MARKETING

ANALYTICS
NOTES
MARKETING ANALYTICS
• Marketing analytics is the practice of measuring and analyzing data and metrics to
understand the impact of marketing activities, maximize ROI and identify the areas of
improvement. An effective marketing analytics practice tracks and collects data across
multiple marketing channels and consolidates it into a single view.
• Understanding marketing analytics allows marketers to be more efficient at their jobs and
minimize wasted web marketing dollars.
• Beyond the obvious sales and lead generation applications, marketing analytics can
offer profound insights into customer preferences and trends.

The Importance of Marketing Analytics

• Marketing analytics, Internet (or Web) marketing analytics in particular, allow you to
monitor campaigns and their respective outcomes, enabling you to spend each dollar
as effectively as possible.
• The importance of marketing analytics is obvious: if something costs more than it returns,
it's not a good long-term business strategy. In a 2008 study, the Lenskold Group found
that "companies making improvements in their measurement and ROI capabilities were
more likely to report outgrowing competitors and a higher level of effectiveness and
efficiency in their marketing." Simply put: Knowledge is power.
• In search marketing in particular, one of the most powerful marketing performance
metrics comes in the form of keywords. Keywords tell you exactly what is on the mind of
your current and potential customers. In fact, the most valuable long-term benefit of
engaging in paid and natural search marketing isn't incremental traffic to your website,
it's the keyword data contained within each click which can be utliized to inform and
optimize other business processes.

• Product Design: Keywords can reveal exactly what features or solutions your customers
are looking for.
• Customer Surveys: By examining keyword frequency data you can infer the relative
priorities of competing interests.
• Industry Trends: By monitoring the relative change in keyword frequencies you can
identify and predict trends in customer behavior.
• Customer Support: Understand where customers are struggling the most and how support
resources should be deployed.

Marketing Analytics particularly helps businesses to:

• Understand your target audience in greater detail

• Identify where your competitors are investing their efforts
• Measure how well your marketing campaigns are performing
• Monitor current trends and predict future trends
• Use data to decide the future course of action

Need of Marketing Analytics

• As a marketer, along with your long task list, you need to be conversant with every new
marketing medium that is introduced. But how do you know which of your efforts are
making a difference? Is the new platform that you just signed-up for even bringing in any
results?
• You can’t rely on guesswork or gut feeling to be successful in this era of marketing. You
need to back up the feasibility of every activity with facts and figures. Marketing
analytics reports every action a visitor takes on your digital properties or even on social
media. It helps you understand which marketing activities are bringing in revenue.
 Types of Marketing Analytics

There are three primary types of analytics involved:

• Descriptive analytics
• Predictive analytics
• Prescriptive analytics

There is some overlap between these three approaches. Marketers should implement all three to
get a full view of their environment and to extract the most value out of their big data.

Descriptive Analytics
• Descriptive analytics is focused on answering, “What happened?” In this analysis, real-
time and historical data are used to understand where you were, where you are now,
and how the difference between these two points can help you thrive in the future.
• Ultimately, it is used to figure out why failure or success happened. For example, if a
particular keyword in your PPC campaigns used to generate thousands of impressions a
day, but now only sees a hundred, what happened? Are people no longer interested in
this topic? Has something changed that the query is no longer relevant? Descriptive
analytics aims to find out.
• Any time you look at how your metrics have changed in the last quarter, month, and
week or even the last day, you’re conducting a descriptive analysis.

Predictive Analytics
• Instead of figuring out what happened, predictive analytics looks to the future and tries
to answer: “What’s maybe going to happen?” As hinted above, predictive analytics
often uses the insights found during a descriptive analysis. After all, you don’t know where
you’re going unless you know where you’ve been, right?
• Predictive analytics has limitations, hence the “maybe.” It is not a crystal ball and there is
no perfect guarantee that the results of this analysis will be 100% accurate. Instead,
predictive analytics makes data-informed guesses about the probability of a certain
event occurring.
• It’s the same model used to forecast the weather or create a credit score. Meteorologists
look at weather data to predict temperatures, rainfall, and other natural events. It’s not
uncommon for these forecasts to be off or entirely incorrect — the results of data
misinterpretation! Similarly, credit scores are basically the finance industry’s way of
predicting how likely you are to pay back a loan on time.
• For PPC, predictive analytics can be used to make proactive campaigns that don’t just
react to changes, but plan ahead for them. It can be used to identify the early stages of
a growing trend and predict when it will hit a point of criticality.

Prescriptive Analytics
• First, you find insights based on your historical performance (descriptive analytics). Then,
you use those insights to forecast what the future may look like (predictive analytics).
What’s the next step? Prescriptive analytics is about choosing what to do about it all.
How do you change the course of your analytics for the better?
• Compared to the other types of marketing analytics, the prescriptive variety is notably
more complex. You’re not just looking at your internal data, but also external factors that
may be influencing the numbers.
• The goal is to optimize the data to reach the best possible outcome. To do that, you
need to first understand which decisions will lead to that best-case outcome. This is
 known as stochastic optimization. In this respect, prescriptive analytics
answers two questions, instead of one:
What will happen if…?

• What should be done to reach the desired outcome?

• The complexity of prescriptive analytics leads to the highest number of data
misinterpretations. However, when conducted properly and accurately, this type of
analysis leads to the most significant impacts on the success of a PPC campaign and the
overall growth of a business.
• In PPC, for example, prescriptive analytics can be used to answer questions like, “What
will happen if I increase my budget by $500 a month?” Or, “What new keywords do I
need to target if I want to increase revenue by 12% this month?”

Other Analysis Types

• Descriptive, predictive, and prescriptive analytics are all necessary for exploring the data
generated by your PPC campaigns. However, you also need to incorporate external
data from other sources. This may require you to use other types of marketing analytics
than the three just described.
• Sentiment Analysis: Customer sentiments control how your target audience perceives
your brand and products. In short, it’s how the audience feels about you. These
sentiments can impact your PPC performance. If sentiments are overwhelmingly positive,
people will be more likely to convert. If those sentiments are negative, they won’t even
bother clicking.
• Sentiment analysis looks for positive, neutral, and negative responses and feelings from
reviews, social media responses, and other sources. This data can be an influential
variable for your PPC metrics.
• Competitive Analysis: Your competitors have a very significant impact on your PPC
campaigns. There is a high chance that you are competing directly with these neighbors
for ad ranks and clicks. The moves that these other entities make are important variables
to consider when analyzing your PPC performance.
• Given their impact, you need to have a keen eye on the competition at all times. A
competitive analysis will compare and contrast the strengths, weaknesses, and strategies
of each competitor, which may offer you valuable insight into how to approach your
PPC marketplace more successfully. Plus, you won’t be caught off guard by shifts in the
competition’s strategies.

Commonly Used Digital Marketing Analytics Tools

• Although Google Analytics is known as “The marketing analytics tool”, it tracks primarily
owned properties such as a website or mobile app, and it has some limitations. Along
with owned web properties, marketing analytics covers other marketing channels such
as social media, paid ads, etc.

• Let’s look at the six most widely used categories of marketing analytics tools:
1. Web Analytics Tools

Web analytics tools track events, actions, and other demographic, behavioral, technological
and geographic characteristics and attributes of visitors within a website or app. Most
companies use at least one web analytics tool to track user activities on their website. Web
analytics tools also track quantitative data such as page views, bounce rate, average time on
page, traffic sources, site content, site speed, and conversions.
Here are 5 web analytics tools:
1. Google Analytics
2. KissMetrics
3. Mixpanel
4. Oribi
5. Piwik

2. Visual Behavior and Testing Tools

Collecting quantitative and qualitative data is just one part of overall web analytics. Web
analytics tools have certain shortcomings – such as the fact that they can’t track how your
visitors behave on your website. Although they provide quantifiable behavioral data, this is not
enough. You need a tool that presents such behavior visually, for easier consumption and
action. Visual behavior and testing tools do precisely that. Also known as website optimization
tools, these solutions track where users interact with individual webpages through heatmaps and
session recordings, conversion funnels, form analysis, etc.
Based on such data, you can further improve website performance with the help of A/B testing
tools.
Some of the most commonly used website optimization platforms are:
1. VWO
2. Hotjar
3. CrazyEgg
4. Optimizely
5. HumCommerce

3. SEO Analytics Tools

SEO analytics platforms provide marketers with insights that help them improve their SEO results.
These tools help with queries (keyword phrases that your website ranks for), SERP analysis,
keyword insights and suggestions, competitor analysis and backlinks, to name a few.
The following tools can help you enhance the search engine ranking for your business website
and landing pages:
1. Google Search Console
2. Bing Webmaster Tools
3. SEMRush
4. Moz Pro
5. BrightLocal

4. Social Media Analytics Tools

You need to track how people engage with your social media content in terms of likes,
comments and shares, along with link clicks and rich media stats. You also need to find the
relevant people in your industry and start a conversation with them. There are specific social
media tools that help you find such influencers in your field.
Let’s look at a few social media analytics tools that do exactly that:
1. Facebook Insights (Native social media analytics tool)
2. HootSuite (Social media management tool)
3. Tweepi
4. Followerwonk
5. Quintly

5. Content Analytics Tools

You constantly need to stay in the know in your field to maintain your competitive edge.
Content analytics tools keep you up to date with the latest and most popular content
developed by your competitors and publications in your industry. These platforms also help you
find influencers in your niche who can amplify your content.
Here are a few content analytics tools:
1. Google Alerts
2. Google Trends
3. Ahrefs Content Explorer
4. BuzzSumo
5. Scoop.It!
6. Feedly

6. Email Analytics Tools

Now, there are no standalone email analytics tools. The analytics feature comes in-built with
email marketing and marketing automation suites that give you a complete breakdown of your
email and campaigns.
Here are a few email marketing tools that help you with email analytics:
1. MailChimp
2. Pardot
3. AWeber
4. Campaign Monitor
5. Constant Contact

The 6 Major Categories of Metrics Used by Marketers

1. Foundational Metrics

When you log into Google Analytics, you will see a snapshot of the overall functionality of the
website:
Important Foundational Metrics

• Sessions: A session is a group of interactions a user performs with your website within a
fixed time frame.
• Users: This is the number of visitors who initiated at least one session with your website.
• New Users: This metric shows the number of first-time users.
• Page Views: Pageviews is the total number of pages viewed by users.
• Average Session Duration: This is the average length of a session.
 • Bounce Rate: Bounce rate shows the percentage of visitors who navigate away from the
site after viewing only one page.
• Conversion Rate: Conversion rate indicates the percentage of users that completed a
goal (such as submitting a form or buying a product/service).

2. SEO Metrics

Search engine optimization (SEO) is all about the processes and strategies people use to rank
higher in search engines like Google, Bing, Yahoo, etc. to drive more organic traffic to a website.
You can monitor the following metrics to measure the effectiveness of your SEO activities:

• Organic Traffic: This is the traffic that comes from the Search Engine Result Pages (SERPs).
You can dive deeper by segregating this traffic by location, devices, etc. to understand
the impact of each aspect.
• Keyword Ranking: This is how well your website or webpages rank in SERPs for
relevant/target keyword phrases.
• Branded Keyword Searches: This measures how many users search for your offerings by
product or brand name.
• Organic Conversion Rate: The number of users that landed on your website through
organic search and completed a desired goal.

3. Paid Ad Metrics

Measuring paid ads is important because, well, you’re spending a ton of money generating
clicks on the link to your website.

To make sure your investment is paying off, measure the following four paid ad metrics:
• Click-Through Rate (CTR): CTR is the percentage of users that clicked on your ad to the
number of times it was viewed (which is, impressions).
• Cost per Click (CPC): This is the money spent to generate each click. If you are running
multiple campaigns, you need to calculate average CPC when working on a
consolidated report.
• Conversion Rate for Paid Ads: This is the number of users who completed a desired goal
after clicking on your ad.
• Cost per Conversion (CPC): CPC measures the money spent to complete one
conversion. It is obtained by dividing the total spend by the number of conversions. For
example, if you have five conversions after spending $100, then the cost per conversion
is $20.

4. Blogging Metrics

Tracking the following key blogging metrics will help you analyze the success of your blog and
find areas of improvement:

• Blog Visits: This is the number of visits your blog gets in a given period.
• Traffic Sources: This metric tracks the sources, such as organic, social media, email, etc.,
that drive traffic to your website.
• Comments: This displays the number of comments you get on your blog posts. You can
further see the average comments per post.
• Top Viewed Articles: Top viewed articles give us the most read articles on the blog. You
can use this metric to identify future topics for your content strategy.
 • Average Views per Post: This metric can help you understand whether you should focus
on a few pieces of quality content or churn out content more frequently.
• Blog Conversion Rate: The blog conversion rate denotes the number of users who
completed a desired goal after coming to your blog.

5. Social Media Metrics

Marketers have a tough time focusing on the right social media metrics as social media ROI is still
difficult to arrive at, unless you’re running paid ads. Let’s look at the three key social media
metrics to focus on:
• Social Media Engagement: This is the foundation of all social media metrics. Though they
may be called ‘vanity metrics’, they are still important as they measure how well your
content is being received by your audience. The most important engagement metrics
are post likes, comments, and shares.
• Audience Growth: This metric denotes the number of social media community members
viz. Facebook page likes, Twitter followers, etc.
• Social Media Traffic: This metric is the traffic to your website generated through the
company’s social media accounts.

6. Email Marketing Metrics

Email is still one of the most important channels to acquire new customers and retain existing
ones. These five metrics will help you analyze your email marketing more effectively:

• Delivery Rate: This is arguably the most important metric when it comes to emails. It is the
percentage of recipients who received your email.
• Open Rate: Open rate is the percentage of recipients who opened your email.
• Click-Through Rate (CTR): CTR is the percentage of users who clicked on at least one link
included in the body of the email.
• Conversion Rate: Conversion rate is the number of recipients who completed a
conversion after clicking on a link within the email body.
• Unsubscribes: This metric calculates how many users chose to opt-out of your email list.
DATA INTERPRETATION WITH MS EXCEL

• We used Excel to do some basic data analysis tasks to see whether it is a reasonable
alternative to using a statistical package for the same tasks. We concluded that Excel is
a poor choice for statistical analysis beyond textbook examples, the simplest descriptive
statistics, or for more than a very few columns.
• Excel is convenient for data entry, and for quickly manipulating rows and columns prior
to statistical analysis. However when you are ready to do the statistical analysis, we
recommend the use of a statistical package such as SAS, SPSS, Stata, Systat or Minitab.
• Excel is probably the most commonly used spreadsheet for PCs. Newly purchased
computers often arrive with Excel already loaded. It is easily used to do a variety of
calculations, includes a collection of statistical functions, and a Data Analysis ToolPak. As
a result, if you suddenly find you need to do some statistical analysis, you may turn to it as
the obvious choice. We decided to do some testing to see how well Excel would serve as
a Data Analysis application.
• Microsoft Excel allows you to manipulate, manage and analyze data helping assist in
decision making and creating efficiencies that will directly affect your bottom line.
Whether you’re using it for business or to help manage personal database and expenses
Microsoft Excel gives you the right tools to enable you to accomplish all your needs.

The advantages of Excel are:

• Easy and effective comparisons - With the powerful analytical tools included within
Microsoft Excel you have the ability to analyze large amounts of data to discover trends
and patterns that will influence decisions. Microsoft Excel’s graphing capabilities allows you
to summarize your data enhancing your ability to organize and structure your data.
• Powerful analysis of large amounts of data - Recent upgrades to the Excel spreadsheet
enhance your ability to analyze large amounts of data. With powerful filtering, sorting and
search tools you are able to quickly and easily narrow down the criteria that will assist in
your decisions. Combine these tools with the tables, Pivot Tables and Graphs you can find
the information that you want quickly and easily even if you have hundreds of thousands of
data items. While you will need the latest technology to get the best out of Microsoft Excel
it is scalable and can be used at home on your low powered PC or at work on your high
powered Laptop.
• Working Together - With the advent of the Excel Web App you can now work on
spreadsheets simultaneously with other users. The ability to work together enhances your
ability to streamline processes and allows for ‘brainstorming’ sessions with large sets of data
– the collaboration tools allow you to get the most out of the sharing capabilities of
Microsoft Excel. The added bonus is that as the Excel Worksheet is web based you can
collaborate anywhere – you are no longer tied to your desk but can work on spreadsheets
on the go – this is ideal for a businessman on the go.
• Microsoft Excel Mobile & iPad Apps - With the advent of the tablet and the smart phone it is
now possible to take your worksheets to a client or a meeting without having to bring along
your Laptop. The power of these mobile devices now allows you to manipulate data and
update your spreadsheets and then view the spreadsheets immediately on your phone or
tablet.

Uses of Microsoft Excel:

• Sort: You can sort your Excel data on one column or multiple columns. You can sort in
ascending or descending order.
• Filter: Filter your Excel data if you only want to display records that meet certain criteria.
 • Conditional Formatting: Conditional formatting in Excel enables you to highlight cells with
a certain color, depending on the cell's value.
• Charts: A simple Excel chart can say more than a sheet full of numbers. As you'll see,
creating charts is very easy.
• Pivot Tables: Pivot tables are one of Excel's most powerful features. A pivot table allows
you to extract the significance from a large, detailed data set.
• Tables: Tables allow you to analyze your data in Excel quickly and easily.
• What-If Analysis: What-If Analysis in Excel allows you to try out different values (scenarios)
for formulas.
• Solver: Excel includes a tool called solver that uses techniques from the operations
research to find optimal solutions for all kind of decision problems.
• Analysis ToolPak: The Analysis ToolPak is an Excel add-in program that provides data
analysis tools for financial, statistical and engineering data analysis.

Further, Microsoft Excel is a very versatile tool and can be used for almost anything that you can
imagine:
• Agendas
• Budgets
• Calendars
• Cards
• Charts and Diagrams
• Financial Tools
• Flyers
• Forms
• Inventories
• Invoices
• Lists and to-do checklists
• Planners
• Plans and proposals
• Reports
• Schedules
• Timesheets

Quantitative Data Analysis with Excel

Descriptive Statistics

The quickest way to get means and standard deviations for a entire group is using Descriptive in
the Data Analysis tools. You can choose several adjacent columns for the Input Range (in this
case the X and Y columns), and each column is analyzed separately. The labels in the first row
are used to label the output, and the empty cells are ignored. If you have more, non-adjacent
columns you need to analyze, you will have to repeat the process for each group of contiguous
columns. The procedure is straightforward, can manage many columns reasonably efficiently,
and empty cells are treated properly.
To get the means and standard deviations of X and Y for each treatment group requires the use
of Pivot Tables (unless you want to rearrange the data sheet to separate the two groups). After
selecting the (contiguous) data range, in the Pivot Table Wizard's Layout option, drag Treatment
to the Row variable area, and X to the Data area. Double click on “Count of X” in the Data
area, and change it to Average. Drag X into the Data box again, and this time change Count
to StdDev. Finally, drag X in one more time, leaving it as Count of X. This will give us the
Average, standard deviation and number of observations in each treatment group for X. Do the
same for Y, so we will get the average, standard deviation and number of observations for Y
also. This will put a total of six items in the Data box (three for X and three for Y). As you can see,
if you want to get a variety of descriptive statistics for several variables, the process will get
tedious.

A statistical package lets you choose as many variables as you wish for descriptive statistics,
whether or not they are contiguous. You can get the descriptive statistics for all the subjects
together, or broken down by a categorical variable such as treatment. You can select the
statistics you want to see once, and it will apply to all variables chosen.

Correlations

Using the Data Analysis tools, the dialog for correlations is much like the one for descriptives - you
can choose several contiguous columns, and get an output matrix of all pairs of correlations.
Empty cells are ignored appropriately. The output does NOT include the number of pairs of data
points used to compute each correlation (which can vary, depending on where you have
missing data), and does not indicate whether any of the correlations are statistically significant. If
you want correlations on non-contiguous columns, you would either have to include the
intervening columns, or copy the desired columns to a contiguous location.

A statistical package would permit you to choose non-contiguous columns for your correlations.
The output would tell you how many pairs of data points were used to compute each
correlation, and which correlations are statistically significant.

Two-Sample T-test

This test can be used to check whether the two treatment groups differ on the values of either X
or Y. In order to do the test you need to enter a cell range for each group. Since the data were
not entered by treatment group, we first need to sort the rows by treatment. Be sure to take all
the other columns along with treatment, so that the data for each subject remains intact. After
the data is sorted, you can enter the range of cells containing the X measurements for each
treatment. Do not include the row with the labels, because the second group does not have a
label row. Therefore your output will not be labeled to indicate that this output is for X. If you
want the output labeled, you have to copy the cells corresponding to the second group to a
separate column, and enter a row with a label for the second group. If you also want to do the
t-test for the Y measurements, you�ll need to repeat the process. The empty cells are ignored,
and other than the problems with labeling the output, the results are correct.

A statistical package would do this task without any need to sort the data or copy it to another
column, and the output would always be properly labeled to the extent that you provide labels
for your variables and treatment groups. It would also allow you to choose more than one
variable at a time for the t-test (e.g. X and Y).

Paired t-test

The paired t-test is a method for testing whether the difference between two measurements on
the same subject is significantly different from 0. In this example, we wish to test the difference
between X and Y measured on the same subject. The important feature of this test is that it
compares the measurements within each subject. If you scan the X and Y columns separately,
they do not look obviously different. But if you look at each X-Y pair, you will notice that in every
case, X is greater than Y. The paired t-test should be sensitive to this difference. In the two cases
where either X or Y is missing, it is not possible to compare the two measures on a subject.
Hence, only 8 rows are usable for the paired t-test.

When you run the paired t-test on this data, you get a t-statistic of 0.09, with a 2-tail probability of
0.93. The test does not find any significant difference between X and Y. Looking at the output
more carefully, we notice that it says there are 9 observations. As noted above, there should
only be 8. It appears that Excel has failed to exclude the observations that did not have both X
and Y measurements. To get the correct results copy X and Y to two new columns and remove
the data in the cells that have no value for the other measure. Now re-run the paired t-test. This
time the t-statistic is 6.14817 with a 2-tail probability of 0.000468. The conclusion is completely
different!

Of course, this is an extreme example. But the point is that Excel does not calculate the paired t-
test correctly when some observations have one of the measurements but not the other.
Although it is possible to get the correct result, you would have no reason to suspect the results
you get unless you are sufficiently alert to notice that the number of observations is wrong. There
is nothing in online help that would warn you about this issue.

Interestingly, there is also a TTEST function, which gives the correct results for this example.
Apparently the functions and the Data Analysis tools are not consistent in how they deal with
missing cells. Nevertheless, I cannot recommend the use of functions in preference to the Data
Analysis tools, because the result of using a function is a single number - in this case, the 2-tail
probability of the t-statistic. The function does not give you the t-statistic itself, the degrees of
freedom, or any number of other items that you would want to see if you were doing a statistical
test.

A statistical packages will correctly exclude the cases with one of the measurements missing,
and will provide all the supporting statistics you need to interpret the output.

Cross tabulation and Chi-Squared Test of Independence

Our final task is to count the two outcomes in each treatment group, and use a chi-square test
of independence to test for a relationship between treatment and outcome. In order to count
the outcomes by treatment group, you need to use Pivot Tables. In the Pivot Table Wizard's
Layout option, drag Treatment to Row, Outcome to Column and also to Data. The Data area
should say "Count of Outcome" – if not, double-click on it and select "Count". If you want
percents, double-click "Count of Outcome", and click Options; in the “Show Data As” box which
appears, select "% of row". If you want both counts and percents, you can drag the same
variable into the Data area twice, and use it once for counts and once for percents.

Getting the chi-square test is not so simple, however. It is only available as a function, and the
input needed for the function is the observed counts in each combination of treatment and
outcome (which you have in your pivot table), and the expected counts in each combination.
Expected counts? What are they? How do you get them? If you have sufficient statistical
background to know how to calculate the expected counts, and can do Excel calculations
using relative and absolute cell addresses, you should be able to navigate through this. If not,
you�re out of luck.

Assuming that you surmounted the problem of expected counts, you can use the Chitest
function to get the probability of observing a chi-square value bigger than the one for this table.
Again, since we are using functions, you do not get many other necessary pieces of the
calculation, notably the value of the chi-square statistic or its degrees of freedom.

No statistical package would require you to provide the expected values before computing a
chi-square test of indepencence. Further, the results would always include the chi-square
statistic and its degrees of freedom, as well as its probability. Often you will get some additional
statistics as well.

The remaining analyses were not done on this data set, but some comments about them are
included for completeness.

Simple Frequencies

You can use Pivot Tables to get simple frequencies. Using Pivot Tables, each column is
considered a separate variable, and labels in row 1 will appear on the output.

Another possibility is to use the Frequencies function. The main advantage of this method is that
once you have defined the frequencies function for one column, you can use Copy/Paste to
get it for other columns. First, you will need to enter a column with the values you want counted
(bins). If you intend to do the frequencies for many columns, be sure to enter values for the
column with the most categories. e.g., if 3 columns have values of 1 or 2, and the fourth has
values of 1,2,3,4, you will need to enter the bin values as 1,2,3,4. Now select enough empty cells
in one column to store the results - 4 in this example, even if the current column only has 2
values. Next choose Insert/Function/Statistical/Frequencies on the menu. Fill in the input range
for the first column you want to count using relative addresses (e.g. A1:A100). Fill in the Bin
Range using the absolute addresses of the locations where you entered the values to be
counted (e.g. $M$1:$M$4). Click Finish. Note the box above the column headings of the sheet,
where the formula is displayed. It start with "= FREQUENCIES(". Place the cursor to the left of the
= sign in the formula, and press Ctrl-Shift-Enter. The frequency counts now appear in the cells
you selected.

To get the frequency counts of other columns, select the cells with the frequencies in them, and
choose Edit/Copy on the menu. If the next column you want to count is one column to the right
of the previous one, select the cell to the right of the first frequency cell, and choose Edit/Paste
(ctrl-V). Continue moving to the right and pasting for each column you want to count. Each
time you move one column to the right of the original frequency cells, the column to be
counted is shifted right from the first column you counted.

If you want percents as well, you’ll have to use the Sum function to compute the sum of the
frequencies, and define the formula to get the percent for one cell. Select the cell to store the
first percent, and type the formula into the formula box at the top of the sheet - e.g. =
N1*100/N$5 - where N1 is the cell with the frequency for the first category, and N5 is the cell with
the sum of the frequencies. Use Copy/Paste to get the formula for the remaining cells of the first
column. Once you have the percents for one column, you can Copy/Paste them to the other
columns. You’ll need to be careful about the use of relative and absolute addresses! In the
example above, we used N$5 for the denominator, so when we copy the formula down to the
next frequency on the same column, it will still look for the sum in row 5; but when we copy the
formula right to another column, it will shift to the frequencies in the next column.

Finally, you can use Histogram on the Data Analysis menu. You can only do one variable at a
time. As with the Frequencies function, you must enter a column with "bin" boundaries. To count
the number of occurrences of 1 and 2, you need to enter 0,1,2 in three adjacent cells, and give
the range of these three cells as the Bins on the dialog box. The output is not labeled with any
labels you may have in row 1, nor even with the column letter. If you do frequencies on lots of
variables, you will have difficulty knowing which frequency belongs to which column of data.
Linear Regression

Since regression is one of the more frequently used statistical analyses, we tried it out even
though we did not do a regression analysis for this example. The Regression procedure in the
Data Analysis tools lets you choose one column as the dependent variable, and a set of
contiguous columns for the independents. However, it does not tolerate any empty cells
anywhere in the input ranges, and you are limited to 16 independent variables. Therefore, if you
have any empty cells, you will need to copy all the columns involved in the regression to new
columns, and delete any rows that contain any empty cells. Large models, with more than 16
predictors, cannot be done at all.

Analysis of Variance

In general, the Excel's ANOVA features are limited to a few special cases rarely found outside
textbooks, and require lots of data re-arrangements.

One-way ANOVA

Data must be arranged in separate and adjacent columns (or rows) for each group. Clearly,
this is not conducive to doing 1-ways on more than one grouping. If you have labels in row 1,
the output will use the labels.

Two-Factor ANOVA Without Replication

This only does the case with one observation per cell (i.e. no Within Cell error term). The input
range is a rectangular arrangement of cells, with rows representing levels of one factor, columns
the levels of the other factor, and the cell contents the one value in that cell.

Two-Factor ANOVA with Replicates

This does a two-way ANOVA with equal cell sizes. Input must be a rectangular region with
columns representing the levels of one factor, and rows representing replicates within levels of
the other factor. The input range MUST also include an additional row at the top, and column
on the left, with labels indicating the factors. However, these labels are not used to label the
resulting ANOVA table. Click Help on the ANOVA dialog for a picture of what the input range
must look like.
MARKET SHARE ANALYSIS

• In this era of intense competition, both world-wide and domestic, business firms of all sizes
and varieties have become more and more concerned with the market-share figures
they achieve in the marketplace. Market shares command the attention of business
managers as key indices for measuring the performance of a product or brand in the
marketplace.
• Out of total purchases of a customer of a product or service, what percentage goes to a
company defines its market share. In other words, if consumers as a whole buy 100 soaps,
and 40 of which are from one company, that company holds 40% market share.
• There are various types of market share. Market shares can be value or volume. Value
market share is based on the total share of a company out of total segment sales.
Volumes refer to the actual numbers of units that a company sells out of total units sold in
the market. The value-volume market share equation is not usually linear: a unit may
have high value and low numbers, which means that value market share may be high,
but volumes share may be low. In industries like FMCG, where the products are low
value, high volume and there are lots of freebies, comparing value market share is the
norm.
• The significance of market share: Market share is a measure of the consumers'
preference for a product over other similar products. A higher market share usually
means greater sales, lesser effort to sell more and a strong barrier to entry for other
competitors. A higher market share also means that if the market expands, the leader
gains more than the others. By the same token, a market leader - as defined by its
market share - also has to expand the market, for its own growth.
• To the extent that market shares are used as market performance indices, it is clearly
desirable for the individuals concerned to have thorough knowledge of the processes
which generate market-share figures and to be able to analyze the impact of their own
actions on market shares, as well as their profit implications. Lacking such knowledge,
one might be tempted to oversimplify the cause-and-effect relationships between
market shares and marketing variables, or to equate market shares to profitability (a not
unusual tendency even among seasoned businessmen) and fall into deadly traps of
blindly competing for market shares for their own sake.
• The interest in market-share analysis has received new impetus in recent years, especially
since the advent of optical-scanning systems — POS (point of sale) systems — at the
retail level. A POS system collects sales records (essentially in the form of customer-by-
customer receipts) at check-out counters of retail establishments with optical scanners
which read bar codes of merchandise labels. It then puts the sales records in a computer
(i.e., store controller) where sales records are tabulated into item-by-item sales
summaries. POS systems were originally introduced in retail stores to improve the
efficiency and accuracy of store personnel at the check-out counters and in the
backroom and have achieved a considerable degree of success in speeding up check-
out operations and in improving inventory control. POS-generated sales data also have
an obvious potential as the database for merchandising and store management. Some
authors even suggest that, by linking POS systems with electronic ordering systems (EOS)
which handle order processing as well as inventory control, store automation will soon
become a reality. POS systems also open up a new source of market-share data at the
retail level for manufacturers of consumer products. POS data have many advantages
over traditional sources of market-share information such as retail audit, warehouse
withdrawal, and consumer panel data, in that they are fast, accurate, low cost, and
detailed. Already various marketing-research agencies are in the business of gathering
POS data from a sample of stores and supplying manufacturers with summaries of them.
In addition, several research agencies operate optical-scanner panels (or scanner
panels) of consumers in a number of communities which generate purchase histories per
 household. It is often pointed out that scanner panels are superior to the traditional diary
panels in their accuracy and speed.

The Process of Market-Share Analysis

• Before we begin to describe the methodology of market-share analysis, it is perhaps
beneficial to define its basic characteristics so that the reader will not be misled as to its
relevance and eventual applicability to his or her own problems. The three key
characteristics are that market share analysis is competitive, descriptive as well as
predictive, and profit- oriented.
• First, market-share analysis is competitive. This implies that the effects of one’s actions
must be analyzed in conjunction with the market positions and actions of competitors. (In
economic jargon, the marginal effect of a marketing variable is a function of
competitors’ actions and their market shares.) This also means that one will have to
distinguish those factors which affect one’s product/brand from more general factors
which affect the entire industry (e.g., seasonality in product usage, and business and
economic conditions). Finally, this means that, given competitors who are free to adopt
any marketing strategies, market-share prediction also involves the prediction of
competitors’ future actions, which is a difficult undertaking in itself. Many experienced
managers know that their best-laid plans mean little if they fail to predict correctly the
courses of action the competitors are going take. At this juncture we emphasize that the
market-share analysis we explore in this book is basically for products in either the growth
or maturity (i.e., saturation) stages of their product life cycle. In this context, it is important
for one to distinguish between a new brand for a firm in an established industry and an
entirely new product which is creating a new industry. We do not belittle the importance
of being able to predict the future shares for a new product, but we envision that the
analytical approach for predicting the performance of a new product is substantially
different from that for an established product. When a radically new product is
introduced by a firm in the market, it usually holds a temporarily monopolistic position
due to technological advantages or legal protection (i.e., patents). Because the
structure of the market and competition in the introductory stage of the product life
cycle is so different from that in either the growth or maturity stages, the approaches to
market-share analysis in this book may not be directly applicable to new products.
• Second, market-share analysis must be descriptive as well as predictive. A common
tendency among business managers is that if they can make good forecasts of market
shares, they expect nothing more. The ability to make accurate predictions of future
shares is indeed a major contribution of market-share analysis, but we do not believe that
it is enough. Market-share analysis should provide the managers with much needed
information on the structure of the market and competition and the influence of
marketing actions on brand performance — all of which are indispensable for them to
be able to establish viable marketing strategies. Knowing that competitor A is vulnerable
to our actions, but competitor B is not, or knowing one’s share is much affected by the
actions of competitor C, clearly gives a manager a better sense of competitive moves
he/she can make in order to deal successfully with competitors.
• Third, market-share analysis is profit-oriented in the sense that any firm is interested in not
only market-share movement, but also its profit consequences. One might talk about a
plan to expand the market share for a firm’s product/brand, by improving quality,
reducing price, advertising more, employing more sales persons, etc. But the key
question obviously is, “Is it worth our effort to increase the market share?” Experience
analysis, for example, tells us to try to expand one’s market share if the increase in share
allows the firm to have the leading position on the experience curve, that is, if the
resultant share is the largest among the competitors. This in turn suggests that for firms
with currently small shares the mad rush to become the industry leader may have dire
consequences. The ability to predict the cost of achieving a certain market-share level
should be as valuable for a firm as the ability to estimate the likelihood of achieving that
share. Based on the above characterization, we assert that the basic goal of market-
 share analysis is to evaluate the effectiveness of marketing actions in a competitive
environment.

Steps in the Process of Market-Share Analysis

Stage 1: Specification of Models

This stage is for the selection of appropriate models for describing market share movement and
changes in overall (industry) sales volume. (In a simplest specification, a firm’s sales volume is
equal to the product of industry sales volume and its market share.) At the time when a firm
is developing a system for market-share analysis, this stage is indispensable since the models
determine data requirements in the data-collection stage. If the firm already has an ongoing
data stream, the specification task becomes one of choosing a model which will allow the
analyst to assess the impact of the variables in the data stream on demand. After the initial
specification, this stage is only repeated when the analyst feels that the underlying structure of
the market and competition is changing or has changed, and that it is necessary to modify or
recalibrate the model. Modification may also be motivated by new data becoming available or
by the desire for a more comprehensive explanation or assessment. Techniques for this
specification step, such as time-series and experimental analyses, can help address issues
concerning the duration of marketing effects and whether marketing instruments interact.

