Marketing analytics

Lecture 1

Costumer evaluation – customer relations management CRM a tool to keep track of the
relationship with our customers. To increase customer loyalty and make better marketing
decisions. Treating different customers in different ways has a cost, different content, and
marketing for each customer. You need to figure out if it´s worth it and if the marketing will
generate more money than it costs.
Primary market research – Before going forward with a marketing campaign the company
needs to do market research. Try to figure out what is the return on investment. Designing the
research tools – a survey e.g., Processing the results – apply directly to the survey, size of the
market and the general interest.
Clustering for marketing – group customers to subgroups with similar characteristics and
know what they need to make a purchase or similar. A company can’t direct their marketing to
each customer but need to group them into smaller groups. Clustering.
Data monetization from CRM – Focus on the product, collect data from the customers. If a
customer buys chips and Nutella at the same time, we can assume that the customer likes
snacks and that they´re applicable to a certain type of marketing. Market basket analytics,
what things do customers generally buy together, can we use that information in our
marketing to generate revenue.
Churn prevention – Prevent customers from changing brand or company, keep their loyalty to
your brand or company. Understand the reason customer churn, understand where the
problems are located. If churn is related to any characteristic of the customer, we need to
understand why they´re leaving and prevent more customers from churning. To some extent
every customer churns eventually, but you need to understand how to extend the “lifetime” of
the customer.
Marketing spending optimization – communication is a significant expense for companies.
One of the problems of the companies is the cost and the expected revenue generated from the
campaign, but it´s not easy to know what traffic comes from where. Optimize by analyzing
what is the most successful platform and where to spend the money, or even calculate what is
the minimum budget for accomplishing a certain goal. Attribution.
Lecture exercise 1

Question 1
The customer without membership bought cheaper products and are located in the southern
area, whereas the customer with a membership bought more expensive products. The time of
day of the two purchases is also different, which could explain the differences. The members
might have bought items for the whole day or week whereas the non-member only bought
items for dinner for example.

Question 2 & 3
 Customer ID – how do we keep the loyal customers with a low number and how do
we make the newer customers more loyal?
 Store ID – where are the people consuming less and more, and what strategies do they
apply there.
 Loyalty card – do people with a loyalty card generally buy more, or more expensive
products, how could we get the non-members to be members?
 Sent and delivery times – As there is no difference between the two customers, I don’t
see a reason analyzing this data. What types of items are usually bought in which
seasons, to know what products to push forward.
 Delivery type – Do customers generally spend more when ordering home delivery
rather than click and collect as they do not have to carry the items home. When buying
many products, it can be hard to carry everything home by yourself. Is it worth
lowering the price for the delivery, maybe only if you buy for a set minimum? – can
create an incentive for buying more items.
 Reservation interval – what types of products are usually bought at what delivery
times, at 08-10, people may usually buy breakfast related items, and the company can
push for breakfast related items such as orange juice, bread, eggs etc. and by doing so,
the customers buy more. And vice versa.
 Payment type –
 # items and ticket price – do members tend to buy more expensive items? What are the
reasons for this behavior? The margins on these items?
Lecture 2 Customer evaluation

When acquiring a new customer, you don’t only have to convince the customer that your offer
is good, but also that your offer is better than the competitors´.
The acquired customers mostly come from competitors loss of the particular customer.

Before the customer journey they company spends a huge amount of money on marketing like
tv-advertisement. For electricity company – 10 EUR for website customers, teleselling and
other channels roughly 50 EUR /customer. The profit each month might be around 5 EUR,
that results in that the customers need to stay for at least 10 months before the revenue
generated is net zero. Acquiring customers is very expensive and it´s cheaper to keep current
customers satisfied and make them stay longer.
Fundamental questions
1. What is the expected value I can create through a specific customer relationship?
2. Is it worthwhile to invest in acquiring a new customer?
3. A customer threatens to churn. How much should I invest in trying to retain the
customer?
4. What is the overall situation of my customer base?
The graph of number of customers on the x-axis and revenue on y-axis, it is a normal spread,
less more less.
Formula used to calculate the profitability of an investment.

