Final Exam Flashcards
Defining the Data Driven Marketing Strategy
Know yourself > know your customers > Segment your customers > Data driven marketing > build trust > keep score
Firms that “keep score”
Research shows that firms that ‘‘keep score’’ for marketing have significantly better financial and market performance compared with those that do not.
Road map for implementing data driven marketing
Design > Diagnosis > Opportunities > Tools > Process
80/20 Rule
Start by collecting the right data to get the quick win—ask what is the 20 percent of data that will give 80 percent of the value?
Metric #1 the essential awareness metric
Brand awareness = ability to recall a product or service
measured by asking for (product or service) what is the first (company or product) you think of? what other companies or products have you heard of?
Metric #2 the essential evaluative metric
Test drive = customer pretest of a product or service prior to purchase
Metric #3 the essential loyalty metric
Churn = percentage of existing customers who stop purchasing your products or services, often measured in a year, 90 days, or 30 days
Metric #4 The golden marketing metric
CSAT = Customer satisfaction measured by asking “would you recommend this product or service to a friend or colleague?”
Metric #5 the essential operational effectiveness metric
Take rate = percentage of customers accepting a marketing offer
= # of accepted offers/ # of contracts
The four essential financial metrics
6 Profit = revenue - cost
#7 NPV = Net present value
#8 IRR = Internal rate of return
#9 Payback = the time for a marketing investment to payback the cost of initiative
Metric #10 the essential customer value metric
CLTV= future value of a customer
Acquisition cost
AC = Cost per contact * number of contacts / number of accepted offers
AC = cost per contact / Take rate
NPV
NPV = PV-cost
So we are just calculating the benefit minus cost in each time period, which is just the profit metric #6, and discounting by the factors for the time value of money. This is the idea that the profit is worth less in the future.
IRR
IRR is technically calculated by setting the NPV equation to zero and solving for r = IRR
If IRR is greater than r, in principle, one should invest, and if IRR is less than r, then one should not.
Decision making from NPV, IRR, and payback
For management decisions, think NPV > 0 IRR > r, good; and NPV < 0 IRR < r, bad. Similarly, also think short payback, good; long payback, bad.
Sensitivity analysis
Sensitivity analysis is essential to define the range of possible outcomes given the market risks and is surprisingly easy in Microsoft Excel.
CLTV Matrix
High CLTV high Profitability: grow and retain
High CLTV low Profitability: grow, reduce costs, manage risks
Low CLTV High profitability: maintain relationships, transition to high CLTV
Low CLTV low profitability: manage costs, identify transition opportunities
Metric 11: the essential search engine marketing metric
CPC = cost per click on a sponsored search link or banner advertisement
Metric 12: the essential metric connecting internet clicks to dollars
TCR= transaction conversion rate; the percentage of customers who purchase after clicking through to your website
Metric 13: the essential return on internet search marketing metric
ROA= return on ad dollars spent = net revenue / cost
Take rate matrix
High CPC low take rate: high cost publishers not driving purchases; consider cutting
High CPC high take rate: high cost publishers driving purchases. Identify high ROA activities and duplicate within these publishers
Low CPC low take rate: publishers have a low probability of producing a purchase but CPC is low; use CTR vs TCR matrix to optimize campaigns
Low CPC high take rate: low cost publishers with highest probability of producing a purchase. Consider increasing funding for these publishers
Metric 14: the essential website performance metric
Bounce rate = percentage of customers who leave your website after spending less than 5 seconds on your site
Metric 15: the essential metric for word of mouth on the internet
WOM = word of mouth = (# of direct clicks + # of clicks from recommendations) / # of direct clicks
What is the purpose of pivot tables?
A Pivot Table is used to summarise, sort, reorganise, group, count, total or average data stored in a table. It allows us to transform columns into rows and rows into columns. It allows grouping by any field (column), and using advanced calculations on them.
Descriptive vs Predictive vs Prescriptive Statistics
descriptive analytics, which tell us what has already happened; predictive analytics, which show us what could happen, and finally, prescriptive analytics, which inform us what should happen in the future.
ROMI
ROMI = [𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝐴𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 × 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 %− 𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 ($)]/
𝑀𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 ($)
Why is the standard definition of ROI not one of the essential marketing metrics is?
First, the ROI defined above does not include the time value of money. We have discussed that money in the future is worth less than money today, but this ROI definition assumes all time periods are equal. The other major challenge is the length of time. For example, one can have an ROI of 100 percent for a campaign that is nine months or three years. The ROI number is the same but the campaigns are clearly completely different. This is why ROI defined above is not one of the essential marketing metrics in this book.
CLTV Calculation
CLTV = 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 ×
𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 %/ 1+𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒 (%)−𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 (%)
What is the flaw in the CLTV metric?
Keep customers who show a positive NPV for the marketing investment, the rules say, and drop the ones who don’t. Those are rational choices at the time of the calculation—but only then. The conventional calculation is thus rather static and actually flawed, because you are not able to factor in a company’s flexibility to cut a given customer loose at any time.
More important, some negative CLVs actually turned positive when the value of the real options was considered. In other words, we found that neglecting a customer with a negative NPV—as traditionally calculated—may be exactly the wrong choice: He could turn out to be highly profitable.
Web analytics vs marketing analytics
Web analytics measure things a webmaster cares about, like page load times, page views per visit, and time on site. Marketing analytics, on the other hand, measure business metrics like traffic, leads, and sales, and which events (both on and off your website) influence whether leads become customers.
Marketing analytics mostly focus on ‘people’ and is thus, customer-centric, giving more emphasis to the prospect, lead or customer while web analytics usually consider the page view as the factor of focus.
Elastic vs Inelastic demand and pricing
An elastic demand is one in which the change
in quantity demanded due to a change in price is large. An inelastic demand is one in which the
change in quantity demanded due to a change in price is small.
Given a demand curve, the price elasticity for demand is the percentage of decrease
in demand resulting from a 1 percent increase in price. When elasticity is larger
than 1, demand is price elastic. When demand is price elastic, a price cut will
increase revenue. When elasticity is less than 1, demand is price inelastic. When
demand is price inelastic, a price cut will decrease revenue.
What is the purpose of linear regression?
Linear regression analysis is used to predict the value of a variable based on the value of another variable. The variable you want to predict is called the dependent variable. The variable you are using to predict the other variable’s value is called the independent variable.