Stage 2: Data Collection and Review

Market-share data may be obtained from many sources. A traditional source was the so-called
retail store-audit data, but since the adoption of optical scanners (i.e., POS systems) more data
at the retail level are being generated by scanners. Wholesale warehouse withdrawals are also
used as a source of market-share data for many consumer products. Consumer surveys and
diary panels are sometimes used for market-share estimation. For many firms the only way to get
own market-share figures is to divide the firm’s own sales volume by what it can estimate of the
industry sales volume for the same period and area. One critical problem with the data
collection stage for market-share analysis is the need for information on marketing activities of
competitors as well as the firm’s own activities. Any reasonably designed market information
system should be able to meet adequately the information requirement on the firm’s own
activities, but the information on competitors’ activities is a different matter. This requires careful
monitoring of competitors’ activities in the market and compiling a comprehensive file for each
competitor. Optical scanner data at the retail level, if they are available, are capable of
supplying competitive information for a limited set of marketing variables such as shelf price and
store displays. These data may be combined with available information on newspaper features,
and manufacturers’ and stores’ coupons. Advertising expenditures or benchmarks such as
target-audience rating points (TARPs) or gross rating points (GRPs) can be used to assess how
these efforts relate to demand. Scanner panels can be tapped for measures such as brand
inventories in panel households, indices of brand loyalty or time-since-last-purchase. These
panels are also rich sources for potential segmentation by usage frequency or style, or
demographic characteristics. Simple, graphical summary relating market shares to other
collected data can reveal a great deal about the nature of market response and competition.

Stage 3: Analysis

Once necessary data are collected for an adequate number of periods and/or areas (to give
sufficient degrees of freedom), the analyst can proceed to:

1. Estimation of Model Parameters: Once the appropriate models are chosen, the next step
is to estimate the parameters of the models. Statistical techniques such as log-linear
regression analysis and maximum-likelihood estimation will be used in this step. Even
though the model specification is not changed, it may be necessary to re-estimate
parameters periodically. This is desirable not only for the purpose of adapting parameter
values to changing conditions but also for the purpose of improving the accuracy of
estimates.
2. Conversion to Decision-Related Factors: Model parameters themselves provide the
analyst or manager with little information as to the structure and occurrences in the
market and competition. From a decision maker’s viewpoint, more immediately useful
information may be the responsiveness of market shares toward marketing activities of
the own firm and competitors as summarized by market simulators. Or it may be the
visual presentation (map) of the relative market positions of competing products/brands.
It takes some ingenuity to produce a representation that is easily understood by
managers who are not quantitatively oriented.

Stage 4: Strategy and Planning

The planning stage may be divided into two steps.

1. Strategy Formulation: In this step the information obtained in the analysis stage is used for
the formulation of marketing strategies. It is hoped that descriptive, rather than
predictive, types of analysis will give the analyst and manager(s) concrete suggestions
for formulating marketing strategies. The graphic summaries, for example, may suggest
more effective marketing strategies.

2. Forecasting and Planning: Future market shares and sales volumes will be forecasted on
the basis of a marketing plan. It will be nonsensical to speak of forecasts without an
explicitly stated plan. Market simulators require, for example, explicit assumptions about
competitive activities. Consequently, they produce conditional forecasts (i.e., condi-
tional on these assumptions). A plan can be evaluated against various competitive
scenarios. Also, it is theoretically possible, but not always practical, to search for an
optimal (i.e., profit-maximizing) plan.

Stage 5: Follow-Up

It is critically important that the analyst reviews the performance of the firm’s product/brand
after marketing plans are put into effect. A careful review of one’s plans and actual
performance will improve not only future planning but also the techniques for market-share
analysis. In doing a follow-up, it is not enough just to look at whether market shares were
accurately forecasted. Market shares and consequently actual sales volume differ from the
forecasted values for three basic reasons.
1. Forecasts of industry sales volume were off.
2. Forecasts of market shares were off.
3. Marketing activities were not carried out as planned.
If the actual performance is at variance with the planned, It is essential for the analyst to pin-
point the cause of variance by careful analysis. The variance analysis may be a useful technique
for this purpose.
 PRODUCT USAGE

• Product usage analytics is the analysis of data produced by users that interact with a
product. It’s a quantitative measurement of how a product is used and its general
performance rather than a subjective observation. This type of analytics should be
performed on a regular basis, particularly after a product goes through a redesign or
new features are added.
• Product usage metrics reveal the relationship the customer has with the product—and
provide context for the relationship companies should be having with their customers. By
capturing day-to-day information on how customer uses the product, companies can
shape their actions to increase overall experience and drive value.
• It is the process of analyzing in-product data to understand how users interact with the
product, and why they do the specific things with the product. It differs from things
like traditional surveys and customer interviews by helping you find out what your users
really do, based on user-level data in a digital product—not just what they say they do—
so product teams can prioritize development efforts with speed and confidence.

Need of Product Usage Analytics

• More often than not, product teams are limited to surface level data which doesn’t let
them understand how their product gets used. Furthermore, product teams are quite
often constrained in analysis due to bottlenecks with analytics teams. But, as we know,
the most innovative companies turn to data to get a clear view on their users so they
can build better experiences.
• Product usage analytics solves both these problems by helping product teams track
important product usage data, and then analyze it themselves so they can learn what
works (and what doesn’t) directly from user data, and stay on top of important product
usage metrics like stickiness and activation. Product usage analytics can help you figure
out:
• Which features are most popular.
• Overall product performance.
• How engaged users are.
• The type of users that use the product most heavily/often.
• Whether users find value in a product/service/plan.
• What friction points or issues users are running into.
• The stickiness of the product.
• Effectiveness of engagement strategies and campaigns.
• What a user workflow looks like.
• How adoption or retention vary across user segments.
• When and how you need to communicate with your users.
• The results of A/B testing on user behavior.

Importance of Product Usage Analytics

Knowing exactly how customers are interacting with your product provides invaluable insight.
These logs of data are more beneficial than beta testing, usability tests and customer interviews
because it tracks how real customers use the product in a real world setting in real time.
Access to this type of data can help you:
• Evaluate product performance
• Locate and fix bugs
• Improve the product quality
• Improve user experience
• Increase conversions
• Retain more customers
• Craft messages
Product Usage Metrics:

Once you start digging into product usage data, what metrics should you examine? With
product usage it’s easy to venture into information overload territory because there’s so much
data available. Below are product usage metrics that are commonly tracked:
• Usage Frequency – Usage frequency tells you how often customers are using your
product. The goal is to have customers use your product on a regular basis, which
indicates satisfaction and that it’s meeting customer needs.
• Time Spent Using the Product – If customers only use your product for short periods it
could be a sign that the user experience needs improvement. Customers should also be
able to perform tasks in a reasonable amount of time.
• Bug Reports – How many bug reports do users send in? A sizeable number of bug reports
indicates that product quality could be lacking.
• Customer Retention – Product quality is directly related to how well you hold on to
customers.
• Churn Rate – Metrics related to churn rate, the percentage of customers that stop
subscribing to a product or service, are ideal for product usage analytics. Insight into
how your product is used can reduce churn rate and increase the lifetime value of
customers.

Advantages of Product Usage Data

Product usage data can be extremely actionable when it is parsed out and put into a format
that is easy to understand. It can be used by product managers, account managers, sales
managers, developers, marketers and user experience teams.
Product usage data is commonly used to:
• Identify Trends: Visualizing the data in graphs and charts allows you to identify trends that
can be used to improve your product, target a customer base or create more effective
marketing campaigns.
• Enhance the Experience for Struggling Customers:Paying customers that are having
difficulty using your product are less likely to renew their subscription and purchase
upsells. Customer retention is crucial for profitability in the SaaS and app industries. With
product usage data you can figure out where customers have hang ups and make
improvements. Once the improvements are made you can use it as an opportunity to
reach out to customers and let them know the product was redesigned to better meet
their needs.
• Pinpoint Customer Characteristics: User behavior is part of product usage data. Not only
can you tell how customers use the product, you can also get a gauge of their
knowledge level, the type of operating system they’re most likely to use, where they live
and more.
• Convert More Trial Users :Trial users are giving a product a test run. If they come across
problems or hang ups using the product they are more likely to churn during the trial
period. Product usage data can tell you what issues trial users are running into so they
can be fixed.
• Upsell Free Subscriptions: If you have free and paid versions of a product usage data
can help you convert more free users into paying customers. The data can tell you which
paid features appeal most to the free users and which paid features they tried to
access.
• Gauge Feature Popularity: Knowing which features are the most and least used can
inform future product development.
• Improve Flow and Efficiency: Product usage data gives you an understanding of how
users move from task to task. The information can be used to improve workflows and
efficiency.
• Create Product Training Tools: The data you collect can be used to create product
training tools that help future users and reduce customer service requests.
Product Portfolio Analysis

• Product Portfolio can be defined as the compilation of products and services

offered by the company to the target market. It comprises of all the set of
products offered right from the ones that were launched and offered during the
inception of the brand to the ones that are launched currently along with ones
that are in the pipeline.
• A product portfolio is comprised of all the products which an organization has. A
product portfolio may comprise of different categories of products,
different product lines and finally the individual product itself. Management is
needed on all the three levels of a product portfolio. You need managers for
managing individual products, managing product lines and finally the top
level management which manages the complete portfolio.

Breaking-down Product Portfolio and its management :

1. Product Portfolio management is one of the most crucial elements of the entire
business strategy as it helps the company to attain its overall business
objectives and plan the future line of products accordingly.
2. It works as a significant tool for the corporate financial planning of the firm and
also for the investors conducting the equity research analyzing the return on
investments.
3. The thorough analysis of the Products Portfolio can provide the management of
the company with crucial information such as stock type, growth prospects of the
brand, products that are high on profit margins, income contribution by each and
every product offered to the market, market share of every product, operational
risks, and market leadership.
4. Many a time, there are too many projects underway and there are seldom that is
right for the company to attain the profits. And here is the main role of Product
Portfolio management to analyze which projects are well aligned with the
overall strategy and objectives of the business and will be the cash cows and the
ones that don’t feel relevant is taken off from the portfolio.

Advantages of Product Portfolio Analysis :

1) Product Innovation

It is very important to follow the strategy of having a Product Portfolio and analyzing it in
the regular intervals in order to plan and come up with the new and innovative line of
products to be offered to the target market. It helps in defining the types and nature of
products that are liked and preferred by the customers and with the experience and
knowledge, launch the new line of products that are not only innovative and novel in
ideation but matches the taste and preferences of the target market.

2) Tax benefits

Managing and analyzing the Product Portfolio on the regular basis helps to structure the
investments and all the other financial elements of the company resulting in the various
tax benefits.
3) Aligns projects with the businesses strategy

It is very important that the product offerings and their revenue generations match and
align with the long-term vision of the company and the business strategy. As then only
the company will be able to accomplish its aims and objectives of higher sales,
elevated profits, competitive advantage, and increased market share. Having the
proper management of the Product Portfolio helps the management to align the
existing and projects in the pipeline with the overall business strategy and vision of the
company.

4) Visualize the entire products-line

Studying and analyzing the operations, revenue generation, and other facets of each
and every product on an individual level offered by the company can be very
cumbersome and will not help to draw comparative study effectively. But with the
Product Portfolio in place, all the key members of the management are able to
visualize the entire portfolio of the all the old, existing, and future products having a
broader spectrum.

5) Effective allocation of resources

Having and managing the Products Portfolio helps in allocating the various resources of
the firm such as finances, human resources, and manufacturing plants amongst others
in an effective manner. It helps in figuring out the products that are working as the cash
cows for the companies, the products that are capable for higher market share but
require the boost from the management, and the products that are redundant in
nature and needs to be taken off from the market.

6) Data for the key members of the management

It helps providing the crucial and important data to the key members of the
management that enlightens them about the performance of the products in the
market, revenue generation by the each product, market share, customer preferences,
and requirement of any sort of tweaking or innovation in any products amongst others
that helps with the planning and execution of the next plans and strategies of the
business.

7) Cash flow

The company requires the regular flow of cash for the day to day business operations
such as paying overheads, staff salaries, and more along with the money required for
the investments in the existing and future line of the products. And with the proper
planning and administration of the Products Portfolio, the cash flow issues of the
company are sorted out as it helps to determine the products that bring the maximum
revenues and the company will allocate the maximum resources on the same.
8) Synergy within the internal team

All the products offered by the company and their operations are not managed by the
single person, but they are managed by various departments and individual teams
formulated by the management of the firm. This case is mainly applicable to the large
corporate firms that have a huge and varied line of products in the market. And with
the proper Products Portfolio in place, there are various team meetings and discussions
resulting in all the members on the same page and well aware about the overall
business strategy and operations of the firm having a required synergy to attain the
long-term business aims and objectives.

9) Proper selection of the target industry

Products Portfolio helps the management to figure out on why the certain lines of
products are performing extremely well working as the cash cows for the firm whilst
some of them not matching the required and envisioned plans and objectives. And if
the later is having the issue of the products not targeted and promoted to the required
target market and audience, the elements, and strategies of the Products Portfolio
helps to iron out this problem.

Techniques of product portfolio Analysis:

Product classification is done on the basis of the BCG matrix and GE9 Cell Matrix.

BCG Matrix:

• The BCG matrix classifies products on the basis of the market share of the
product as well as the growth rate which a product may have. On the basis of
this classification, a product manager can decide what level of investments a
particular product might need and what would be the returns from such a
product. As the other goal of products portfolio management is cash flow
management, the BCG matrix propagates balancing the cash flow between all
products equally. In harsh words – no extra revenue should be given to products
which cant give the revenue back to the organization.
• Back in 1968 a clever chap from Boston Consulting Group, Bruce Henderson,
created this chart to help organisations with the task of analysing their product
line or portfolio.
• The matrix assess products on two dimensions. The first dimension looks at the
products general level of growth within its market. The second dimension then
measures the product’s market share relative to the largest competitor in the
industry. Analysing products in this way provides a useful insight into the likely
opportunities and problems with a particular product.
• Products are classified into four distinct groups, Stars, Cash Cows, Problem Child
and Dog. Let's have a look at what each one means for the product and the
decision making process.
• Star products all have rapid growth and dominant market share. This means that
star products can be seen as market leading products. These products will need
a lot of investment to retain their position, to support further growth as well as to
maintain its lead over competing products. This being said, star products will also
be generating a lot of income due to the strength they have in the market. The
main problem for product portfolio managers it to judge whether the market is
going to continue to grow or whether it will go down. Star products can become
Cash Cows as the market growth starts to decline if they keep their high market
share.
• Cash Cows (high share, low growth): Cash cows don’t need the same level of
support as before. This is due to less competitive pressures with a low growth
market and they usually enjoy a dominant position that has been generated
from economies of scale. Cash cows are still generating a significant level of
income but is not costing the organisation much to maintain. These products can
be “milked” to fund Star products.
• Dogs (low share, low growth): Products classified as dogs always have a weak
market share in a low growth market. These products are very likely making a loss
or a very low profit at best. These products can be a big drain on management
time and resources. The question for managers is whether the investment
currently being spent on keeping these products alive could be spent on making
 something that would be more profitable. The answer to this question is usually
yes.
• Question mark / Problem Child (low share, high growth):Also sometime referred
to as Question Marks, these products prove to be tricky ones for product
managers. These products are in a high growth market but do not seem to have
a high share of the market. The reason for this could be that it's a very new
product to the market. If this is not the case, then some questions need to be
asked. What is the organisation doing wrong? What are its competitors doing
right? It could be that these products just need more investment behind them to
become Stars.

A completed matrix can be used to assess the strength of your organisation and its
product portfolio. Organizations would ideally like to have a good mix of cash cows
and stars. There are four assumptions that underpin the Boston Consulting Group Matrix:
1. If you want to gain market share you will need to invest in a competitive package,
especially through investment in marketing
2. Market share gains have the potential to generate a cash surplus due to the effect of
economies of scale.
3. The maturity stage of the product life cycle is where any cash surplus is most likely to be
generated
4. The best opportunities to build a strong market position usually occur during a market’s
growth period.
GE 9 CELL MATRIX:

• The GE matrix is considered by many to be an extension, and even an

improvement of BCG Matrix. Like the BCG, the GE matrix helps you to determine
how to allocate resources but it allows more flexibility.
• The GE matrix was developed by Mckinsey and Company consultancy group in
the 1970s. The nine cell grid measures business unit strength against industry
attractiveness and this is the key difference. Whereas BCG is limited to products,
business units can be products, whole product lines, a service or even a brand.
You can plot these chosen units on the grid and this will help you to determine
which strategy to apply.
• Before you can plot anything on the grid however first you need to decide how
you will determine both industry attractiveness and business unit strength.

Industry Attractiveness:
Factors you could choose to base this on include:
• Market size
• Market growth
• Pestel factors
o Political
o Economical
 o Social
o Technological
o Environmental
o Legal
• Porters five forces
o Competitive rivalry
o Buyer power
o Supplier power
o Threat of new entrants
o Threat of substitution
You need to decide which factors you will use as a determining factor as these will be
applied to ALL business units.
Step 1: Decide on determining factors
Step 2: Give each factor a weighting number based on its magnitude (make the total
weight of all factors add up to 1.00 or 10.00 for example)
Step 3: Rate each business unit against each factor on a scale. For example 1 – 5 where
1 is extremely attractive and 5 is extremely unattractive.
Step 4: Give each business unit a weighted rating on each factor by multiplying its
rating by the weight for that factor.
Step 5: Total up all the weighted ratings for each business unit.

Business Unit Strength:

Factors to determine how strong a unit is compared to others in its industry include:
• Market share
• Growth in market share
• Brand equity
• Profit margins compared to competition
• Distribution channel process – the strength of

Now you have the measurements you can plot your business units on the GE matrix and
depending on where they are plotted will determine your strategy from one of the
following:
Grow/Invest:
Units that land in this section of the grid generally have high market share and promise
high returns in the future so should be invested in.
Hold/Selectivity:
Units that land in this section of the grid can be ambiguous and should only be invested
in if there is money left over after investing in the profitable units.
Harvest/Divest:
Poor performing units in an unattractive industry end up in this section of the grid. This
should only be invested in if they can make more money than is put into them.
Otherwise they should be liquidated. As you can see this model is very useful for
analysing your business units against multiple factors rather than the 2 dimensional
approach of the BCG.
 New Product Sales Forecasting

• Forecasting sales is always a challenging task because of the many variables

and unknown factors involved. The job becomes all the more difficult when
you’re forecasting sales of a new product because you have no past
performance on which to base your estimates. Despite the difficulties, sales
forecasts are necessary for planning the resources you will need to meet actual
demand, including inventory, staff and cash flow. A sales forecast is also an
important tool in measuring the performance of your sales, marketing and
operations
• The development and introduction of a new product is an inherently risky
venture. Many corporate executives’ careers have floundered on the rocks and
shoals of new product launches. In an effort to reduce the risks associated with
new products, the forecasting of year-one sales has become an established
practice within the marketing research industry.
• Despite many claims of high precision, forecasting sales of new products is
fraught with risks, and estimates can often be off the mark. The risk of great error
is particularly high for new products that represent a paradigm shift; that is,
something fundamentally new and different. Also, the forecasting of new
durable goods and of services is more daunting than the forecasting of new
consumer packaged goods.
• Typically, the objective is to predict year-one “depletions”; that is, the actual
volume of goods that consumers will buy in retail stores (hence, the use of the
term “volumetric forecasting” as a description of new product sales forecasting).
The term “depletions” excludes new products in the factory, in warehouses, on
trucks, or in the retailer’s distribution system (i.e., all inventory build is excluded).
Most often, these sales estimates are in retail dollars, not the manufacturer’s
selling prices. So, after receiving a retail depletions estimate of new product
sales, the manufacturer must discount the retail sales numbers to arrive at the
manufacturer’s actual sales (or actual depletions) in year one.

The following methods can be used for New Product Sales Forecasting:

• Historical Review
• Test Market
• Before-After Retail Simulation
• Normative Approach
• ATAR Model

Historical Review: The first (and perhaps most common) method of forecasting new
product depletions is historical review. If a company has introduced similar new
products into similar markets in the past, these histories can often be good predictors of
future outcomes. If a company has no such history, then histories of similar new products
introduced by competitors or other companies can serve as historical guidelines to help
derive a new product sales forecast. The historical approach has limitations, however.
History is not always a good predictor of the future; it is often difficult to find accurate
historical data relevant to the new product under consideration; and what other
companies have been able to do does not necessarily tell us what the next company
can do. That is, different companies have varying levels of ability when it comes to
successfully introducing new products. Lastly, histories of two new products may look
the same on the surface, but actually be driven by completely different underlying
variables (trial rates, repeat purchase rates, purchase cycle lengths, etc.).

Test Market: A second method of forecasting new product success is the test market.
The new product is developed and introduced into one or more test markets. Actual
store sales and market shares are tracked via Nielsen or IRI, or data from retailers in
some instances. Often this sales tracking is supplemented by surveybased tracking of
consumer awareness, trial, usage, and repeat purchase patterns. In some instances,
consumer diary panels or purchase panels are used to track consumer trial, repeat
purchases, and share. The test-market approach has much to offer. It is a real-world
experiment. No variables are excluded from the test. Success in test markets is highly
predictive of success nationwide (especially if multiple test markets are used). The test
market gives the manufacturer the opportunity to work the “bugs” out of the new
product, its packaging, its shipping, its display on store shelves, etc., so that a national
rollout later is likely to be relatively trouble-free.

Before-After Retail Simulation : A third method of forecasting is before-after retail

simulation. A sample of target-audience consumers is presented with simulations
showing the in-store retail environment and a realistic display of all the major brands in
the category. The consumer is asked to choose or “purchase” brands as they normally
would, or as they might on their next 10 purchases. The new product is missing from the
simulation during this “before” measurement. Then the consumer is exposed to the new
product concept and/or advertising that conveys the new product concept. Later, the
consumer sees the exact same simulated display (except now it contains the new
product) and is asked to make the same choices or purchase decisions as before. So,
we have market shares for all brands in the category before the new product is
introduced, and the same data after the new brand is introduced. The market share
achieved by the new brand is a predictor of the brand’s “instantaneous sales rate” at
retail (or “running sales rate”) at the end of year one, once discounted by predicted
awareness, trial, and distribution levels for the new brand (and assuming the product
itself is at parity with major competitors). Year-one trial volume is partly excluded from
this sales or depletions forecast, however; and the sales estimate is not for year one, but
for the “going rate” at the end of year one.

Normative Approach: A fourth technique for forecasting new product sales is the
“normative” approach. A database of historical norms for new products is assembled
(trial rates, repeat purchase rates, purchase cycles, and so on) by product category. A
mathematical model sits atop the normative database and includes the marketing
plan variables that might cause a new brand to perform above, at, or below the norms.
For example, if the new brand has outstanding television advertising (based on
advertising research), then the model would bump the trial rate higher within the
normative distribution. If an in-home usage product test has proven that the new brand
is better than its major competitors, then the model would adjust the repeat purchase
rate higher within the distribution of historical norms. Therefore, based on inputs from
concept testing, product testing, and copy testing, the model decides where (within
the normative possibilities) this new brand will fall. Then the model simply combines all of
this into predicting a trial curve and a repeat purchase curve, which yields a year-one
forecast of sales or retail depletions. This method can produce accurate forecasts,
depending upon the accuracy of the normative data, the quality of the model, and
the accuracy of the marketing inputs.

ATAR Model: The ATAR Model is most similar in format to a sales forecast, predicting
market penetration by: • Awareness, • Trial, • Availability, and • Repeat purchase.

Awareness is forecast based on year-one advertising and media plans. All media
advertising (including print, radio, Internet, etc.) is converted into television GRP (gross
rating point) equivalents. These GRP equivalents are fed into a mathematical model to
forecast awareness week by week during the brand’s first year of life. The model
converts this awareness into a cumulative trial rate, week by week, based on predicted
distribution levels, promotional plans, and inputs from concept research and advertising
testing.

Samples of the new product are placed in homes for consumers to use under normal
conditions for a period of days or weeks (i.e., an in-home usage product test). The
results of the product test are used to predict the repeat purchase curve and the
purchase cycle. Then the model combines the trial predictions and the repeat
purchase curve into a forecast of first-year retail depletions. These types of models, in
the hands of experienced analysts working in familiar product categories, can often
generate accurate new product forecasts for consumer packaged goods (within 10%
to 15% of actual depletions, plus or minus).
MARKET PENETRATION

• Market penetration which is the number of customers you have as a percentage of the
total customers in the market. This can be on the basis of sales in a period (sales
penetration) or installed base. Combining penetration with market share you can
calculate sales per customer. If you have a large customer penetration, but a low
market share, then you are making many low-value sales and one way to increase share
is to increase the value of the sales, rather than chase more customers.
• Market penetration can be used to determine the size of the potential market. If the total
market is large, new entrants to the industry might be encouraged that they can
gain market share or a percentage of the total number of potential customers in the
industry.
• For example, if there are 300 million people in a country and 65 million of them own cell
phones, the market penetration of cell phones would be approximately 22%. In theory,
there are still 235 million more potential customers for cell phones, or 78% of the
population remains untapped. The penetration numbers might indicate the potential for
growth for cell phone makers.
• In other words, market penetration can be used to assess an industry as a whole to
determine the potential for companies within the industry to gain market share or grow
their revenue through sales. Revisiting our example, the global cell phone market
penetration is often used to estimate whether cell phone producers can meet their
earnings and revenue estimates. If the market is considered saturated, it means that
existing companies have the vast majority of the market share—leaving little room for
new sales growth.

KEY TAKEAWAYS

• Market penetration is a measure of how much a product or service is being used by

customers compared to the total estimated market for that product or service.
• Market penetration also relates to the number of potential customers that have
purchased a specific company’s product instead of a competitor’s product.
• Market development is the strategy or action steps needed to increase market share or
penetration.

MARKET PENETRATION FOR COMPANIES

• Market penetration is not only used on a global and industry-wide scale to measure the
scope and for products and services, but also is used by companies to assess their
product's market share. As a metric, market penetration relates to the number of
potential customers that have purchased a specific company’s product instead of a
competitor’s product, or no product at all. Market penetration for companies is typically
expressed as a percentage, meaning the company's product represents a certain
percentage of the total market for those products.
• To calculate market penetration, the current sales volume for the product or service is
divided by the total sales volume of all similar products, including those sold by
competitors. The result is multiplied by 100 to move the decimal and create a
percentage.
• If a company has a high market penetration for their the products, they're considered a
market leader in that industry. Market leaders have a marketing advantage because
they can reach more potential customers due to their well-established products and
brand. For example, a market leader and manufacturer of cereal will have far more shelf
space and better positioning than competitor brands because they're products are so
popular.
• Also, market leaders can negotiate better terms with their suppliers because of their
significant sales volume. As a result, market leaders can often produce a product
cheaper than their competitors, given the scale of their operation.
Increasing Market Penetration
• While market penetration is a metric to determine the level of market share gained and
the potential for new sales, market development focuses on the steps to achieving the
gains in market share.
• Market development is often a strategy of specific details or action steps needed to
increase the number of potential customers. Some strategies employ advertising, social
media campaigns, and direct sales outreach efforts to prospects of untapped market
segments. Lowering prices and bundling product offerings can also help gain traction in
previously untapped portions of the market.
• For example, an established company might have a product that has a large
percentage of the market share for women. However, the company, following its market
penetration analysis, realizes they have a small market share with male customers. As a
result, they might develop a specific product and marketing outreach campaign
designed to increase their male clients.
• Market penetration, as a measurement, can be recalculated following the various sales
and marketing campaigns to determine their level of success—whether market share
increased or decreased. Market penetration provides companies with enormous insight
as to how their customers and the total market view their products. The figures can, in
turn, be compared to specific competitors to determine how the company is faring in its
sales efforts and how its products and services stack up to the competition.

Example of Market Penetration

• By the fourth quarter of 2018, Apple Inc. had amassed a market share of more than
50% of the smartphone market throughout the world. Apple has consistently introduced
new versions or their iPhones with added enhancements and upgrades, including
releasing its high-end iPhone X. As a result of its market penetration, Apple has a larger
market share than all of its competitors combined. However, the company still has
opportunities to add to its customer base by targeting its competitors' clients and woo
them over to Apple products and services.
Customer Satisfaction

• Customer satisfaction is defined as a measurement that determines how happy

customers are with a company’s products, services, and capabilities. Customer
satisfaction information, including surveys and ratings, can help a company determine
how to best improve or changes its products and services.
• An organization’s main focus must be to satisfy its customers. This applies to industrial
firms, retail and wholesale businesses, government bodies, service companies, nonprofit
organizations, and every subgroup within an organization.
• Customer satisfaction is a marketing term that measures how products or services
supplied by a company meet or surpass a customer’s expectation.
• Customer satisfaction is important because it provides marketers and business owners
with a metric that they can use to manage and improve their businesses.

Importance of customer satisfaction:

• It’s a leading indicator of consumer repurchase intentions and loyalty
• It’s a point of differentiation
• It reduces customer churn
• It increases customer lifetime value
• It reduces negative word of mouth
• It’s cheaper to retain customers than acquire new ones

1. It’s a leading indicator of consumer repurchase intentions and loyalty: Customer satisfaction is
the best indicator of how likely a customer will make a purchase in the future. Asking customers
to rate their satisfaction on a scale of 1-10 is a good way to see if they will become repeat
customers or even advocates. Any customers that give you a rating of 7 and above, can be
considered satisfied, and you can safely expect them to come back and make repeat
purchases. Customers who give you a rating of 9 or 10 are your potential customer advocates
who you can leverage to become evangelists for your company. Scores of 6 and below are
warning signs that a customer is unhappy and at risk of leaving. These customers need to be put
on a customer watch list and followed up so you can determine why their satisfaction is low.

2. It’s a point of differentiation: In a competitive marketplace where businesses compete for

customers; customer satisfaction is seen as a key differentiator. Businesses who succeed in these
cut-throat environments are the ones that make customer satisfaction a key element of their
business strategy.

3. It reduces customer churn: An Accenture global customer satisfaction report (2008) found
that price is not the main reason for customer churn; it is actually due to the overall poor quality
of customer service. Customer satisfaction is the metric you can use to reduce customer churn.
By measuring and tracking customer satisfaction you can put new processes in place to
increase the overall quality of your customer service.

4. It increases customer lifetime value : A study by InfoQuest found that a ‘totally satisfied
customer’ contributes 2.6 times more revenue than a ‘somewhat satisfied customer’.
Furthermore, a ‘totally satisfied customer’ contributes 14 times more revenue than a ‘somewhat
dissatisfied customer’. Satisfaction plays a significant role in how much revenue a customer
generates for your business. Successful businesses understand the importance of customer
lifetime value (CLV). If you increase CLV, you increase the returns on your marketing dollar.

5. It reduces negative word of mouth

McKinsey found that an unhappy customer tells between 9-15 people about their experience. In
fact, 13% of unhappy customers tell over 20 people about their experience. That’s a lot of
negative word of mouth. How much will that affect your business and its reputation in your
industry? Customer satisfaction is tightly linked to revenue and repeat purchases. What often
gets forgotten is how customer satisfaction negatively impacts your business. It’s one thing to
lose a customer because they were unhappy. It’s another thing completely to lose 20 customers
because of some bad word of mouth. To eliminate bad word of mouth you need to measure
customer satisfaction on an ongoing basis. Tracking changes in satisfaction will help you identify
if customers are actually happy with your product or service.

6. It’s cheaper to retain customers than acquire new ones: This is probably the most publicized
customer satisfaction statistic out there. It costs six to seven times more to acquire new customers
than it does to retain existing customers. If that stat does not strike accord with you then there’s
not much else I can do to demonstrate why customer satisfaction is important. Customers cost a
lot of money to acquire. You and your marketing team spend thousands of dollars getting the
attention of prospects, nurturing them into leads and closing them into sales. Why is it that you
then spend little or no money on customer retention? Imagine if you allocated one sixth of your
marketing budget towards customer retention. How do you think that will help you with
improving customer satisfaction and retaining customers?

Customer Satisfaction Analysis Techniques (CSAT)

• Customer satisfaction (CSAT) is a metric used to quantify the degree to which a customer
is happy with a product, service, or experience. This metric is usually calculated by
deploying a customer satisfaction survey that asks on a five or seven-point scale how a
customer feels about a support interaction, purchase, or overall customer experience,
with answers between "highly unsatisfied" and "highly satisfied" to choose from.

1. CSAT helps you identify unsatisfied customers:

• You can't analyze unhappy customers' feedback, or make changes to your product or
service to make them happy, if you don't know customers are unhappy in the first place.
Make sure you're deploying CSAT surveys, analyzing, and acting on negative customer
feedback, no matter how tough it is to hear, as your top priority, so you can prevent
them from churning, leaving negative customer reviews, or warning against your brand
to friends and colleagues.

2. CSAT helps you identify happy customers:

• If you don't measure customer satisfaction, you can't identify your happy customers who
are finding success with your product or service. And if you aren't prioritizing customer
success, odds are, your company isn't growing -- at least, that's what we found in a
survey of nearly 1,000 business leaders across industries.
• Growing companies prioritize customer success, and a key way to identify and activate
successful customers is to request customer feedback to identify your satisfied customers.
• These customers are the ones who will shout your praises to their friends and family, and
they'll refer new customers -- growing your business faster than sales and marketing, at
no cost of customer acquisition.
• Not only is it cheaper to retain an existing customer than it is to acquire a new one,
but repeat customers spend more, and so do referred customers.

3. CSAT helps you forecast and work proactively:

• Without measuring CSAT and similar customer success metrics, it's hard for customer
success teams to plan and inform priorities. Without metrics to inform how healthy (or
unhealthy) your customer base is, customer success teams can't work with Sales to
improve customer expectations, with Product to incorporate product feedback, or
Marketing to improve the end-to-end customer experience. Leaders need data and
trends to forecast team performance over the next month, quarter, and year to adapt
strategy, if needed.
4. CSAT drives your inbound methodology:

• Customer satisfaction does more than just measure customer service. It optimizes the
performance of other departments by providing them with useful customer insights. This
information is used to improve customer experience which leads to a cyclical increase in
customer satisfaction.
• Marketing, sales, and product development teams use CSAT to guide their work and
interact with customers. Businesses with excellent customer satisfaction can easily attract
and engage with customers because they've proven they can provide a delightful
brand experience. If your company wants to adopt the Inbound Methodology, you'll
need to integrate customer satisfaction into every function you perform.

5. CSAT helps marketers attract new leads:

• Most customers are more likely to trust their peers than they are to trust marketing. In
fact, 71% of customers are more comfortable with a purchase after reading a positive
company review. But without great customer satisfaction, your company won't have
these reviews to share.
• Your marketers should rely on customer testimonials to attract new leads to your business.
Since customers are more willing to trust other users, these reviews are effective in
attracting prospects. That's because 55% of customers are willing to spend more money
on a guaranteed good experience. The better your customer satisfaction, the more
material your marketers will have to advertise your brand.

6. CSAT is a selling point for sales teams:

• Sales teams benefit from customer satisfaction because it acts as a selling point for
closing deals. As we mentioned above, customers are more willing to pay for an
experience they know is great. If your customer satisfaction is superb, your team should
highlight that during their pitch to leads.
• Additionally, CSAT helps sales teams understand customer expectations. They can
analyze happy customer reviews to see which parts of your product or service they
should emphasize. That way, they can hammer home distinct advantages that
differentiate your business from its competitors.

7. CSAT guides product updates:

• Negative customer reviews act as alerts that let companies know when a product or
service has a problem that needs to be fixed. Product development teams monitor CSAT
to identify these issues and quickly resolve them. This is particularly important
for SaaS businesses that regularly update their software. By keeping a close eye on CSAT,
development teams can correct costly product roadblocks that may lead to churn.

8. CSAT leads to customer advocacy.

• If your business has positive customer satisfaction, then you have customers who are loyal
to your brand. These customers will refer new leads to your company and generate more
testimonials for your marketing team. You can create customer advocacy programs for
these users and encourage them to advertise on your business' behalf.
• Customer advocacy programs reward customers for referring your business to potential
leads. Customers are given incentives to join the program, then receive gifts or offers in
exchange for reviews and testimonials. This creates a mutually beneficial relationship that
rewards your best customers and keeps them loyal.

