Final Flashcards
1
Q
Forecasting
A
Estimating future conditions. Tools and techniques to estimate future conditions
2
Q
Predictive Analytics
A
Estimating future conditions
3
Q
Data Mining
A
Extracting patterns from data
4
Q
Balanced Scorecard
A
Establishing and tracking strategy and operations metrics
5
Q
Critical Success Factors
A
Defining and measuring business objectives
6
Q
Product
A
Companies apply forecasting to tell them how many units to manufacture
7
Q
Price
A
Organizations exercise forecasting to predict the break-even point for a given price
8
Q
Place (Distribution)
A
In order to specify the type of distribution channel to use, we need to anticipate the volume of goods we expect to sell, and for that we need forecasting
9
Q
Promotion
A
Companies apply forecasting for promotion, so they can select relevant media. For example, we would select direct marketing media for high volume products
10
Q
Sales
A
Organizations forecast future sales so they can track actual sales with expected sales
11
Q
Support
A
Companies need forecasting information so they can staff support centers with sufficient personnel to manage the expected number of customers
12
Q
Sales forecasts
A
Predict the volume of products and services expectedd to be sold by a given organization for a given time period, generally one year.
13
Q
Time Series
A
Studies sales history to date to extrapolate future sales
14
Q
Causal Analysis
A
Which examines underlying causes to calculates future conditions, given certain inputs
15
Q
Trial Rate
A
Uses market survey of initial trials of new products and services to predict future market share
16
Q
Diffusion Models
A
Predict adoption rates of new products and serves by comparing their characteristics to pervious products and services
17
Q
Degree of Accuracy
A
The first criterion to apply when deciding on which forecasting method to use is the degree of accuracy required. For example, the causal analysis approach lends a fairly high degree of accuracy to its estimates, because it examines the underlying causes driving sales trends
18
Q
Availability of Data
A
The second criterion is the availability of data. Casual analysis methods require significant
amounts of historical data because the methods consider the impact of multiple factors. Diffusion models do not require a sales history to predict future sales.
19
Q
Time Horizon
A
The third criterion is the time horizon for the sales forecast. For example, the validity of forecasts based on time series models erodes when extended time periods, such a multiple years. Causal analysis methods work better for long time horizons because the root causes it leverages are less likely to change over time. Nevertheless, all forecasting methods lose accuracy over long time periods
20
Q
Life Cycle Stage
A
The fourth criterion is the position of the products or services in their life cycle. For example, diffusion models can work well for the introduction and early growth life cycle stages because they forecast adoption rates based on the adoption rates of past products and services with similar characteristics. By contrast, time series methods are best suited for the maturity stages in the product/service life cycle, when sales trends are more stable
21
Q
Resources
A
The fifth criterion is the availability of time and money resources. For example, trial rate methods to predict market share for new products and services can lend higher accuracy than diffusion model methods. However, trial rate methods cost more (due to the cost of market surveys) and take longer (due to the time to conduct the surveys and analyze the results). Similarly, causal analysis methods can hold greater accuracy than time series methods, but require a much greater time to gather, analyze, and interpret the data.
22
Q
Time Series Forecasting
A
One of the most popular approaches. This series approach determines the underlying trend over time, and continues that trend to predict future conditions. Marketers frequently use the time series approach to predict sales volumes expected for their organization for the coming year (or quarter), based on sales data for the past few years.
23
Q
Time Series Forecasting - Advantages
A
- The only data required is a record of sales volume over time, which is some of the easiest data to gather.
- It is also intuitive
- The technique is useful as a “sanity check” to confirm the accuracy of more sophisticated forecasting methods.
- Biggest advantage is it’s ability to capture all of the underlying market drivers and forces.
24
Q
Time Series Forecasting - Disadvantages
A
Dynamic market forces can cause trends to change. Therefore, we cannot state with certainty that trends affecting the sales volume will continue forever.
25
Linear Regression
Sales = (Intercept)+(Slope)*(Time, in periods)
26
Causal Analysis Forecasting Method
- Technical analysts concern themselves primarily with how stock prices fluctuate over time. In technical analysis, causal factors play a secondary role.
