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Summary Market Assessment lecture notes extra explanations
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Marketing Assessment lecture notes with additional explanations. (lectures 2018)
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By: fwouter • 5 year ago
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Market Assessment lecture 1Consider the following two problems
1. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100
widgets? = 5 minutes
2. A bat and a ball cost 1.10€. The bat costs 1.00€ more than the ball. How much does the ball cost?
=0.05
Using the 5 C’s as a framework to approach markets
1. Company: What is the business problem of the company? how does the company make money?
2. Customers: what are the customer preferences?
3. Context: Are there any technical changes coming up? Environment changes etc.
4. Competitors: Look at market share for instance, or competitor entry.
5. Collaborators: E.g. Apple and Bose àapple iPhone on a Bose device. à Joint ventures
Note: crucial to understand the external and internal factors that shape the market before making decisions
and to minor afterwards.
It is very limited, that is why focusing on: how can we use our inputs to reach our objectives?
Market Assessment: = the systematic use of data and judgment about customer, companies, competition and
collaborators and industry context to inform strategic marketing decisions
à the basis to develop marketing strategies for the firm
à needed to analyze the structure/dynamics of the markets in which the firm is competing or wishes to
compete
The Purpose
§ To enable and simplify decision making
§ To create a structure/architecture to focus on key issues à enhance bottom-line impact
§ To be applied and efficiently used by decision makers à “Quick and Dirty”
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,1. Offline stores are higher perceived in price in comparison with online stores, but in real life they are more
expensive.
2. Amazon outperformed everybody à high in price but perceived much better in price
4. Steepness of the line, for Macy’s we don’t know if it is due to the scale or because they are not as much
punished as the competitors for having higher prices (and thus more steep lines).
5. Target is perceived as not so well priced even though it is actually the cheapest option.
Market Reponses Model
Use inputs that a company can provide and relates them to outputs. E.g. increase in marketing, how does this
relate to our sales. It relates to the company’s objective again: what do we want? So, in other words: how can
we use our inputs to reach our objectives.
Market Response Model
§ Market response models translate marketing inputs, competitive actions and environmental factors into
observed outputs (i.e., the model gives structure)
§ Inputs = marketing actions that the marketer controls (e.g., price, advertising level) & control variables (e.g.,
market size, competitive environment)
§ Outputs = key metric of concern to the firm à you have to measure this! If it can’t be measured it is not
useful. How do you assess if you are successful or not? That’s the first question.
§ Response Model = the “link” from inputs to measurable outputs
Examples Market Response Model
A manager wants to determine the effect of overall advertising expenditure on aggregated company sales.
Inputs: Amount of advertising expenditure costs
Outputs: Company sales
Response Model: Sales = a+b*Advertisement. a=what you would sell if you did no advertising at all.
A marketing manager wants to determine the effect of sales calls on the profits the company makes per
customer.
Inputs: sales calls
Outputs: profit per customer
Response Model: The more you call: number of products you sell increase, but also: the probability that you
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,sell something increase. But we have also a cost part we do not have to forget (per call).
So, profit = #sales * probability * marge - # calls * unit costs. But now we have to find a market response
model for: #sales = a+b1*Insales calls) We will get to LN later.
Approach
1. Set up a simple structure that represents the problem (stop when you reach IV)
2. Translate the structure into a simple formula (i.e., relationship of variables)
3. Make assumptions and specify the concrete the relationship between variables (e.g., linear or diminishing)
When things go per customer, it always gets more complicated.
Making the model ‘usable’: model calibration
Model calibration: process of determining the appropriate values for the parameters.
Ways to calibrate models: objective vs. subjective calibration:
Objective calibration:
1. Using statistical methods or estimating the model with data (e.g.: regression analysis)
2. Judgmental process
3. Combination of both
You use subjective calibration when no historical data is available. For example: spending same advertising
amount every year, new competitor entries, changes in pricing structure, shifts in consumer preferences. What
could you do in this case: look at your competition or look at big datasets like Nilsen or talk to your sales team
and other stakeholders.
Importance of setting the right goals
Establishing business objectives and performance targets is essential
Overall strategies are only meaning full when supported by individual marketing activities
Short term metric: click rate’s
Long term metric: customer loyalty, customer life time value, profit, sales
Using the Pareto Principle
§ Pareto Principle = 80% of overall results are driven by 20 of inputs (also 80/20rule) Ø e.g., 20% of social
media posts generate 80% of the traffic
Ø 80% of quality failures originate from 20% of the tasks
§ Often used in market assessment problems to pinpoint the most effective recommendations
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, Criteria for selecting useful market response models
- Model specification
o Does the model include the right variables to represent the decision situation?
o Are the variables as represented managerially actionable?
o Does the model incorporate the expected behavior of individual variables & relationship
between variables?
- Model Calibration
o Can the model be calibrated using (a) historical data / experimentation, (b) managerial
judgment, or (c) both?
- Model Validity & Value
o Does the level of detail in the model match that in the available data?
o Does the model reproduce the current market environment reasonably accurately?
o Does the model represent the phenomenon of interest accurately and completely?
- Model Usability
o Is the model simple and easy to use?
o Does it convey results in an understandable manner?
o Does the model address the desired objective in this situation?
Three common flaws
- Accepting modeling results uncritically
- Ignoring quantitative results and deciding by gut feeling
- Ignoring the big picture
What would you do if you have to reduce
total costs by 10%. First look at total = 1.75,
then you could reduce distribution costs for
instance, this are the biggest costs. Always
look to the most important problem. 80% of
the impact counts for 20% of what you did.
So always have the Pareto Principle in mind.
Key Takeaways
- Making decisions based on critical thinking and a structured decision process instead of
management by intuition
- Extracting, analysing and interpreting information from text, graphs and data
- Evaluating, choosing and calibrating market response models that enable better managerial
decisions
- Making reasonable assumptions and judgments call in the light of limited information (sometimes
also finding ‘out of the box’ solutions
- Communicating results professionally and providing clear recommendations/making decisions.
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