9. CSAT improves customer retention.

• It should be no surprise that the happier your customers are, the better your customer
retention will be. After all, happy customers won't have much reason to turn to
competitors, so long as you keep them satisfied.
• On the other hand, unhappy customers will have plenty of reasons to churn and it'll be
up to your team to convince them otherwise. By measuring CSAT, you can look at
individual customer needs and create personalized offers for users who are likely to
churn. Since 60% of customers will leave a company due to a poor customer service
experience, you may only get one opportunity to stop someone from churning. CSAT
optimize your chances by providing you with relevant information about the customer's
experience with your brand.
Customer lifetime value (CLV)

Customer lifetime value (CLV) is one of the key stats likely to be tracked as part of a
customer experience program. CLV is a measurement of how valuable a customer is to
your company with an unlimited time span as opposed to just the first purchase. This
metric helps you understand a reasonable cost per acquisition.

CLV is the total worth to a business of a customer over the whole period of their
relationship. It’s an important metric as it costs less to keep existing customers than it
does to acquire new ones, so increasing the value of your existing customers is a great
way to drive growth.

If the CLV of an average coffee shop customer is $1,000 and it costs more than $1,000
to acquire a new customer (advertising, marketing, offers, etc.) the coffee chain could
be losing money unless it pares back its acquisition costs.

Knowing the CLV helps businesses develop strategies to acquire new customers and
retain existing ones while maintaining profit margins.

Measurement of CLV

If you’ve bought a $40 Christmas tree from the same grower for the last 10 years, your
CLV has been worth $400 to them. But as you can imagine, in bigger companies CLV
gets more complicated to calculate.

Some companies don’t attempt to measure CLV, citing the challenges of segregated
teams, inadequate systems, and untargeted marketing.

When data from all areas of an organisation is integrated however, it becomes easier
to calculate CLV.

CLV can be measured in the following way:

1. Identify the touchpoints where the customer creates the value

2. Integrate records to create the customer journey
3. Measure revenue at each touchpoint
4. Add together over the lifetime of that customer

At its simplest, the formula for measuring CLV is:

Customer revenue minus the costs of acquiring and serving the customer = CLV
Customer Lifetime Value Model

Calculate average purchase value: Calculate this number by dividing your company's
total revenue in a time period (usually one year) by the number of purchases over the
course of that same time period.

• First, we need to measure their average purchase value. According to Kissmetrics, the
average Starbucks customer spends about $5.90 each visit. We can calculate this by
averaging the money spent by a customer in each visit during the week. For example, if I
went to Starbucks three times, and spent nine dollars total, my average purchase value
would be three dollars.

Calculate average purchase frequency rate: Calculate this number by dividing the
number of purchases by the number of unique customers who made purchases during
that time period.

• The next step to calculating CLTV is to measure the average purchase frequency rate. In
the case of Starbucks, we need to know how many visits the average customer makes to
one of their locations within a week. The average observed across the five customers in
the report was found to be 4.2 visits. This makes our average purchase frequency rate
4.2.

Calculate customer value: Calculate this number by multiplying the average purchase
value by the average purchase frequency rate.

• Now that we know what the average customer spends and how many times they visit in
a week, we can determine their customer value. To do this, we have to look at all five
customers individually, and then multiply their average purchase value by their average
purchase frequency rate. This lets us know how much revenue the customer is worth to
Starbucks within the course of a week. Once we repeat this calculation for all five
customers, we average their values together to get the average customer's value of
$24.30.

Calculate average customer lifespan: Calculate this number by averaging the number
of years a customer continues purchasing from your company.

• While it's not specifically stated how Kissmetrics measured Starbucks' average customer
lifetime span, it does list this value as 20 years. If we were to calculate Starbucks' average
customer lifespan we would have to look at the number of years that each customer
frequented Starbucks. Then we could average the values together to get 20 years. If you
don't have 20 years to wait and verify that, one way to estimate customer lifespan is to
divide 1 by your churn rate percentage.

Calculate CLTV: multiply customer value by the average customer lifespan. This will give
you the revenue you can reasonably expect an average customer to generate for your
company over the course of their relationship with you.

• Once we have determined the average customer value as well as the average
customer lifespan, we can use this data to calculate CLTV. In this case, we first need to
multiply the average customer value by 52. Since we were measuring customers on their
weekly habits, we need to multiply their customer value by 52 to reflect an annual
average. After that, multiply this number by the customer lifespan value (20) to get CLTV.
For Starbucks customers, that value turns out to be $25,272 (52 x 24.30 x 20= 25,272).
 Cannibalization Analysis

• Market cannibalization refers to a phenomenon that happens when there’s a

decreased demand for a company’s original product in favor of its new
product. When cannibalization occurs, the business experiences losses not just in
sales volume but also in revenue and market share. Due to cannibalization, some
companies opt not to release their new products because they don’t want the
market share of their existing products to decline.
• In Simple terms, the "cannibalization" refers to a new product eating into the
profits of a current product from the same company. It's a fairly common
business strategy, and while the idea of cannibalizing your own product sounds
bad, it can actually be a successful business practice. In 2010 for example, when
Apple introduced the iPad, it took sales away from the original Mac computer.
However, the iPad ultimately led to an expanded market for consumer
computing hardware and was quite a successful venture for Apple.

How to Calculate the Effect of a Cannibalization Rate

Cannibalization Rate = Sales loss of existing product / Sales of the new product

Example. Suppose a company that sells sunglasses (S) for $10 launches a new line of
polarized sunglasses (PS) for $15. The company sells 70 PS and the cannibalization rate is
60 percent. This means that 60 percent of the new product’s sales are taken from the
existing product (S). So we can use the cannibalization rate to calculate the sales loss of
the existing product.

60% of 70 PS = 42

This means the sales of existing product S will be decreased by 42 from its current sales.
Before launching the polarized sunglasses, the company sold 80 regular sunglasses. This
means sales of S after launching PS will be:

• 80 – 42 = 38 S

• Sales of the existing product after cannibalization = 38 S

• Sales of new product = 70 PS

• (38 units x $10) + (70 units x $15) = $380 + $1050 = $1430

Without introducing the new product (PS) total sales would have been: 80S x $10= $800.
So despite the cannibalization rate of 60%, the new product brought the company a
profit of $630. In this situation, the cannibalization rate did not negatively affect sales,
but it can have a negative impact depending on several factors, including the price to
make the new product and the final sales price of the new product.
Importance of Market Cannibalization

• As seen in the example above, cannibalization can cost a company a

significant amount of revenue. It often happens when a company fails to
perform due diligence before launching its new product.
• In some instances, the new product does not only hurt a company’s sales
volume and revenue. The worst-case scenario is that the original product gets
phased out of the market entirely.
• However, sometimes a business intentionally cannibalizes its existing product with
a new one. Why would a company introduce a new product line knowing very
well that it’s going to jeopardize the existing one? – As a strategy for growing
and expanding its operations.
• Assume that ABC, the watch-making company, has been producing luxury
watches for a while. However, for some reason, the watches don’t appeal to the
intended target audience. Instead of producing a completely new product, the
company decides to tweak its existing lux watch. The improvements are meant
to attract the same consumers in the market. In this case, ABC deliberately
launches a new line of watches because it aims to retain its current customers,
as well as attract new ones.

Example of Market Cannibalization

• There are certain situations where market cannibalization cannot be avoided.

For example, we now see tons of department stores that operate as online
businesses as well. The store owners already understand the risk that its online
sales can jeopardize those of its brick-and-mortar stores.
• A good example of a company that uses corporate cannibalization to its
advantage is Apple Inc. When the tech giant invents a new iPhone, it doesn’t
shy away from releasing it into the market. In fact, it ensures that their newer
version is available in all their chain stores.
• Obviously, this causes the sales of their older iPhones to drop significantly.
However, Apple makes up for this loss by capturing its competitors’ current
customers, hence increasing its client base.
• In addition to Apple, Amazon is another company that has dealt with
cannibalization very smartly. It runs an online retail company where consumers
can purchase different goods. However, at the same time, it also runs a chain of
stores known as Amazon Go.
• Do sales of Amazon’s physical stores cannibalize their online operations? No.
That’s because Amazon Go only trades in products that cannot be sold on their
site, specifically, freshly-prepared meals.
Methods of preventing Market Cannibalization

Another way of dealing with market cannibalization is to prevent it from happening in

the first place. Company owners don’t need to stop making their existing products
entirely. There are other strategies they can use to prevent cannibalization:

1. Identify the specific markets for each of the products

In such a way, it’s easy to determine what gap the existing product fills and the specific
consumers that the item serves. All of this is information that company owners need to
have before deciding to launch a similar or new product.

2. Assess the possible market demand for the proposed new product

In particular, determine how much net income the new product is likely to bring in. This
means that one will need to evaluate the production costs incurred versus the benefits,
which are in the form of new revenue. It’s important to note that new products don’t
always lead to higher revenue. They may increase sales volume in the short term but
cause revenue to fall in the long term. In such a case, then a company is better off
sticking with their original product.
BRAND PERFORMANCE

Brand performance definition: Brand performance is the measure of a brand’s results against the
goals initially set. Brand performance is highly personal and can vary drastically from one brand
to the next. Brand performance is typically measured using a combination of the following
metrics:

• Audience growth
• Audience interactions
• Brand penetration
• Brand knowledge
• Brand awareness
• Sales figures

Measurement of Brand performance

• We can measure your brand’s performance by looking at metrics such as awareness,

familiarity, consideration, and advocacy.

• Having a great brand is important for any business to be successful – it’s that all-
important first impression that lasts in people's minds and helps them trust the business.
However, a lot of businesses forget this and are quick to spend money elsewhere than on
their brand.
• The reason for this is that they don’t know how to measure the performance of their
brand. It’s easy to measure the performance of a marketing campaign or salesperson;
you have metrics and reports that show you exactly what is happening and when. But
when it comes to a brand, how do you tell if it is good or not?

Metric 1: Awareness

• The first metric you should look at to decipher your brand’s performance is awareness.
With this metric, you see if your audience remembers your brand and will, therefore, keep
coming back for more. Think about Google, for instance. It has such a large brand
awareness that everyone understands what you mean by “Let me ‘Google’ that.” With
awareness, the key performance indicators (KPIs) you will be looking for are:
• Top-of-mind brand awareness: This is seeing how your customers truly view your position
in the market – are you a leader or innovator?
• Spontaneous brand awareness: This might be a post, blog, or video mentioning you
without any prompts
• Prompted brand awareness: This could be your audience mentioning or recommending
your product or service

How to Measure Awareness

• There are two key and easy ways to measure the awareness of your brand. First, look at
the overall traffic that comes to your website each day, month, or year, and see how
many of those visitors are coming directly to your site by putting in your website’s URL. This
tells you that people know and recognize your brand. You can look at your website
numbers either as a total number or as a percentage of visitors. For example, more well-
known companies might have about 50% of their visitors directly coming to their site,
whereas smaller companies might only have 10 to 20%. Another way to measure brand
awareness is to see how many people are searching for your brand name. This is another
a good indicator of brand recognition in the market.
• It is important to measure the awareness of your brand over time to see how your
marketing efforts affect the recognition of your brand. This will help you focus that
 marketing for maximum impact. You don’t need to spend as much on advertisements if
you can harness brand recognition and if people search for you directly.

Metric 2: Familiarity

• The second metric looks at how well your customers know your brand and what you
stand for. You might know the name of some brands but don’t know what it is they do or
make. This is one of the first steps in creating brand advocates and is a great way to
measure the performance of your brand.
Your key familiarity indicators are:
• Self-declared knowledge about the brand: When your audience mentions your brand or
products, you should see what they say about it and how much they know about the
brand
• Brand profile: What do people know about your brand and the products you have?

How to Measure Familiarity

• There are two indicators when looking at familiarity: bounce rate and time on site.
• What these do is help you understand if the visitors to your site know and understand
what you do before they visit – if they don’t, they are highly likely to leave your site
quickly.
• This metric is also a great one to tie in with your awareness metric, as you can reference
how many people are directly searching for your site and then leaving.
• What this ends up telling you is how well you communicate your offerings and brand in
your marketing campaigns. If you communicate poorly, you can expect a lot of direct
visitors to leave quickly.

Metric 3: Consideration

• The next metric to look at is consideration and how much of your audience actually
wants to buy your product and brand. What to look for:
• Purchasing intent: You can find this by looking at data collected, such as interaction with
marketing messages, website engagement, demographics, and previous purchases.
• How to Measure Consideration: The best way to look at measuring consideration and
purchasing intent in relation to your brand is to look at an overall view. Go high-level and
look at everything that could relate to intent to buy.
• This doesn’t have to be direct purchases because your brand alone won’t sell products,
and everyone who visits your site is in a different place in the sales cycles.
• Every site and company will have different metrics for this, but a good place to start will
be looking for users visiting a different page or clicking a certain button such as a “buy
now” or “contact.” These metrics will show that users are interested in your brand and
product or service.
• What you need to do next is look at your marketing and see how you can improve that
to get more people to actually buy rather than just show intent.

Metric 4: Advocacy

• This is an incredibly important metric and looks at the holy grail of marketing: referrals.
What is great about brand advocates is that they sell your brand and product to
everyone for free, and they are also a trusted source of information to the people they
are selling to. What to look for:
• Net promoter score: Start with quick and easy online surveys or questions
• Social mentions: See how many people are mentioning your brand, and check the
sentiment behind these mentions
How to Measure Advocacy
• This is probably the only metric so far that you might not have any data for, but it is fairly
simple to set up and just requires a little more effort.
• First, you need to ask your customers how likely they are to recommend your brand. It’s a
simple question but can help you identify how well you perform as a brand and a
company.
• To calculate your net promoter score (NPS), you need to look at all the answers you get
back from this question and group them into people who score 9-10, people who score
7-8, and those who score 0-6. From this, you can subtract the percent of people giving 9-
10 vs. the percentage giving 0-6. Anyone who gives you 9-10 is a promoter, 7-8 are
passives, and 0-6 are detractors. You want as many 9-10 as possible.
• The second way is to look at how many people mention your brand on social media,
and in a similar way to the NPS, look at the sentiment behind the mention (are they
happy or angry?), and calculate the percentage mentions your brand in a positive light.
 Sales Forecasting

UNIT 18 SALES FORECASTING

Objectives

After studying this unit, you should be able to:

• understand what a sales forecast is
• appreciate how the sales forecast is prepared .
• list the product-sales determinants of different type of products
• explain the need for evaluating sales forecast and its relationship with sales
budget and profit planning.
Structure
18.1 Introduction
18.2 What is a Sales Forecast?
18.3 How to Prepare a Sales Forecast?
18.4 Product Sales Determinants
18.5 Approaches to Sales Forecasting
18.6 Methods of Forecasting
18.7 Status of Forecasting Methods Usage
18.8 The Evaluation of Forecasts
18.9 Computerized Sales Forecasting
18.10 Relating the Sales Forecast to the Sales Budget and Profit Planning
18.11 Summary
18.12 Key Words
18.13 Self-assessment Test
18.14 Further Readings

18.1 INTRODUCTION
Sales forecasting, though crucial, is one of the grey areas of marketing management.
It is crucial because without a proper sales forecast the marketing executive cannot
determine the type of marketing programme to use in order to attain the desired sales
and marketing objectives. It is a grey area of marketing management in the sense that
it is based on a number of assumptions regarding customer and competitor behaviour
as well as the market environment, and therefore, its reliability depends upon the
extent of culmination of the uncertainty as predicted. Before understanding the
various aspects of sales forecasting let us look at the sales forecasting practices
followed by two large size companies.

A leading automobile engine manufacturing company determines the sales

forecast of its diesel engines by using two approaches. In the first instance, it tines
an econometric model and an estimate of the company's market share to derive ,e
company forecast. Under the second approach the company initiates the process
by undertaking a detailed-study of the needs of each of its diesel vehicle
customers. This study includes an analysis of market factors such as the vehicle
manufacturer's present engine inventory and back orders as well as the vehicle
manufacturer's marketing programme. The resulting forecast is prepared by
vehicle manufacturer, model, and month-wise. These individual manufacturer
forecasts are aggregated to produce a company sales forecast which is then
compared with the company forecast arrived at under the first approach, and
finalised.

A colour television receiver manufacturing company develops its sales forecast

on the basis of : total colour television market demand (including the replacement
rate of black & white television by colour television), growth rate of the colour
television market, the government plans for commissioning additional
transmission centers, availability of imported kits, and company's market share
objective. 5
Distribution and Public Policy
18.2 WHAT IS A SALES FORECAST?
A sales forecast predicts the value of sales over a period of time. It becomes the basis
of marketing mix and sales planning.

A short-term sales forecast (say for a period of one year) when linked to the sales
budget helps in the preparation of an overall budget for the firm as a whole. The
short-term sales forecast in effect also provides the essential financial dimension to
sales in terms of expected sales revenue and expenses required. Also, it helps in
assessing the cash inflow and outflow needs and their sources.

A long-term sales forecast (say for a period of 5 years or so) on the other hand,
focuses on capital budgeting needs and process of the firm. It provides for changing
the marketing strategy of the firm, if needed, and includes reference to emerging
product market needs, new market segments to be catered, review of distribution
network and promotional programmes, organisation of salesforce, and marketing set
up. The long-term sales forecast triggers the task of aligning the production,
procurement, financial and other functional needs of the firm with the finalised sales
forecast.

18.3 HOW TO PREPARE A SALES FORECAST?

The preparation of a sales forecast requires (a) the availability of historical
information on the product and industry sales, (b) identification of product sales
determinants, (c) prediction regarding the behaviour of market forces for the period
under forecast, (d) use of appropriate techniques for forecasting, (e) judgement of
executives preparing the sales forecast, and (f) the firm's market share objectives.
These sales forecasting requirements are discussed below.

Information Needs for a Sales Forecast

Use of reliable, up-to-date and relevant information is me most critical aspect of sales
forecasting. The information required for a sales forecast should cover:
1. An assessment of the total market size
2. An appreciation of the market trends
3. Innovations which may have an impact on the market
4. Market trends in foreign countries where the market pattern is in advance of the
domestic market
5. An evaluation of the market share obtained
6. An evaluation of competitive strengths
7. The criteria on which purchase decisions are likely to be made
8. Assessment of elements at work in the market which will influence sales
9. The influence in the market of competitors
10. The level of sales needed by the company to obtain optimum use of resources
11. The image of the Company in the market
12. The marketing strategy of the company to capitalise on its strengths and
overcome its weaknesses
13. An evaluation of the market share which can be obtained
14. Assessment of factors within the company which will influence sales levels
15. Planned distribution and sales promotion activities by the company

6
 Sales Forecasting
Activity 1
By interviewing relevant persons, try to find out how the following forecast the sales
of their merchandise:
A) Shopkeeper
……………………………………………………………….…………………………
…………………………………………………………………………………………
………………………………………………………………………………………...
B) Wholesaler
……………………………………………………………….…………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
C) Manufacturer
……………………………………………………………….…………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

18.4 PRODUCT SALES DETERMINANTS

Product sales, generally speaking, depend upon the market need, price of the product,
demand-supply situation, purchasing power available with the customers and their
willingness to spend that on the purchase of the product. The importance of these
factors varies according to the type of product sold i.e., consumer non-durable goods,
consumer durable goods, and industrial goods. Let us now identify the major
determinants of product sales relating to different types of goods.
Consumer Non-durable Goods
Three, basic factors determine the sales of relatively low priced, short shelf life and
frequently purchased consumer goods. These are: disposable personal income
(personal income minus direct taxes and other deductions) of the customer;
demographic characteristics (age, sex, occupation, urban/rural location, etc.) of the
population, and the price level including competitive structure of the market.
The growth in the disposable income level as well as per capita availability of
products provide continuity in the sales of food products, textiles, household articles
and similar products.
Price of a product relative to the disposable income of the customer influences the
customer choice criteria regarding purchase of complimentaries as well as substitutes.
It also affects the quality level (high, average, low) of the products purchased.
Changes in demographic characteristics of the population such as its size, literacy,
number of children in a family, etc. help in the selection of preferred market
segments and their cultivation with the appropriate marketing mix.

Consumer Durable Goods

These goods have a durable (long) life and are generally bought out of savings. Their
purchase frequency is thus limited to once or twice in the life of a household. The
purchase of such products is influenced by:
a) discretionary income (disposable income minus essential expenditures on basic
necessities and other fixed obligations like debt payments, insurance premiums, etc.)
level of the population.
b) availability of infrastructural and support facilities for the product usage in the
country such as pucca roads for the usage of scooters and other vehicles;
broadcasting stations and transmission centres in the case of radios, transistors and
television; and electricity n the case of various electrical appliances including
refrigerators and air-conditioners. Availability
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Distribution and Public Policy
of repair, spares and maintenance facilities in proximity to the households location
help increase the sale of consumer durable further.
c) price, credit or hire-purchase facilities available, and
d) life-style of the households and the role of ego, status and prestige in it.
The improvements recorded in the levels of discretionary income, extension in
infrastructural and support facilities, easy availability of consumer loans and hire-
purchase/ instalment schemes as well as changes in urban life-style has opened up the
Indian consumer durable market in a big way. The rising sales of transistors, two-in-
ones, televisions, scooters and motor-cycles, mixers and cookers, foam mattresses
and furniture items, etc. are just a few indications of the same.
Industrial Goods
These goods help in the production of other goods which are closer to consumer
usage. Their demand, therefore, is linked with the off-take by the ultimate users and
so is, popularly called `derived' demand. In other words, industrial goods are mainly
basic or mother goods, such as machine tools, power equipment, steel, industrial
machinery, components, control instruments, lubricants, etc. And, to repeat, the sales
of industrial goods is linked with the demand in the user industries e.g., demand of
watch making machinery and components in India is determined by the sale and
demand of watches in India.
Industrial goods forming part of the industrial infrastructure are greatly influenced by
the Government of India's industrial and technology policy, budgetary outlays,
developmental plans and the availability of industrial finance through national and
international sources. Any policy or allocation change, therefore, affects the working
of Industrial goods, firms and often makes them face either a recession or a recovery
position in the market.
In short, an industrial products sales forecast is influenced by (a) company forecast, (b)
industry forecast, (c) national economic forecast, and (d) world economic forecast.
18.5 APPROACHES TO SALES FORECASTING
There are two general approaches to sales forecasting at the level of the firm-the
breakdown approach (also called top-down approach), and the market build-up approach.
Breakdown Approach
Under this approach, the head of the marketing function initially develops a general
economic and market sales potential for a specific period. The firm's sales potential is
then derived from it. The example of a colour television receiver company
developing its sales forecast given in the beginning of this unit relates to the use of
the breakdown approach.
Market Build-up Approach
In this approach the task of sales forecasting begins by first estimating the sales at the
product, product lines, customer groups or geographical area level. The estimates of the
different product, product lines, customer groups or geographical areas are then
aggregated and reviewed in the light of the firm's objectives, available resources, as
well as competitors activities before the sales forecast is finalised. The example of a
leading automobile engine manufacturing company given in the beginning of this
lesson relates to the use of both a breakdown approach and a market build-up approach.
While both the approaches have their own usefulness, the breakdown approach is'
less time consuming and costly when it can use aggregate data made available by
others. It may, however, lack the advantages of greater realism and reliability which
result from the use of market build-up approach. Combination of both the approaches
though time consuming seems ideal and worth the effort expended.
18.6 METHODS OF FORECASTING
Let us now consider various methods used for preparing the sales forecast. These
methods are commonly grouped into 5 categories: executive judgement, surveys,
time series analysis, 'correlation anti regression methods and market tests.

8
 Sales Forecasting
Executive Judgement
It is an efficient method of sales forecasting. Based on the past performance, insights
gained and intuition of the executive(s), this method of sales forecasting works out fairly
well particularly when the market is stable. However, this method generally suffers from
difficulty in realistically reflecting changes in the market. Salesforce composite method
and jury of executive opinion are the two popular forms of this method of sales
forecasting.
Surveys
A second way of sales forecasting is by surveying the customers, salesforce, experts,
etc. and ascertaining their predictions. Customer surveys can provide information
relating to type and quantity of products which customers intend purchasing.
Salesforce surveys can provide estimates of overall territory off-take, company's share
and the share of the major competitors. Dealers survey may also form part of the
salesforce survey if a firm so desires. Expert surveys provide sales forecast as the
experts and industry consultants look at it. They bring in an outsider's view to the
company's internal forecast and help many a times by adding new dimensions for
consideration of management.
Time Series Analysis
Using the historical sales data, this method tries to discover a pattern or patterns in
the firm's sales volume over time. The identification of the patterns helps in sales
forecasting.
Time series analysis helps locate the trend, seasonal, cyclical and random factor
changes associated with the past sales data. In this way, it improves the prediction from
the past sales data. Experience reveals that time series analysis for sales forecasting are
quite accurate for short and medium term forecasts and more so when demand is stable
or follows the past behaviour.
Some of the popular techniques of time series analysis are: moving averages,
exponential smoothing, time series extrapolation, and Box-Jenkins technique.
Correlation and Regression Methods
These methods attempt at examining the relationship between past sales and one or
more variables such as population, per capita income or gross national product, etc.
The use of regression analysis is done in order to determine whether any relationship
exists between the past sales, and changes in one or more economic, competitive or
internal variables to a firm. The accuracy of forecasts made by using correlation and
regression methods is generally better than the other methods. Typical forecasting
applications of these methods are sales forecasts by product class. Though the
correlation method helps in identifying the association between the factors, it does
not explain any cause and effect relationship between them.
Some more advanced forecasting methods explaining cause-effect relationship besides
regression method include econometric model, input-output model and life-cycle analysis
method. The life-cycle analysis method is used for forecasting of new product's growth
rate based on s-curves. The phases of product acceptance by the various groups of
customers such as innovators, early adopters, early majority, late majority, and laggards
are central to the analysis.
Market Tests
Market tests are basically used for developing one time forecasts particularly relating to
new products. A market test provides data about consumers' actual purchases and
responsiveness to the various elements of the marketing mix. On the basis of the response
received to a sample market test and providing. for the factor of a typical market
characteristic as well as learning from the market test, product sales forecast is prepared.
Substantial fluctuation that one finds in reality from market to market limit the
accuracy of sales forecasts made by this method,, unless the market test is designed
systematically.
Combining Forecasts and Using Judgment
Experience brings out that the forecasts resulting from the use of multiple methods in a
combined way greatly surpass most individual methods of sales forecasts. Research also
supports the combined use of quantitative and qualitative methods of sales forecasting in
a given situation rather than using either of the two. Application of judgment to 9
Distribution and Public Policy
quantitatively arrived forecasts should be done in a structured manner with a view to
adding insights and realism to the forecasts so arrived at, since a forecast is a
prediction and needs the subjective perception too.
Several studies have shown how combining forecasts by using one or the other
methods can improve accuracy of the forecasts. The methods which can be used for
combining forecasts are: (i) a simple average of two or more forecasts, and (ii) by
assigning historical or subjective weights to such forecasts which more closely reflect
the changing reality. In
short, being aware of the conditions under which some forecasting methods work
better than, others enables the firm to prepare for different alternative forecasts. By
monitoring which alternative works better, the firm can learn to achieve its goals
more effectively.
Activity 2
Suggest some useful techniques for sale forecasting in case of the following:
1. Pagers …………………………………………………………………………
2. Cellular Phones………………………………………………………………..
3. Soft Drinks …………………………………………………………………….
4. Sun Glasses ……………………………………………………………………
5. Dentist …………………………………………………………………………
6. Room Heaters …………………………………………………………………
7. Audio Systems…………………………………………………………………
8. Readymade Garments (Children)……………………………………………..
9. 100 c.c. Motor Cycles …………………………………………………………
10 Light Commercial Vehicles …………………………………………………...

18.7 STATUS OF FORECASTING METHODS USAGE

In a study of 127 U.S. companies Steven C. Wheelwright and Darral G. Clarke found
among other things the criteria used by U.S. companies for selecting the forecasting
methods and also the usage of various forecasting methods by them.

The survey findings are summarised below in Tables 1 and 2.

Table 1
Criteria for selecting a forecasting method
Factor 1: User's Technical Ability
• Level of forecasting sophistication
• Understanding of the method
• Formal training in forecasting
Factor 2: Cost
• User's time
• Preparer's time
• Computer time
• Data collection
Factor 3: Problem-specific Characteristics
• Time horizon' to be forecast
• Length on each time period
• Functional area involved
• Degree of top management support
• user-preparer relationship
Factor 4: Method Characteristics Desired
• Accuracy 10
• Statistics available

10
 Sales Forecasting
Table 2

Sales Forecasting Acceptance and use of alternative forecasting methods

Method Use of the method Ongoing use of Those
by those familiar the method by unfamiliar
with it those who have with the
tried it method
Jury of executive opinion 82% 89% 6%
(executive judgement)
'Regression analysis 76 91 8
Time series smoothing 75 84 13
Sales force composite surveys 74 82 10
Index numbers 67 85 33
Econometric models 65 88 12
Customer expectations surveys 57 78 15
Box-Jenkins 40 71 39

18.8 THE EVALUATION OF FORECASTS

Managers face a great deal of difficulty in evaluating their forecasts. The task
becomes more difficult when the manager lacks any specific criteria for evaluating
the forecast. Survey of literature suggests the consideration of the following
important factors when evaluating forecasts. These factors are: understanding of the.
state of the art of forecasting techniques, the availability of reliable data bases, and
knowledge about monitoring environmental changes. The value and outcome of the
evaluation process depends on the firm's data base and the forecasting manager's
experience, the manager's knowledge of the forecasting Methods, and models, and
his ability to understand the past and present changes.

The Forecasting Audit

In the final analysis, forecasting is more of an art than a science; nothing can
currently replace experience and good judgement. Professor J. Scott Armstrong of
Wharton School, U.S.A., suggests a Forecast Audit Checklist consisting of 16
questions covering the forecasting process, assumptions and data, uncertainty and
costs. More no's to the questions will indicate negligence on the part of the manager
and also lead him to think ideas on how to improve the forecasting process. The
suggested checklist appears in Table 3.

It is also said that the ultimate test of how good a sales forecast is whether it can
improve the firm's marketing strategy.

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Distribution and Public Policy
18.9 COMPUTERISED SALES FORECASTING
The rapid developments in computer hardware and software has made it possible for
managers to make sophisticated forecasts with the help of computers. The greatest
advantage of this is that managers can introduce subjective inputs into the forecast
and immediately test their effects.
Specifically, the last few years have seen sophisticated forecasting models being
rewritten using Spread Sheet software programmes for personal computers. Lotus 1-
2-3 and Microcast programmes are now available at reasonably affordable prices.
Developments in the computer field especially in computer artificial intelligence
systems have also enabled the development of expert systems models i.e., the model
that the experts use in making a decision. These are of great use when judgement is
an important part of the forecast. In future, we are going to see greater use of
computers in sales forecasting in India.
18.10 RELATING THE SALES FORECAST TO THE
SALES BUDGET AND PROFIT PLANNING
In order to achieve forecasted sales and planned profits, a certain level of sales inputs
are a must. The required sales inputs when expressed in monetary term result in the
preparation of the sales budget. Since the sales inputs have to be deployed in
anticipation of the sales results which may or may not be achieved on the expected
lines suggest caution to be exercised while expending the sales budget.
Profitable marketing suggests a break up of the sales budget on product-wise,
territory sales-wise and time-period-wise in the first instance. The second basic
requirement relates to close monitoring of the actual sales against the targets on a
continuing basis.
The thumb rule is that not more than 40 per cent of the, sales budget should be spent
in the first six months of the budget year. The underlying logic is that since a sales
forecast is based on assumption, sales efforts should be spent in conjunction with the
culmination of reality as assumed.
The dynamic nature of the market, therefore, requires that the managers must feel the
pulse of the market particularly with regard to customer behaviour, competitors plans
and reactions as well as the way the market environment unfolds itself. In case the
market reality is markedly different from the forecasted one a thorough probe and
necessary modification may be required in the deployment of sales inputs, budget and
even in the profit plan.
In a nutshell, sales forecasting should be treated as a dynamic activity particularly in
relation to the sales budget and profit plan of the firm. For, if forecasting is not
practised as a dynamic activity then there may be little to regulate the continued use
of sales budget and erosion of profitability. It is important, therefore, to use simple
yet comprehensive sales. information formats to monitor the market and conduct
sales analysis at a regular periodicity.
18.11 SUMMARY
Evaluating the sales potential obtaining in the market place and preparing a sales
forecast is an important function of the sales and marketing managers. While
different approaches and methods can be used for preparing the sales forecast, a
combined approach using together the quantitative and executive judgement methods
help in putting realism into the sales forecast. The finalised sales forecast will be of
greater utility if it is related to the sales budget and profit plan of the firm. Close
monitoring of actual sales against the sales forecast and a thorough probe in case of
substantial deviation can forewarn the unregulated expending of the sales budget.
18.12 KEY WORDS
Company sales forecast: The value and volume of a product that a firm actually expects
to sell during a specific period at a given level of company marketing activities.

12
 Sales Forecasting
Expert forecasting survey: Preparation of sales forecasts by experts, such as
economists, management consultants, or other professionals outside the firm.
Market potential: The maximum sales possible for all sellers of a product to an
identified market segment within a specified time frame.
Sales potential: The maximum sales possible for one company's product as the firm's
marketing efforts increases relative to competitors.
Seasonality analysis: A method of predicting sales in which a manager studies daily,
weekly or monthly sales figures to evaluate the degree to which seasonal factors,
such as climate, festivals and holiday activities, influence the firm's sales.
Top down forecasting: Analysis of sales for the purposes of forecasting from world,
to natural to industry to firm level.

18.13 SELF-ASSESSMENT TEST

Self-test Questions

A) Check whether the following statements are true or false.

Statement True/False
1. A sales forecast must be specific in terms of time
2. The customer survey is the most feasible sales
forecasting method for a soft drink company
3. Time series analysis seeks a pattern in a firm's sales volume based
on historical data
4. The top down sales forecast begins by examining the national
economy and its forecasts
5. The accuracy of the sales forecast depends upon the sophistication
levels of the forecasting methods used
B) Tick the one most appropriate answer.
1 A sale helps the marketing manager determined:
a) What sales forecast volume to expect
b) how much to produce
c) how much effort to spend on the marketing programme
d) all of the above
2 Sales forecasting methods should be:
a) sophisticated and computerized
b) the same as those of the competition
c) as simple and inexpensive as possible
d) none of the above
3 Using past sales data to identify patterns in sales volume is called:
a) executive judgment
b) correlation method
c) survey of sales data
d) trend analysis
4 Market potential is:
a) usually greater than market capacity
b) usually less than primary demand
c) the limiting level of a market demand function
d) none of the above
5 A poor forecasting capability can cause a firm to have:
a) poor confidence measure
b) inconsistent competitive power
c) biasing tendencies
d) an undesirable inventory level.
13
Distribution and Public Policy
Key to Self-test Questions

(A) I (True), 2(False), 3 (True), 4 (True), 5(False)

(B) 1 (d), 2 (c), 3 (d), 4((I), 5 (d)

Questions
1 What is a company sales forecast? Why is it important?
2 Under what conditions executive judgement method is useful for sales
forecasting? Discuss its advantages and limitations.

18.14 FURTHER READINGS

William J. Stanton. Michael J. Etzel , Bruce J. Waler fundamentals of Marketing, 5th
edition, McGraw-Hill, International edition

Philip Kotler - Marketing Management, 11th edition 2002; PHI- New Delhi

14
 SALES FORECASTING

Published in The IEBM Encyclopedia of Marketing, Michael J. Baker (Ed.),

International Thompson Business Press, 1999, p. 278-290.

1. Forecasting methods: an overview

2. Direct extrapolation of sales
3. Causal approaches to sales forecasting
4. New product forecasting
5. Evaluating and selecting methods
6. Estimating prediction intervals
7. Implementation
8. Conclusions

Overview

Interesting and difficult sales forecasting problems are common. Will the 1998 Volkswagen Beetle be
a success? Will the Philadelphia Convention Hall be profitable? How will our major competitors respond
if we raise the price of our product by 10 per cent? What if we cut advertising by 20 per cent?

Sales forecasting involves predicting the amount people will purchase, given the product features and
the conditions of the sale. Sales forecasts help investors make decisions about investments in new
ventures. They are vital to the efficient operation of the firm and can aid managers on such decisions as
the size of a plant to build, the amount of inventory to carry, the number of workers ,to hire, the amount
of advertising to place, the proper price to charge, and the salaries to pay salespeople. Profitability
depends on (1) having a relatively accurate forecast of sales and costs; (2) assessing the confidence one
can place in the forecast; and (3) properly using the forecast in the plan.