- Causal analysis seeks to find the underlying factors that explain behavior.
27
Causal Analysis Forecasting Method - Advantages
If we can show which variables drive sales growth, we have unlocked a powerful advantage.
28
Causal Analysis Forecasting Method - disadvantages
causal analysis takes more work to execute. We need to study multiple variables and determine their effect on sales.
29
Casual Forecasting Formula
Sales = (Intercept) + (Coefficient 1) * (Market Awareness) + (Coefficient 2) * (Number of Locations)
30
Time Rate Calculation
Time Rate = (Number of First-Time Purchasers or users in Period t) / (Population)
31
Repeat Rate Calculation
Repeat Rate = (Number of Repeat Purchaser orUsers in Period t) / (Number of first-Time Purchasers or Users in Period t-1)
32
Penetration
The total number of people who have purchased the product or service at a given time.
33
Penetration Calculation
Penetration in Period t = [Penetration in Period (t – 1)] * (Repeat Rate in Period t) + (Number of First-Time Purchasers or Users in Period t)
34
Projection of Sales
Projection of Sales in Period t = (Penetration in Period t) * (Average Frequency of Purchase) * (Average Units per Purchase)
35
The Trial Rate Calculation
Trial Rate = (Number of First-Time Purchasers or Users in Period t) / (Population)
36
Trial Volume Calculation
Total # of units we can expect to sell to the population over a given period.
- Trial Volume = (Population) * (Units per Purchase)
37
Intention to Buy Question
Questions obtain information about the respondent's likelihood of purchasing dog grooming services from company
38
Awareness Questions
Questions asked about the respondent's awareness of the company's brand as compared to it's competitors
39
Availability Questions
?
40
To Calculate repeat volume
Repeat Buyers = (Trial Population) * (Repeat Rate)
41
To Calculate the sales volume repeat buyers generate,
Repeat Volume = (Repeat Buyers) * ( Repeat Unit Volume per customer) * (Repeat Occasions)
42
Diffusion Models Forecasting Method
- Forecast demand for fundamental new innovations
43
Innovators
Innovators are the first people to adopt an innovation. They tend to have a high tolerance of risk, allowing them to adopt innovations which may ultimately fail.
44
Early Adopters
Early adopters also adopt new innovations readily, but not as fast as innovators. Early adopters tend to hold a high degree of opinion leadership, fielded by their passion for new innovations
45
Early Majority
Early majority individuals adopt new innovations significantly more slowly than innovators and early adopters. They represent the beginning of the mass market adoption of the innovation
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Late Majority
Late majority individuals hold a high degree of skepticism on new innovations. They adopt only after the majority of society has already decided to do so.
47
Laggards
Laggards are the last segment of individuals to adopt a new innovation. They actively dislike change and prefer instead to stick with established, traditional methods.
48
Diffusion Driven by Imitators
Imitators will play a larger role for innovations involving networks effects and infrastructure investments.
- The network effect refers to innovations requiring networks to function properly.
49
S-Curve: Imitator-Driven Adoption
Where adoption of products and services starts out very slowly (b/c imitators do not adopt until other do). But once adoption starts in earnest, growth proceeds rapidly. As adoption continues, growth slows down and adoption asymptotically approaches 100% of the innovation’s target market. The vast majority of adoptions follows this type of adoption profile.
50
Diffusion Driven by Innovators
Research shows that innovators play a greater role in some situations and cultures. Much of the role is based on supporting the innovators’ tolerance for risk, so they are in a better position to take the risks new innovations bring. In general, the following situations and cultures tend to favor innovators over imitators:
51
Creaming Pricing (Also Skimming)
Set prices high during the intro of a new product or servie. Only to target the top 1-5% of the market. People who will have a low sensitivity to price
52
Demand-Based Pricing
Set prices to maximize profit profit, based on consumer demand for the product or service.
More quantity = Lower cost and vice versa
Economics tells us that for most goods, quantity demanded increases as we decrease price, and vice versa. Economists call this relationship the demand function, plotted out as the demand curve.