CLV – customer lifetime value

 Contexts in which CLV and customer valuation are particularly useful:
o Subscription-based models
o Repetitive purchase (better if frequent, but not necessarily)
 Contexts in which CLV and customer valuation are less precise:
o Infrequent purchases (e.g., real estate, car dealers, etc.)
o Especially car dealers are trying to convert their products to services - leasing
or other financial services, which makes the customer more loyal to the brand
and it´s a steady revenue for a given amount of time.

Theoretical underpinnings of CLV

1. Discounted cash-flow: CLV analyzes long-termed effects (generally, years), so a DCF
approach is required (hence, a financial and not economic approach is necessary ->
relevant in case of installments, long payment terms, etc.; in general, in frequent
purchases these phenomena tend to be less relevant)

2. Stochastic modelling: a customer is an exogenous variable which has a

contractual/natural probability of churning at every transaction. So the first and
foremost stochastic phenomenon to model is customer retention
RR – retention rate
Churn – losing a customer

This implies that all customers are treated the same way, which is not entirely correct.
Example – are you more generous towards your friends or people you just met.
Analytical approach to CLV modelling (period-wise) consist of:
1. Estimating margin scenarios
2. Estimating RR
3. Calculating cumulated RR
4. Applying the discount factor
5. Calculating the period-CLV
6. Summing up the period-CLVs to obtain the total CLV
7. Managing terminal value

RR(t) = probability for a customer active after t-1 periods to be “alive” after the t-th period
t =/= calendar year
Marketing mix optimization

How to optimally allocate marketing efforts and investment to achieve the desired level of
performance?
Marketing mix modeling
How to use the different channels of marketing optimally, how much tv, radio etc.
Uses:
 Understanding
 Planning
 Predicting
Regression model

Market research

Main target if often sizing the market

 From time to time, a company may receive signals that some of its practices are out of
synbc with the market
 On it may be pushed by new ideas (Say, new product idea)
 Through investigation of initial information, the management should make the
decision whether to preoceed with the research
Phase 1 – preliminary investigation
Exploratory in nature
- Reports, studies, interviews, brainstormning
Analysis of the As-is situation.
- Defining the company’s position within the market and the macro environment,
positioning the problem
It’s a key issue: if the domain of the problem is badly defined, the research process is useless

Phase 2 – problem definition and objectives

Definition of the goals of the research in terms of
Objectives
Relevant variables
- Nature of the problem
- The exact number of people involved
- The key factors affecting the market
- The methods to adopt
- An estimate of cost…

Phase 3 – design the research plan

Defining:
- Type of data
Identifying data to be investigated
oDefining the data to be gathered with a precise definition
oResearch unit: entity to inquire or to which the data to be assessed refer
oNature of the variables, qualitative, quantitative
oMeasurement methods
 Open ended (qualitative)
 Closed-ended – classes or units (quantitative)
 There are both pros and cons to both methodologies and what fits one
market research might not fit the next one. A combination of the two is
also possible.
- Sources
Primary
o Things that you have collected
Secondary
o Pieces of data that already exist, like other research and papers

o If I want to know my own customers better, primary data might be beneficial,

because other research isn’t related to my specific customers.
Research design
1. Research model
a. Exploratory
i. Can be the objective of the research itself
ii. Big research
iii. Setting the limits of the research field
b. Descriptive
i. Trying to explain a phenomenon through research
ii. “Taking a picture of the research field”
c. Casual
2. Nature of the research
a. Quantitative
b. Qualitative
3. Methodology for data gathering
a. Survey - opinions
b. Observation – behaviors
c. Reactions
4. Contact method:
a. Survey
b. Interview (CAWI, CATI etc)
 - Methodology
- Tools for data gathering.
- Sampling
- Contact method

Missed some parts, fill in later

Analytics for CRM and RFM