Marketing practitioners believe that sales forecasting is important. In Dalrymple”s (1975) survey of
marketing executives in US companies, 93 per cent said that sales forecasting was “one of the most
critical” or “a very important aspect of their company”s success.” Furthermore, formal marketing plans
are often supported by forecasts (Dalrymple 1987). Given its importance to the profitability of the firm, it
is surprising that basic marketing texts devote so little space to the topic. Armstrong, Brodie and Mclntyre
(1987), in a content analysis of 53 marketing textbooks, fou9nd that forecasting was mentioned on less
than 1 per cent of the pages.

Research on forecasting has produced useful findings. These findings are summarized in the
Forecasting Principles Project, which is described on the website forecastingprinciples.com. This entry
draws upon that project in summarizing guidelines for sales forecasting. These forecasting guidelines
should be of particular interest because few firms use them. I also describe some commonly used
approaches that are detrimental to sales forecasting.

After a brief overview of forecasting methods, I discuss the direct extrapolation of sales data, either
through statistical data or simply judgmental. Next, I describe causal approaches to sales forecasting.
Attention is then given to new product forecasting. This is followed by a discussion of how to select
appropriate methods and by a description of methods to assess uncertainty. I conclude with suggestions
for gaining acceptance of forecasting methods and of forecasts.

1
1. Forecasting methods: an overview

Forecasting involves methods that derive primarily from judgmental sources versus those from
statistical sources. These methods and their relationships are shown in the flow chart in Figure 1.
Judgment and statistical procedures are often used together, and since 1985, much research has examined
the integration of statistical and judgmental forecasts (Armstrong and Collopy 1998b). Going down the
figure, there is an increasing amount of integration between judgmental and statistical procedures. A brief
description of the methods is provided here. Makridakis, Wheelwright and Hyndman (1998) provide
details on how to apply many of these methods.

Knowledge
Source
Judgmental Statistical

Others Self Univariate Multivariate

Data- Theory-
Unstructured Structured Role No role based based

Extrapolation
Data
Unaided Role Playing Intentions/ models
mining
judgment (Simulated expectations
interaction)
Group Individual Quantitative Neural
Conjoint analogies nets
analysis
Rule-based
Prediction Structured Decom- Judgmental Expert forecasting Econometric
Delphi
markets analogies position bootstrapping Systems models

Figure 1. Characteristics of forecasting methods and their relationships

(NOTE: This figure was redesigned in Sept. 2004, as above)

Intentions studies ask people to predict how they would behave in various situations. This method is
widely used and it is especially important where one does not have sales data, such as for new product
forecasts.

A person”s role may be a dominant factor in some situations, such as in predicting how someone
would behave in a job related situation. Role-playing is useful for making forecasts of the behavior of
individuals who are interacting with others, and especially in situations involving conflict.

Another way to make forecasts is to ask experts to predict how others will behave in given situations.
The accuracy of expert forecasts can be improved through the use of structured methods, such as the
Delphi procedure. Delphi is an iterative survey procedure in which experts provide forecasts for a
problem, receive anonymous feedback on the forecasts made by other experts, and then make another
forecast. For a summary of the evidence on the accuracy of Delphi versus unstructured judgment, see
Rowe and Wright (1999). One principle is that experts” forecasts should generally be independent of one
another. Focus groups always violate this principle. As a result, they should not be used in forecasting.

Intentions can be explained by relating the “predictions” to various factors that describe the situation.
By asking consumers to state their intentions to purchase for a variety of different situations, it is possible
to infer how the factors relate to intended sales. This is often done by regressing their intentions against
the factors, a procedure known as “conjoint analysis.”

2
 As with conjoint analysis, one can develop a model of the expert. This approach, judgmental
bootstrapping, converts subjective judgments into objective procedures. Experts are asked to make a
series of predictions. For example, they could make forecasts for the next year”s sales in geographical
regions. This process is then converted to a set of rules by regressing the forecasts against the information
used by the forecaster. Once developed, judgmental bootstrapping models offer a low-cost procedure for
making forecasts. They almost always provide an improvement in accuracy in comparison to judgmental
forecasts, although these improvements are typically modest (Armstrong 1999).

Extrapolation methods use only historical data on the series of interest. The most popular and cost
effective of these methods are based on exponential smoothing, which implements the useful principle
that the more recent data are weighted more heavily. Another principle for extrapolation is to use long
time-series when developing a forecasting model. Yet, Focus Forecasting, one of the most widely-used
time-series methods in business firms, does not do this. As a result, its forecasts are inaccurate (Gardner
and Anderson 1997).

Still another principle for extrapolation is to use reliable data. The existence of retail scanner data
means that reliable data can be obtained for existing products. Scanner data are detailed, accurate, timely
and inexpensive. As a result, the accuracy of the forecasts should improve, especially because of the
reduction in the error of assessing the current status. Not knowing where you are starting from has often
been a major source of error in predicting where you will wind up. Scanner data are also expected to pro-
vide early identification of trends.

Empirical studies have led to the conclusion that relatively simple extrapolation methods perform as
well as more complex methods. For example, the Box-Jerkins procedure, one of the more complex
approaches, has produced no measurable gains in forecast accuracy relative to simpler procedures
(Makridakis et al. 1984; Armstrong 1985). Although distressing to statisticians, this finding should be
welcome to managers.

Quantitative extrapolation methods make no use of managements” knowledge of the series. They
assume that the causal forces that have affected a historical series will continue over the forecast horizon.
The latter assumption is sometimes false. When the causal forces are contrary to the trend in the historical
series, forecast errors tend to be large (Armstrong and Collopy 1993). While such problems may occur
only in a small minority of cases in sales forecasting, their effects can be disastrous. One useful guideline
is that trends should be extrapolated only when they coincide with managements” prior expectations.

Judgmental extrapolations are preferable to quantitative extrapolations when there have been large
recent changes in the sales level and where there is relevant knowledge about the item to be forecast
(Armstrong and Collopy 1998b). Quantitative extrapolations have an advantage over judgmental methods
when the large (Armstrong 1985, 393-401). More important than these small gains in accuracy, however,
is that the quantitative methods are often less expensive. When one has thousands of forecasts to make
every month, the use of judgment is seldom cost effective.

Experts can identify analogous situations. Extrapolation of results from these situations can be used to
predict for the situation that is of interest. For example, to assess the loss in sales when the patent
protection for a drug is removed, one might examine the results for previous drugs. Incidentally, the first
year loss is substantial.

Rule-based forecasting integrates judgmental knowledge about the domain. Rule-based forecasting is
a type of expert system that is limited to statistical time series. Its primary advantage is that it incorporates
the manger”s knowledge in an inexpensive way.

3
 Expert systems use the rules of experts. In addition, they typically draw upon empirical studies of
relationships that come from econometric models. Expert opinion, conjoint analysis, bootstrapping and
econometric models can aid in the development of expert systems.

Despite an immense amount of research effort, there is little evidence that multivariate time-series
provide any benefits to forecasting. As a result, these methods are not discussed here.

Econometric models use data to estimate the parameters of a model given various constraints. When
possible. Which is nearly always in management problems, one can draw upon prior research to
determine the direction, functional form, and magnitude of relationships. In addition, they can integrate
expert opinion, such as that from a judgmental bootstrapping model. Estimates of relationships can then
be updated by using time-series or cross-sectional data. Here again, reliable data are needed. Scanner data
can provide data from low-cost field experiments where key features such as advertising or price are
varied to assess how they affect sales. The outcomes of such experiments can contribute to the estimation
of relationships. Econometric models can also use inputs from conjoint models. Econometric models al-
low for extensive integration of judgmental planning and decision making. They can incorporate the
effects of marketing mix variables as well as variables representing key aspects of the market and the
environment. Econometric methods are appropriate when one needs to forecast what will happen using
different assumptions about the environment or different strategies. Econometric methods are most useful
when (1) strong causal relationships with sales are expected; (2) these causal relationships can be
estimated; (3) large changes are expected to occur in the causal variables over the forecast horizon; and
(4) these changes in the causal variables can be forecast or controlled, especially with respect to their
direction. If any of these conditions does not hold (which is typical for short-range sales forecasts), then
econometric methods should not be expected to improve accuracy.

2. Direct extrapolation of sales

If one does not have substantial amounts of sales data; it may be preferable to make judgmental
extrapolations. This assumes that the person has good knowledge about the product. For example, the
characteristics of the product and market and future plans are all well-known.

When one has ample sales data, it is often sufficient merely to extrapolate the trend. Extrapolation of
the historical sales trend is common in firms (Mentzer and Kahn 1995). Extrapolation methods are used
for short-term forecasts of demand for inventory and production decisions.

When the data are for time intervals shorter than a year, it is generally advisable to use seasonal
adjustments, given sufficient data. Seasonal adjustments typically represent the most important way to
improve the accuracy of extrapolation. Dalrymple”s (1987) survey results were consistent with the
principle that the use of seasonal factors reduces the forecast error. Seasonal adjustments which also led
to substantial improvements in accuracy were found in the large-scale study of time series by Makridakis
et al. (1984).

If the historical series involve much uncertainty, the forecaster should use relatively simple models.
Uncertainty in this case can be assessed by examining the variability about the long-term trend line.
Schnaars (1984) presented evidence that the naïve forecast was one or me most accurate procedures for
industry sales forecasts. Uncertainty also calls for conservative forecasts. Being conservative means to
stay near the historical average. Thus, it often helps to dampen the trend as the horizon increases (see
Gardner and McKenzie 1985 for a description of one such procedure and for evidence of its
effectiveness).

4
 One of the key issues in the extrapolation of sales is whether to use top-down or bottom-up
approaches. By starting at the top (say the market for automobiles), and then allocating the forecast
among the elements (e.g. sales of luxury cars or sales of the BMW 3-series) one typically benefits from
having more reliable data, but the data are less relevant. In contrast, the bottom-up approach is more
relevant and less reliable. "(For a more complete discussion on these issues, see Armstrong, 1985: 250-66
and MacGregor 1998.) Research on this topic has been done under the heading of “decomposition” or
“segmentation.” Additive breakdowns tend to be fairly safe. Seldom do they harm forecast accuracy, and
often they provide substantial improvements (Dangerfield and Morris 1992).

3. Causal approaches to sales forecasting

Instead of extrapolating sales directly, one can forecast the factors that cause sales to vary. This
begins with environmental factors such as population, gross national product (GNP) and the legal system.
These affect the behavior of customers, competitors, suppliers, distributors and complementors (those
organizations with whom you cooperate). Their actions lead to a market forecast. Their actions also
provide inputs for the market share forecast. The product of the market forecast and the market share
forecast yields the sales forecast.

The breakdown of the problems into the elements of Figure 2 may aid one”s thinking about the sales
forecasts. It is expected to improve accuracy (versus the extrapolation of sales) only if one has good
information about each of the components and if there is a good understanding about how each relates to
sales. If there is high uncertainty about any of the elements, it might be more accurate to extrapolate sales
directly.

Figure 2. Causal approach to sales forecasting

Environment

Customers

Supplier(s)
Competition
Distributor(s) and Market Forecast
Marketing Mix
Complementor(s)

Company Marketing Mix

Market Share

Sales Forecast

The primary advantage of the indirect approach is that it can be more directly related to decision
making. Adjustments can be made in the marketing mix to see how this would affect the forecast. Also,
forecasts can be prepared to assess possible changes by other decision makers such as competitors or
complementors. These forecasts can allow the firm to develop contingency plans, and these effects on

5
sales can also be forecast. On the negative side, the causal approach is more expensive than sales
extrapolation.
Environment

It is sometimes possible to obtain published forecasts of environmental factors from Tablebase,

which is available on the Internet through various subscribing business research libraries. These
forecasts may be adequate for many purposes. However, sometimes it is difficult to determine what
methods were used to create the forecasts. In such cases, econometric models can improve the accuracy
of environmental forecasts. They provide more accurate forecasts than those provided by extrapolation
or by judgment when large changes are involved. Allen (1999) summarizes evidence on this. Important
findings that aid econometric methods are to: (1) base the selection of causal variables upon forecasting
theory and knowledge about the situation, rather than upon the statistical fit to historical data (also,
tests of statistical significance play no role here); (2) use relatively simple models (e.g. do not use
simultaneous equations; do not use models that cannot be specified as linear in the parameters); and (3)
use variables only if the estimated relationship to sales is in the same direction as specified a priori. The
last point is consistent with the principle of using causal not statistical reasoning. Consistent with this
viewpoint, leading indicators, a non causal approach to forecasting that has been widely accepted for
decades, does not seem to improve the accuracy of forecasts (Diebold and Rudebusch 1991).

Interestingly, there exists little evidence that more accurate forecasts of the environment (e.g.
population, the economy, social trends, technological change) lead to better sales forecasts. This, of
course, seems preposterous. I expect that the results have been obtained for studies where the conditions
were not ideal for econometric methods. For example, if things continue to change as they have in the
past, there is little reason to expect an econometric model to help with the forecast. However, improved
environmental forecasts are expected when large changes are likely, such as the adoption of free trade
policies, reductions in tariffs, economic depressions, natural disasters, and wars.

Customers

One should know the size of the potential market for the given product category (e.g. how many
people in region X might be able to purchase an automobile), the ability of the potential market to
purchase (e.g. income per capita and the price of the product), and the needs of the potential customers.
Examination of each of these factors can help in forecasting demand for the category.
Company

The company sets its own marketing mix so there is typically little need to forecast these actions.
However, sometimes the policies are not implemented according to plan because of changes in the
market, actions by competitors or by retailers, or a lack of cooperation by those in the firm. Thus, it may
be useful to forecast the actions that will actually be taken (e.g. if we provide a trade discount, how will
this affect the average price paid by final consumers?)
Intermediaries

What actions will be taken by suppliers, distributors and complementors? One useful prediction
model is to assume that their future decisions will be similar to those in the past, that is, the naive model.
For existing markets, this model is often difficult to improve upon. When large changes are expected,
however, the naive model is not appropriate. In such cases one can use structured judgment, extrapolate
from analogous situations, or use econometric models.

6
 Structure typically improves the accuracy of judgment, especially if it can realistically mirror the
actual situation. Role playing is one such structured technique. It is useful when the outcome depends on
the interaction among different parties and especially when the interaction involves conflict. Armstrong
and Hutcherson (1989) asked subjects to role play the interactions between producers and distributors. In
this disguised situation, Philco was trying to convince supermarkets to sell its appliances through a
scheme whereby customers received discounts based on the volume of purchases at selected
supermarkets. Short (less than one hour) role plays of the situation led to correct predictions of the
supermarket managers” responses for 75 per cent of the 12 groups. In contrast, only one of 37 groups was
correct when groups made predictions without benefit of formal techniques. (As it turned out, the decision
itself was poor, but that is another story.)

Econometric models offer an alternative, although much more expensive approach to forecasting the
actions by intermediaries. This approach requires a substantial amount of information. For example,
Montgomery (1975) described a model to predict whether a supermarket buying committee would put a
new product on its shelves. This model, which used information about advertising, suppliers” reputation,
margin and retail price, provided reasonable predictions for a hold-out sample.

Competitors

Can we improve upon the simple, “naïve,” forecast that competitors will continue to act as they have
in the past? These forecasts are difficult because of the interaction that occurs among the key actors in the
market. Because competitors have conflicting interests, they are unlikely to respond truthfully to an inten-
tions survey.

A small survey of marketing experts suggested that the most popular approach to forecasting
competitors” actions is unaided expert opinion (Armstrong et al. 1987). Because the ,experts” are usually
those in the company, however, this may introduce biases related to their desired outcomes. For example,
brand managers are generally too optimistic about their brands. Here again, role playing would appear to
be relevant. Although no direct experimental evidence is available on its value in forecasting competitor”s
actions, role playing has proven to be accurate in forecasting the decision made in conflict situations
(Armstrong 1999).

Market share

Can we do better than the naive model of no change? For existing markets that are not undergoing
major change, the naive model is reasonably accurate (Brodie et al. 1999). This is true even when one has
excellent data about the competitors (Alsem et al. 1989). However, causal models should improve
forecasts when large changes are made, such as when price reductions are advertised. Causal models
should also help when a firm”s sales have been artificially limited due to production capacity, tariffs, or
quotas. Furthermore, contingent forecasts are important. Firms can benefit by obtaining good forecasts of
how its policies (e.g. a major price reduction) would affect its market share.

4. New product forecasting

New product forecasting is of particular interest in view of its importance to decision making. In
addition, large errors are typically made in such forecasts. Tull (1967) estimated the mean absolute
percentage error for new product sales to be about 65 per cent. Not surprisingly then, pretest market
models have gained wide acceptance among business firms; Shocker and Hall (1986) provide an
evaluation of some of these models.

7
 The choice of a forecasting model to estimate customer response depends on the stage of the product
life-cycle. As one moves through the concept phase to the prototype, test market, introductory, growth,
maturation, and declining stages, the relative value of the alternative forecasting methods changes. In
general, the movement is from purely judgmental approaches to quantitative models that use judgment as
inputs. For example, intentions and expert opinions are vital in the concept and prototype stages. Later,
expert judgment is useful as an input to quantitative models. Extrapolation methods may be useful in the
early stages if it is possible to find analogous products (Claycamp and Liddy 1969). In later stages,
extrapolation methods become more useful and less expensive as one can work directly with time-series
data on sales or orders. Econometric and segmentation methods become more useful after a sufficient
amount of actual sales data are obtained.

When the new product is in the concept phase, a heavy reliance is usually placed on intentions
surveys. Intentions to purchase new products are complicated because potential customers may not be
sufficiently familiar with the proposed product and because the various features of the product affect one
another (e.g. price, quality, and distribution channel). This suggests the need to prepare a good description
of the proposed product. This often involves expensive prototypes, visual aids, product clinics, or
laboratory tests. However, brief descriptions are sometimes as accurate as elaborate descriptions as found
in Armstrong and Overton”s (1970) study of a new form of urban mass transportation.

In the typical intentions study, potential consumers are provided with a description of the product and
the conditions of sale, and then are asked about their intentions to purchase. Eleven-point rating scales are
recommended. The scale should have verbal designations such as 0 = No chance, almost no chance (1 in
100) to 10 = Certain, practically certain (99 in 100). It is best to state the question broadly about one”s
“expectations” or “probabilities” to purchase, rather than the narrower question of intentions. This
distinction was raised early on by Juster (1966) and its importance has been shown in empirical studies by
Day et al. (1991).

Intentions surveys are useful when all of the following conditions hold: (1) the event is important; (2)
responses can be obtained; (3) the respondent has a plan; (4) the respondent reports correctly; (5) the
respondent can fulfill the plan; and (6) events are unlikely to change the plan. These conditions imply that
intentions are more useful for short-term forecasts of business-to-business sales.

The technology of intentions surveys has improved greatly over the past half century. Useful methods
have been developed for selecting samples, compensating for nonresponse bias, and reducing response
error. Dillman (1978) provides excellent advice that can be used for designing intentions surveys. Im-
provements in this technology have been demonstrated by studies on voter intentions (Perry 1979).
Response error is probably the most important component of total error (Sudman and Bradburn 1982).
Still, the correspondence between intentions and sales is often not close. Morwitz (1999) provides a
review of the evidence on intentions to purchase.

As an alternative to asking potential customers about their intentions to purchase, one can ask experts
to predict how consumers will respond. For example, Wotruba and Thurlow (1976) discuss how opinions
from members of the sales force can be used to forecast sales. One could ask distributors or marketing ex-
ecutives to make sales forecasts. Expert opinions studies differ from intentions surveys. When an expert is
asked to predict the behavior of a market, there is no need to claim that this is a representative expert.
Quite the contrary, the expert may be exceptional. When using experts to forecast, one needs few experts,
typically only between five and twenty (Hogarth 19,78; Ashton 1985).

Experts are especially useful at diagnosing the current situation, which we might call “nowcasting.”
Surprisingly, however, when the task involves forecasting change, experts with modest domain expertise

8
(about the item to be forecast) are just as accurate as those with high expertise (Armstrong 1985: 91-6
reviews the evidence). This means that it is not necessary to purchase expensive expert advice.

Unfortunately, experts are often subject to biases. Salespeople may try to forecast on the low side if
the forecasts will be used to set quotas. Marketing executives may forecast high in their belief that this
will motivate the sales force. If possible, avoid experts who would have obvious reasons to be biased
(Tyebjee 1987). Another strategy is to include a heterogeneous group of experts in the hopes that their
differing biases may cancel one another.

Little is known about the relative accuracy of expert opinions versus consumer intentions. However,
Sewall (1981) found that each approach contributes useful information such that a combined forecast is
more accurate than either one alone.

Producers often consider several alternative designs for the new product. In such cases, potential
customers can be presented with a series of perhaps twenty or so alternative offerings. For example,
various features of a personal computer, such as price, weight, battery life, screen clarity and memory
might vary according to rules for experimental design (the basic ideas being that each feature should vary
substantially and that the variations among the features should not correlate with one another). The
customer is forced to make trade-offs among various features. This is called “conjoint analysis” because
the consumers consider the product features jointly. This procedure is widely used by firms (Wittink and
Bergestuen 1998). An example of a successful application is the design of a new Marriott hotel chain
(Wind et al. 1989). The use of conjoint analysis to forecast new product demand can be expensive
because it requires large samples of potential buyers, the potential buyers may be difficult to locate, and
the questionnaires are not easy to complete. Respondents must, of course, understand the concepts that
they are being asked to evaluate. Although conjoint analysis rests on good theoretical foundations, little
validation research exists in which its accuracy is compared with the accuracy of alternative techniques
such as Delphi or judgmental forecasting procedures.

Expert judgments can be used in a manner analogous to the use of consumers” intentions for conjoint
analysis. That is, the experts could be asked to make predictions about situations involving alternative
product design and alternative marketing plans. These predictions would then be related to the situations
by regression analysis. Following the philosophy for naming conjoint analysis, this could be called
exjoint analysis. It is advantageous to conjoint analysis in that few experts are needed (probably between
five and twenty). In addition, it can incorporate policy variables that might be difficult for consumers to
assess.

Once a new product is on the market, it is possible to use extrapolation methods. Much attention has
been given to the selection of the proper functional form to extrapolate early sales. The diffusion literature
uses an S-shaped curve to predict new product sales. That is, growth builds up slowly at first, becomes
rapid as word-of-mouth and observation of use spread, then slows again as it approaches a saturation
level. A substantial literature exists on diffusion models. Despite this, the number of comparative
validation studies is small and the benefits of choosing the best functional form seem to be modest
(research on this is reviewed by Meade 1999).

5. Evaluating and selecting methods

Assume that you were asked to predict annual sales of consumer products such as stoves,
refrigerators, fans and wine for the next five years., What forecasting method would you use? As
indicated above, the selection should be guided by the stage in the product life-cycle and by the

9
availability of data. But general guidelines cannot provide a complete answer. Because each situation
differs, you should consider more than one method.

Given that you use more than one method to forecast, how should you pick the best method? One of
the most widely used approaches suggests that you select the one that has performed best in the recent
past. This raises the issue of what criteria should be used to identify the best method. Statisticians have
relied upon sophisticated procedures for analyzing how well models fit historical data. However, this has
been of little value for the selection of forecasting methods. Forecasters should ignore measures of fit
(such as RZ or the standard error of the estimate of the model) because they have little relationship to
forecast accuracy. Instead, one should rely on ex ante forecasts from realistic simulations of the actual
situation faced by the forecaster. By ex ante, we mean that the forecaster has only that information that
would be available at the time of an actual forecast.

Traditional error measures, such as mean square error, do not provide a reliable basis for comparison
of methods (for empirical evidence on this, see Armstrong and Collopy 1992). The Median Absolute
Percentage Error (MdAPE) is more appropriate because it is invariant to scale and is not overly
influenced by outliers. For comparisons using a small set of series, it is desirable, also, to control for
degree of difficulty in forecasting. One measure that does this is the Median Relative Absolute Error
(MdRAE), which compares the error for a given model against errors for the naive, no change forecast
(Armstrong and Collopy 1992).

One can avoid the complexities of selection by simply combining forecasts. Considerable research
suggests that, lacking well-structured domain knowledge, equally-weighted averages are as accurate as
any other weighting scheme (Clemen 1989). This produces consistent, though modest improvements in
accuracy, and it reduces the likelihood of large errors. Combining seems to be especially useful when the
methods are substantially different. For example, Blattberg and Hoch (1990) obtained improved sales
forecasts by equally weighting managers” judgmental forecasts and forecasts from a quantitative model.

The selection and weighting of forecasting methods can be improved by using domain knowledge
(about the item to be forecast) as shown in research on rule-based forecasting (Collopy and Armstrong
1992). Domain knowledge can be structured, especially with respect to trend expectations. These, along
with a consideration of the features of the data (e.g. discontinuities), enable improvements in the
weightings assigned to various extrapolations.

6. Estimating prediction intervals

In addition to improving accuracy, forecasting is also concerned with assessing uncertainty. Although
statisticians have given much attention to this problem, their efforts generally rely upon fits to historical
data to infer forecast uncertainty. Here also, you should simulate the actual forecasting procedure as
closely as possible, and use the distribution of the resulting ex ante forecasts to assess uncertainty. So, if
you need to make two-year-ahead forecasts, save enough data to be able to have a number of two-year
ahead ex ante forecasts.

The prediction intervals from quantitative forecasts tend to be too narrow. Some empirical studies
have shown that the percentage of actual values that fall outside the 95 per cent prediction intervals is
substantially greater than 5 per cent, and sometimes greater than 50 per cent (Makridakis et al. 1987).
This occurs because the estimates ignore various sources of uncertainty. For example, discontinuities
might occur over the forecast horizon. In addition, forecast errors in time series are usually asymmetric,
so this makes it difficult to estimate prediction intervals. The most sensible procedure is to transform the
forecast and actual values to logs, then calculate the prediction intervals using logged differences.

10
Interestingly, researchers and practitioners do not follow this advice except where the original forecasting
model has been formulated in logs.

When the trend extrapolation is contrary to the managers” expectations, the errors are asymmetrical in
logs. Evidence on the issue of asymmetrical errors is provided in Armstrong and Collopy (1998a). In such
cases, one might use asymmetrical prediction intervals. Notice that this discussion takes no account of
asymmetric economic loss functions. For example, the cost of a forecast that is too low by 50 units (lost
sales) may differ from the cost if it is too high by 50 units (excess inventory). But this is a problem for the
planner, not the forecaster.

Judgmental forecasts are also too narrow. That is, experts are typically overconfident (Arkes 1999).
To a large extent, this is because forecasters do not get good feedback on their predictions. When they do,
such as happens for weather forecasters, they can be well calibrated. When forecasters say that there is a
60 per cent chance of rain, it rains 60 per cent of the time. This suggests that marketing forecasters should
try to ensure that they receive feedback on the accuracy of their forecasts. The feedback should be
relatively frequent and it should summarize accuracy in a meaningful fashion. Another procedure that
helps to avoid overconfidence is for the forecaster to make a written list of all of the reasons why the
forecast might be wrong.

7. Implementation

There are two key implementation problems. First, how can you gain acceptance of new forecasting
methods, and second, how can you gain acceptance of the forecasts, themselves?
Acceptance of forecasting methods

The diffusion rate for new methods is slow. Exponential smoothing, one ofthe major developments
for production and inventory control forecasting, was developed in the late 1950s, yet it is only recently
that the adoption rate has been substantial (Mentzer and Kahn 1995). Adoption is probably slow because
there are many steps involved in the diffusion of the method. Here is the traditional procedure.
Techniques are first developed. Some time later they are tested. At each stage they are reported in the
literature. They are later passed along via courses, textbooks, and consultants, eventually reaching the
manager who can use them. Even then they may be resisted, perhaps because the procedures are too
complex for the users.

The future is promising, however. The latest methods can be fully disclosed on websites and they
can be incorporated into expert systems and software packages. For example, the complete set of rules
for rule-based forecasting is kept available and up-to-date and can be accessed through the forecasting
principles site (forecastingprinciples.com).

Acceptance of forecasts

Forecasts are especially useful for situations that are subject to significant changes. Often, these
involve bad news. For example, Griffith and Wellman (1979), in a follow-up study on the demand for
hospital beds, found that the forecasts from consultants were typically ignored when they indicated a need
that was less than that desired by the hospital administrators.

Firms often confuse forecasting with planning, and they may use the forecast as a tool to motivate
people. That is, they use a “forecast” to drive behavior, rather than making a forecast conditional on
behavior. (One wonders if they also change their thermometers in order to influence the weather.) One

11
way to avoid this problem is to gain agreement on what forecasting procedures to use prior to presenting
the forecasts.

Another way to gain acceptance of forecasts is to ask decision makers to decide in advance what
decisions they will make, given different possible forecasts. Do the decisions differ? These prior
agreements on process and on decisions can greatly enhance the value of the forecasts, but they are
difficult to achieve ,in many organizations. The use of scenarios offers an aid to this process. Scenarios
involve writing detailed stories of how decision makers would handle situations that involve alternative
states of the future. Decision makers project themselves into the situation and they write the stories in the
past tense. (More detailed instructions for writing scenarios are summarized in Gregory 1999.) Scenarios
are effective in getting forecasters to accept the possibility that certain events might occur.

8. Conclusions
Extrapolations of sales are inexpensive and often adequate for the decisions that need to be made. In
situations where large changes are expected or where one would like to examine alternative strategies,
causal approaches are recommended.
Some of the more important findings about sales forecasting methods can be summarized as follows:
• Methods should be selected on the basis of empirically-tested theories, not statistically based
theories.
• Domain knowledge should be used.
• When possible, forecasting methods should use behavioral data, rather than judgments or
intentions to predict behavior.
• When using judgment, a heavy reliance should be placed on structured procedures such as
Delphi, role playing, and conjoint analysis.
• Overconfidence occurs with quantitative and judgmental methods. In addition to ensuring
good feedback, forecasters should explicitly list all the things that might be wrong about their
forecast.
• When making forecasts in highly uncertain situations, be conservative. For example, the trend
should be dampened over the forecast horizon.
• Complex models have not proven to be more accurate than relatively simple models. Given
their added cost and the reduced understanding among users, highly complex procedures
cannot be justified at the present time.
The sales forecast should be free of political considerations in a firm. To help ensure this, emphasis
should be on agreeing about the forecasting methods, rather than the forecasts. Also, for important
forecasts, decisions on their use should be made before the forecasts are provided. Scenarios are helpful in
guiding this process.

Further reading (References cited in the text marked *)

* Allen, G. P. (2001) ‘Econometric forecasting strategies and techniques,” in J. S. Armstrong (ed.)

Principles of Forecasting: Handbook for Researchers and Practitioners, Norwell, MA: Kluwer
Academic Publishers.

12
 Understanding Price

Definition: Price is the value that is put to a product or service and is the result of a
complex set of calculations, research and understanding and risk taking ability. A
pricing strategy takes into account segments, ability to pay, market conditions,
competitor actions, trade margins and input costs, amongst others. It is targeted at the
defined customers and against competitors.

Pricing Strategies:

• Premium pricing: High price is used as a defining criterion. Such pricing strategies
work in segments and industries where a strong competitive advantage exists for
the company. Example: Porche in cars and Gillette in blades.
• Penetration pricing: Price is set artificially low to gain market share quickly. This is
done when a new product is being launched. It is understood that prices will be
raised once the promotion period is over and market share objectives are
achieved. Example: Mobile phone rates in India; housing loans etc.
• Economy pricing: No-frills price. Margins are wafer thin; overheads like marketing
and advertising costs are very low. Targets the mass market and high market
share. Example: Friendly wash detergents; Nirma; local tea producers.
• Skimming strategy: High price is charged for a product till such time as
competitors allow after which prices can be dropped. The idea is to recover
maximum money before the product or segment attracts more competitors who
will lower profits for all concerned. Example: the earliest prices for mobile phones,
VCRs and other electronic items where a few players ruled attracted lower cost
Asian players.

Pricing Methods:

• Cost-Based Pricing
• Demand Based Pricing
• Competition Based Pricing

Cost-Based Pricing

• Cost-based pricing involves calculating the cost of the product, and then
adding a percentage mark-up to determine price. A firm calculates the cost of
producing the product and adds on a percentage (profit) to that price to give
the selling price. This appears in two forms: the first, full cost pricing, takes into
consideration both variable and fixed costs and adds a % markup. The other is
direct cost pricing, which is variable costs plus a % markup. The latter is only used
in periods of high competition as this method usually leads to a loss in the long
run. This method, although simple, does not take demand into account, and
there is no way of determining if potential customers will purchase the product at
the calculated price.
 • Cost based pricing is the easiest way to calculate what a product should be
priced at. This appears in two forms: full cost pricing and direct-cost pricing. Full
cost pricing takes into consideration both variable, fixed costs and a % markup.
Direct-cost pricing is variable costs plus a % markup.
• Cost-plus pricing is a pricing method used by companies to maximize their profits.
The firms accomplish their objective of profit maximization by increasing their
production until marginal revenue equals marginal cost, and then charging a
price which is determined by the demand curve.
• Cost-plus pricing is used primarily because it is easy to calculate and requires little
information.

Key Terms

• Markups: Markup is the difference between the cost of a good or service and its
selling price. A markup is added on to the total cost incurred by the producer of a
good or service in order to create a profit.
• Variable cost: the amount of resources used that changes with the change in
volume of activity of an organization
• Rate of return: Rate of return (ROR), also known as return on investment (ROI), rate
of profit or sometimes just return, is the ratio of money gained or lost (whether
realized or unrealized) on an investment relative to the amount of money
invested.

Demand-Based Pricing

• Demand-based pricing uses consumer demand (and therefore perceived value)

to set a price of a good or service. Demand-based pricing is any pricing method
that uses consumer demand, based on perceived value, as the central element.
These include: price skimming, price discrimination and yield management, price
points, psychological pricing, bundle pricing, penetration pricing, price lining,
value-based pricing, geo and premium pricing. Pricing factors are manufacturing
cost, market place, competition, market condition, and quality of product.
• Demand -based pricing uses consumer demand (and therefore perceived value )
to set a price of a good or service.
• Methods of demand-based pricing can include price skimming, price
discrimination and yield management, price points, psychological pricing, bundle
pricing, penetration pricing, price lining, value-based pricing, geo and premium
pricing.
• Pricing factors include manufacturing cost, market location, competition, market
condition, and the quality of the product.

Key Terms

• Price skimming: Price skimming is a pricing strategy in which a marketer sets a

relatively high price for a product or service at first, then lowers the price over
time. It is a temporal version of price discrimination/yield management.
• yield management: The method of analyzing information to forecast market
conditions and implications for the firm
Competition-Based Pricing

• Competitive-based pricing occurs when a company sets a price for its good
based on what competitors are selling a similar product for. Competitive-based
pricing, or market-oriented pricing, involves setting a price based upon analysis
and research compiled from the target market. With competition pricing, a firm
will base what they charge on what other firms are charging. This means that
marketers will set prices depending on the results from their research. For instance,
if the competitors are pricing their products at a lower price, then it’s up to them
to either price their goods at a higher or lower price, all depending on what the
company wants to achieve.
• If competitors are pricing their products at a lower price, then it’s up to the
company to either price their goods at a higher or lower price, all depending on
what they want to achieve.
• One advantage of competitive-based pricing is that it avoids price competition
that can damage the company.
• Potential disadvantages include that businesses may need to engage in other
tactics to engage customers (if the price is not enough of an incentive ).
• Another concern for companies is that this pricing method may barely cover
production costs, resulting in low profits.

Key Terms

• competitive-based pricing: Competitive-based pricing occurs when a company

sets a price for its good based on what competitors are selling a similar product
for.
 Price Sensitivity

• Price sensitivity is the degree to which the price of a product affects consumers'
purchasing behaviors. Generally speaking, it's how demand changes with the
change in the cost of products.
• In economics, price sensitivity is commonly measured using the price elasticity of
demand, or the measure of the change in demand based on its price change.
For example, some consumers are not willing to pay a few extra cents per gallon
for gasoline, especially if a lower-priced station is nearby.
• In Simple Terms, Price sensitivity is the degree to which demand changes when
the cost of a product or service changes. Price sensitivity is commonly measured
using the price elasticity of demand, which states that some consumers won't
pay more if a lower-priced option is available.
• The importance of price sensitivity varies relative to other purchasing criteria;
quality may rank higher than price, making consumers less susceptible to price
sensitivity.