53
Demand-Based Pricing Advantages
It's an effective method to maximize long-term profit
54
Demand-Based Pricing disadvantages
Can be time consuming and expensive since they need to know what the demand is
55
Everyday low pricing
sets prices consistently low to attract price-sensitive customers and increase sales quantities. The technique avoids deep discounts and sales promotions.
56
Going Rate Pricing
Companies align their prices with those of competitors and adopt a so-called market price. Companies will charge nearly identical prices to similar goods.
Ex: Gas stations
57
Markup/cost plus pricing
simply add an arbitrary percentage (like 20%) to the unit cost to arrive at the final price.
Markup is used when applying the technique to products
Cost plus is used when applying the technique to services
ex: Frozen pizza
58
Markup Price Calculation
Unit Cost = (Variable Cost) + (Fixed Cost) / (Unit Sales)
59
Penetration Pricing
Set prices very low to attract new customers and expand market share
Ex: Japan did this when introing comp chips in the 80s but upset the US
60
Prestige Pricing
sets prices high to signal high quality or status
ex: Rolex
61
Target-Return Pricing
Calculates price to achieve a company-defined return on investment (ROI) The technique is similar to the markup/cost plus technique but subs the target returns in place of %
Ex: Usually used selling industrial products
62
Target-Return Price Calculation
Target-Return Price = (Unit Cost) + (Target ROI) * (Investment) / (Unit Sales)
63
Target-return Price (ROI) Calculation
ROI = (Unit Sales) * (Target-Return Price – Unit Cost) / (Investment)
64
Break-Even Calculation
Break-even Quantity = (Fixed Cost) / (Price – Variable Cost)
65
Tiered Pricing
Also known as good-better-best pricing
Sets different piece points for different levels of features or quality for the same type of product or service.
Ex: Heroku Dynos
66
Value-in-Use Pricing
Also called value based pricing
`where companies set prices so that customers perceive the value of proposed alternative products or services to balance that of their existing products or services.
ex: ceramic coating manufacturer Rhino Shield (rhinoshield.net) sells its product as an alternative to house paint, guaranteeing that its product will last 25 years, compared to only 3 – 5 years for traditional house paint.
67
Value-in-Use Pricing Calculation
Annual Cost of item = Cost for Parts + Cost of Labor
68
Variant Pricing
Sets different prices for different versions (variants) of products and services.
This works because different market segments have different priorities and evaluation criteria
ex: Volkswagen sells different cars (variants) to different market segments (golf vs Jetta and but also Bentley, Lamborghini etc)
69
Different Variant segments
- Budget-oriented
- Convenience-oriented
- Customization
- Luxury-oriented
- Risk-oriented
- Selection-oriented
- Time-oriented
70
Break-even Analysis
to predict the quantity we must sell before a new product or service becomes profitable.
We use break-even to calculate if the proposed price will meet organizational revenue goals in certain time periods.
71
Calculate Fixed Cost
Fixed cost for a project is defined as all costs assigned to a project that stay constant as volume (production quantity) increases. Typical examples include insurance, property taxes, and depreciation.
72
Calculate variable cost (raw)
Variable cost is defined as costs which vary according to volume, such as parts and materials per unit, as well as direct labor expended per unit.
73
Calculate variable unit cost (allocated)
As we covered earlier, variable unit cost is the cost to produce each unit.
74
Calculation Variable cost for things that die
Variable Unit Cost = (Variable Cost) + (Fixed Cost / Unit Sales).
75
Calculate the Break-even volume
Break-even = (Fixed Cost) / (Price – Variable Unit Cost)
76
Net present Value capital budgeting
assesses if proposed projects will meet organizational goals for return on investment based on the projects' expected revenue stream
Companies can apply net present value capital budgeting analysis to assess if proposed new products and services meet ROI goals, based on assumed prices and resulting cash flows.
77
Net present Value capital budgeting Calculation
NPV = [(Cash flow from year 0) / (1 + discount rate) ^ (t=0) ] + [ (Cash flow from year 1) / (1 + discount rate) ^ (t=1) ] + [ (Cash flow from year 2) / (1 + discount rate) ^ (t=2) ] + [remaining discounted cash flows]
78
Internal Rate of Return Capital Budgeting Model
Similar to the NPV method. But the IRR used a sum of discounted cash flows to decide whether to invest in a project.
