Volledige samenvatting Marketing Mix Management - Deel Marketing Mix Effectiveness KULeuven MBA ()

TABLE OF CONTENTS

Introduction to market response models ....................................................................................................... 2
Market response models .................................................................................................................................... 3
Application to Cleeren et al.: product-harm crisis .............................................................................................. 7
Introduction to model building: the coca-cola case ........................................................................................... 7

Advertising .................................................................................................................................................. 12
How to read modeling papers .......................................................................................................................... 12

Price ............................................................................................................................................................ 24
Regular price .................................................................................................................................................... 24

Price promotions .............................................................................................................................................. 28

Customer lifetime value ............................................................................................................................... 37

RFM model ....................................................................................................................................................... 37
Customer lifetime value ................................................................................................................................... 38
Different models............................................................................................................................................... 40

Assignment 1 ............................................................................................................................................... 46

Assignment 2 ............................................................................................................................................... 51
CLV for average customer ................................................................................................................................ 51

,INTRODUCTION TO MARKET RESPONSE MODELS

Marketing Mix Management

- Original 4 Ps:
o Product
o Place
o Promotion
o Price
- + all other marketing decisions that can influence the sales of a product in the short
or long term

Side note: academic papers are also exam material

Influence of marketing decreases

- Marketing function lower in hierarchy
- Marketing issues get less time in the board room
- Marketing is seen as a cost and not as an investment
- Strategic marketing decisions are made in other departments
- Role of the CMO has decreased
- CMOs "in the hot seat"

Which capabilities determine the influence of marketing?




Accountability = being able to show the value of your decision (the contribution)




If you are accountable, this is also going to facilitate better relationships, e.g. finance
department

,MARKET RESPONSE MODELS

- Link input variables to output measures.
- What is the impact of marketing decisions on output variables such as sales, market
shares, ...?
- Quantify marketing problems.

Advantages of the use of market response models

- Better decisions
- Better understanding of the environment
- Improve the way decision makers use existing information
- Improve data collection (more efficient way)
- Observing changes in the environment

Model building steps

1. Specification
2. Estimation
3. Testing and validation
4. Application

Step 1: Specification

- Inputs:
o Marketing decision variables
o Independent variables
- Output(s):
o What is the target?
o Dependent variable(s)
- Environmental factors:
o Which other factors influence the output(s)?
o Control variables (= these are not marketing decision variables)
- Express in terms of equation:
o 𝑂𝑢𝑡𝑝𝑢𝑡 = 𝛽 + 𝛽 𝐼𝑛𝑝𝑢𝑡 + 𝛽 𝐸𝑛𝑣𝑖𝑟𝑜𝑛𝑚𝑒𝑛𝑡 + 𝜀 𝑖01𝑖2 𝑖𝑖
- Think about subscript è what is your observation:
o t for time
o i for individual
- Error term (= part of the output variable that is not explained by the model)
- Think about functional form
o Transformations for non-linear relationships (squared/ln/...)
- Specification of functional form (type of relationship):
o How do you expect the inputs to relate to the output(s)




Linear Decreasing return Increasing return S-shaped form
The impact of spending on advertising decreases for a decreasing return
and increases for an increasing return

, Step 2: Estimation

- Specify data needed (inside or outside the company)
- Identify statistical technique that can be used
- Determine parameter estimates

Step 3: Testing and validating

- Testing:
o Test the predictive power of the model on a hold-out sample
- Validation:
o Do the obtained results make sense?
o Are the results in line with what we expect?
è If not, there is most likely a problem with the specification of functional form

Step 4: Application

- Use of the model
- Continued testing
- Updating of the model

Product-harm crises (Cleeren et al. 2013)




Product-harm crisis = company is forced to withdraw products from shelves due to certain
problems è investigate what happens when re-introducing the product after the crisis (they
often make use extensive marketing efforts and pricing promotions)

Specification (1)

- Inputs:
o Change in advertising spending
o Change in price
- Outputs (on household level):
o Change in category purchases
o Change in brand share
- Environmental factors:
o Crisis characteristics: publicity and blame
o Other control variables
- Functional form:
o We assume linear relationships
o We assume that the effectiveness of advertising and price depend on the
crisis characteristics (publicity and blame)