Understanding Price Sensitivity

• Price sensitivity can basically be defined as being the extent to which demand
changes when the price of a product or service changes.
• The price sensitivity of a product varies with the level of importance consumers
place on price relative to other purchasing criteria. Some people may value
quality over price, making them less susceptible to price sensitivity. For example,
customers seeking top-quality goods are typically less price-sensitive than
bargain hunters; so, they're willing to pay more for a high-quality product.
• By contrast, people who are more sensitive to price may be willing to sacrifice
quality. These individuals will not spend more for something like a brand name,
even if it has a higher quality over a generic store brand product.
• Price sensitivity also varies from person to person, or from one consumer to the
next. Some people are able and willing to pay more for goods and services than
others. Companies and governments are also able to pay more compared to
individuals.

Price Sensitivity and Elasticity of Demand

• The law of demand states that if all other market factors remain constant, a
relative price increase leads to a drop in the quantity demanded. High elasticity
means consumers are more willing to buy a product even after price
increases. Inelastic demand means even small price increases may significantly
lower demand.
• In a perfect world, businesses would set prices at the exact point where supply
and demand produce as much revenue as possible. This is referred to as
the equilibrium price. Although this is difficult, computer software models and
real-time analysis of sales volume at given price points can help determine
equilibrium prices. Even if a small price rise diminishes sales volume, the relative
gains in revenue may overcome a proportionally smaller decline in consumer
purchases.

Influences on Price Sensitivity

• Price sensitivity places a premium on understanding the competition, the buying
process, and the uniqueness of products or services in the marketplace. For
example, consumers have lower price sensitivity if a product or service is unique
or has few substitutes.
• Consumers are less sensitive to price when the total cost is low compared to their
total income. Likewise, the total expenditure compared to the total cost of the
end product affects price sensitivity. For example, if registration costs for a
convention are low compared to the total cost of travel, hotel, and food
expenses, attendees may be less sensitive to the registration fee.
• When the expense is shared, consumers have less price sensitivity. People
attending the same conference may share one hotel room, making them less
sensitive to the hotel room rate.
• Consumers also have less price sensitivity when a product or service is used along
with something they already own. For instance, once members pay to join an
association, they are typically less sensitive to paying for other association
services.
• Consumers also have less price sensitivity when the product or service is viewed
as prestigious, exclusive, or possessing high quality. For example, an association
may have a premium feature of its membership delivered through its programs
and services, making members less price-sensitive to changes in dues.
 Price Volume Equation

The sales bridge (or price volume mix analysis) is a report which shows the gap between
budgeted and actual sales, and the explanation for that variation. Basically, there are
three type of effects or components that should be considered in order to explain the
gap:

• Price effect: deviation due to apply higher or lower selling prices.

• Volume effect: variation in the turnover due to the total units sold.
• Mix effect: measures the impact in the sales amount resulting from a change in the mix
of the quantities sold (% of units sold per reference over the total).

Traditionally, Price Volume Mix analysis has the following three components:

• Price Impact = Target Volume * (Actual Price – Target Price)

• Volume Impact = Target Price * (Actual Volume – Target Volume)
• Mix Impact = (Actual Volume – Target Volume) * (Actual Price – Target Price)

The Price – Volume Equation:

% Change in Volume = - % Change in Price / (CM % + % Change in Price)

Where Contribution Margin (CM) is the contribution of each unit of production to fixed
costs and profits.

The relationship between Price and Volume can be understood is derived from Cost
Volume Profit (CVP) analysis.

What Is Cost-Volume-Profit – CVP Analysis

• Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at

the impact that varying levels of costs and volume have on operating profit. The
cost-volume-profit analysis, also commonly known as break-even analysis, looks
to determine the break-even point for different sales volumes and cost structures,
which can be useful for managers making short-term economic decisions.
• The cost-volume-profit analysis makes several assumptions, including that the
sales price, fixed costs, and variable cost per unit are constant. Running this
analysis involves using several equations for price, cost and other variables,
then plotting them out on an economic graph.

CVP Analysis Formula

The CVP formula can be used to calculate the sales volume needed to cover costs and
break even, in the CVP breakeven sales volume formula, as follows:

Breakeven Sales Volume = FC/CM

where:

FC=Fixed costs

CM=Contribution margin=Sales−Variable Costs

 Price promotion

Price promotion is a major category of sales promotions where companies reduce the
selling price of a product or service to entice customers to buy. While each approach is
unique, pricing incentives are generally intended to bring in customers, drive revenue
and cash flow and turn over inventory.

Price Promotion Strategies

There are four launch strategies that can be used, based on whether price and
promotion are high or low. Prices are 'pull' based and affect market penetration and
share. Promotion adds push to this.

Price-Promotion Level matrix

Promotion level
Low High

Shallow
penetration Deep penetration
Low

Price level
High
Slow skim Rapid skim

Shallow penetration :With low price the product value increases, making it both
desirable and affordable. With low promotion, however, only a limited market
penetration will be achieved as fewer people will know about the product.

There can be good reason to start with a shallow penetration strategy, for example:

• When there is a limited ability to deliver any volume of products.

• Where marketing budget is low.
• Where customer feedback is being sought to improve the product before a
wider deployment.

It is possible with low promotion to get a higher penetration if creative approaches

are used. In particular the product can become a 'worst kept secret' as the
underground buzz of inter-customer provides much free communication and
promotion of the product.
Deep penetration: Where you are confident about the new product or where you are
seeking to quickly gain significant market share, then it becomes necessary to spend
whatever is necessary to gain a quick and deep penetration of the market, acquiring
significant market share.

With a lower price, more products will be sold, although at a reduced incremental
profit. This may be compensated for by high volumes. Sometimes little or no profit is
accepted if gaining market share today will give a cash cow tomorrow (or at least
some time in the future).
Rapid skim: A high price is less likely than a low price to achieve much in the way of
market penetration. However, this may be compensated by a larger profit margin per
product.

This is a typical strategy for fashion products that have a relatively short lifespan and
are highly desirable from the beginning. Strong promotion is helpful here to maximize
the returns, which should be quick and high.
Slow skim: When there is less hurry to get returns, but a decent return per item sold is
required, then the high-price market-skimming method may be taken at a slower
pace.

When the product is being tested in the market, this may be a preferable strategy to
'shallow penetration' as the higher price will limit take-up further, although there is the
risk here of a higher price leading to expectations of higher quality than is delivered.

Price Promotion Techniques

Online Promotions
Remember snipping coupons from the weekly mailers? Today's coupon is still
presented to consumers through print media, but is also widely recognized as a
popular Internet and email promotional feature. Likewise, coupon apps make it easy
for consumers to save money at the till, using their handheld devices to show coupon
codes. Loyalty membership cards remain popular, too, offering bargains to repeat
buyers, reward points toward products and a more attractive digital punch card that
reduces wallet clutter. Free shipping on minimum order amounts is another form of
online promotion used by savvy e-retailers and some brick-and-mortar companies,
alike. Offering free shipping may even reduce the rate of shopping-cart-
abandonment on e-commerce sites.
Point-of-Sale Discounts
An amount-off or percent-off point-of-sale discount is the simple type of price
promotion method. With this approach, once a discount price is determined,
employees change the price on the product bar code and on shelf signage. The
point is to convey better value because of the lowered price. Companies often
promote an in-store discount through weekly ad mailers or newspaper inserts. In some
cases, the deals are offered as a surprise in-store special.
Bulk Buys
Other price promotions are driven by volume purchases. A common retail promotion
is buy-one-get-one-free, or BOGO. In this scenario, a customer purchases one unit of a
product and gets a second free. Similarly, companies may offer promotions such as
buy two, get the third one free. Frequency shopper programs or loyalty programs
similarly offer price incentives to customers who make frequent or large purchases.
With the Best Buy rewards program, for instance, buyers get gift cards as they accrue
points through purchases. A number of supermarkets began joint ventures with gas
stations in 2012 and 2013, whereby in-store purchases led to cents off at the pump.
Trade Promotions
Price promotions are also offered in the business-to-business market. Businesses that
buy for consumption receive similar incentives to consumers. Trade buyers that
purchase products from suppliers for resale receive several distinct price promotions.
Off-invoice discounts are simply offers of a certain percentage off a given order. Bulk
buys are a common trade market incentive. In this case, companies that order larger
quantities get volume deals, such as 10 to 20 percent a certain minimum order size.
The Price Value Equation
When a consumer is faced with a choice to purchase a product, how is the decision
made? Its simple - a price-value evualation is done. Mathematically it is a straight
forward equation (Va-Pa)>(Vb-Pb) i.e. the greater the perceived difference of value and
price of a product, the better the chances of purchase. (V - Value, P - Price, a & b two
different products)

The price is the easier bit to understand and change - a number and there are many
mathematical / analytical tools to understand the pricing competitiveness of a product
in the market.

The value is the more complicated part. Bain & Co did a consumer research and turns
out that the value is not determined by one aspect but by as many by thirty! These are
classified into Fuctional, Emotional, Life Changing & Social Impact, a parallel line of
thought to Maslow's hierarchy.

Functional are pretty straight forward and the most measurable of all - time saving,
reduces effort, reduces risk etc - 13 in all. These are mostly table stakes, the gate and
we see that most marketers do pitch for the same. However the differentiation starts
when we move up the pyramid to the Emotional attribute . Does your product reduce
anxiety, rewards the user (in a social sense), provides access to a unique experience,
brings out nostalgia etc. Ten of such attributes.

Life changing and Social Impact - here the value associated with these are so high, that
you can afford to charge a premium for your product. Self-actualization, a sense of
achievement, motivation etc. A simple example would be comparing why would
people purchase Louis Vuitton bag worth $5000 (~INR 370,000) when there are dozens
of cheaper alternatives available? A sense of achievement, a belonging to a select few?
So - you would have also figured out, the higher the value perception, the more the
profits (with the more room to charge the price. Think Apple!)
Price Volume Mix analysis has the following
three components
• Price Impact(applying higher or lower selling prices per unit)=
Target Volume * (Actual price - Target price)

• Volume Impact(variation in the number of units sold)= Target

Price * (Actual volume - Target volume)

• Mix Impact(change in the mix of quantities sold)= (Actual

volume - Target volume) * (Actual price - Target price)

Why measure the mix effect?

• Diagnostic purpose: Mix effect and price can explain changes in
margin and sales.

• Performance management: If new products or investing in

marketing is supposed to improve the mix, then these KPIs can
be used to evaluate performance and set the target in
advance.

Benefits of PVM analysis

1. Standardizing your Price-Volume-Mix assessment- Tracking the
reason for cost increments can be difficult, yet distinguishing
causality is critical for your association's drawn-out
development. PVM is proposed to assist you with recognising
and convey the changes to your C-suite associates by
empowering you to bore down into the subtleties. In businesses
where unstable costs make anticipating profitability harder, you
 may incorporate a cost bucket and make your PVM assessment
on a margin basis.

2. Bridge-building benefits: By identifying and distinguishing the

impact of pricing on your revenue or margin, and then filtering
this data by relevant business parameters, you can quantify the
adequacy — and inadequacies — of your pricing activities and
strategies. The data you get from the analysis can help you to
improve your pricing practices and ensure that you are
implementing them to get the maximum profit.
 How to Price

Pricing Methods:

• Cost-Based Pricing
• Demand Based Pricing
• Competition Based Pricing

Cost-Based Pricing

• Cost-based pricing involves calculating the cost of the product, and then
adding a percentage mark-up to determine price. A firm calculates the cost of
producing the product and adds on a percentage (profit) to that price to give
the selling price. This appears in two forms: the first, full cost pricing, takes into
consideration both variable and fixed costs and adds a % markup. The other is
direct cost pricing, which is variable costs plus a % markup. The latter is only used
in periods of high competition as this method usually leads to a loss in the long
run. This method, although simple, does not take demand into account, and
there is no way of determining if potential customers will purchase the product at
the calculated price.

• Cost based pricing is the easiest way to calculate what a product should be
priced at. This appears in two forms: full cost pricing and direct-cost pricing. Full
cost pricing takes into consideration both variable, fixed costs and a % markup.
Direct-cost pricing is variable costs plus a % markup.
• Cost-plus pricing is a pricing method used by companies to maximize their profits.
The firms accomplish their objective of profit maximization by increasing their
production until marginal revenue equals marginal cost, and then charging a
price which is determined by the demand curve.
• Cost-plus pricing is used primarily because it is easy to calculate and requires little
information.

Key Terms

• Markups: Markup is the difference between the cost of a good or service and its
selling price. A markup is added on to the total cost incurred by the producer of a
good or service in order to create a profit.
• Variable cost: the amount of resources used that changes with the change in
volume of activity of an organization
• Rate of return: Rate of return (ROR), also known as return on investment (ROI), rate
of profit or sometimes just return, is the ratio of money gained or lost (whether
realized or unrealized) on an investment relative to the amount of money
invested.

Demand-Based Pricing

• Demand-based pricing uses consumer demand (and therefore perceived value)

to set a price of a good or service. Demand-based pricing is any pricing method
 that uses consumer demand, based on perceived value, as the central element.
These include: price skimming, price discrimination and yield management, price
points, psychological pricing, bundle pricing, penetration pricing, price lining,
value-based pricing, geo and premium pricing. Pricing factors are manufacturing
cost, market place, competition, market condition, and quality of product.
• Demand -based pricing uses consumer demand (and therefore perceived value )
to set a price of a good or service.
• Methods of demand-based pricing can include price skimming, price
discrimination and yield management, price points, psychological pricing, bundle
pricing, penetration pricing, price lining, value-based pricing, geo and premium
pricing.
• Pricing factors include manufacturing cost, market location, competition, market
condition, and the quality of the product.

Key Terms

• Price skimming: Price skimming is a pricing strategy in which a marketer sets a

relatively high price for a product or service at first, then lowers the price over
time. It is a temporal version of price discrimination/yield management.
• yield management: The method of analyzing information to forecast market
conditions and implications for the firm

Competition-Based Pricing

• Competitive-based pricing occurs when a company sets a price for its good
based on what competitors are selling a similar product for. Competitive-based
pricing, or market-oriented pricing, involves setting a price based upon analysis
and research compiled from the target market. With competition pricing, a firm
will base what they charge on what other firms are charging. This means that
marketers will set prices depending on the results from their research. For instance,
if the competitors are pricing their products at a lower price, then it’s up to them
to either price their goods at a higher or lower price, all depending on what the
company wants to achieve.
• If competitors are pricing their products at a lower price, then it’s up to the
company to either price their goods at a higher or lower price, all depending on
what they want to achieve.
• One advantage of competitive-based pricing is that it avoids price competition
that can damage the company.
• Potential disadvantages include that businesses may need to engage in other
tactics to engage customers (if the price is not enough of an incentive ).
• Another concern for companies is that this pricing method may barely cover
production costs, resulting in low profits.
Key Terms

• competitive-based pricing: Competitive-based pricing occurs when a company

sets a price for its good based on what competitors are selling a similar product
for.

Approach to Pricing a Product

• The most important element of your price is that it needs to sustain your business.
If you price your products at a loss, or at an unsustainable profit margin, you’re
going to find it challenging to grow and scale.

• There are other important factors that your pricing needs to account for, like how
you’re priced in relation to your competitors, and what your pricing strategy
means for your business and your customers’ expectations. But before you can
worry about anything like that, you need to make sure you’ve found a
sustainable base price.

1. Add up your variable costs (per product)

2. Add a profit margin
3. Add fixed costs
 Call Planning

Sales Call is the most significant tool used by Sales people to convince a customer. There has to
be a proper planning before doing any kind of sales call as this can make or break your
company’s prospective sales. There are two components of call planning – pre-call planning
and post-call planning.

Pre-call planning:

1. Determine the call objective: The first step in pre-call planning is setting the objective for the
call. The objective should be formulated in terms of the commitment desired from the customer
that moves the sales cycle forward. Examples include: an appointment with a more senior
person, an opportunity to present your solution to the buying committee, or a trial placement of
your solution. The appropriate commitment is determined by where you are in the sales cycle
and the person with whom you are meeting.

2. Keep it simple: If sales people are asked why they don’t do a better job of pre-call planning,
the answers heard most often are “No time” or “Too much paperwork.” Sometimes the
complaints are partially justified but when some sales people say “I just do it in my head” – that
doesn’t hold water. You have to write stuff down. The key is keep it simple – no format for a pre-
call plan should be more than one page or take more than 15 minutes to create.

3. Adopt a standard way of pre-call planning: This idea is correlated with the “keep it simple”
notion. Standardizing pre-call planning is a great way to keep it simple and to get better at
doing it. Here are six topics that work well as the basis of a pre-call plan:

• Call objective

• Questions you want to ask

• Questions you might be asked

• Points to communicate

• Likely objections

• Possible advances or commitments

4. Rehearse key calls: In a major sale, all calls are not of equal importance. Those one or two
key calls during the sales cycle that are most important demand more attention when it comes
to pre-call planning. On these calls, top performers not only complete a pre-call plan, they
rehearse the call in a role-play with a colleague or sales manager assuming the customer role.
Yes, it takes time but this is one of those cases where time is well spent. A small difference in how
a specific segment of the call is conducted can make a huge difference in the outcome.

Post-call planning

Although most sales training programs and sales managers give a fair amount of attention to
pre-call planning, post–call planning is often the forgotten country cousin. Yet in a major
account, it’s a big deal too. So, let’s take a look at a couple of best practices.
1. Do it now: Perhaps the biggest trap is either not doing it at all or postponing post-call planning
so long that it just turns into an exercise of completing a call report form. The best idea is to
complete the post-call planning right after the call to ensure nothing falls “between the cracks”.
When the call is still fresh in the sales person’s mind it’s easier to decipher what the notes and
scribbles penned during the call actually mean. Again 15 minutes should be all that is needed.

2. Assess next steps: Think about what happened on the call and assess what needs to be done
next. Analyze how the results of the call might impact the overall account strategy for moving
forward. Remember great account strategies are always a work-in-progress.

3. Play it again: One insight that can be gained from post-call planning is determining what went
right and what went wrong. Ask the question: “If I could do this call again, what would I do
differently?” Since “this call” will probably occur again in another account this brief call
assessment should result in the call being executed a little bit better the next time. Top sales
performers are always getting better – call planning is one simple way to execute on that idea.
The reason call planning is such a big deal is not just about what you write down or key into your
iPad. It’s taking the time to systematically think about what you are about to do and to learn
from what you just did. The larger the account, the more important the idea and the greater the
payoff.
 People Analytics

People analytics can be defined as the deeply data-driven and goal-focused method
of studying all people processes, functions, challenges, and opportunities at work to
elevate these systems and achieve sustainable business success.

People analytics is often referred to as talent analytics or HR analytics as well. Essentially,

gathering and assessing people analytics leads to better decision-making through the
application of statistics and other data interpretation techniques. Smarter, more
strategic, and data-backed talent decisions are thus closer at hand, and this is
applicable throughout the employee lifecycle – from making better hiring decisions
and more effective performance management to better retention.
People analytics has evolved considerably from when it was first used in organizations in
the mid-1900s. There has been a clear transition from prescriptive analytics to predictive
analytics, with which organizations can now be better prepared to face the dynamism
of their operational environment and be proactive rather than reactive. For example,
sophisticated data science, interactive data visualization, and machine learning – all
integral parts of people analytics today – were nowhere a part of the process until a
few decades ago.

The Process of People Analytics

People analytics today is a lot more intuitive and predictive. With that expectation to
live up to, the process involves the following steps.

Step 1: Dig data that matters

The core question to ask here is, “What data is relevant to our business goals?”
and to set the key performance indicators (KPIs) accordingly. This allows you to save
major resources by only investigating areas that need direct monitoring, such as
operational tasks within the people management spectrum, and can lead to tangible
business success.

Step 2: Experiment, explore, enrich

In a crowded and visibly fragmented market, it is imperative to choose a people

analytics tool by exploring the market, experimenting with different options, and
analyzing which option would enrich the organization the most. Multiple offerings
include data mining, data transformation, and data visualization techniques, all
merged into a user-friendly self-service interface.
Platforms that offer a wide range of features often require a lot of manual manipulation
to access important data, and these aspects can be tested only through systematic
experimentation.

Step 3: Have an action plan ready

Once you know what your end goal is, which data is relevant, and what the available
options are (based on clear pros vs. cons analysis), create an action plan. Applying big
data and predictive analytics to talent management, leadership development, and
organizational capabilities often helps in fine-tuning the action plan.
Moreover, having a well-defined plan of action enables a better understanding of why
certain changes may be taking place and where the organization is headed and can
thus help garner more stakeholder support.

Step 4: Avoid legal loopholes

Ensuring that legal compliance is maintained in the collection of all data is crucial.
Before you start on the analytics project, have a legal team validate the data sourcing
techniques and processes. It does not end here.
Once the raw data has been gathered and treated, the results gleaned need to be
approved as well before they can be applied or published. In our digital ecosystem,
with data protection and privacy laws still evolving, it is prudent to keep abreast of the
changes and double-check on legal compliance.

Step 5: Create leaner systems

Irrespective of the complexity of the project at hand, the broader strategy that the
processes must adhere to needs to be simple and lean. The basic process of data
analysis and interpretation should allow for easy application, updating, and readability.
For example, create the basic outline simplified as intake and design (data collection
and the design of the analysis), data cleaning (removing irrelevant or unreliable data),
data analysis (quantitative and qualitative exploration), and sharing insights
(interpretation and presentation of the data). This can help avoid unnecessary
complications such as confusion about the flow of steps involved, time wastage, or
repetition of sub-processes that occur with unstandardized process structures, while still
allowing room for tweaks where necessary.

Step 6: Build a fact-based, measurable HR business strategy

A realistic HR business strategy avoids functional silos and can align talent to business
seamlessly. Having clear KPIs and ROI expectations from people analytics endeavors
ensures that the impact is measured often and with transparency. A winning strategy
needs to be backed by data and an effective plan of action.

Step 7: Take tech support

Technology is interspersed with every aspect of life today and more so with processes
like people analytics, where often a bulk of analytical data is to be treated with little or
no room for error. New-age HR tech tools make real-time data easily accessible. And
this is an opportunity that needs to be milked because today, agility and real-time
intelligence can truly set you apart from the competition.

Four Key People Analytics Trends

Since people analytics relies heavily on evolving data-mining technologies and data-
interpretation strategies, the trends around people analytics develop in time to the
same. Here are the top 4 trends that are shaping people analytics in itself and how it
interacts with the business. Some trends work in a dual loop – they affect people
analytics and in turn, all other aspects of HR.

1. Transforming what HR is and does

Bersin research points out that a meager 2% of HR organizations have mature people
analytics competence to bank on. There is thus quite a heavy first-mover advantage for
innovative, intelligent organizations that are trying to tap into this space.
With people analytics changing how recruitment is conducted, how performance is
measured, how compensation is planned or growth is mapped, and how learning and
retention can be managed better, people analytics is quickly changing how HR
operates.

According to recent studies by Deloitte, increasing job offer acceptance rates,

reducing HR help tickets, and optimizing compensation are just a few ways in which
people analytics is quickly becoming the new currency of HR. Moreover, with HR
processes evolving to keep pace with business needs, people analytics is moving from
being a one-time initiative to becoming a real-time, easily modifiable tool that HR has
immense benefits to draw from.

2. Transforming HR business interactions

With recent trends in the work ecosystem, the interaction between HR and business
stakeholders (both internal and external) has been undergoing a transformation as well.
People analytics needs to change in keeping with the latest trends in leadership. More
transparency is a key trend emerging here, and intelligent insight is the need of the
hour.
Businesses today need to be able to make sense of seemingly unrelated data streams
and find meaning, correlation, and maybe even interdependence between one or
more factors to predict and manage work better. People analytics has the potential to
provide actionable recommendations to enable strategic planning and execution
processes.

3. Transforming the HR-employee relationship

Employee expectations today are consumer-grade. People analytics is providing

organizations with the ramp to upgrade the employee experience. Every interaction
that a candidate or an employee has with an organization is a data point and could
be utilized to glean interesting insights. The idea is the need to transform the relationship
that the HR has with employees – to help HR become and be perceived as more than
just a support function.

4. Transforming the quality of insights

The quality of insights that are expected on a daily basis has changed over the course
of the last couple of years. People analytics can live up to these expectations if you
focus on two key aspects: analytics literacy and data security.
More employees will need to become analytics literate to decrease dependence on
technical staff and to allow more perspectives to flourish. As people analytics becomes
a staple at organizations, data integrity and data security will need to be upgraded
and maintained for all listening channels and pulse checks.
 What Is a Performance Appraisal?
A performance appraisal is a regular review of an employee's job performance
and overall contribution to a company. Also known as an annual review,
performance review or evaluation, or employee appraisal, a performance
appraisal evaluates an employee’s skills, achievements, and growth--or lack
thereof. Companies use performance appraisals to give employees big-picture
feedback on their work and to justify pay increases and bonuses, as well
as termination decisions. They can be conducted at any given time but tend to
be annual, semi-annual, or quarterly.

How Performance Appraisals Work

Because companies have a limited pool of funds from which to award raises
and bonuses, performance appraisals help determine how to allocate those
funds. They provide a way for companies to determine which employees have
contributed the most to the company’s growth so companies can reward their
top-performing employees accordingly.

Performance appraisals also help employees and their managers create a

plan for employee development through additional training and increased
responsibilities, as well as to identify shortcomings the employee could work to
resolve.

Ideally, the performance appraisal is not the only time during the year that
managers and employees communicate about the employee’s contributions.
More frequent conversations help keep everyone on the same page,
develop stronger relationships between employees and managers, and make
annual reviews less stressful.

Performance Appraisal Types

Most performance appraisals are top-down, meaning supervisors evaluate their
staff with no input from the subject. But there are other types:

• Self assessment: Individuals rate their job performance and behavior.

• Peer assessment: An individual's work group rates his performance.
• 360-degree feedback assessment: Includes input from an individual,
her supervisor, and her peers.
• Negotiated appraisal: A newer trend that utilizes a mediator and attempts
to moderate the adversarial nature of performance evaluations by
allowing the subject to present first. Also focuses on what the individual is
doing right before any criticism is given. This structure tends to be
useful during conflicts between subordinates and supervisors.

Advantages of Performance Appraisal

It is said that performance appraisal is an investment for the company which

can be justified by following advantages:
1. Promotion: Performance Appraisal helps the supervisors to chalk out the
promotion programmes for efficient employees. In this regards, inefficient
workers can be dismissed or demoted in case.
2. Compensation: Performance Appraisal helps in chalking out
compensation packages for employees. Merit rating is possible through
performance appraisal. Performance Appraisal tries to give worth to a
performance. Compensation packages which includes bonus, high salary
rates, extra benefits, allowances and pre-requisites are dependent on
performance appraisal. The criteria should be merit rather than seniority.
3. Employees Development: The systematic procedure of performance
appraisal helps the supervisors to frame training policies and programmes.
It helps to analyse strengths and weaknesses of employees so that new
jobs can be designed for efficient employees. It also helps in framing
future development programmes.
4. Selection Validation: Performance Appraisal helps the supervisors to
understand the validity and importance of the selection procedure. The
supervisors come to know the validity and thereby the strengths and
weaknesses of selection procedure. Future changes in selection methods
can be made in this regard.
5. Communication: For an organization, effective communication between
employees and employers is very important. Through performance
appraisal, communication can be sought for in the following ways:
a. Through performance appraisal, the employers can understand
and accept skills of subordinates.
b. The subordinates can also understand and create a trust and
confidence in superiors.
c. It also helps in maintaining cordial and congenial labour
management relationship.
d. It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through

evaluating performance of employees, a person’s efficiency can be
determined if the targets are achieved. This very well motivates a person
for better job and helps him to improve his performance in the future.
Sales Compensation Plan

A sales compensation plan is the combination of base salary, commission,

and incentives that constitute a sales representative’s earnings. They are
designed in such a way as to drive performance and increase revenue. There
are many different ways to structure a sales compensation plan to suit
different organizational and employee needs. They should be designed and
tailored based on a rep’s role within the sales team, the length of the sales
cycle, the types of sales engagements and the rep’s level of seniority.
Sales compensation plans are important. They are key to encouraging the
positive behaviours in your staff that are necessary to achieve your overall
organizational goals and results.

Structuring Sales Compensation Plans

As mentioned above, there is no one-size-fits-all structure when it comes to

sales compensation. As well as considering the factors specific to individual
reps, business owners will also need to consider aspects such as industry,
company size, territories, and more.
Think carefully about your the structure of your sales compensation plan
since the best quality sales reps will be attracted by plans which reward high
performance admirably, thus keeping turnover low. If your plan rewards top
and underperforming reps at the same rate, not only will your plan be
unsuccessful in motivating your team, it may also lead to high turnover and
the increased associated costs.
Since straight salary plans aren’t very common, they won’t be discussed
here, but they do have a place in some industries where direct sales may be
prohibited.

Different Ways to Structure Sales Compensation Plans

1. Revenue/Quota Based Plan: A popular structure for many

organizations, in a revenue/quota based sales compensation plan,
a lower base salary is used alongside a commission rate based on the
sales volume/percentage of quota achieved over the previous sales
 period. Setting quotas is a strong motivator as reps will track their sales
throughout the period against their targets. This plan requires striking
a balance between setting aggressive targets based on the number of
accounts/number of businesses/average sales/demographics in a set
territory tempered by what is achievable. Targets set unattainably high
will demotivate employees.

2. Profit-Based Plan: The difference between a revenue and a profit-

based sales compensation plan is that in the latter, commission
rates will change as profit margin levels increase. Therefore the greater
the profit, the greater the amount of commission. What’s good about
this type of plan is that the sales rep’s compensation is tied to their
contribution to the bottom line meaning they will be chasing profitable
business. But on the other hand, in situations where the profit margin
is slim, the rep’s commission will be similarly small, and this may be
demotivating.This type of plan works well in the services sector where
there are no fixed costs.

3. Balanced Plans: In balanced plans, sales compensation is calculated

through a combination of revenue, profit, and other variables, such as
target number of new clients or upsells.

4. Territory/Team-Based Plan: In the territory or team-based plan,

sales reps only receive a bonus if goals for the period have been
achieved for their whole territory. This helps foster teamwork,
collaboration and creates accountability for each team member. The
downside to this type of plan is that it may disincentivize high achievers
if not run in tandem with the ability to earn individual commission and
may also breed resentment if team members are not felt to be pulling
their weight.

As you can see, it is easy to tweak each plan and create different
combinations. The important thing to remember is that since the purpose of
a sales compensation plan is to motivate sales reps to perform to the best of
their ability, a balance must be struck between aggressive targets and an
allowance for great performance to translate to great earning potential.
 Sales force sizing

• Sales force sizing is the strategic and analytical process of determining the optimal
number of sellers by role, segment, etc. As the ROI of incremental sales headcount
exceeds other investments, the sales force should continue to grow.
• There are several ways to identify the optimal sales force size. Following are the
common approaches:
• Total Addressable Market (TAM): TAM references the available opportunity in the
market. The number of sellers deployed directly impacts customer and prospect
coverage. Generally, a larger sales force manages more opportunities. However, when
doing this analysis, you must ensure that new sellers do not cannibalize the opportunities
of other sellers. If new sellers reduce the opportunities of existing sellers, the ROI
decreases and eventually seller productivity suffers. For larger organizations, TAM and
sales force sizing should be done by customer segments since trends and customer
demands may be unique by industry.
• Seller Capacity: Seller capacity is an activity-based analysis. Sellers have limited
bandwidth to complete activities like travel, sales calls, internal meetings, pre-call
planning, etc. If you understand the demands on the sales force and the capacity of
each seller, you can calculate the number of sellers needed to satisfy the demands.
• Financial Constraints: Some organizations – e.g. startups – may have a ton of
opportunity to justify a larger sales force but are limited by budgetary constraints.
Financial metrics like the costs of sales, costs per seller, and gross contribution margin
are helpful in sales force sizing.
• Competitive Benchmarking: The impact of one’s sales force in the marketplace
depends largely on the sales force strategy of the other players. Indeed, share of voice
(SOV) may be more fundamental than actual promotional effort. Consider a sales force
of 500 reps. Clearly, that sales force will have a much greater impact in a market of
2,000 reps than in a market of 5,000. This is precisely the premise of the competitive
benchmarking approach.
• Workload Build-up: Workload build-up evaluates the requirements by taking a first stab
at the call plan: who needs to be called on and how many times? This approach
addresses head-on what is known as the reach, frequency question, where reach refers
to who needs to be visited (physicians, hospitals, clinics, free-standing facilities, etc.)
and frequency the number of times in a year they need to be visited.
Sales targets

A sales target is the number of products you need to sell to make a desired profit.
Sales teams thrive on well-defined sales targets.

Sales targets allow you and your sales staff to:

• set clear goals

• pursue incentives and bonuses that motivate and reward
• keep measuring, challenging and improving your sales performance.

Reliable sales targets also help you track your sales progress within each period, and
adjust your sales goals to meet your market and business needs. You can set targets
by market segment, by region and for each member of your sales team.

Your sales targets are a part of your sales plan, and are used to achieve the
performance goals you set in your marketing plan.

Types of sales targets

Specific and realistic sales targets will help your sales team perform confidently,
consistently and with a clear understanding of your expectations. Choosing the right
type of targets – and involving your team in choosing these targets – can help you
achieve your sales goals and grow your profits.

Sales targets by product

Setting specific goals for each product is a simple and effective way to meet your
monthly sales budget.

Product sales targets usually list the number of products you need to sell, as well as
the targeted average sale price you need to get, to achieve a budgeted profit.

Sales targets set by product also include other important business information, such
as stock and storage requirements.

Sales targets by market segment

Businesses that target their markets clearly and accurately are more likely to achieve
good sales figures.
The 80:20 rule is an important rule for sales planning. Also known as the 'Pareto
principle', it means you will generally make 80% of your profits from 20% of your
customers. Studying your market and identifying the profitable 20% will help you
target and achieve successful sales.

Market segmentation – or segmenting your market – is a good place to start in setting

effective sales targets. However, setting sales targets by market segment can be quite
challenging.

Segmenting your market means grouping together customers with similar needs and
characteristics, and customers who respond in similar ways to your products or
services. For example, a hardware store might group its customers into 2 segments:

• home handymen and DIY customers

• building industry professionals.

Customer researchers often choose to group market segments by:

• geographics (region of the world, country, state or territory)

• demographics (age, gender, sexual orientation, family size, income,
occupation, education, socio-economic status, religion, nationality)
• psychographics (personality, lifestyle, values, attitudes).

Using your marketing plan as a guide will help you to achieve your sales targets by
pitching your products and services to these characteristics of your market segments.

Sales targets by region

Businesses with area or travelling sales representatives most commonly set sales
targets by region – removing the difficulty and frustration of setting and monitoring
individual targets for large numbers of products.

These businesses find it easier to set a dollar figure target per region, covering the
whole product range and all the customers in that region.

Regional targets are 'big picture' targets. Because they cover large customer numbers
and don't specify product sales, you need to keep them simple – one figure per area.

Setting sales targets

Your sales targets will grow with your business. Good sales planners set targets in
areas that will drive business growth. For example, if the market is chasing
compression gym clothing, they increase their targets for that range.

In setting sales targets you need to:

• consider the profit margins each of your sales will achieve (there's little point
reaching your sales target figure but shrinking your margin to achieve it)
• be realistic – your targets must be supported by marketing plan information
• keep all your business costs in mind and plan for growth.

Consider your finances

Before you set your sales targets, take the time to review and understand your
business's financial position.

Calculate your gross profit margin to help you identify products making the most
profit, so that you can focus your sales targets on them. While any profit is good
profit, smart businesses concentrate on achieving higher sales targets for their more
profitable items, rather than making 'broad' product sales with a thin margin.

Determine your break-even point by itemising all of your known, fixed annual costs
(e.g. rent, electricity, insurance and wages), and then working out the volume of
sales (in units) required to cover those costs.

Work out what your minimum sales requirements are by calculating how much of
your products or services you need to sell to cover fixed costs, your salary and your
desired profit.