Companies can administer to directly determine the expected rate of return for a proposed product or service. companies can apply the IRR approach to test the financial feasibility of new product and services, or enhancements to existing ones, based on our price we wish to test.
79
Internal Rate of Return Calculation
NPV = [(Cash flow from year 0) / (1 + IRR) ^ (t=0)] + [(Cash flow from year 1) / (1 + IRR) ^ (t=1)] + [(Cash flow from year 2) / (1 + IRR) ^ (t=2)] + [remaining discounted cash flows] = 0
80
Demand Curve
Indicates the quantities of goods and services consumers purchase at given prices
81
Price Elasticity equation
the rate at which the % of the change in quantity demanded varies with respect to the % change in price
Elasticity = (% change in quantity demanded) / (% change in price)
82
Elastic Demand
Situations where the elasticity is greater than 1. In elastic demand, the quantity demanded depends a great deal on the price in the short term
Ex: consumers tend to purchase more non-perishable consumer packaged goods, such as frozen vegetables at lower prices than they do at higher prices. They feel they can “stock up” at the lower prices in the short term. In the long term, they do not continue to buy; there is a limit to the amount of frozen vegetables
83
Inelastic Demand
situations where the elasticity is less than 1. In inelastic demand, the quantity demanded depends little on the price in the short term
example, consumers tend to purchase about the same quantity of gasoline regardless of price in the short term. Consumers feel they have little choice because they need the gasoline to commute to work or perform other required tasks.
84
How can you generate demand curves by knowing the quantities? You can gather data in 3 different ways
- Surveys
- Analysis
- Experiments
85
Elasticity Calculation
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
86
Optimal Pricing
the price yielding maximum profit. Once we know a product or service's demand curve, we can find it's optimal price
87
Business Market Pricing Techniques: Cost-Plus
we add an arbitrary percentage, such as 20%, to the organization’s cost to produce the good or service.
88
Business Market Pricing Techniques: Channel-Driven
Driven: Many smaller businesses distribute their products and services through distribution channels that sell to businesses.
This situation is similar to the going rate pricing technique we covered earlier. As with going rate pricing, businesses face a “going rate” that the channel is willing to pay. Businesses that exceed that going rate price will find themselves shunned by channel members.
89
Business Market Pricing Techniques: Value-Based
The value-based pricing technique for businesses is similar to prestige pricing for consumer markets. The customer (in this case, a business) perceives high value from the product or service being sold, and is willing to pay premium prices to get it.
90
Business Pricing Models: Auction-Based Pricing
This pricing model uses eBay style auctions to discover the market price by having potential buyers bid on items for sale.
Companies can use the technique to sell used equipment and other items where the exact value is not clear.
91
Business Pricing Models: Enterprise Perpetual License
Pricing: Also called “all you can eat” licensing, this pricing model allows customers to use the product or service freely, with no restrictions.
The technique can be used for products and services whose cost does not increase with usage. For example, software costs the same to make whether 10 people use it or 1,000 people use it.
92
Business Pricing Models: Per-System
This pricing model charges by the number of instances of the product installed, or alternatively by the number of computer servers running the product.
This pricing model charges by the number of instances of the product installed, or alternatively by the number of computer servers running the product.
93
Business Pricing Models: Per-user
This pricing model charges by the number of instances of the product installed, or alternatively by the number of computer servers running the product.
Ex: SaaS
94
Business Pricing Models: Shared-Benefit
This pricing model charges on a percentage of the benefit that the customer enjoys when using the product or service.
This pricing model charges on a percentage of the benefit that the customer enjoys when using the product or service.
95
Business Pricing Models: Usage-Based
This pricing model charges on a percentage of the benefit that the customer enjoys when using the product or service.
Companies use this technique when customers express interest in lowering initial investments, and are more interested in the service a product provides than owning the product itself.
