify the key metrics problems.
a vendor? of vendor performance • Using Radar chart to
• How do we track the that can help during compare vendor
vendor performance? negotiation with performances in
vendors on specific various performance
points measures
• Find a robust
framework that can
measure vendors’
performance

Vendor Selection Model

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Business Analytics in Goods industry

Question Business Problem Analytics Solution

• Identify a scientific • Develop a robust sales

methodology to forecasting model
accurately predict through aggregation
• What will be the future sales volumes and statistical analysis
estimated sales figure • Improve target setting of data
of a particular SKU? by identifying current • Develop a structured
market conditions and what-if analysis
their impact on mechanism to create
customer sales multiple scenarios

Sales Forecasting
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Business Analytics in Consumer Goods Industry

Question Business Problem Analytics Solution

• Understand the impact

on sales for a given
change in price • Build a pricing model
• What is the ideal price
(pricing elasticity) to enable an effective
point from a revenue
across products and pricing structure for
maximization point?
understand the impact various product
• How do we update the
on the contribution categories
price point based on
margin • Optimise pricing to
market demand and
• Ensure a consistent improve margins and
competitive pressure?
scientific methodology bottom-line profitability
is being applied to
pricing decisions
across
categories/outlets

Pricing Strategy
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Business Analytics in Manufacturing Industry

Question Business Problem Analytics Solution

• When should the • Predict the chance of off- • Machine learning

production people take
necessary action to
mitigate the risk of
product failure?
• What are the optimal
levels of inventory for
different SKUs to be
kept in different
locations?
• Should we update the
inventory planning?
specification product algorithm for predictive
depending on deviations modeling
in input parameters. • Employ statistical
• Align inventory planning, modelling techniques to
forecasting and execution perform inventory stock
capabilities across the level vs lost sales
organisation scenario analysis
• Obtain insights from vast • Develop robust demand
volumes of data at the forecasts through
SKU location on a statistical analysis of data
weekly/daily level to across outlets
improve inventory
forecasting

Machine Learning, Inventory Planning and Optimization

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Business Analytics in Hotels Industry

Question Business Problem Analytics Solution

• What will be the

expected occupancy • Align room capacity
rate? planning and • Build an inventory
• How do we capture the forecasting forecasting model
seasonality, trend and • Obtain insights from combined with pricing
other factors of past data to update to predict the room
forecasting in forecasts at regular occupancy rates
occupancy rate intervals
forecasting

Occupancy Forecasting
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Business Analytics in Hotels Industry

Question Business Problem Analytics Solution

• How do we maximize
• Develop and align a
the primary and
pricing model to
ancillary revenue • Build a pricing and
maximize hotel chain
across hotels in inventory led
revenue
different locations? optimization model by
• Understand the
• How do we understand taking inputs from
services to offer to
customer’s choice of customer’s sides
customers for revenue
services and willing to
maximization
pay?

Revenue Management and Dynamic Pricing

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Business Analytics in Agriculture

Question Business Problem Analytics Solution

• Develop insights into

• How do the
stakeholders manage
the agriculture supply
chain to ensure
equilibrium in welfare
and price?
irrigation,
sowing, harvest, and • Build a combination od
an area of land with
water requirement for
the crop.
• How to ensure the
availability of crops on
time by managing
uncertainties related to
weather and market
conditions?
predictive and
prescriptive modelling
to understand the
optimal mix of input
parameters needed to
produce within quality
crops at the right time.

Procurement and Supply Chain Analytics in Healthcare

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Business Analytics in Healthcare

Question Business Problem Analytics Solution

• Machine learning
algorithm to
• How do the practitioners understand drug
• How to select the drug to
understand the efficacy efficacy and possible
go for commercial licensing
and adverse effects of a success rate
considering its impact?
new medicine? • Using the electric
• How to understand
• How do the healthcare health record,
whether the patient needs
facilities follow up on predictive modelling
follow-up therapies and
patient with recurring will identify the
when?
illness? probability and time
recurrence – it will
allow hospitals to
follow up

Predictive Modeling in Healthcare Analytics

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Plan for Analytics
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Steps for Analytical Competitiveness

§ (WHAT) Identify the competitiveness or a few distinctive capability on which

to base the strategy and apply extensive statistical and quantitative analysis
§ Netflix: Predicting customer preference

§ Harrah: Customer Loyalty

§ Marriot: Revenue Management and Dynamic Pricing

§ Walmart: Supply Chain Analytics

§ (Why) Identify the benefit that the organization derives from the analytical
competitiveness
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Steps for Analytical Competitiveness

§ (WHERE) Identify the data types and the sources of data

§ Identify the technology required to capture the data

§ (WHO) Identify the relevant stakeholders who will collect, manage and
interpret the data.

§ (HOW) do you ensure the commitment of senior management?

§ How do you establish a fact-based culture?

§ How do you build and secure necessary analytical skills of employees?

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Implementing an Analytics Project

§ Step 1: Finding a business problem and a sponsor that can benefit from analytics

§ Step 2: Identifying the competency/skill set that can be contracted with lesser
investment

§ Step 3: Implementing small localized project to add value and to produce

measurable benefits

§ Step 4: Documenting the benefits and sharing the news with key stakeholders

§ Step 5: Continue to build a string of localized success until the organization has
enough experience to go for enterprise level business analytics