Keep in mind your aim is to achieve a fair return on the funds you have invested in
the business, in addition to your salary. Once you've calculated your break-even
point, decide what you consider to be a reasonable return on investment (ROI) and
a fair salary for the owner and/or manager of the business (i.e. you).

Costs that could affect your profit

Consider all the related costs involved in achieving your minimum sales
requirements. Marketing, production and supply costs can affect the amount of sales
you need to make a profit.
Your marketing must be sufficient to generate your desired sales volume, and your
production processes must be capable of delivering those sales.

Sales strategies

You must have sales strategies in place to meet your targets. There are a range of
strategies you can use, including how you will:

• keep existing customers (e.g. a customer rewards program)

• attract new customers (e.g. marketing and advertising)
• sell more to existing customers (e.g. up-sell).

A realistic sales target is often based on a solid marketing strategy. You can help
your sales staff achieve their targets by generating qualified leads and brand
awareness from your marketing activities.
 Sales Territory Planning
Territory planning is a plan to ensure your sales team is targeting the right (and most
profitable) customers. Historically, most territories were broken down by geography, but
in today’s connected world, sales territories can also be divided in many ways
including:
• Industry
• Sales potential
• Customer type
With a clearly defined territory, sales teams can work strategically to address the needs
of their assigned market. A strong sales territory plan allows you to:
• Ensure your sales team’s efforts are focused on
the who, what, when, where and why that offer the strongest return on
investment.
• Align salespeople to the regions, segments, and/or verticals best suited for their
background and expertise.
• Partner intelligently across company teams to drive corporate objectives
• Optimize customer experience by aligning accounts with sales teams that
understand their unique challenges and opportunities.
• Set the stage for strong long-term customer and market relationships.

Benefits of Sales Territory Planning

If you’re doubting the value of a strong sales territory plan, consider these inarguable
benefits:
1. More time spent selling:
A strong territory plan allows organizations to maximize their sales momentum by
aligning the right sales teams to the right opportunities. Studies by industry analysts
consistently show a decline in sales productivity due to factors such as extensive
traveling, the need to learn and understand new segments, and administrative
overhead. With a clear sales territory plan based on geography and sector,
salespeople can spend less time traveling and preparing for customer engagements,
and more time working directly with customers.
2. Better customer service
By aligning your salespeople to a set of accounts that aligns to their background,
expertise, and geography, they are better able to understand customer needs and
build solutions that align. With consistent territories, salespeople can build long-term
relationships, leading to higher customer loyalty and repeat business.
3. Balanced workloads
Workload is measured in time and effort required to adequately manage all accounts
in a given territory. A strong territory plan compares workloads and designs territories so
that each salesperson is at full capacity, maximizing their potential.
To maximize rep production, you need to do some due diligence when it comes to
assigning balanced territories.
Factors to Consider When Planning Sales Territories
When segmenting territories among your reps, you want to make sure they’re allocated
fairly. To ensure this, ask yourself the following questions:
• Is the workload equally divvied up between each member of the team?
• Does the territory design provide equal compensation opportunities?
• Is there a good mix of existing and new accounts per territory?
• Does the territory route allow easy travel time management?
1. Revenue Source
• Current Customers. Where are your best customers and prospects located?
Geographic and industry-based clusters are the most common focus because
it’s easier to get new customers in an area with existing customers. Historical sales
data will become your new best friend as it’s the best predictor of future success.
• Inbound Leads. When inbound leads convert, focus on the demographics such
as geography, industry and size. Then, build a strategy to divide them as evenly
as possible across your sales force. The focus needs to be on revenue generated
from inbound leads as opposed to volume of leads.
• Outbound Prospecting. Sales territory design for outbound efforts begins by first
laying out the territories to work, then overlaying them with prospecting territories
according to how you’re allocating salespeople. For example, you assign two
sales reps to each state (two territories) and one canvasser (one prospecting
territory).
2. Rank Your Team
• Create a scorecard and evaluate your sales reps to identify who your top,
middle, and low level performers are.
• How much is their quota?
• Do they consistently achieve this number?
• How many current customers and prospects are in their funnel?
• How many viable prospects are located within their territory?
3. Rank Your Territories
• Most Profitable (Least Risky). Evaluate which of your territories are most successful
and double down on what’s already working.
• Most Growth. If you’re more focused on the long-term instead of the short-term,
focus on territories that haven’t been worked yet. It’s likely to take longer to
become profitable, but will generate greater growth over time.
• Learning / New Markets. To establish yourself in a new market segment or
determine if it’s viable, send a canvasser into this territory to accomplish a
specific task. This will help determine exactly what’s needed to succeed in that
market.
4. Track and Measure Metrics
• Sales metrics are invaluable in understanding the success of every sales team
within the company, and entire sales department as a whole. They help you to
spot trends and determine efficiencies, and inefficiencies, within the company.
• With sales enablement platforms like SPOTIO, you can easily pull results for:
➢ Team performance in relation to your sales funnel
➢ Data from custom statuses and fields based on KPIs
➢ Graphs representing team performance, best time and day to knock, etc.
➢ The number of attempts it takes to establish contacts, get leads and make sales
➢ This data gives you the information you need in order to assign balanced
workloads across your sales team.
Descriptive Analytics, Diagnostic Analytics, Predictive Analytics, Prescriptive Analytics

Today, most organizations emphasize data to drive business decisions, and rightfully so.
But data alone is not the goal. Facts and figures are meaningless if you can’t gain
valuable insights that lead to more-informed actions.

Analytics solutions offer a convenient way to leverage business data. But the number of
solutions on the market can be daunting—and many may seem to cover a different
category of analytics. How can organizations make sense of it all? Start by
understanding the different types of analytics, including descriptive, diagnostic,
predictive, and prescriptive analytics.

What are each of these categories? Are they related? In short, they are all forms of
data analytics, but each use the data to answer different questions. At a high level:

• Descriptive Analytics tells you what happened in the past.

• Diagnostic Analytics helps you understand why something happened in the
past.
• Predictive Analytics predicts what is most likely to happen in the future.
• Prescriptive Analytics recommends actions you can take to affect those
outcomes.

What is Descriptive Analytics?

Descriptive analytics looks at data statistically to tell you what happened in the past.
Descriptive analytics helps a business understand how it is performing by providing
context to help stakeholders interpret information. This can be in the form of data
visualizations like graphs, charts, reports, and dashboards.

How can descriptive analytics help in the real world? In a healthcare setting, for
instance, say that an unusually high number of people are admitted to the emergency
room in a short period of time. Descriptive analytics tells you that this is happening and
provides real-time data with all the corresponding statistics (date of occurrence,
volume, patient details, etc.).

What is Diagnostic Analytics?

Diagnostic analytics takes descriptive data a step further and provides deeper analysis
to answer the question: Why did this happen? Often, diagnostic analysis is referred to as
root cause analysis. This includes using processes such as data discovery, data mining,
and drill down and drill through.

In the healthcare example mentioned earlier, diagnostic analytics would explore the
data and make correlations. For instance, it may help you determine that all of the
patients’ symptoms—high fever, dry cough, and fatigue—point to the same infectious
agent. You now have an explanation for the sudden spike in volume at the ER.

What is Predictive Analytics?

Predictive analytics takes historical data and feeds it into a machine learning model
that considers key trends and patterns. The model is then applied to current data to
predict what will happen next.

Back in our hospital example, predictive analytics may forecast a surge in patients
admitted to the ER in the next several weeks. Based on patterns in the data, the illness is
spreading at a rapid rate.

What is Prescriptive Analytics?

Prescriptive analytics takes predictive data to the next level. Now that you have an
idea of what will likely happen in the future, what should you do? It suggests various
courses of action and outlines what the potential implications would be for each.

Back to our hospital example: now that you know the illness is spreading, the
prescriptive analytics tool may suggest that you increase the number of staff on hand
to adequately treat the influx of patients.

In summary: Both descriptive analytics and diagnostic analytics look to the past to
explain what happened and why it happened. Predictive analytics and prescriptive
analytics use historical data to forecast what will happen in the future and what actions
you can take to affect those outcomes. Forward-thinking organizations use a variety of
analytics together to make smart decisions that help your business—or in the case of
our hospital example, save lives.
Metrics for Measuring Ads: A Guide to Success
Measuring the success of your ad campaigns can at first seem almost bewildering. Say
you’ve just launched your latest display advertising campaign, or maybe you’ve sent out
your latest email newsletter, and you want to see how successful it has been. You wait
a while, then hit refresh on your analytics page. You’re hit with number after number,
graphs, and pie charts for as far as you can scroll, but which is the most important?
Which metric matters most?

What if your impressions have risen, but the click-through rate (CTR) has dropped?

What if people have spent less time looking at your ad, but your conversion has
somehow improved?

What do you do if your email open rate is sky high, but your audience isn’t doing
anything after opening?

There’s a reason behind everything, but it can be difficult to dig through the data and
discover what’s going on. Some metrics are more reliable and useful than others,
though, and here’s a quick rundown of the pros and cons of the most common ways to
measure the success of your campaigns.

Impressions
The total number of impressions equates to the total number of times your ad has been
served. This doesn’t show the amount of individuals that have seen your ad, though, as
it may be shown to the same user more than once.

Impressions as a metric give you a fairly good idea of how your ad is doing in general
terms, but as a statistic on its own, it’s not so useful. It doesn’t give you info about
overall reach, or conversion. It is, generally speaking, the way you pay for your ad
campaigns, which is why it tends to be such a common metric. You’ll usually pay a set
fee per impression.

One big drawback of making any sort of judgments based on impressions is that you
don’t know if the user is actually seeing your ad at all. It could be that it’s served, but
they just scroll right past without paying any attention. Of course, whether this is the
case is partly down to the ad itself, and whether it’s designed well enough and
effectively targeted.

Overall, while impressions are useful and will likely dictate how much you pay for an ad
campaign, you need much more supporting info from other metrics to draw any reliable
conclusions as to whether or not your ads have had any real impact.
Click Through Rate
Click through rate, or CTR, is exactly as it sounds. It measures the number of users
which actually click on your online display ad, whether that takes the form of a native
advertisement or a banner.

It should be the case that this is a really reliable metric, as it represents a tangible action
being taken by the user as a result of seeing your ad. You’d think that the higher the
CTR, the higher the conversion rate.

Unfortunately, nothing is ever that easy in the complicated world of display advertising.

Comscore found, in fact, that there’s almost no link between CTR and conversion.
Surprising, but the wide-ranging study covered over 250 million impressions over 9
months, spread across 18 advertisers, so the results are reliable. Interestingly, click
throughs had a lower correlation with overall conversion than either viewable or gross
impressions.

There are a number of potential reasons for this, but the big one is that hardly anyone
actually clicks on display ads at all. Whether native or banner, the proportion of those
who click through is tiny compared to the number of people who actually see the ad.

This doesn’t mean the ads aren’t effective, though. A user may see your banner, and be
drawn in by it, but then make their own way to your website later on. This is why you
need to monitor view-throughs too, which take into account the users which have seen
your ad who then visit your website within a certain time frame of your choosing.

When you look at this in conjunction with the CTR, you should get a much clearer
picture of how your ad is performing, and what effect it’s having on your conversion.

Time-Based Ads
Strictly speaking, this isn’t yet a metric of measurement but is a relatively new way for
publishers to charge for ad inventory. So, rather than charge per impression, they
charge for a certain block of time. This can be anything from 10 to 30 seconds, and the
publishers guarantee 100% visibility for that amount of time.

While this isn’t strictly a metric you can measure on directly, as an advertiser it’s
something worth looking into when buying inventory. If you do this, and compare results
(so overall conversions, view-throughs etc) to that of an impression based inventory
buy, you could potentially see a big difference.

Only a few websites are working this way at the moment, but it could be the best way to
buy inventory, and measure success, in the future. The reasoning behind this is that it’s
such a reliable way of measuring engagement. After all, the longer an ad is in front of a
user, the more likely they are to at least notice it, as opposed to if it’s just an impression
where the user just scrolls straight past.

From there, you can analyse how this method compares to the impression based
models, based on budget, and overall ROI. Just ensure you’re testing the same ads and
using the same view-through parameters, so you’re getting like-for-like results.

Viewers
This is a similar sort of number to the impressions, but instead of counting the number
of times the ad is served, it counts the number of different users which have seen the
ad. Or rather, potentially seen. The figure still doesn’t take into account whether the user
actually looked at the ad, but it’s still a useful metric.

After all, this is the figure which gives you a rough idea of your overall reach. Of course,
the ad isn’t always seen, or even fully in view if it’s placed ‘under the fold’, but as a figure
it still allows you to measure the reach of one campaign against another.

Conversions/Return on Investment (ROI)

For most advertisers, this is going to be the most important metric of all. After all, if
you’re investing money in advertising, the sole purpose is to make more than you invest.
Even with this relatively straightforward metric for measuring success, there are still a
few variables you need to be mindful of.

You may just be measuring direct conversions from the display ad itself. This
essentially means the number of people who click on the ad and convert into
customers/subscribers/do whatever you’re asking them to do.

Fine so far? Good.

But what about all the people who see your ad, pay attention, but don’t actually click?
Instead, they make a mental note, and come back to your site later via a quick search,
and then convert into customers.

After all, this is extremely common, and is a direct result of your ad campaign, but these
users might not be counting towards your ROI. This is risky, as it will make your
campaigns look as though they are performing worse than they actually are.

Once again, this is where you need to take view-through into account. These have been
criticised in some quarters, but like any metric, it’s really useful if you’re using it the right
way. Set a defined window, and this will tell you how many users have come to your site
through other avenues, having seen your ad earlier.
If you do this, you should be getting quite a full picture of your bottom line conversion,
which most marketers will find incredibly useful. Of course, it’s still not telling the full
story, and doesn’t take into account brand awareness and reputation, but it’s an
incredibly important stat, as it attaches hard figures and shows you if your investment is
paying off.

Conclusion
In the world of online display advertising, there are so many metrics and even more
ways for marketers to interpret them. These are a few of the main ones, but there are
many, many more.

The key is not to pick one and run with it, but to use a combination and discover what
works best for you. Ultimately, overall conversions are the key to a successful
campaign, so if these increase from advert to advert, then you know you’re improving.

However, potentially the most interesting and reliable way of actually paying for your ad
to be shown to your audience is through the time-based method. This guarantees that
you will have your ad in front of your audience for a set period of time, so the user is
much more likely to see it properly, if not engage with it. This, in turn, raises brand
awareness, which means they’re more likely to revisit your website later on.

This is also why you should look at view-through statistics too, which brings us around
nicely to the fact that no single metric is best.

Instead, a combination of a few, which are then compared with old campaigns or used
side by side in A/B testing, will give you the most meaningful, accurate, and useful
results. Then you will know if your overall campaign has been a success.
 Media Planning

Media planning is the series of decisions involved in delivering the promotional message
to the prospective purchasers and/or users of the product or brand. Media planning is a
process, which means a number of decisions are made, each of which may be altered
or abandoned as the plan develops. The media plan is the guide for media selection. It
requires development of specific media objectives and specific media strategies (plans
of action) designed to attain these objectives. Once the decisions have been made
and the objectives and strategies formulated, this information is organized into the
media plan. The medium is the general category of available delivery systems, which
includes broadcast media (like TV and radio), print media (like newspapers and
magazines), direct mail, outdoor advertising, and other support media. The media
vehicle is the specific carrier within a medium category.

Reach is a measure of the number of different audience members exposed at least

once to a media vehicle in a given period of time.
Coverage refers to the potential audience that might receive the message through a
vehicle. Coverage relates to potential audience; reach refers to the actual audience
delivered.
Frequency refers to the number of times the receiver is exposed to the media vehicle in
a specified period.

In Short:

Reach: Total number of persons exposed to advertisement.

Frequency: Is the number of times the Ad is released.

Media Scheduling

Obviously, companies would like to keep their advertising in front of consumers at

alltimes as a constant reminder of the product and/or brand name. In reality, this is not
possible for a variety of reasons (not the least of which is the budget). Nor is it necessary.
The primary objective of scheduling is to time promotional efforts so that they will
coincide with the highest potential buying times. For some products these times are not
easy to identify; for others they are very obvious. Three scheduling methods available to
the media planner—continuity, flighting, and pulsing
Continuity refers to a continuous pattern of advertising, which may mean every
day, every week, or every month. The key is that a regular (continuous) pattern is
developed without gaps or nonadvertising periods. Such strategies might be used for
advertising for food products, laundry detergents, or other products consumed on an
ongoing basis without regard for seasonality.
Flighting, employs a less regular schedule, with intermittent periods of advertising and
nonadvertising. At some time periods there are heavier promotional expenditures, and
at others there may be no advertising. Many banks, for example, spend no money on
advertising in the summer but maintain advertising
throughout the rest of the year. Snow skis are advertised heavily between October and
April; less in May, August, and September; and not at all in June and July.
Pulsing is actually a combination of the first two methods. In a pulsing strategy,
continuity is maintained, but at certain times promotional efforts are stepped up. In the
beer industry, advertising continues throughout the year but may increase at holiday
periods such as Labor Day or the Fourth of July. The scheduling strategy depends on the
objectives, buying cycles, and budget, among other factors.

Media Costing

1. Cost per thousand (CPM). For years the magazine industry has provided cost
breakdowns on the basis of cost per thousand people reached. The formula for this
computation is
CPM = Cost of ad space (absolute cost) × 1,000 Circulation

2. Cost per ratings point (CPRP). The broadcast media provide a different comparative
cost figure, referred to as cost per ratings point or cost per point (CPP), based on the
following formula:
CPRP = Cost of commercial time / Program rating

3. Daily inch rate. For newspapers, cost effectiveness is based on the daily inch rate,
which is the cost per column inch of the paper. Like magazines, newspapers now use
the cost-per-thousand formula discussed earlier to determine relative costs.
Television: (Cost of 1 unit of time × 1,000) / Program rating
Newspapers: (Cost of ad space × 1,000 ) / Circulation

Developing Media Plan

The media plan determines the best way to get the advertiser’s message to the market.
In a basic sense, the goal of the media plan is to find that combination of media that
enables the marketer to communicate the message in the most effective manner to
the largest number of potential customers at the lowest cost.

Situation Marketing Strategy Creative Strategy

Analysis Plan Plan

Setting Media Objectives

Determining media strategy

Selecting broad media classes

 Selecting media within classes

Media Use Decisions – Print,

Broadcast, other

Situation Analysis:
Purpose: To understand the marketing problem. An analysis is made of a company and
its competitors on the basis of:
1. Size and share of the total market.
2. Sales history, costs, and profits.
3. Distribution practices.
4. Methods of selling.
5. Use of advertising.
6. Identification of prospects.
7. Nature of the product.

Market Strategy Plan

Purpose: To plan activities that will solve one or more of the marketing problems.
Includes the determination of:
1. Marketing objectives.
2. Product and spending strategy.
3. Distribution strategy.
4. Which elements of the marketing mix are to be used.
5. Identification of “best” market segments.

Creative Strategy Plan

Purpose: To determine what to communicate through advertisements. Includes the
determination of:
1. How product can meet consumer needs.
2. How product will be positioned in advertisements.
3. Copy themes.
4. Specific objectives of each advertisement.
5. Number and sizes of advertisements.

Setting media objectives

Purpose: To translate marketing objectives and strategies into goals that media can
accomplish.

Determining media strategy

Purpose: To translate media goals into general guidelines that will control the planner’s
selection and use of media. The best strategy alternatives should be selected.

Selecting broad media classes

Purpose: To determine which broad class of media best fulfills the criteria. Involves
comparison and selection of broad media classes such as newspapers, magazines,
radio, television, and others. The analysis is called intermedia comparisons. Audience
size is one of the major factors used in comparing the various media classes.

Selecting media within classes

Purpose: To compare and select the best media within broad classes, again using
predetermined criteria. Involves making decisions about the following:
1. If magazines were recommended, then which magazines?
2. If television was recommended, then
• Broadcast or cable television?
• If network, which program(s)?
• Network or spot television?
• If spot, which markets?
3. If radio or newspapers were recommended, then
• Which markets shall be used?
• What criteria shall buyers use in making purchases of local media?

Media use decisions- Broadcast

1. What kind of sponsorship (sole, shared, participating, or other)?
2. What levels of reach and frequency will be required?
3. Scheduling: On which days and months are commercials to appear?
4. Placement of spots: In programs or between programs?

Media use decisions—Print

1. Number of ads to appear and on which days and months.
2. Placements of ads: Any preferred position within media?
3. Special treatment: Gatefolds, bleeds, color, etc.
4. Desired reach or frequency levels.

Media use decisions—other media

1. Billboards
a. Location of markets and plan of distribution.
b. Kinds of outdoor boards to be used.
2. Direct mail or other media: Decisions peculiar to those media.

Setting Media Budgets

The money spent in advertising forms an important cost factor and no matter what type
of company it is, large or small, budget decision may lead to profitability or drain away
most of the profits. Advertisement can be considered as an investment into future sales.
Proper budget allocation for long-term reinforcement effect is necessary for proper
planning. Setting the budget is a different job and a lot of experience is required to
avoid overspending yet maintaining the company’s image. There are certain factors
that must be taken into consideration for preparing the budget. These are:
1. Stage of the product life cycle: Different budget allocation are made in different
stages. The products which are selling and are in the mature stage of PLC require less
expenditure. Whereas the products in the introductory stage of PLC or new products
require much heavier expenditure to create awareness.

2. Market share is also an important factor for preparing of budget. To gain greater
market share the advertising budget should be high.

3. With competition one tries to out do the competitor and competitive parity method is
used.

4. Greater advertisement frequency needs greater expenditure and a higher budget.

5. If the product can be differentiated and has noticeable features and attributes it
may require lesser advertisement expenditure.

6. It is difficult to measure the effectiveness of advertising sales, as it can be due to

other factors as well.

Budgeting Methods

Amount of money spent on advertising depends on objectives. It differs from company

to company various practises are followed:
1. Competitive parity method.
2. Affordability method.
3. A fixed percentage of turnover method.
4. Budget based on functions to be performed (Objectives and task method).
5. Regression analysis: Based on historical data: Time series data, To predict dependent
variable—sale or market share. Advertising expenditure is the independ variable.

6. Adaptive Control Model: Advertising budget decision need changing as relationship

between advertising and sales change over time. It gives an idea of optional
expenditure on audience to be reached, size, location, media cost etc.

Budgeting Approaches

We are discussing here 2 approaches to budgeting. They have their advantage and
disadvantage.

Top-Down Approach: It is called top-down approach because the budgets are made
by the top executed and then the money is passed down the line to various
departments. This approach is applied in affordable method percentage of sales,
competitive parity method and Return On Investments (ROI) method of budgeting.

Bottom-up Budgeting
In this method promotion adjectives are set for the tasks to be performed. All the
necessary activities to achieve the objectives are planned. The cost of these activities
are ascertained and budgeted. The total promotion budget is then approved by top
management. This is also know as the build-up approach of budgeting.

Competitive Parity Method

Many firms base their advertising expenditure to compete with their rivals or their
competitors. The information regarding this is found in business magazines, journals and
annual reports of the company. They not only try to have the same expenditure but
also try to choose the media accordingly. They also choose the media vehicle and the
frequency of advertisement to match with that of the competitor. Firms believe that by
following this method they can make the optimal expenditure to lead to stability in
market place etc. This method may ignore the objectives of the company and
concentrate only on competitive advertising. It may also ignore the other aspects like
creativity and the role of media. The effect of expenditure is known after the
advertisement has been released, and one does not know the next move of the
competitor for expenses on the advertisement and promotion. Some companies use
the comparative method in conjunction with other methods as well. It would however
be more appropriate to keep in mind the objective of the firm before going in for this
method.

Affordable Method
This simply means what the firm can afford after meeting all their expenses. The firm
allocates the amounts to be spent on production and after that allocation is done for
advertising and promotion. The tasks to be performed by advertising is not considered.
In this method there can be chances of overspending or understanding. This approach
is common in small firms and some big firms not having much knowledge of
advertisement resort to this method as well. In this method it is difficult to get into
financial problem as we are spending only what
we can afford. In this method it is difficult to assess whether the advertising expenditure
made is optimal and will give proper results. Advertising expenditure must lead to sales.

A Fixed Percentage of Turnover Method

This method is most common used in small and medium-sized companies. A
percentage amount of the sales as decided is allocated for advertising expenditure.
The percentage is based on last year’s sales. The sales can be projected for next year
and percentage expenses incurred accordingly. The advertising expenses can be
calculated on straight percentage sales or on the
percentage of unit cost.

Method I—Percentage Sales

That sales in the year ending
2002-2003 is Rs. 80,00,000
if the % of sales is 10% 800,000
Advertising Budget is 800,000

Method II Percentage of Unit Cost

If the cost of a unit is Rs. 1000/-
If 1,000 unit are sold revenue generated is 10,00,000
if the % decided is 10% 1,00,000
Advertising Budget 1,00,000

Objective and Task Method

The expenditure allotted depends on the functions to be performed to achieve the
objectives of the organisation. In this method objective are defined and the specific
strategies are formulated to achieve them. Then the cost of implementing these
strategies is estimated. Establishing of objective may be interpreted as achieving a
percentage market share and bring awareness of the brand to the consumers and
general public. The strategies may include advertising in various media, and other
elements of promotion mix. Then the cost of various media chosen is estimated. It is also
necessary to monitor the expenses and evaluate
the results. It is difficult to correlate the expenses with the task performed for this
experience is required.

Market Size and Potential

The size of the market affects the advertising expenditure. Greater the market share,
greater is the expenditure and vice-versa. The ambitious is the plan for promotion more
is the advertising expenditure. If the market and its potential is small then greater
advertising expenditure will be a waste. If the market is concentrated in a geographical
area lesser expenditure is required. If the market is dispersed then it requires more
expenditure. By potential we also mean that there is greater potential of advertisement
services in urban rather than rural areas. There is more potential for coffee in the south
than in the north. There is more demand of woollens in the north of India than in the
south and so on. We therefore see that the potential and size of the market affects the
advertising expenditure.

Economies of Scale in Advertising

Some studies have presented evidence that firms and/or brands maintaining a large
share of the market have an advantage over smaller competitors and thus can spend
less money on advertising and realize a better return. Larger advertisers can maintain
advertising shares that are smaller than their market shares because they get better
advertising rates, have declining average costs of production, and accrue the
advantages of advertising several products jointly. In addition, they are likely to enjoy
more favorable time and space positions, cooperation of middle people, and
favorable publicity. These advantages are known as economies of scale.
 Retail lift and Promotional Lift

In marketing, “lift” represents an increase in sales in response to some form of

advertising or promotion. Monitoring, measuring, and optimizing lift may help a
business grow more quickly.
It is important to understand how any form of marketing is impacting a business.
While lift is not the only thing that a marketer should pay attention to, it does
relate closely to a company’s financial success. Lift, like any metric, should be
measured in context of the particular type of campaign in view and in the
context of business goals.

While every organization should develop or at least optimize lift measurements

that make sense for its own situation or goals, there are some basic lift-
monitoring strategies for each of the most common forms of online ecommerce
marketing.

Retail Lift Formula

% increase in sales (in $ or volume) obtained due to retailer

merchandising. Calculated as (Incremental/Base) x 100.

How to Calculate Retail Sales Lift

The incremental sales lift formula is relatively simple, however, there are a couple
different values you can plug in depending on how your brand measures sales
success. For the purpose of this article, we will be discussing sales lift in terms of
actual monetary sales, but you can also use sales volume. The formula is below,
along with a calculator to make it even easier to figure out:

Actual Sales - Baseline Sales = Incremental Sales Lift

In this formula, your actual sales are the dollar amount of sales generated during
a promotion. Your baseline sales are the estimated dollar amount of sales for
that given time period if the promotion had not taken place.

There are a few different ways to calculate baseline sales:

• Pre-post analysis: This involves looking at sales for a set time period pre-
promotion and comparing them to the sales of a similar time period post-
promotion.

• Last year’s sales average: This method looks at sales for the same time
period of the previous year and compares it to the current year with the
promotion.
• Prediction of sales: This method requires brands to make a prediction of
sales for a given period based on other factors (i.e. previous sales, last year’s
sales) and compare it with the actual sales for that same time period.

Promotional Lift

Promotional lift is the percentage increase in sales or site traffic attributed to a

promotional campaign.

Promotional lift is measured by calculating the percent change in sales or traffic

between a regular (non-promotional) time frame for the business versus a the
promotional time period.

For instance, if you ran a week long campaign that produced 2,168 sales, versus
a regular week when you get 1,006 sales on average, your promotional lift is
115.51%.

Here is the 2-step formula:

• Increase = New Number – Original Number

• % increase = Increase ÷ Original Number × 100.

Now, before we dive into the actual numbers, let’s first make sure we are all on
the same page about how we define the promotion lift metrics.

In this study, we looked at 3 metrics for our promotional lift calculations:

1. Conversion rate without promotions.

2. Engaged conversion rate with the promotion.
3. The percent change between those two numbers.

Let’s take a look.

1. Conversion rate (CVR).

Conversion Rate (CVR) refers to the percentage of visitors to a website who

resulted in a sale.

2. Engaged conversion rate (CVR).

Engaged Conversion Rate (Engaged CVR) is referring to exactly that, the

percentage of on-site visitors who interacted with a Justuno promotion and
completed a purchase.
3. Calculate percent change of CVR vs engaged CVR.

The % Change effectively is the difference between a normal visitor’s rate of

conversion as opposed to the rate of conversion of a visitor who interacts
(engages) with a Justuno promotion.

Ongoing Campaigns

Many Internet retailers — especially new ones — depend on a steady stream of

pay-per-click driven traffic for sales and profit. When an online store first opens,
few, if any, customers know that it exists and likely even Google and Bing have
not indexed the site. So it makes perfect sense that marketers at a new online
store would turn to PPC, which can be very effective.

Even established retailers will use PPC to get new customers. But new customers,
however important, are almost never as profitable as returning or repeat
shoppers. Earlier this year Adobe reported that in the United States returning or
repeat shoppers account for about 41 percent of retail revenue online, but
represent just 8 percent of site traffic.

Put another way, Adobe found that shoppers who come back and make a
second purchase typically spend three times as much as new customers.
Repeat shoppers, those that come back more than twice, will typically spend 5
times as much as new shoppers on each purchase, according to Adobe.

With this data in mind, the ultimate goal of a PPC campaign should not only be
to make immediate sales, but to introduce shoppers to a store with the hope of
making lasting customer relationships.

A retailer in the northwest, as an example, used a PPC campaign to sell a $10

item to a shopper in Florida, introducing that shopper to the store and its
products. Now that shopper spends no less than $500 per quarter with the store.

To measure the lift from an ongoing marketing campaign — such as PPC ads —
a merchant may want to look at the overall growth in sales from month to
month. Assuming that the amount invested in the ongoing campaign is steady
over time, the merchant should see a monthly lift in sales.

Imagine that a merchant has sales of about $1,000 per month. This merchant
initiates an ongoing PPC advertising campaign, investing $500 per month. In the
first month, total sales grow to $2,000. Assuming that no other promotions were
going on, that merchant should attribute the $1,000 lift in sales to the PPC
campaign. It would also be worthwhile to look at the lift in profits after
promotional expenses are considered.
 Regular Discounts

Many online retailers also offer regular discounts. These discounts may include a
free shipping offer with or without a minimum purchase; a discount for senior
citizens or members of a group like AAA, AARP, or similar; or a discount for
returning shoppers.

Like the ongoing advertising campaigns described above, regular or

longstanding discounts are often used to create lasting and loyal customer
relationships.

To measure the lift from regular discounts, consider looking at three areas: (a)
increase in total sales from month to month, (b) the average order size for
shoppers using the discount compared to shoppers who did not; and (c) the
ratio of repeat customers to new customers who take advantage of the regular
discount.

Event Promotions

Event or one-time promotion may include things like Cyber Monday sales,
Christmas sales, or even contests conducted on Facebook. They are marketing
promotions that happen at a single timeframe.

Frequently marketers are aiming at boosting short-term sales or garnering new

customers or registrants when they use this sort of marketing.

To measure the lift from an event promotion, compare like timeframes. For
example, if an online merchant has a Cyber Monday sale running, lift could be
measured by comparing the total sales on Cyber Monday with the average
sales for the days before and after the sale.

Specifically, imagine that an online merchant makes $10,000 in sales on Cyber

Monday. That same merchant averaged $8,000 in sales for the five days before
the sale and averaged $7,500 for the five days after. Next, the merchant could
average the averages, if you will, adding $8,000 to $7,500 and dividing by two.
The result, $7,750, represents sales over time. When this amount is subtracted
from the Cyber Monday sales of $10,000, the merchant has the lift for the event,
which in the example is $2,250. The merchant should, of course, also look at
profits for the same periods.

Content Marketing

Not every kind of marketing is meant to have an immediate impact on sales.

Content marketing is a slow process, wherein a site offers useful or entertaining
content and thereby increases organic site traffic.
The slow nature of content marketing can make it seemingly more difficult to
measure, but finding lift for content marketing is no different than finding lift for
an ongoing campaign like PPC ads.

In both cases there is a monthly investment in marketing, and a measuring

amount of sales. To find lift from content marketing, look for a month-over-month
rise in sales from natural or organic traffic. Also look for an increase in direct
referrers — the number of shoppers that type in a store’s specific URL rather than
accessing the store through a third-party like a search engine.
Advertising Budget

Advertising Budget Definition

An advertising budget is an amount set aside by a company planned for the promotion of its goods
and services. Promotional activities include conducting a market survey, getting advertisement
creatives made and printed, promotion by way of print media, digital media, and social media,
running ad campaigns, etc.
Advertising Budget Basis

The advertising budget of a company is based on the following factors:

• Type of advertising campaign that it intends to run

• Selection of target audience
• Type of advertising media
• Company’s objective of advertising

Process of Creating Advertising Budget

The following steps are followed to set up this budget –

• Setting advertising goals based on the company’s objectives.

• Determine the activities that are required to be done.
• Preparing the components of the advertising budget;
• Getting the budget approved by management;
• Allocation of funds for activities proposed under the advertisement plan;
• Periodically monitoring the expenses being incurred during the advertising process;
Advertising Budget Methods

The most common methods are discussed as follows:

• Percentage of Sales: Under this method, the advertising budget is set as a percentage of
either the past sale or expected future sales. Small businesses usually use this method.
• Competitive Parity: This method advocates that a company sets an advertising budget
similar to the one set up by its competitor to yield similar results.
• Objective and Task: This method is based on the advertising objectives of this method.
Once the objectives are decided, the cost is estimated to complete those objectives, and
accordingly, a marketing budget is set.
• Market Share: In this method, the advertising budget is based on a company’s market
share. For a higher market share, less marketing budget is set.
• All available Funds: This is a very aggressive method under which all available profits
are allocated towards advertising activities. This method can be used by start-up businesses
that need advertisements to attract customers.
• Unit Sales: Under this method, the advertisement cost per article is calculated and based
on the total number of articles, it is set.
• Affordable: As the name suggests, the company sets its budget based on how much it can
afford.

Factors Affecting Advertising Budget

• Existing Market Share: A company with a lower market share will be required to spend
more on its promotional activities. On the other hand, companies with larger market shares
can spend less on their promotional activities.
• The competition level in the industry: If there is a high competition level in the industry
in which the company operates, the advertising budget would be required to be set on a
 higher side to get noticed by audiences. In case a monopoly exists or where there is the
least level of competition involved, the company will need to invest less in marketing.
• Stage of the Product Life Cycle: It is a well-known fact that in the initial introduction
and growth stages of a product or service, more amounts would be required for advertising.
While in the later stages of the product life cycle, the need for advertising will decline.
• Decided frequency of Advertisement: The advertising budget will also depend on how
frequently a company wants to run its ads. Frequent ads will call for a greater budget.

Strategies

Let us have a look at some strategies a company can follow.