Ex: Rolls-Royce’s aviation division sells its F405 jet engines to the Navy to power their T-45 training aircraft. Instead of charging a fixed price for the engines, Rolls-Royce charges by usage, in their “Power by the Hour” pricing model.
96
Price Discrimination
Organizations apply price discrimination to charge different prices for identical products and services. Price discrimination acknowledges that different market segments value the same product or service differently.
Unlike the variant pricing technique we discussed earlier, which charges different prices for different variants tailored to each segment, price discrimination charges different prices for identical items.
97
Price Discrimination Applications: Channel Pricing
Companies can vary prices by distribution channel. For example, we can charge $2 for a bag of Fritos corn chips at a Safeway supermarket, and charge $4 for the same bag at an AM/PM convenience store. In channel pricing, we target the value some customers place on convenience.
98
Price Discrimination Applications: Demographic Pricing
Organizations can vary prices by demographic attributes of individuals. For example, ski resorts offer lower prices to senior citizens to encourage that demographic group to enjoy their facilities. Nightclubs offer lower prices to women on “ladies nights” to encourage that demographic group to attend.
99
Price Discrimination Applications: Geographic Pricing
Organizations can vary prices by demographic attributes of individuals. For example, ski resorts offer lower prices to senior citizens to encourage that demographic group to enjoy their facilities. Nightclubs offer lower prices to women on “ladies nights” to encourage that demographic group to attend.
100
Price Discrimination Applications: Occupational Pricing
Organizations can vary prices according to customer occupations. For example, clothing retailers offer employee discounts as a benefit to employees (and also to encourage employees wearing the company’s garments). Theme parks offer reduced prices for active military members.
101
Price Discrimination Applications: Quantity Pricing
Companies can vary prices according to the quantity customers purchase. For example, fast food restaurant McDonalds applies quantity pricing, encouraging customers to “supersize” their orders, for a lower price per amount of food.
102
Price Discrimination Applications: Temporal Pricing
Companies offer different prices depending the time the product or service is offered. For example, movie theaters offer reduced prices for afternoon matinee show times.
103
Some Disadvantage of Temporal Pricing
- Reservation Prices (max price customers will pay)
- Arbitrage (sell Diff product at different prices)
- Legalities (prohibits charging diff prices to diff customers with the intent to harm competitors)
- Unfair (individuals consider the practice of price discrimination unfair, b/c it treats different ppl differently)
104
Promotion Budget Estimation
Promotion accounts for the majority of marketing budgets, so we must estimate the amount needed accurately.
105
Promotion Budget Estimation: Percentage of Sales Method
We can set our total oromtion budget as a % of annual sales revenue. Fast and simple but difficult to leapfrog competitors
106
Promotion Budget Estimation: Affordable Method
Set a promotion budget to what companies believe they can afford This method can cripple companies which need to react quickly to competitive threats
107
Promotion Budget Estimation: Competitive Parity Method
Companies set promotion budgets to approximate what competitors spend on promotion. Proponents of the method state that the resulting budget reflects the collective wisdom of the industry
108
Promotion Budget Estimation: Objective and Task Method
Some companies develop promotion budgets by declaring certain objectives, determining the tasks to accomplish those objectives, and then estimating the costs to complete the tasks
109
Promotion Budget Estimation: Model-Based Method
We can also turn to promotion budget estimation models, such as the ADBUDG model. With this model, we can estimate future market share as a function of promotion spending
110
Promotion Budget Allocation
Once we establish the overall promotion budget, we allocate it among marketing programs. We allocate it among marketing programs. To do so, we can apply linear optimization models. Linear optimization models include objective functions, which specify intended outcomes.
111
Promotion Metrics for Traditional Media
Many companies use traditional media (print, radio, tv) We can measure such media using metrics such as reach, frequency, and gross rating points.
112
Promotion Metrics for Social Media
Companies are adopting social media campaigns, to measure social media campaign. Some tools to measure are built-in tools, applications, aggregators, which combine metrics from multiple sources, and professional tools, designed for dedicated social media professionals.
