Description
Quantitative Models in Marketing aimed at Sem 3 MMS students.
QUANTITATIVE MODELS IN MARKETING
Importance of Marketing Function
• Typical business enterprises …..Production ,Marketing & Finance • Marketing is the primary income-producing portion (for most of the business enterprises) • Satisfies needs and desires of the consumer • Overall benefits of advertising gained can’t be denied
Contd…
• Shift from production-oriented economy to marketing-oriented • Role of Marketing Manager (From overseeing distribution to determining demand and crafting ways to fulfill them)
Manufacturer
Sales
Price Policy Sales Promotion Credit Policy
Wholesaler
Sales
Availability
Advertising Warranty
Retailer
Sales
Service
Personal income
The Consumer
Fig: Company in Isolation
The Economy
Need for Scientific Analysis
• Increase in complexity ….gradual process ………ever expanding society
• Virtual data at his/her fingertips….sales data, market shares, costs ,description of consumers …. • Analysis of decision problems outside the context of his/her judgment & intuition • Scientific Analysis… A logical and objective process….
The Value of Scientific Analysis
• Aid to marketing decision
• Guaranteed logic & consistency (subjective process lacks the same…..) • Reproducibility ……….Assumptions , logical steps & conclusions are spelled out & recorded • Integration of analysis results with the intangibles …thus reducing a large part of complex decision to simple outputs
Role of Scientific Marketing Analysis
• Application of scientific methods to analysis of decision problems , one must be ‘quantitatively oriented’
• Problem solving rather than information analysis
Decision Making Process
Input data
Analyzed data
Predictions
Marketing researcher
Decision Analyst
Decision Maker
Action
Raw Data
The marketplace
Integrated Advertising Decision Model
• Advertising expenditure incurred implies that the company will get sales
• Certain parameters
1. All models are based on a set of assumptions 2. Static in nature 3. 19 steps decision making model
• Objective : To arrive at the advertising budget as well as sales forecast for the next year
Perceptual Evaluation Model
• Perceptual mapping is a graphics technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers. Typically the position of a product, brand or company is displayed relative to their competition. Perceptual maps can have any number of dimensions but the most common is two dimensions. Any more is a challenge to draw and confusing to interpret
•
•
Markov’s Brand Switching Model
• Marketing Analysis which focuses on time behavior of customers who make repeated purchases of a product class
Time to time switching from one brand to another Various states ascribed to an individual customer…..customer’s preference for a particular brand The simple probabilistic treatment of brand switching doesn’t imply that behavior of an individual customer is random,,,switching can occur for valid reasons • •
•
Markov Process
Inputs:
• • Transition Probabilities……Sum of each rows is equal to Initial Condition: This describes the state the system is presently in
Output:
• The probability of a system being in a particular state at a stated future time say 2 or 3 years from now Steady state probabilities over a long period of time….there is no significant difference in the market shares computed
•
Assumptions/Limitations :
Contd…
• Given system has finite no. of states, one of which is absorbing in nature
• First order process….(ABCCCAB….) • Uniform Time Periods i.e. changes take only once during each time period…time periods are equal in duration • No new brands in the market,,,level of spending in all the brands is constant
Advertising Decisions
• Significant portions of huge advertising expenditure are wasted
• Advertising effectiveness : Is it a myth??
• Degree of certainty ….
• Advertising , in the final analysis is meant to sell ,and to sell both new and old products
Advertising Models
Advertising Budgets :
• Is an organized plan for expenditure of funds to plan and control the nature and timing of advertising expenditure
• Certain expenditures might include dealer catalogs, corporate annual reports Almost all companies would include media charges, advertising research ,direct mail costs, etc. Simplest method of budgeting advertising is to relate the advertising expenditure to sales revenue on fixed percentage basis
•
•
Contd…
Basic Static Budgeting Model :
• How large the advertising budget should be is related to the determination of sales response to advertising Response curve depicts the sales revenue generated in a particular medium for expenditures in that medium Objective is to determine the advertising expenditure that would maximize the profit.
•
•
Dynamic Advertising Model
Vidale Wolfe Model:
• This model is based on three parameters
– – – Sales decay constant (?) Sales Response constant (r) Sales Saturation level (M)
•
Sales Decay Constant (?) is the indicator of rate of decline of revenue once advertising is stopped.
1. R(t)=R(o).eˆ(- ?t) , R(t) is the sales revenue rate
•
Sales Response Constant (r)is the sale s per advertising rupee when sales were zero
1. If the amount spent on advertising when sales were zero was Rs. 1 lakh and sales at the end of year is Rs. 10 lakhs then sales response per rupee on advertising is Rs. 10 .
Contd…
• Sales Saturation level (M) is the highest market share reached by nay brand in the market . If your product is the leader, then the highest market share of your product in a particular state indicates (M) Deviations from this Model :
1. The advertisement of Palmolive Shaving Cream where Sales Decay constant becomes meaningless, since impact of the ad lasted several years and influenced buyer behavior
•
2. Measuring Sales saturation for Saffola becomes redundant, since the brand enjoys monopoly among heart patients.
Pricing Models
• Analysis of Cost & Demand Function
•
Perceived Value Pricing:
1. 2. 3. 4. 5.
Deliver value to its customers as promised by its value proposition and customers should perceive this value Elements ………Product Quality, Image , Packaging, Service/After sales, etc Price Buyers….Stripped down products….Wheel Value Buyers……Newness in the product….Tide Loyal Buyers ….Relationship Building…..Non branded detergents
Danke!
doc_497524136.ppt
Quantitative Models in Marketing aimed at Sem 3 MMS students.