• Social Media Marketing: One can start by making profiles of the businesses on social
media platforms like Facebook and Instagram, which can help reach out to larger audiences
cost-effectively.
• Referral Benefits: In this strategy, you ask your customers to refer your business pages to
their friends and family. This way, your customers do the marketing for you. You provide
referral benefits and points when such referrals are buying the products.
• Content Marketing: Start a blog and update interesting content that attracts your
audiences. This strategy, combined with other strategies, will benefit the business.
• Email Marketing: This strategy will depend on your database’s strength and relevance.
• Pay per click ad: In this strategy, you pay per ad you run on social media platforms. Based
on your selected target audience, the ad is run and reaches the audience.
 Social media analysis

• Social media analysis is the process of collecting the most valuable data from
your social media channels and drawing actionable conclusions.
• It is the process of gathering and analyzing data from social networks such as
Facebook, Instagram, LinkedIn and Twitter. It is commonly used by marketers to
track online conversations about products and companies. One author defined
it as "the art and science of extracting valuable hidden insights from vast
amounts of semi-structured and unstructured social media data to enable
informed and insightful decision making."[1]

There are three main steps in analyzing social media:

• Data identification
• Data analysis
• Information Interpretation.

Data identification
Data identification is the process of identifying the subsets of available data to focus on
for analysis. Raw data is useful once it is interpreted. After data has been analyzed, it
can begin to convey a message. Any data that conveys a meaningful message
becomes information. On a high level, unprocessed data takes the following forms to
translate into exact message: noisy data; relevant and irrelevant data, filtered data;
only relevant data, information; data that conveys a vague message, knowledge; data
that conveys a precise message, wisdom; data that conveys exact message and
reason behind it. To derive wisdom from an unprocessed data, we need to start
processing it, refine the dataset by including data that we want to focus on, and
organize data to identify information. In the context of social media analytics, data
identification means "what" content is of interest. In addition to the text of content, we
want to know: who wrote the text? Where was it found or on which social media venue
did it appear? Are we interested in information from a specific locale? When did
someone say something in social media?
Attributes of data that need to be considered are as follows:

• Structure: Structured data is a data that has been organized into a formatted
repository - typically a database - so that its elements can be made addressable for
more effective processing and analysis. The unstructured data, unlike structured
data, is the least formatted data.[3]
• Language: Language becomes significant if we want to know the sentiment of a
post rather than number of mentions.
• Region: It is important to ensure that the data included in the analysis is only from
that region of the world where the analysis is focused on. For example, if the goal is
to identify the clean water problems in India, we would want to make sure that the
data collected is from India only.
• Type of Content: The content of data could be Text (written text that is easy to read
and understand if you know the language), Photos (drawings, simple sketches, or
photographs), Audio (audio recordings of books, articles, talks, or discussions), or
Videos (recording, live streams).
• Venue: Social media content is getting generated in a variety of venues such as
news sites and social networking sites (e.g. Facebook, Twitter). Depending on the
type of project the data is collected for, the venue becomes very significant.
• Time: It is important to collect data posted in the time frame that is being analyzed.
• Ownership of Data: Is the data private or publicly available? Is there
any copyright in the data? These are the important questions to be addressed
before collecting data.

Data analysis
Data analysis is the set of activities that assist in transforming raw data into insight, which
in turn leads to a new base of knowledge and business value. In other words, data
analysis is the phase that takes filtered data as input and transforms that into
information of value to the analysts. Many different types of analysis can be performed
with social media data, including analysis of posts, sentiment, sentiment drivers,
geography, demographics, etc. The data analysis step begins once we know what
problem we want to solve and know that we have sufficient data that is enough to
generate a meaningful result. How can we know if we have enough evidence to
warrant a conclusion? The answer to this question is: we don't know. We can't know this
unless we start analyzing the data. While analyzing if we found the data isn't sufficient,
reiterate the first phase and modify the question. If the data is believed to be sufficient
for analysis, we need to build a data model.[2]
Developing a data model is a process or method that we use to organize data
elements and standardize how the individual data elements relate to each other. This
step is important because we want to run a computer program over the data; we
need a way to tell the computer which words or themes are important and if certain
words relate to the topic we are exploring.
In the analysis of our data, it's handy to have several tools available at our disposal to
gain a different perspective on discussions taking place around the topic. The aim here
is to configure the tools to perform at peak for a particular task. For example, thinking
about a word cloud, if we take a large amount of data around computer professionals,
say the "IT architect", and built a word cloud, no doubt the largest word in the cloud
would be "architect". This analysis is also about tool usage. Some tools may do a good
job at determining sentiment, where as others may do a better job at breaking down
text into a grammatical form that enables us to better understand the meaning and
use of various words or phrases. In performing analytic analysis, it is difficult to
enumerate each and every step to take on an analytical journey. It is very much an
iterative approach as there is no prescribed way of doing things.[2]
The taxonomy and the insight derived from that analysis are as follows:

• Depth of Analysis: Simple descriptive statistics based on streaming data, ad hoc

analysis on accumulated data or deep analysis performed on accumulated data.
This analysis dimension is really driven by the amount of time available to come up
with the results of a project. This can be considered as a broad continuum, where
the analysis time ranges from few hours at one end to several months at the other
end. This analysis can answer following type of questions:
o How many people mentioned Wikipedia in their tweets?
o Which politician had the highest number of likes during the debate?
 o Which competitor is gathering the most mentions in the context of social
business?
• Machine Capacity: The amount of CPU needed to process data sets in a
reasonable time period. Capacity numbers need to address not only the CPU needs
but also the network capacity needed to retrieve data. This analysis could be
performed as real-time, near real-time, ad hoc exploration and deep analysis. Real-
time analysis in social media is an important tool when trying to understand the
public's perception of a certain topic as it unfolding to allow for reaction or an
immediate change in course. In near real-time analysis, we assume that data is
ingested into the tool at a rate that is less than real-time. Ad hoc analysis is a
process designed to answer a single specific question. The product of ad hoc
analysis is typically a report or data summary. A deep analysis implies an analysis
that spans a long time and involves a large amount of data, which typically
translates into a high CPU requirement.[2]
• Domain of Analysis: The domain of the analysis is broadly classified into external
social media and internal social media. Most of the time when people use the term
social media, they mean external social media. This includes content generated
from popular social media sites such as Twitter, Facebook and LinkedIn. Internal
social media includes enterprise social network, which is a private social network
used to assist communication within business.[5]
• Velocity of Data: The velocity of data in social media can be divided into two
categories: data at rest and data in motion. Dimensions of velocity of data in
motion can answer questions such as: How the sentiment of the
general population is changing about the players during the course of match? Is
the crowd conveying positive sentiment about the player who is actually losing the
game? In these cases, the analysis is done as arrives. In this analysis, the amount of
detail produced is directly correlated to the complexity of the analytical
tool or system. A highly complex tool produces more amounts of details. The second
type of analysis in the context of velocity is an analysis of data at rest. This analysis is
performed once the data is fully collected. Performing this analysis can provide
insights such as: which of your company's products has the most mentions as
compared to others? What is the relative sentiment around your products as
compared to a competitor's product?[2]

Information interpretation
The insights derived from analysis can be as varied as the original question that was
posed in step one of analysis. At this stage, as the nontechnical business users are the
receivers of the information, the form of presenting the data becomes important. How
could the data make sense efficiently so it could be used in good decision
making? Visualization (graphics) of the information is the answer to this question.[6]
The best visualizations are ones that expose something new about the
underlying patterns and relationships contain the data. Exposure of the patterns and
understating them play a key role in decision making process. Mainly there are three
criteria to consider in visualizing data.

• Understand the audience: before building the visualization, set up a goal, which is
to convey great quantities of information in a format that is easily assimilated by the
consumer of information. It is important to answer "Who is the audience?", and "Can
you assume the audience has the knowledge of terminologies used?" An audience
 of experts will have different expectations than a general audience; therefore, the
expectations have to be considered.[7]
• Set up a clear framework: the analyst needs to ensure that the visualization is
syntactically and semantically correct. For example, when using an icon, the
element should bear resemblance to the thing it represents, with size, color, and
position all communicating meaning to the viewer.[7]
• Tell a story: analytical information is complex and difficult to assimilate, thus, the
goal of visualization is to understand and make sense of the
information. Storytelling helps the viewer gain insight from the
data. Visualization should package information into a structure that is presented as
a narrative and easily remembered. This is important in many scenarios when the
analyst is not the same person as a decision-maker.[7]

Social Media Analysis Metrics

1. Volume

The first – and easiest – social media metric to measure is volume. What is the size
of the conversation about your brand or your campaign? Volume is a great initial
indicator of interest. People tend to talk about things they either love or hate, but
they rarely talk about things they simply don’t care about at all. While volume can
seem like a simple counting metric, there’s more to it than just counting tweets
and wall posts. It’s important to measure the number of messa ges about your
brand, as well as the number of people talking about your brand, and track how
both of those numbers change over time. For example, Facebook Insights has a
useful metric (cleverly called “people talking about this”) that measures how
many unique people have posted something to their walls about your brand
page.

2. Reach

Reach measures the spread of a social media conversation. On its own, reach
can help you understand the context for your content. How far is your content
disseminating and how big is the audience for your message? Reach is a measure
of potential audience size. And of course, a large audience is good, but reach
alone does not tell you everything. Reach becomes very powerful when
compared to other engagement metrics. Use reach as the denominator in your
social media measurement equations. Pick important action or engagement
numbers like clicks, retweets, or replies (more on this in a second) and divide them
by reach to calculate an engagement percentage. Of the possible audience f or
your campaign, how many people participated? Reach helps contextualize other
engagement metrics.

3. Engagement

Speaking of engagement metrics, this is one of the most important areas to

measure in social media. How are people participating in the conver sation about
your brand? What are they doing to spread your content and engage with the
topic? In most social media settings, content can be both shared and replied to.
Twitter retweets (RTs) and Facebook shares and posts are helpful to know who is
spreading your content, while comments, replies and likes are helpful to see who is
replying to your content. Think carefully about your goals with social media. Are
you focused more on generating interaction (replies, comments) or on spreading
a message (retweets and posts)? Be sure you’re using metrics that reflect what’s
important to your brand right now.

4. Influence

Who is talking about your brand and what kind of impact do they have? Influence
is probably the most controversial social media metric; there are myriad tools that
measure social influence, and they all do it in different ways. But one thing they all
agree on is that audience size does not necessarily relate to influence. Just
because someone has a lot of friends or followers, that does not mean they can
encourage those followers to actually do anything. Based on past actions, we can
make assumptions about how influential someone might be in the future. This type
of potential influence is useful to decide who to reach out to when you’re
preparing for a campaign. Tools like Klout and PeerIndex assign people an
influence score. Tools like these measure online social capital and the (potential)
ability to influence others.

5. Share of Voice

Finally, to really understand how well you’re doing on social media, you should
consider a share of voice metric. How does the conversation about your brand
compare to conversations about your competitors? Determine what percentage
of the overall conversation about your industry is focused on your brand
compared to your main competitors. And learn from your competitors’ successes;
since so many of these social media conversations are public, you can measure
your competitors’ impact just as easily as you can measure your own.
 Online marketing

Online marketing is the practice of leveraging web-based channels to spread a message about a
company’s brand, products, or services to its potential customers. The methods and techniques
used for online marketing include email, social media, display advertising, search engine
optimization (SEO), Google AdWords and more. The objective of marketing is to reach potential
customers through the channels where they spend their time reading, searching, shopping and
socializing online.

Widespread adoption of the internet for business and personal use has generated new channels for
advertising and marketing engagement, including those mentioned above. There are also many
benefits and challenges inherent to online marketing, which uses primarily digital mediums to
attract, engage and convert virtual visitors to customers. Online marketing differs from traditional
marketing, which has historically included mediums like print, billboard, television and radio
advertisements.

E Marketing Tools

When preparing an eMarketing campaign, electronic tools are used to achieve online marketing
objectives. There are a plethora of tools available to facilitate eMarketing, though company does
not have to use all of them. An eMarketing plan can be part of a traditional marketing campaign,
or function as a standalone online marketing campaign.

Email Marketing

Email Marketing is a powerful tool that small businesses can use to acquire, engage, and retain
customers. And having a good clean email list is critical. Therefore, it’s always recommended that
you clean up any email list you want to use before sending a campaign. Here’s an example of a
good email verification provider. Below, we’ve outlined the four types of popular email marketing
campaigns and how you can use them to help your business grow.

1. Email Newsletters

One of the most common and popular email marketing campaigns are Email Newsletters. As a
small business you can use an email newsletter to provide subscribers with helpful knowledge
and tools. It is important to add value to your subscribers’ inboxes; to do so create engaging
content, include thought leadership, how-tos, and announcements about new services/
products. To measure the effectiveness of your newsletter ask yourself if the content helps build
a relationship with subscribers, increases retention and engagement, and strengthens subscriber
loyalty.

2.Acquisition Emails

Acquisition Emails can help your small business acquire customers who have opted to receive
your emails but have not yet converted into customers. By creating attractive offers and
informative content you can show those in your email list the value of becoming an active
customer. Acquisition emails are a great way to move leads through the conversion funnel faster,
grow your business and drive additional revenue, and target users who have expressed some
interest in what your business has to offer.

3. Retention Emails

If you have some experience in email marketing campaigns, consider Retention Emails for your
small business. By sending a message requesting feedback or an offer to subscribers who haven’t
interacted with your business or emails campaigns lately, your small business can keep the lines
of communication open. Retention Emails are a very useful email campaign strategy that can help
you keep your hard-won customers.

4. Promotional Emails

Promotional Emails are a great way to drives sales, signups, and new product offerings for your
small business. Promotional emails include offers that entice and encourage your target to buy a
new product/service. Use promotional emails to reward engaged subscribers with exclusive offers,
drive new product or services to subscribers, and cross-sell products to your customer base.

Creating a Website

A website is a great marketing tool. It represents your business on the Internet and it’s one of
the most important digital marketing channels you can use to get more traffic or make more
sales.
Every business that wants to succeed online needs to have a clearly defined website marketing
strategy. This is no longer optional but a ‘must-have’ for businesses that want to survive in the
highly competitive online market.
Website marketing is the process of promoting your website on the Internet. It is one of the
online marketing channels you can use as part of your overall digital marketing strategy. The
main goal of a website marketing campaign is to get more visits to your website.

Social media marketing

Social media marketing is a form of digital marketing that leverages the power of popular social
media networks to achieve your marketing and branding goals. But it’s not just about creating
business accounts and posting when you feel like it. Social media mark1eting requires an evolving
strategy with measurable goals and includes:
• Maintaining and optimizing your profiles.
• Posting pictures, videos, stories, and live videos that represent your brand and attract a
relevant audience.
• Responding to comments, shares, and likes and monitoring your reputation.
• Following and engaging with followers, customers, and influencers to build a community
around your brand.
Social media marketing also includes paid social media advertising, where you can pay to have
your business appear in front of large volumes of highly targeted users.
Benefits of social media marketing
With such widespread usage and versatility, social media is one of the most effective free channels
for marketing your business today. Here are some of the specific benefits of social media
marketing:
• Humanize your business: Social media enables you to turn your business into an active
participant in your market. Your profile, posts, and interactions with users form an
approachable persona that your audience can familiarize and connect with, and come to
trust.
• Drive traffic: Between the link in your profile, blog post links in your posts, and your
ads, social media is a top channel for increasing traffic to your website where you can
convert visitors into customers. Plus, social signals are an indirect SEO factor.
• Generate leads and customers: You can also generate leads and conversions directly on
these platforms, through features like Instagram/Facebook shops, direct messaging, call to
action buttons on profiles, and appointment booking capabilities.
• Increase brand awareness: The visual nature of social media platforms allows you to
build your visual identity across vast audiences and improve brand awareness. And better
brand awareness means better results with all your other campaigns.
• Build relationships: These platforms open up both direct and indirect lines of
communication with your followers through which you can network, gather feedback, hold
discussions, and connect directly with individuals.
Pay-Per-Click Advertising

PPC is an online advertising model in which advertisers pay each time a user clicks on one of their
online ads. There are different types of PPC ads, but one of the most common types is the paid
search ad. These ads appear when people search for things online using a search engine like Google
– especially when they are performing commercial searches, meaning that they’re looking for
something to buy. This could be anything from a mobile search (someone looking for “pizza near
me” on their phone) to a local service search (someone looking for a dentist or a plumber in their
area) to someone shopping for a gift (“Mother’s Day flowers”) or a high-end item like enterprise
software. All of these searches trigger pay-per-click ads. In pay-per-click advertising, businesses
running ads are only charged when a user actually clicks on their ad, hence the name “pay-per-
click.” Other forms of PPC advertising include display advertising (typically, serving banner
ads) and remarketing.

How Does Pay-Per-Click Advertising Work?

In order for ads to appear alongside the results on a search engine (commonly referred to as a
Search Engine Results Page, or SERP), advertisers cannot simply pay more to ensure that their ads
appear more prominently than their competitor’s ads. Instead, ads are subject to what is known as
the Ad Auction, an entirely automated process that Google and other major search engines use to
determine the relevance and validity of advertisements that appear on their SERPs.
Search Engine Optimization
SEO stands for “search engine optimization.” In simple terms, it means the process of improving
your site to increase its visibility when people search for products or services related to your
business in Google, Bing, and other search engines. The better visibility your pages have in search
results, the more likely you are to garner attention and attract prospective and existing customers
to your business.
SEO is a fundamental part of digital marketing because people conduct trillions of searches every
year, often with commercial intent to find information about products and services. Search is often
the primary source of digital traffic for brands and complements other marketing channels. Greater
visibility and ranking higher in search results than your competition can have a material impact on
your bottom line.
Search Engine Optimization is the process used to optimize a website's technical configuration,
content relevance and link popularity so its pages can become easily findable, more relevant and
popular towards user search queries, and as a consequence, search engines rank them better.
Search engines recommend SEO efforts that benefit both the user search experience and page’s
ranking, by featuring content that fulfills user search needs.
Search Engines help people find what they’re looking for online. Whether researching a product,
looking for a restaurant, or booking a vacation, search engines are a common starting point when
you need information. For business owners, they offer a valuable opportunity to direct relevant
traffic to your website.
Search engine optimization (SEO) is the practice of orienting your website to rank higher on
a search engine results page (SERP) so that you receive more traffic. The aim is typically to rank
on the first page of Google results for search terms that mean the most to your target audience. So,
SEO is as much about understanding the wants and needs of your audience as it is about the
technical nature of how to configure your website.
Search Engine Marketing – An Overview

Search engine marketing is the practice of marketing a business using paid advertisements that
appear on search engine results pages (or SERPs). Advertisers bid on keywords that users of
services such as Google and Bing might enter when looking for certain products or services, which
gives the advertiser the opportunity for their ads to appear alongside results for those search
queries.
These ads, often known by the term pay-per-click ads, come in a variety of formats. Some are
small, text-based ads, whereas others, such as product listing ads (PLAs, also known as Shopping
ads) are more visual, product-based advertisements that allow consumers to see important
information at-a-glance, such as price and reviews.
Search engine marketing’s greatest strength is that it offers advertisers the opportunity to put
their ads in front of motivated customers who are ready to buy at the precise moment they’re
ready to make a purchase. No other advertising medium can do this, which is why search engine
marketing is so effective and such an amazingly powerful way to grow your business.

SEM vs. SEO

Generally, “search engine marketing” refers to paid search marketing, a system where businesses
pay Google to show their ads in the search results.
Search engine optimization, or SEO, is different because businesses don’t pay Google for traffic
and clicks; rather, they earn a free spot in in the search results by having the most relevant content
for a given keyword search.
Both SEO and SEM should be fundamental parts of your online marketing strategy. SEO is a
powerful way to drive evergreen traffic at the top of the funnel, while search engine advertisements
are a highly cost-effective way to drive conversions at the bottom of the funnel.

Keywords: The Foundation of Search Engine Marketing

Keywords are the foundation of search engine marketing. As users enter keywords (as part
of search queries) into search engines to find what they’re looking for, it should come as little
surprise that keywords form the basis of search engine marketing as an advertising strategy.

SEM Keyword Research: Before you can choose which keywords to use in your search
engine marketing campaigns, you need to conduct comprehensive research as part
of your keyword management strategy.
First, you need to identify keywords that are relevant to your business and that prospective
customers are likely to use when searching for your products and services. One way to accomplish
this is by using WordStream’s Free Keyword Tool.
Simply enter a keyword that’s relevant to your business or service, and see related keyword
suggestion ideas that can form the basis of various search engine marketing campaigns.
Blogging

The term blog comes from the combination of "web" and "log" or "weblog," and was eventually
shortened to "blog." Blog marketing is the process of reaching your home business' target market
through the use of a blog. Initially, business owners had a blog separate from their websites, but
today, you can easily integrate the two to make it easier for you to manage, as well as easier for
visitors to access. Many business owners use a blogging platform, such as WordPress, for both
their website and blog.
Further, as blogging has grown in ease and popularity, many people have created businesses from
blogging all on its own, as opposed to having a business first and then blogging. For example,
some food blogs are businesses in and of themselves.

The Pros of Blog Marketing

The very nature of blogging makes them ideal for marketing since they provide new content to
draw people back, and offer a way for consumers and businesses to interact. Here are a few other
benefits:
1. Inexpensive to Start and Run: For the cost of a domain name and web hosting, you can
have a customized blog marketing setup.
2. Easy to Use: Most blogging platforms are simple to use. If you can copy, paste, type, drag
and drop, and upload, you can have a professional-looking blog.
3. Builds Website Traffic: Offering tips, updates, and other new content gives people a
reason to come and return to your business website, which gives them the opportunity to
buy.
4. Improves Search Engine Ranking: Google, in particular, likes to find and rank new
content. For that reason, many entrepreneurs use blogging specifically for search engine
optimization (SEO).
5. Allows You to Gain Trust and Credibility: People like to know who they're doing
business with. With a blog, you can prove you're an expert and provide helpful tips and
other valuable information—all of which help consumers feel good about spending money
on your product or service.
6. Engages Your Market: While most businesses now use Twitter and other social platforms
more than blogs for engagement, blogs can allow you to have a conversation with your
market. This gives you the opportunity to build trust and rapport, as well as get feedback
and provide customer service.
7. Creates More Opportunities for Revenue: You can accept advertising, promote affiliate
products and get sponsors, adding additional sources of revenue to your business.

The Cons of Blog Marketing

Like just everything else in life, there can be a downside to blogging.

1. Can Be Time-Consuming: Creating new content and updating your blog can take a
significant amount of time. Hiring freelance writers and a virtual assistant can help.
2. Needs a Constant Stream of Ideas: Along with time, thinking of new content ideas is one
of the biggest challenges bloggers face.
 3. It Can Take Time to See Results: It can take time to begin building an audience for your
blog—you won't necessarily see traffic right away.
4. It Needs to Be Marketed Too: You're using the blog to market your business, but for it to
work, people need to know about it, which means you have to find your target market and
entice them to your blog.

How to Do Blog Marketing

Starting a blog and using it to promote your business can be set up within minutes. It's the ongoing
management and marketing that will take time.
1. Make a Blog Marketing Plan: What are you going to share on your blog? News, tips,
resources, etc? How often will you update your blog? (Daily, weekly, etc.)
2. Create Your Blog: Decide on your blogging platform, and set it up, including
customization that fits your business. Be sure to use the same logo on your blog as on your
website (if you have a separate website) to retain consistency. If you use a free blog
platform (not recommended for business blogging), have a domain name pointing to the
blog to make it easier for consumers to get to your site.
3. Fill Your Blog with Several Posts ASAP: Readers don't like to visit a blog with only one
or two posts. Add ten or more posts quickly to start out, and then switch to your regular
post schedule.
4. Market Your Blog: It's very easy to integrate social media into your blogs so that your
blog posts go out to your followers. Include your blog on your marketingmaterials as well.
5. Reply to Comments: Remember, blogs are social, so people will ask questions, provide
feedback, or share their opinion. Delete spam posts.
6. Use Your Blog to Encourage Email Signups. Signups are another great way to keep
people who are interested in your business coming back to your blog, which again, gives
them more opportunity to spend money with you.

Online Classified Advertising

Classified advertising or classified submission is the marketing of products or services on the

internet through classified sites. This is available in both free and paid mediums. Online classifieds
work in a pattern where a seeker searches for a particular item on the classified site under a relevant
category and then combs through the results for a befitting item. And here’s a tip to advertisers:
posting your ads to classified sites with high Domain Authority (DA) and high Page Authority
(PA) would increase your chances of getting ranked by the search engines and online classified
sites.
Benefits Of Online Classified Ads
Saves Money And Time
Many classified sites provide ready made templates for your ads, saving you a lot of time.
Similarly, there are a number of free classified ads sites that allow the advertiser to post free
classified ads.
SEO
You don’t have to work on your site consistently for it to rank, online classified ads are a factor
for off-page SEO and helps your website to rank on SERPs or on the local listing. These, then
become a very important part of advertising.
Easy To Write
The classified ads follow a simple format which is easy to master. They keep their content short
and straight to the point. The creation of content in this medium can be easily done. These can also
be written down without a graphic design.
Good Reach
In 2003 the market for online classified ads in the United States was $14.1 billion as reported by
the market researcher Classified Intelligence. The only reason this field is prospering is because
of its effectivity and wide reach.
 E-Customer (Online Customer)
An individual who purchases products or services via the internet is termed as E-Customer or
online customer.
Online Marketing: The Buying Process
When conducting online marketing, we often times focus solely on the act of purchasing. This
strategy becomes problematic because buying is actually an entire process that a customer goes
through psychologically before they decide to make a purchase. Business to Community has
outlined six stages of the buying process and provides marketing strategies for each stage.

Stage 1: Problem Recognition

Problem recognition is the beginning stage of the customer buying process. A customer identifies
with a problem when they perceive their current reality as different from where they desire to be.
Whether or not this problem exists, it provides an opportunity for online marketing professionals
to show how their products or services can solve the perceived problem.
Shane Jones from Business to Community (B2C) recommends that marketers "share facts and
testimonials of what your product or service can provide. Ask questions to pull the potential
customer into the buying process." This type of information generates curiosity among customers
to explore these solutions.

Stage 2: Information Search

Now that a customer has identified their problem, they are ready to look for ways to how to solve
it. They begin to search for more information. This is an opportunity for marketers to show that
they are an industry leader and their product/service is the solution. Create credibility and trust by
"advertising partnerships and sponsors prominently on all web materials" B2C. Additionally,
testimonials and success stories demonstrate your experience and customer satisfaction and make
a lasting impression in a customer's mind.
Stage 3: Evaluation of Alternatives

The internet has made it easier for customers to do in-depth research and they do not want to make
a purchase unless it is well thought out. They are going to look at your competition as well and
compare their findings. B2C gives the example of how GEICO auto insurance uses this stage as
an opportunity to keep their customers on their site by showing their competitors rates alongside
theirs, even if the competition is cheaper, "This not only simplifies the process, it establishes a
trusting customer relationship, especially during the evaluation of alternatives stage."

Stage 4: Purchase Decision

"At this point, the customer has explored multiple options, they understand pricing and payment
options and they are deciding whether to move forward with the purchase or not" B2C. In a perfect
world customers would know what they wanted and would make the decision quick and easy. But
even after careful research and a comparison of different products and brands the customer can
still walk away. It is then that the marketer can "remind customers of why they wanted to make
the purchase the first time" B2C and reaffirm their product/service's ability to solve the problem
that was identified in Stage 1 and.
We may have all heard and said the famous, "Let me think about it and I will get back to you."
Instead of looking at this as a defeat, again, marketers can create an opportunity to use follow up
emails or phone calls to remind customers how their solutions can be of benefit to them.

Stage 5: Purchase

The customer has decided to purchase! The conversion is complete. Or is it? Again, the customer
can still have an out. This is probably one of the most critical points in a marketing strategy. B2C
highly suggests over-viewing your buying process, "Is it complicated? Are there too many steps?
Is the load time too slow? Can a purchase be completed just as simply on a mobile device as on a
desktop computer?" These are all important questions that if the answers are not optimal, can make
or break the deal.

Stage 6: Post-Purchase Evaluation

Congratulations! The purchase has been made and everyone is happy. The process then concludes
with a post-purchase evaluation. The customer will then decide if they liked your product are not.
If they are dissatisfied, they may ask for a return. Do not take this as a failure, instead take this
thought:

"Your most unhappy customers are your greatest source of learning."- Bill Gates

Use this as an opportunity to learn how to make your brand more effective. Asking for reviews
and sending follow up emails or special promotions are ways to create a positive relationship by
continuing to establish your brand's trust and increasing the likelihood of a returning customer.
These six steps are geared to help marketers better understand the whole process behind a purchase.
Understanding these steps and implementing a strategy can increase customer conversions and
lead to lasting satisfied customers.
 E-Market Places

E-marketplaces connect buyers and sellers together on a single platform for commercial
activity. When you talk about marketplaces, you definitely hear terms like B2C, B2B, C2C
or peer-to-peer. So, what are they and how they differ from each other?
The way how they are connected and how the services or products are being sold on the
platform categories the marketplace into different types. These marketplaces are also often
defined under the term multi-vendor marketplace and sharing economy platforms. Here
are some marketplace basics to help you decide what kind of multi-vendor store is the right
business model for you.

5 Types of E-marketplace

1. Product Online Marketplace

This type is what we typically call as an ecommerce marketplace, where people buy and
sell products. The platform brings together all types of sellers into a one -stop-shop that is
convenient for consumers to not only check prices for the best deals but do so all under
one electronic roof. Also, with features like auction and fixed price sale, the seller lists a
product and sets a deadline; buyer with the highest bid gets the item.
Usually, this type of marketplace is owned by an operator who enables third -party sellers
to sell products alongside the marketplace owner's regular offerings. Examples include
Amazon, Flipkart, eBay, etc. Here, the vendor business model plays a major role that
determines the profit for marketplace owners. Hence, it is wise to choose the right multi-
vendor software that has a flexible model and suits your requirements.

2. Online Service Marketplace

The online marketplace is no longer restricted to just selling products. You can even cater
to the service industry. For a startup business that wants to launch a marketplac e with
minimal input, it is good to offer different services that people search for.
In a services marketplace, the discovery of services forms the basis of its offering to
customers and opportunities for paid work form the basis of its offering to
freelancers. Platforms like Fiverr, Upwork are freelance services marketplaces.
With the service business, all you have to do is to offer a robust & reliable online platform
to connect service seekers with service providers. The platform acts as a bridge
connecting both these ends. You can earn a commission on each successful transaction.

3. Online Rental Marketplace

When it comes to online rental marketplace, the transportation and fashion industry are
popular among investors and aspiring entrepreneurs. However, in the past few years, the
rental marketplace for home appliances, electronic accessories, gears, is not too far behind
to become famous.
Mobile apps like Uber, Ola are fantastic examples of this model , which are giving a
huge rise to peer-to-peer marketplaces that are renting through online mediums. As an
aspiring entrepreneur, you can focus on niche-based online rental marketplaces such as
vacation rental, car rental, bike rental and equipment rental with the help of rental
ecommerce platform.

4. Hybrid Model in Ecommerce

There can be two types of hybrid online marketplaces. One category is where people expect
to sell and buy both services and products on the same platform. The online marketplace
like Olx fits into this category.
Another one is where people want to get the combined benefits of buying from the online
and offline stores. In this model, the customer first books the products online. After that,
they walk down to the nearby physical store to buy those products. Currently, ticket
booking websites like BookMyShow works based on this model.
As per the latest update, big retailers like Reliance Trends and Myntra foray into the
ecommerce segment with a hybrid online-offline model. This model creates
shared profitability by integrating offline stores via the online platform . As such you
can launch hybrid online marketplaces to bring local merchants to sell their products
through its website.

5. Hyperlocal Marketplace

The concept of hyperlocal came into the picture when people start to look for the nearby
options while searching for shops, restaurants, etc. through search engines. In this
marketplace model, the aim is to provide facilities and services within the shortest possible
time from local vendors.
The hyperlocal ecommerce marketplace is quite similar to marketplaces like Amazon. The
main difference is that the customers will be only able to buy products from vendors who
can ensure delivery within 24 hours. Examples for this marketplace model includes
Urbanclap, Bigbasket, ClickYourMed, etc. Also, the food delivery marketplaces like
Zomato and Swiggy comes under this category with little bit tweaks in their workflow.
 E-Marketing

Web marketing, digital marketing, internet marketing or online marketing; all of these words are
synonymously used for E-Marketing. What it means is the marketing of products or services by
using the internet. E-mails and wireless marketing also fall into the category of e-marketing.
We can say that it uses different technologies and media to connect customers and businesses.
Especially in this era of technology e-marketing has become a very important part of the marketing
strategy of different companies.

Features of E-Marketing

Big or small, many businesses are using e-marketing because of various features and multiple
advantages. Some of the important features are as follows;

E-marketing is Cheaper than Traditional Marketing

If you compare its cost with traditional marketing media such as newspaper ads and billboards,
then it’s much cheaper and efficient. You can reach a wide range of audience with very limited
resources.

Tangible ROI
Small business owners can now check the turnover rate or ‘‘action taken’’ with the help of
Infusionsoft. It analyzes multiple things like views of videos, number of emails opened, and per
click on the link. Most importantly, it tells us how much sales the business has been made as a
result of e-marketing.

24/7/365 Approach
It works 24 hours a day, 7 days a week and 365 days of the year. It doesn’t matter whether you’re
homesick, sleeping, or attending a casual meetings; but e-marketing is always hard at work.

Eliminate Follow-up Failure

Elimination of follow-up-failure is the main secrete behind the success of small business. It is done
by entering your business figures into the Infusions often, and then its automated marketing system
will provide you the custom-tailored information about your business, which areas to improve and
what product to discontinue.

E-Marketing Advantages

Some of the important advantages of e-marketing are given below;

1. Instant Response. The response rate of internet marketing is instantaneous; for
instance, you upload something and it goes viral. Then it’d reach millions of people
overnight.
2. Cost-Efficient. Compared to the other media of advertising, it’s much cheaper. If
you’re using the unpaid methods, then there’s almost zero cost.
3. Less Risky. When your cost is zero and the instant rate is high; then what one has
to loos. No risk at all.
 4. Greater Data Collection. In this way, you have a great ability to collect a wide
range of data about your customers. This customer data can be used later.
5. Interactive. One of the important aspects of digital marketing is that it’s very
interactive. People can leave their comments, and you’ll get feedback from your
target market.
6. Way to Personalized Marketing. Online marketing opens the door to
personalized marketing with the right planning and marketing strategy, customers
can be made to feel that this ad is directly talking to him/her.
7. Greater Exposure of your Product. Going viral with one post can deliver greater
exposure to your product or service.
8. Accessibility. The beauty of the online world and e-marketing is that it’s accessible
from everywhere across the globe.

Disadvantages of E-Marketing

E-Marketing is not without disadvantages, some of them are as follows;

1. Technology Dependent. E-Marketing is completely dependent on technology and
the internet; a slight disconnection can jeopardize your whole business.
2. Worldwide Competition. When you launch your product online, then you face a
global competition because it’s accessible from everywhere.
3. Privacy & Security Issues. Privacy and security issues are very high because your
data is accessible to everyone; therefore, one has to be very cautious about what goes
online.
4. Higher Transparency & Price Competition. When privacy and security issues
are high, then you have to spend a lot to be transparent. Price competition also
increases with higher transparency.
5. Maintenance Cost. With the fast-changing technological environment, you have
to be consistently evolved with the pace of technology and the maintenance cost is
very high.

Types and Techniques of E-Marketing

When we talk about digital and email marketing, then there are different type and methods of e-
marketing which are as follows;

Email Marketing
Email marketing is considered very efficient and effective because you already have a database of
your targeting customer. Now, sending emails about your product or service to your exact targeted
market is not only cheap but also very effective.

Social Media Marketing

Social media is a great source of directly communicating with your customers to increase your
product awareness. It could be done by any or all of the social media channels such as LinkedIn,
Facebook, Instagram, Twitter, Google, and YouTube. Some of the important advantages of social
media are as follows;
▪ Increase product awareness and reputation means more sales.
 ▪ Directly communicating with your customers can increase brand loyalty.
▪ You can increase the number of visits to your website and rank it up in the search
engine.
▪ Targeting the exact audience will help you to know more about your customers’
needs.

Video Marketing
It is said that a picture is worth a thousand words, and a video is worth thousands of pictures. You
can catch the attention and emotions of your target market by showing them a video clip about
your product or service. Video marketing is very effective if it conveys the right message to the
right audience.

