Sponsored Content
Sponsored Content
Creating Growth With Marketing Analytics (In 4 Steps)
By: Darden Professors Rajkumar Venkatesan and Paul W. Farris
The question of how to leverage big data has inspired conferences, university courses and degrees — and CMOs in sore need of guidance on what all those numbers are saying. What each organization needs is its own analytics system that is focused on customer behavior. It should be actionable, future-facing and support the organi-zation’s broader strategy.

To make better business decisions, managers should be able to answer marketing questions by:

  • Determining which data are relevant.
  • Selecting the appropriate technique for analysis.
  • Performing analysis to gain insights on the relationship between marketing activities and customer behavior.
  • Using predictive models based on experiments or historic information to simulate hypothetical situations, in order to identify the ideal combina-tion of marketing activities.
  • Linking insights and the optimal marketing mix to wise marketing decisions.
The Endgame of Marketing Analytics
Resource allocation is the endgame of analytics for any company. Using marketing analytics properly, any firm should be able to determine the optimal level of spending it should make on each of its marketing channels to maximize success.
Step 1
Determine the objective function – what is the metric the company wants to set as its goal for optimization? This may be one of any number of methods of assessing business success, including conversion rates to sales, incremental margins and profits, customer lifetime value (CLV), near-term sales lift, new buyers, repeat sales, market share, retention rates, cross-sell rates, future growth potential, balance sheet equity and business valuation.
Step 2
Connect the marketing inputs of a firm to the objective of resource allocation. Business managers’ intuition is of paramount importance in this step, as it allows the marketer to correctly decompose a metric. For example, if a company is examining gross profits, what are the attributes of the business that contribute to those profits, and are the relationships between the various compo-nents accounting identities or empirical?

An accounting identity can be computed without any unknowns. For example, net profit is gross profit minus marketing costs. If both gross profit and marketing costs are known, net profit can be computed easily.

The relationship between marketing costs and unit sales is more complex and driven by numerous unknowns. You cannot directly sum the investments in marketing to obtain sales. The relationship is empirical because the manager must analyze historical data to develop a formula that transforms the marketing inputs into sales.

This formula ideally will provide a “weight” that translates a product’s price into sales. These weights provide a best guess based on historical data, wherein several factors in addition to price also affect sales. Empirical implies a best guess or prediction; identities are certain.

Step 3
Estimate the best weights for the empirical relationships identified in the second step. A common method for identifying these weights is to build an econometric (regression) model. Which marketing inputs of interest (for example, price, advertising, sales calls) should be considered as having an effect on the dependent variable? With this regression model, the marketing manager can predict the outcome metrics for different marketing input levels. This is the mathematical model that describes the relationship between the independent variables (for example, price, adver-tising, sales calls) and the dependent variable (for example, market share, profits, CLV).
Growth of Data Analytics usage in Decision-Making
Step 4
In the last step, a firm can reverse the process to identify the optimal value of the marketing inputs to maximize the objective function. This gives a detailed picture of what the company’s precise marketing spend should be on each channel it uses to market its product.

The goal of marketing analytics is to determine the effectiveness of a company’s various marketing strategies. For each strategy, the company is looking to assess its return on investment (ROI). Marketing ROI is equal to profits related to marketing measures divided by the value of the marketing investment.

Determining ROI is simple arithmetic; however, estimat-ing and defining the effects of ROI is difficult. Maximizing long-term profits is often not simply a matter of shifting funds from low ROI to high ROI activities, because there may be strategic considerations not fully captured in the ROI measures themselves. Examples are brand building and new customer acquisition versus the need for short-term sales, balancing push and pull efforts to support distribution channels, and targeting market segments that are of strategic importance.

To improve marketing success, companies must consistently make good decisions about which customers to target, the resources to be allocated to the selected customers, and nurturing the selected customers to increase future profitability. By using statistical analysis techniques, firms can use past customer behaviors to predict how customers will react to different marketing channels, and manag-ers can then optimize spending on each channel.

Darden’s Innovative Management in the Digital Age program will help your high-potential leaders leverage data analytics to improve decision-making, uncover unmet market needs, and guide innovation.

University of Virginia | Darden Executive Education
Darden Executive Education is a top-ranked, global provider of professional development. Delivered by the University of Virginia Darden School Foundation and taught by the Darden School of Business’ highly acclaimed faculty, Darden Executive Education prepares and inspires leaders to succeed in a global marketplace. Offering more than 30 open programs and partnering with leading organizations worldwide to develop custom business solutions, we provide personalized, transformational learning experiences at our locations in Charlottesville and Rosslyn, Virginia, online and around the world. Learn more at darden.edu/executive-education.