QUANTITATIVE MODELS IN MARKETING
Importance of Marketing Function
• Typical business enterprises …..Production ,Marketing & Finance • Marketing is the primary income-producing portion (for most of the business enterprises) • Satisfies needs and desires of the consumer • Overall benefits of advertising gained can’t be denied
Contd…
• Shift from production-oriented economy to marketing-oriented • Role of Marketing Manager (From overseeing distribution to determining demand and crafting ways to fulfill them)
Manufacturer
Sales
Price Policy Sales Promotion Credit Policy
Wholesaler
Sales
Availability
Advertising Warranty
Retailer
Sales
Service
Personal income
The Consumer
Fig: Company in Isolation
The Economy
Need for Scientific Analysis
• Increase in complexity ….gradual process ………ever expanding society
• Virtual data at his/her fingertips….sales data, market shares, costs ,description of consumers …. • Analysis of decision problems outside the context of his/her judgment & intuition • Scientific Analysis… A logical and objective process….
The Value of Scientific Analysis
• Aid to marketing decision
• Guaranteed logic & consistency (subjective process lacks the same…..) • Reproducibility ……….Assumptions , logical steps & conclusions are spelled out & recorded • Integration of analysis results with the intangibles …thus reducing a large part of complex decision to simple outputs
Role of Scientific Marketing Analysis
• Application of scientific methods to analysis of decision problems , one must be ‘quantitatively oriented’
• Problem solving rather than information analysis
Decision Making Process
Input data
Analyzed data
Predictions
Marketing researcher
Decision Analyst
Decision Maker
Action
Raw Data
The marketplace
Integrated Advertising Decision Model
• Advertising expenditure incurred implies that the company will get sales
• Certain parameters
1. All models are based on a set of assumptions 2. Static in nature 3. 19 steps decision making model
• Objective : To arrive at the advertising budget as well as sales forecast for the next year
Perceptual Evaluation Model
• Perceptual mapping is a graphics technique used by asset marketers that attempts to visually display the perceptions of customers or potential customers. Typically the position of a product, brand or company is displayed relative to their competition. Perceptual maps can have any number of dimensions but the most common is two dimensions. Any more is a challenge to draw and confusing to interpret
•
•
Markov’s Brand Switching Model
• Marketing Analysis which focuses on time behavior of customers who make repeated purchases of a product class
Time to time switching from one brand to another Various states ascribed to an individual customer…..customer’s preference for a particular brand The simple probabilistic treatment of brand switching doesn’t imply that behavior of an individual customer is random,,,switching can occur for valid reasons • •
•
Markov Process
Inputs:
• • Transition Probabilities……Sum of each rows is equal to Initial Condition: This describes the state the system is presently in
Output:
• The probability of a system being in a particular state at a stated future time say 2 or 3 years from now Steady state probabilities over a long period of time….there is no significant difference in the market shares computed
•
Assumptions/Limitations :
Contd…
• Given system has finite no. of states, one of which is absorbing in nature
• First order process….(ABCCCAB….) • Uniform Time Periods i.e. changes take only once during each time period…time periods are equal in duration • No new brands in the market,,,level of spending in all the brands is constant
Advertising Decisions
• Significant portions of huge advertising expenditure are wasted
• Advertising effectiveness : Is it a myth??
• Degree of certainty ….
• Advertising , in the final analysis is meant to sell ,and to sell both new and old products
Advertising Models
Advertising Budgets :
• Is an organized plan for expenditure of funds to plan and control the nature and timing of advertising expenditure
• Certain expenditures might include dealer catalogs, corporate annual reports Almost all companies would include media charges, advertising research ,direct mail costs, etc. Simplest method of budgeting advertising is to relate the advertising expenditure to sales revenue on fixed percentage basis
•
•
Contd…
Basic Static Budgeting Model :
• How large the advertising budget should be is related to the determination of sales response to advertising Response curve depicts the sales revenue generated in a particular medium for expenditures in that medium Objective is to determine the advertising expenditure that would maximize the profit.
•
•
Dynamic Advertising Model
Vidale Wolfe Model:
• This model is based on three parameters
– – – Sales decay constant (?) Sales Response constant (r) Sales Saturation level (M)
•
Sales Decay Constant (?) is the indicator of rate of decline of revenue once advertising is stopped.
1. R(t)=R(o).eˆ(- ?t) , R(t) is the sales revenue rate
•
Sales Response Constant (r)is the sale s per advertising rupee when sales were zero
1. If the amount spent on advertising when sales were zero was Rs. 1 lakh and sales at the end of year is Rs. 10 lakhs then sales response per rupee on advertising is Rs. 10 .
Contd…
• Sales Saturation level (M) is the highest market share reached by nay brand in the market . If your product is the leader, then the highest market share of your product in a particular state indicates (M) Deviations from this Model :
1. The advertisement of Palmolive Shaving Cream where Sales Decay constant becomes meaningless, since impact of the ad lasted several years and influenced buyer behavior
•
2. Measuring Sales saturation for Saffola becomes redundant, since the brand enjoys monopoly among heart patients.
Pricing Models
• Analysis of Cost & Demand Function
•
Perceived Value Pricing:
1. 2. 3. 4. 5.
Deliver value to its customers as promised by its value proposition and customers should perceive this value Elements ………Product Quality, Image , Packaging, Service/After sales, etc Price Buyers….Stripped down products….Wheel Value Buyers……Newness in the product….Tide Loyal Buyers ….Relationship Building…..Non branded detergents
Danke!
doc_497524136.ppt