Ex: Radian6 etc
113
Affordable Method
Promotion budget estimation method that sets budgets to whatever a company can afford
114
Competitive Parity Method
CPM = (Cost of Media Buy) / (Target Audience / 1,000)
Promotion budget estimation method that sets budgets to approx. those of competitors
115
Constraint Function
Equation used in linear optimization that expresses financial, legal or other limitations that must be met for a valid solution
116
Cost per thousand
In promotion metrics for traditional media, cost per thousand measures the cost to deliver an advertisement to 1,000 individuals in the audience through a given advertising medium
117
Cost per point
CPP = (Cost of Media Buy) / (Rating)
In promotion metrics for traditional media, cost per point measures the cost to deliver an advertisement to one percent of the individuals in the audience
118
Gross Rating Points
Reach * Frequency = GRP
In promotion metrics for traditional media, this measures the level of intensity of a media plan. Gross rating points are calculated by multiplying reach by frequency
119
Linear Optimization
Technique used to maximize or minimize a value (expressed as an objective function) subject to limitations (expressed as constraint functions).
120
Model-based method
Promotion budget estimation method that sets the budget in accordance to a decision model, such as the ADBUDG model.
121
Objective and Task Method
Promotion budget estimation method that sets a budget to achieve specific promotion objectives.
122
Objective Function
Equation used in linear optimization (such as that for promotion budget allocation) to specify intended outcome to maximize or minimize.
123
Percentage of Sales Method and Calculation
Promotion budget estimation method that sets budgets as a percentage of annual sales revenue.
(Budget for Next Year) = (Sales Revenue from Previous Year) * (Percentage)
124
Target Rating Points
(Target Audience) / (Total Audience) * GRP = TRP
In promotion metrics for traditional media, target rating points represent the exposure level of an advertisement to a specific target market.
125
Rapid Decision Models
Decision models need not be complex. We can quickly demonstrate the power of analytics using rapid, simple decision models
126
Rapid Decision Models: Pareto Prioritization Analysis Model
We can apply the Pareto model to determine areas on which to focus the majority of our efforts. Sometimes called the 80 – 20 rule, the Pareto approach identifies the 20% of the market delivering 80% of the results.
127
Rapid Decision Models: Cross-sales Model
We can increase revenue in organizations by cross-selling related products and services. The cross-sales model shows how to quickly correlate products and services to identify cross-sell candidates customers find most relevant.
128
Rapid Decision Models: Supplier Selection Framework
We can develop spreadsheets using specific selection criteria to select suppliers that will most benefit our organization.
129
Excel: Pivot Tables
sort and transpose existing data for a unique view that displays our intended message
Computer spreadsheet functionality that sorts, organizes, and transposes data to aid in interpreting it.
130
Excel: Chart Selection
We covered guidelines to select the most relevant chart type, depending on the objectives of the data presentations. We discussed pie charts, vertical bar charts, horizontal bar charts, line charts and other special types of charts
131
Excel: Chart Enhancements
No matter which type of chart we select, we can enhance it to improve its storytelling ability. Enhancements include items such as headlines, trend lines, thresholds, and so on
132
Excel: Charting ethics
Marketers must avoid distorting the truth
133
Data-Driven Presentations
We can apply the power of marketing analytics to creat presentations based on our data and findings. Such presentations can be powerful tools to influence decision makers.
134
Clustered Column Chart
Type of vertical bar chart that places two columns side by side for ease in comparing pairs of data points
135
Cross-selling
Selling related products and services to customers with the intention of increasing revenue
136
Doughnut Charts
Type of chart displaying constituents of a whole using portions of rings. Rings are often placed concentrically
137
Pareto Prioritization Analysis model
Also known as the 80-20 rule, this model identifies areas on which to focus efforts
138
Radar Chart
Also called a spider chart. Type of chart displaying multiple dimensions of several data series
139
Stacked column chart
Type of vertical bar chart that displays data of different elements by stacking one bar on top of another
140
Scatter charts
Type of chart displaying raw data as points
141
Tornado Charts
Type of chart, often displayed as a horizontal bar chart, comparing characteristics of two populations such as male and female