Article Marketing
Engaging quality content by providing valuable information to your targeted market, what people
are looking for over the internet to solve a certain problem? It is a consistent and ongoing process
of delivering quality content to your readers. It is not always about selling; you’re educating your
audience and helping them by adding some value in their lives.

Affiliate Marketing
Affiliate marketing is the process of promoting some products of certain brands and earning your
commission out of every sale. It works for everyone; win, win situation.
Components of E-Marketing
E-marketing components include:
Search engine optimization (SEO)
Pay-per-click advertising (PPC)
Web design
Content marketing
Social media marketing
Email marketing
And more

These strategies all leverage the 4 Ps of marketing to drive revenue.

COMPONENTS OF A DIGITAL MARKETING PLAN
Advertising

Online advertising involves bidding and buying relevant ad units on third-party sites, such as
display ads on blogs, forums, and other relevant websites. Types of ads include images, text,
pop-ups, banners, and video. Retargeting is an important aspect of online advertising.
Retargeting requires code that adds an anonymous browser cookie to track new visitors to your
site. Then, as that visitor goes to other sites, you can serve them ads for your product or
service. This focuses your advertising efforts on people who have already shown interest in
your company.

Content marketing

Content marketing is an important strategy for attracting potential customers. Publishing a

regular cadence of high-quality, relevant content online will help establish thought leadership.
It can educate target customers about the problems your product can help them resolve, as
well as boost SEO rankings. Content can include blog posts, case studies, whitepapers, and
other materials that provide value to your target audience. These digital content assets can
then be used to acquire customers through organic and paid efforts.

Email marketing

Email is a direct marketing method that involves sending promotional messages to a segmented
group of prospects or customers. Email marketing continues to be an effective approach for
sending personalized messages that target customers’ needs and interests. It is most popular
for e-commerce business as a way of staying top of mind for consumers.

Mobile marketing

Mobile marketing is the promotion of products or services specifically via mobile phones and
devices. This includes mobile advertising through text messages or advertising in downloaded
apps. However, a comprehensive mobile marketing approach also includes optimizing websites,
landing pages, emails, and content for an optimal experience on mobile devices.

Paid search

Paid search increases search engine visibility by allowing companies to bid for certain keywords
and purchase advertising space in the search engine results. Ads are only shown to users who
are actively searching for the keywords you have selected. There are two main types of paid
search advertising — pay per click (PPC) and cost per mille (CPM). With PPC, you only pay when
someone clicks on your ad. With CPM, you pay based on the number of impressions. Google
Adwords is the most widely used paid search advertising platform; however, other search
engines like Bing also have paid programs.

Programmatic advertising

Programmatic advertising is an automated way of bidding for digital advertising. Each time
someone visits a web page, profile data is used to auction the ad impression to competing
advertisers. Programmatic advertising provides greater control over what sites your
advertisements are displayed on and who is seeing them so you can better target your
campaigns.

Reputation marketing

Reputation marketing focuses on gathering and promoting positive online reviews. Reading
online reviews can influence customer buying decisions and is an important component of your
overall brand and product reputation. An online reputation marketing strategy encourages
customers to leave positive reviews on sites where potential customers search for reviews.
Many of these review sites also offer native advertising that allows companies to place ads on
competitor profiles.

Search engine optimization

Search engine optimization (SEO) focuses on improving organic traffic to your website. SEO
activities encompass technical and creative tactics to improve rankings and increase awareness
in search engines. The most widely used search engines include Google, Bing, and Yahoo. Digital
marketing managers focus on optimizing levers — such as keywords, crosslinks, backlinks, and
original content — to maintain a strong ranking.

Social media marketing

Social media marketing is a key component of digital marketing. Platforms such as Facebook,
Twitter, Pinterest, Instagram, Tumblr, LinkedIn, and even YouTube provide digital marketing
managers with paid opportunities to reach and interact with potential customers. Digital
marketing campaigns often combine organic efforts with sponsored content and paid
advertising promotions on key social media channels to reach a larger audience and increase
brand lift.

Video marketing

Video marketing enables companies to connect with customers in a more visually engaging and
interactive way. You can showcase product launches, events, and special announcements, as
well as provide educational content and testimonies. YouTube and Vimeo are the most
commonly used platforms for sharing and advertising videos. Pre-roll ads (which are shown for
the first 5–10 seconds before a video) are another way digital marketing managers can reach
audiences on video platforms.

Web analytics

Analytics allow marketing managers to track online user activity. Capturing and analyzing this
data is foundational to digital marketing because it gives companies insights into online
customer behavior and their preferences. The most widely used tool for analyzing website
traffic is Google Analytics, however other tools include Adobe Analytics, Coremetrics, Crazy Egg,
and more.

Webinars

Webinars are virtual events that allow companies to interact with potential and existing
customers no matter where they are located. Webinars are an effective way to present relevant
content — such as a product demonstration or seminar — to a targeted audience in real time.
Engaging directly with your audience in this way gives your company an opportunity to
demonstrate deep subject matter expertise. Many companies leverage attendee lists in other
marketing programs (email and retargeting advertisements) to generate new leads and
strengthen existing relationships.

1. Website Design

As the face of your company, your website design needs to be professional, clean, and easy for
all visitors to navigate. When designing your website, focus on:

Including calls to action on many pages so viewers are continually thinking about what your
company can do for them.

Optimizing the site on all browsers, including those on smart phones. The percentage of people
who surf the web on smart phones and tablets is growing. In fact, 25 percent of mobile Web
users never or infrequently use the desktop to search the web.

Incorporating relevant keywords naturally to help your search rankings.

2. Blog

Statistically, companies that blog get 55% more visitors to their websites than companies that
don’t blog. Therefore, your website should include an integrated blog, which helps you provide
customers with useful, relevant information. When creating a blog, ensure that it is:

Easy for readers to subscribe through RSS and email.

Easy to share through social media.

Easy to interact with you by commenting on posts.

3. Search Engine Optimization

Many potential customers start at the search engines when they need what you sell. To be
found, you must use search engine optimization techniques to help your website, blog, and
social media accounts rank high in the search engines. Follow these steps in your marketing
strategy:

Make sure each page of your website is optimized for the search engines (read: 7 Ways to
Optimize a Web Page for the Search Engines).

Research specific keywords that people most commonly search for in your industry.

Use these keywords on your website and through social media.

Include long-tail keywords specific to your market, which are one of the keys to ranking well on
search engines.

4. Email Marketing

Because you can’t always keep your website on people’s minds, email marketing is a great way
to stay in front of your customers. Pay attention to:

Creating a quality design for your email template so it ties in with the look and feel of your
website, completing a comprehensive marketing strategy.

Providing useful, relevant information through email on a regular basis to help you convert
potentials into customers.

5. Social Media Presence

Facebook, Twitter, Linkedin, YouTube, and Google+ are not just for individuals. They have
several major advantages for businesses:

Provide an opportunity to create a community around your company through interaction with
the people who are interested in you.

Help you remain on people’s radars by posting status updates, media, blog posts, and
information about your company regularly.

Allow you to reach exponential numbers of people at a very minimal cost because of the viral
nature of these networks.
6. Analytics

Measuring the results and trends of your website, blog, email campaigns, search engine
ranking, and social media reach plays a crucial role in any online marketing strategy. The most
important metrics to measure include:

Website: Site visitors, page views, pages per visit, average time on the site, bounce rate, top
landing and exit pages, top content, leads & conversions.

Blog: Subscribers, views / visitors, conversions, comments, clicks, rank, inbound links, social
media shares.

SEO: Page rank, # of indexed pages, # of inbound links, # of keywords sending traffic to your
site, long-tail keyword rank & opportunities.

Email Marketing: # sent, bounces, spam reports, opt-outs, opens, clicks, forwards.

Social Media: # of likes, followers, connections, etc., growth, engagement, momentum, results.

10 Types of Digital Marketing

Search Engine Optimisation (SEO)

Pay Per Click Advertising (PPC)

Content Marketing

Search Engine Marketing (SEM)

Social Media Marketing

Influencer Marketing

Email Marketing

Mobile Marketing

Affiliate Marketing

Augmented Reality and Virtual Reality Marketing

Top 10 Digital Marketing 2023 – Explained
1. Search Engine Optimisation (SEO)

Search Engine Optimization or SEO is among the most important types of digital marketing for
your business. It is the art of ensuring that your web pages or articles feature at the top of the
search results of search engines like Google and Bing. The process typically involves
emphasizing certain keywords or phrases within your content that align with the popular search
trends on Google and Bing. The channels that benefit from SEO include websites, blogs, and
infographics.

For example, if you sell chocolates and want to use SEO to target new clients, then the text on
your webpage should repeatedly use words like “buy chocolate”, “buy chocolate online”,
“homemade chocolate”, or “delicious chocolate online”. The frequency of these keywords and
the quality of your content determine where your website/blog ranks on the Search Engine
Results Pages (SERPs). The higher the ranking, the better it is for your business.

However, it is also important that one does not go overboard with these keywords. Forcing
keywords can make the copy seem unnatural, causing the overall quality of your content to
drop. It is necessary to maintain the quality of your content at all times for SEO to be helpful.

It is estimated that approximately 81% of shoppers conduct online research before making any
sort of purchase. If you want to reach people online and boost your sales, you need to ensure
that SEO is a business priority.

2. Pay Per Click Advertising (PPC)

Pay Per Click or PPC is the method of driving traffic to your website by paying the publisher,
every time your ad is clicked. PPC is like the paid version of SEO. One of the most common
types of PPC is Google Ads. It allows you to pay for top slots on Google’s SERPs. Other mediums
include paid ads on Facebook, Twitter ad campaigns, and sponsored messages on LinkedIn.
PPC is quite similar to Search Engine Marketing (SEM), but can also include display advertising
and affiliate advertising.

3. Content Marketing

Content Marketing is a type of digital marketing that focuses on creating and promoting
different types of content, to generate leads and sales. The content can be in the form of a
blog, social media posts, videos, infographics, podcasts, etc. The content is SEO heavy and user-
friendly and organically attracts new clients.
You must keep your target audience in mind if you want your content marketing to work well.
Quality content not only helps boost sales, but also builds brand reputation, trust, and loyalty.
All channels of digital marketing are heavily dependent on the content. SEO SEM, social media
marketing, email marketing, and PPC cannot exist if one does not have business-specific
content.

4. Search Engine Marketing (SEM)

As mentioned above, Search Engine Marketing or SEM is the paid version of SEO. With the help
of SEM, a company can purchase advertising space that appears on the SERPs. Creating a link
between SEO and PPC is an integral part of Search Engine Marketing.

It is easy to recognize paid search results on Google. A little “Ad” sign appears at the beginning
of the URL, and the search giant also puts these pages first in the search results.

By maintaining a combination of SEO and SEM, you can boost traffic to your website and
increase your Click Through Rate (CTR).

5. Social Media Marketing

Social media is a crucial part of the digital marketing strategy of every organization. By
promoting your brand on various social media channels, you boost traffic to your website and
social media pages, generate leads, and also increase brand awareness.

Social media marketing overlaps with various other forms of digital marketing such as SEO,
SEM, PPC, and Content Marketing.

The channels to use for social media marketing are as follows:

Facebook

Twitter

Instagram

YouTube

LinkedIn

Snapchat

Pinterest
6. Influencer Marketing

Influencer marketing is one of the upcoming forms of digital marketing. It makes use of people
with an enormous following on their social media accounts. Businesses can hire these
influencers to promote their products/websites.

The influencer serves as your brand ambassador. He/she can post photos, videos, or feature
your product on their blog or website to create brand awareness about your business. For
example, before getting married to Nick Jonas, global icon Priyanka Chopra tweeted out an
Amazon registry worth $14,000. She said that she had a lot of fun building a wedding registry
guide with Amazon and asked her followers to take a look at her guide for inspiration.
Meanwhile, Amazon pledged to donate $1,00,000 to UNICEF under Priyanka Chopra’s name.

However, one does not need to specifically hire celebrities for influencer marketing, although a
lot of big brands do it these days. If you’re a smaller brand, a popular person on social media
with a few thousand loyal followers can also be used. When done right, the scope of influencer
marketing is huge.

7. Email Marketing

Email marketing pertains to sending emails to your client base to promote the business. One
way to build on email marketing is to use a newsletter. You can ask people to sign up for the
newsletter when they come to your website. You could then use this platform to send them
regular updates about your products and services.

The best email marketing campaigns involve a list of subscribers earned by your content, and
not paid for by the company. Understand that the users who subscribe on their own, are most
likely to engage with your brand, and it is them you should target properly. Email marketing can
be used to create brand awareness, build a loyal clientele, and take honest feedback from your
customers.

8. Mobile Marketing

In the present day, people use their smartphones more than any other gadget. Their mobiles
are a one-stop platform that offers all the convenience required. So, why not make use of this
to target a potential client base?

Mobile marketing can be done through an app or SMS. Apps are increasingly popular among
mobile phone users and can serve the same purpose as your website. More people might
engage with your app than they do with the website. It is thus important to create a simple,
user-friendly, and intuitive app. You can also send regular push notifications through the app.
This will keep them engaged with your product. Meanwhile, SMS can be used to make people
aware of special offers and coupons. It can also be used to target people who don’t own a
smartphone.

9. Affiliate Marketing

Affiliate marketing is a type of digital marketing wherein a business partners up with another
business and promotes it on their website/app. Essentially, affiliate marketers sell other
people’s products and receive a commission when a lead is generated.

Working with affiliates can help you to expand your reach. It can also make your marketing
efforts seem more organic. For example, the Indian travel company MakeMyTrip has been
running an affiliate program as part of its digital marketing strategy for years. Those interested
can partner easily with the company and earn revenue whenever they help convert a lead.

10. Augmented Reality and Virtual Reality Marketing

Augmented Reality (AR) and Virtual Reality (VR) marketing is another upcoming form of digital
marketing. It involves making use of these hot fields of technology to attract clients. AR and VR
marketing is expensive at the moment and one should only go for it if they have the budget and
also something extraordinary to offer. For example, IKEA makes use of AR marketing and allows
its customers to see how different furniture looks in their homes.

As we continue to head towards digitization, the scope of digital marketing will only go up.
Most types of digital marketing techniques are interrelated and codependent on each other. A
business needs to understand which one suits its long-term goal best and strategize
accordingly.
Pros and Cons of Shopping Online

Advantages of Shopping Online Disadvantages of Shopping Online

Convenience Negative environmental impact of packaging and gas

Better prices Shipping problems and delays

More variety Risk of fraud

Easy to send gifts Less contact with your community

More control Spending too much time online

Easy price comparisons Returns can be complicated

No crowds You don't know exactly what you're getting

No sales pressure Unfriendly, scammy, or complicated websites

Access to used or damaged No sales assistance

inventory

Privacy for discreet purchases No support for local retailers

Benefits of Shopping Online

Shopping online has many benefits. Here are ten of the most important advantages.

1. Convenience

Convenience is the biggest perk. Where else can you comfortably shop at midnight while in
your pajamas? There are no lines to wait in or cashiers to track down to help you with your
purchases, and you can do your shopping in minutes.
Online shops give us the opportunity to shop 24/7 and also reward us with a 'no pollution'
shopping experience. There is no better place to buy informational products like e-books, which
are available to you instantly as soon as the payment goes through. Downloadable items
purchased online eliminate the need for any kind of physical material at all, as well, which helps
the environment!

2. Better Prices

Cheap deals and better prices are available online, because products come to you direct from
the manufacturer or seller without involving middlemen. Plus, it's easier to compare prices and
find a better deal. Many online sites offer discount coupons and rebates, as well.

Not only are prices better, but you can save on tax as well since online shops are only required
to collect a sales tax if they have a physical location in your state. Factor in the saved expense of
gas and parking, and you have saved yourself a lot of money!

3. More Variety

The choices online are amazing. You can find almost any brand or item you're looking for. You
can get in on the latest international trends without spending money on airfare. You can shop
from retailers in other parts of the state, country, or even the world instead of being limited to
your own geography. A far greater selection of colors and sizes than you will find locally are at
your disposal.

Plus, the stock is much more plentiful, so you'll always be able to find your size and color. Some
online shops even accept orders for out-of-stock items and ship when they come in.

4. You Can Send Gifts More Easily

Sending gifts to relatives and friends is easy, no matter where they are. All the packaging and
shipping are done for you. Oftentimes, they'll even gift wrap it for you! Now, there is no need
to make distance an excuse for not sending a gift on occasions like birthdays, weddings,
anniversaries, Valentine's Day, Mother's Day, Father's Day, and so forth.

5. More Control

Many times, when we opt for conventional shopping, we tend to spend a lot more than
planned and end up buying items that aren't exactly what we wanted (but we can't find
anything better in the store). Online, you don't have to let the store's inventory dictate what
you buy, and you can get exactly what you want and need.
6. Easy Price Comparisons

Comparing and researching products and their prices is so much easier online. If you're
shopping for appliances, for example, you can find consumer reviews and product comparisons
for all the options on the market, with links to the best prices. We can research firsthand
experience, ratings, and reviews for most products and retailers.

7. No Crowds

If you are like me, you hate crowds when you're shopping. Especially during holidays, festivals,
or on weekends, they can be such a huge headache. Also, being crushed in the crowds of
shoppers sometimes makes us feel rushed or hurried. You don't have to battle for a parking
place. All of these problems can be avoided when you shop online.

8. No Pressure

Oftentimes when we're out shopping, we end up buying things that we don't really need, all
because shopkeepers pressure us or use their selling skills to compel us to make these
purchases.

9. You Can Buy Used or Damaged Items at Lower Prices

The marketplace on the internet gives us access to listings of old or damaged items at rock-
bottom prices. Also, if we want to buy antiques, there's no better place to find great ones.

10. Discreet Purchases Are Easier

Some things are better done in the privacy of your home. Online shops are best for discreet
purchases of things like adult toys, sexy lingerie, and so on. This enables me to purchase
undergarments and lingerie without embarrassment or any paranoia that there are people
watching or judging me.

Additional Benefits of Shopping Online

You get an electronic record of the receipt of your purchase, which makes record-keeping much
easier.

You get to try things on in the comfort of your own home.

Sometimes, returns are easy.

It saves time!
Disadvantages of Online Shopping

Online shopping comes with disadvantages; here are ten of the most problematic elements of
shopping on the internet.

1. Negative Environmental Impact of Packaging and Gas

Having your purchase packed in several layers of plastic and cardboard packaging and delivered
right to your front door is good for you but not so great for the environment. Even if you try to
recycle the cardboard, you're creating unnecessary waste by shopping online.

2. Shipping Problems and Delays

Even the biggest and best shipping companies and online retailers have their bad days, so
there's no way to ensure that you'll get your hands on your purchase in time unless you pick it
up from a store. Items get lost, detoured, damaged, or delivered to the wrong address more
often than you can imagine.

3. Risk of Fraud

If you're shopping online, there's a larger risk of fraud: credit card scams, phishing, hacking,
identity theft, counterfeit products, bogus websites, and other scams are common.

4. Spending Too Much Time Online

Especially if your job requires that you look at a computer all day, you might get burnt out on all
that screen time. Shopping online can turn into a marathon of scrolling and clicking down rabbit
holes, and before you know it, you've been online for most of the day. The internet is a nice
place to visit, but you probably don't want to live there.

5. Less Contact With the Community

If you do all your business online, you'll never have to leave your home. This might be great for
a while, but sometimes, you might want to go outside, breathe some fresh air, get a change of
scenery, talk to real people, participate in your community, and just be a part of the crowd.
Sometimes, a computer monitor can't compete with a real human connection.

6. You Don't Know Exactly What You're Getting

Unless you are intimately familiar with a brand or product, buying online requires a leap of faith
. . . one that doesn't always end in your favor. Sizes are often imprecise. You can't determine
texture, fabric, fit, cut, quality, heft, or durability just by looking at a photo. Products that
looked great might feel chintzy, awkward, or cheap when you hold them in your hands.
7. Returns Can Be Complicated

Some sellers make the process breezy, but many make it extra hard for you to return their
merchandise or get a refund. Many times, you can't get reimbursed for any shipping costs.

Labeling, packaging, shipping, tracking, and filling out all the proper forms are a hassle you can
avoid if you buy in person (and if you hand-select your merchandise, you won't need to return
things so often).

8. Unfriendly, Scammy, or Complicated Websites

Some sites require that you join their mailing list and make it impossible to unsubscribe. Some
sell your email address to others, so your email is full of ads. Sometimes, sites don't offer good
or accurate descriptions of the goods, or you just can't figure out how to purchase or return an
item or speak to customer service.

9. No Sales Assistance

In a store, there's usually someone to help you but online, you're on your own. If you're
confused or have questions, it's just too bad for you. You might have to make blind purchases
and mistakes you'll regret later because there was no one to talk to.

10. No Support for Local Retailers

If everyone started doing all their shopping online, all the local stores would go out of business.
When all the stores in town are gone, we'll have to drive further and further away to shop at a
real store.

Many people and places have already experienced the negative and sometimes devastating
impacts of e-commerce which take away jobs and devastate local economies.
What Is Social Media Analysis?
Social media analytics is a procedure that aims to collect factual information from
different digital platforms and draw insightful deductions.

To get the maximum benefit from your digital marketing campaigns, it is essential to
analyze the information you gather throughout your social media efforts.

Furthermore, you can leverage the existing data to analyze your social media – from
your earlier posts, interactions, and discussions with your audience, to the performance
of all your social media campaigns.

Social media analysis allows you to establish and structure your data to delve deeper
into your social media platforms and analyze the outcomes.

At the same time, it is also important to assess your competitors’ social media or online
presence. This, in turn, enables you to set a benchmark report and gives you a general
idea of what’s working in your industry and what isn’t.

All in all, analyzing your social media enables you to create and run effective digital
marketing campaigns. And naturally, a message that resonates with the right
addressees on the right social channel will show results.

Importance of Social Media Analysis

Data-driven insights are quite valuable. The more actionable your insights are, the more
decisive campaign and overall social media presence you will build. As a result, social
media evaluation is a fundamental part when it comes to your digital marketing strategy,

Here are some of the advantages of analyzing your social media.

Measure the ROI for Social Media

Even though this is one of the biggest challenges for social media managers, it is
essential to measure and quantify your social media efforts’ success.

Measuring the ROI for your social media ultimately depends on your social media
marketing objectives. Based on this, you need to focus on the metrics that can best help
you reach valuable deductions.

For example, suppose you want to identify sales from your social media avenues. In
that case, you’ll need to go beyond brand awareness and gauge your marketing
activities’ effectiveness and impact.
Assess your reach and impressions on social media, evaluate the engagement type and
percentage, and conduct the sentiment analysis around your conversations. These
actions help you assess if you were able to reach the desired audience and got
favourable outcomes.

If your analysis outcomes aren’t reasonable, it’s imperative to consider implementing

necessary modifications to your digital marketing approach and strategy.

Exhaustive analytics of your digital activities provide you with reliable data and
actionable insights that can help us measure our social media marketing efforts’
effectiveness.

The gathered data indicates your different social media channels’ performance and give
comprehensions into improving your online presence.

Know your Audience

In order to create a strong brand presence and visibility, you need to cater to the
relevant audience via effective platforms. Additionally, the content should be compelling
enough to help you engage, connect and interact with your followers.

Knowing your audience is an integral aspect of your content strategy formation. Once
you recognize your ideal audience, developing content that interests them should be
your next step. And social media analysis allows you to understand what topics your
audience likes to interact with the most.

That way, you can come up with content, such as films, photos, gifs, etc., that pique
audience’s interest.

The impact of a positive customer experience goes a long way. 71% of customers who
have had a good experience and interaction with a brand on social media are likely to
endorse the brand to family and friends.

Mentionlytics is an exclusive platform that enables you to listen to what your followers
are saying about your brand and allows you to participate in their discussions and
conversations instantly. It supports a seamless workflow, which makes sure that our
audience doesn’t feel unheard.

Enhance your Digital Marketing Strategy

Analyzing your social media efforts unquestionably impacts your overall social media
strategy too. This means you can continually improve on the tactics. The assessment of
social media indicates the most effective digital channels and delivers a higher return on
campaigns.
 After all, there is no reason to make investments of your time, effort, and resources into
media tracks that would not deliver results.

Another advantage of analyzing our social media is the ability to develop better,
engaging, and appealing content – that resonates with the target audience and helps
you drive conversions.

Digital marketing analysis figures help you comprehend your brand’s perception on
social media and simultaneously refine your visibility and image.

Keep an Eye On Your Competitors

Staying ahead of your competition isn’t always easy. It is imperative to know about your
competitor’s moves and what they are up to. Competitors’ analysis focuses on
discrepancies between the approaches you and your competitors take on. The
evaluation determines both the benefits and the drawbacks.

Leverage the competitor insights, highlight your strong points and smartly turn the rivals’
weaknesses into your fortes.

Analytics from social media helps you determine the activities that drive engagement
and communications. Evaluate your posts, change your approach accordingly and
outdo your competitors.

Furthermore, social media analysis allows you to determine social media platforms’
most productive for your followers and brand. As a result, you can save yourself from a
lot of experimenting. It also lets you create a more detailed, thoughtful, and well-
rounded digital marketing tactic.

• Participation
Social media encourages contributions and feedback from everyone.
Social media includes the delivery of ideas at the time of online
conversation. It tries to bridge the gap between companies and their
audiences. People are enjoying this process of participation where they
feel they have a voice, an impact.

• Openness
What you do, what you say, everything is out there in the open. People
are quick to call out any contradiction, foul play, or mistakes. Brands
have to be honest, transparent, and authentic as negativity can destroy a
brand’s online reputation.
• Relationship building
Social media is a two-way communication channel, requiring
participation from both brands and customers. It is a must for businesses
to make good connections with their target audience. Online
conversation through various social media tools happens in real-time
with real people. Engaging to build relations can go a long way for
businesses.

• Reliability
You need to consistently show your online presence to come off as
reliable. Effective social media marketers actively use target social
platforms to get involved with new users and promote their offerings.
They talk to their target audience regularly. Use social media as a
means of trust-building.

• Community building
Social media platforms are the right place to build communities quickly.
This helps you communicate more effectively. Communities have
common interests. These communities help you learn about your target
audience. You can also support other communities that you think are
good for your business.

• Customer service
Customers must be taken care of. Social media networks are all about
connecting with them and helping them understand how your service or
product adds value to their lives. Social media is for providing value to
customers, not just for blatant promotion.
Advantages of social media

The advantages of social media are numerous and varied. Here are some of the most
common:

1. Useful for educational purposes:

Social media allows you to reach a large audience and build your brand. You can share relevant
information or content with this audience, which is helpful if you want people to follow you on
social media. This can help promote your business or product, which will help you increase
sales.
2. Build your brand:

Social media helps you build your brand by interacting with others and sharing interesting facts
about yourself. Sharing content on social media can help you gain followers who will then be
interested in what you have to say. It also helps build trust between the viewer and the content
creator because they already know them because of their interactions on social media
platforms such as Twitter or Facebook.

3. Reach a large audience:

Social media allows users to easily connect and share information with their friends or
followers. Millions of people use social media every day, making it easier for businesses like
yours to find potential customers online. Due to its ability to communicate directly with
customers, social media has become an essential tool for businesses worldwide. It allows them
to engage with customers without being physically present, such as in stores. When someone
sees something interesting posted by someone else, they might want.

4. Target audiences based on their interests.

When choosing who should receive marketing messages via social media, it’s essential not just
to reach out indiscriminately but also to target those who would be most likely interested in
what you have to offer—this will increase their likelihood of responding. For example, suppose
you’re a photographer and want to target businesses that could use your services. In that case,
you might send them a message about the different types of photography available and what
they can do for each business type (e.g., commercial photography for companies or portraits
for individuals).

5. Stay up to date.

You can stay in touch with what’s happening in your industry or world by following people on
social media who are doing things you want to be doing. You can spend time following brands
and companies that interest you and find out about new products and services they’re offering
so that you can learn from them.

6. Get connected to new people.

When you use social media, you connect to people who share your interests and values. This
can help build relationships, which may lead to business opportunities later on down the road.

7. Create your audiences.

If you’re not using social media for business purposes, it may still be worth it for other reasons,
like building an audience of people who like what you offer! Having a significant online
following means there’s a good chance that someone will see what you post and contact you
about it later, which could lead to more opportunities for both sides.

8. Free to use.

Social media is free! No fees or subscriptions are involved as long as you have an established
account with some provider (like Facebook). If not, some costs might be associated with getting
started or maintaining it (like paying a monthly fee). Still, these are usually very low and
affordable if you’re willing to do some research.

9. Builds relationships.

In addition to meeting new people through social media, you can also reconnect with old
friends. It’s also a great way to keep in touch with people who may not live close by anymore
but still want to stay connected somehow.

10. Get new visitors to website:

Through social media, we may increase visitors to our website and gain a lot of conversions,
which results in sales if there is high engagement and a large audience.

Disadvantages of Social Media

Social media has become essential to our lives, especially for kids. This is because it provides a
platform to learn new things and interact with people worldwide. However, there are some
downsides as well. Here are some disadvantages of social media:

1. Spending a lot of time on social media.

Social media is addictive and can consume your time if you don’t have any other interests. It
would help if you kept up with your studies and hobbies to stay productive.

2. Decrease in Communication skills.

Social media makes us more self-centered and less empathetic towards others. It also makes us
more narcissistic than ever because we can show off our achievements and post photos from
parties without facing any consequences.

3. Fake news.

Fake news stories have been making headlines lately due to their viral nature; these stories
often spread like wildfire among young people who lack critical thinking skills or experience
with reading between the lines regarding online content.
4. Social media can cause sleeplessness

Studies show that when people spend too much time on social media, they have trouble getting
to sleep, leading to insomnia and other sleep disorders.

5. Content on social media is not appropriate for children.

While some parents monitor their kids’ social media accounts, most don’t have access to them.
And if they do, they’re not going to be keeping an eye on every single post and saying, “that’s
inappropriate.” This can lead to some pretty dangerous situations!

6. Cyber attacks are becoming more prevalent in today’s world.

It will help if you protect yourself from these threats by using passwords that are difficult to
guess (like capital letters or numbers), changing passwords regularly, and staying away from
public Wi-Fi hotspots wherever possible.

7. Lack of Confidence.

People who are not confident in their skills may feel inferior when they post something on
social media, which can lead to low self-esteem and depression.

8. Fear of missing out (FOMO).

People constantly checking their phones for new messages or updates may become anxious if
they do not see anything promptly. This can lead to stress and anxiety if people use social
media excessively.

9. No privacy:

There is no privacy on social media as it is public by nature. Anyone can access the content
posted on social media without prior notice or permission from the user who originally posted
it.

10. Getting close to Depression

Getting close to depression is another potential side effect of spending too much time on social
media sites like Facebook or Instagram (see point above). Getting too caught up in one’s own
life can lead many people into depression! One way to prevent this is by opening up channels
with others who are also using social media sites. Sharing your experiences with others going
through similar struggles is possible by joining a Facebook or Instagram group.
Benefits of Social Media Marketing

Increased reach to potential customers:

Social media platforms like Facebook and Twitter allow users to share content with a broader
audience than traditional online advertising. This means that your business can target more
people with its messaging, potentially resulting in a higher conversion rate.

Greater customer engagement:

Making use of social media means your customers are more likely to interact with you directly.
This can lead to a stronger relationship and increased loyalty among your customers, which
may lead them to buy more from you.

Increased brand awareness.

Because most social media platforms are based around sharing information, using them can
help you promote your brand more effectively than traditional marketing methods. Your
company’s name and logo will be seen by many people, increasing the chances that people will
recognize it and think positively about it.

Improved public relations.

By engaging with critics and responding to their comments, businesses can build goodwill
among potential consumers who may have negative opinions about the company or product.
Social media also allows companies to create “storytelling” within the platform, which can
engage customers emotionally and encourage them to take action (such as signing up for
newsletters or purchasing).
What Is Media Planning?
Media planning is the process of identifying the appropriate marketing mediums and
channels to reach the target audience, targeting the right messages, at the right
time, in the right place.

It involves understanding the target audience, defining the message, and selecting
the right channel to reach them.

In simple terms, it includes planning what media to use, which channels to use and
how much to spend to boost a company’s ROI.

Who Is A Media Planner?

A media planner, also referred to as a brand planner or brand strategist, is a
professional working at an advertising agency, responsible for planning, buying, and
placement of advertising.

They work with advertisers, advertising agencies, and media outlets to orchestrate
their clients’ most effective marketing campaigns.

Objectives Of Media Planning

The main objective of media planning is to reach the target audience with the right
message at the right time and in the right place.

Besides this, it also aims for:

• Efficiency: Media planning aims to reduce costs by reaching the target

audience with the right message through the most efficient channels.
• Effectiveness: It also aims to increase efficacy by ensuring that the target
audience is reached with the right frequency and at the right time.
• Fulfilling Long-Term Goals: Media planning also looks at the bigger picture
and strives to achieve long-term goals such as brand awareness and building
relationships with customers.
The Components Of Media Planning
A media plan has the following main components:

1. Target Audience: The target audience refers to a defined group of

consumers or businesses that are potential customers for the business’s
offering.
2. Message: The message is the key point the business wants to communicate
to the target audience.
3. Channels: The channels refer to the specific touchpoints that will be used to
reach the target audience. These can include TV, radio, print, digital, etc.
4. Timing: The timing refers to when the message will be delivered. This
includes frequency, reach, and exposure.
5. Budget: The budget refers to the amount of money that will be allocated to
the media plan.
6. KPI: The KPI or key performance indicators are the metrics that will be used
to measure the success of the media plan.
7.

The Media Planning Process

The media planning process can be broken down into the following steps:

1. Market Analysis
2. Establishing Media Objective
3. Media Selection
4. Budget Allocation
5. Message Development
6. Media Scheduling
7. Measurement and Evaluation

Here’s a closer look at each of these steps:

Market Analysis
The first step involves researching the market to gain insights into the target
audience, their media habits, and the business’s objectives. This involves studying
existing data and conducting focus groups, surveys, social listening etc.

The audience can be classified according to demographics, geography,

psychographics, and behaviour.
At the end of this step, the media planner understands the target audience’s needs,
desires, challenges, etc.

Establishing Media Objective

The market analysis results in an understanding of the potential reach, frequency
and exposure.

Now, the media planner determines what they want to achieve with this campaign.
For this, they set objectives, that could be anything from increasing brand
awareness to generating leads or sales.

But to establish this objective, the media planner needs to determine the goal for:

• Reach: This is the number of people the marketing message will be in front of
over a period of time. The industry norm is to have a minimum of 80% reach
in any given month.
• Frequency: This is how many times each person will be exposed to the
campaign on average.
• Continuity: It involves the strategy of how advertising is allocated during the
campaign’s course. It can be either continuous scheduling, pulsing
scheduling, or flighting scheduling.
• Cost: This is the total cost of the campaign. It is broken down into two
costs: CPM (cost per 1000 impressions) and CPP (the cost per person).
• Penetration: This is the percentage of a target audience that will be reached
or who will see the message at least once.

Media Selection
Once the objectives have been established, the next step is selecting the channels
that will be used to reach the target audience.

The media planner considers various factors such as:

• Campaign objective: The type of campaign will dictate the most appropriate
channels. For example, a brand awareness campaign might use TV, radio,
and print, while a direct response campaign would use TV, digital, and direct
mail.
• Audience characteristics: Some channels may appeal to some
demographics more than others. For example, people are more likely to use
smartphones for online shopping rather than PCs or laptops. Also, certain
 shows on cable networks may attract a younger audience compared to prime-
time shows on a network.

Budget Allocation
Once the channels are selected, the next step is to allocate a budget for each
channel. The budget is allocated to allow the marketing message to be seen by the
target audience multiple times.

Message Development
The message is developed keeping in mind the target audience and the objectives
of the campaign.

The developed message is clear, concise, and persuasive.

Media Buying And Scheduling

Media buying is the process of negotiating rates and placing ads with media outlets.

Once bought, media is scheduled in a way that will allow the target audience to see
the marketing message multiple times.

The frequency is kept high enough so that the target audience can remember the
message but not so high that they get tired of seeing it.

Measurement And Evaluation

Finally, the campaign is evaluated to see how effective it was in achieving its
objectives. Various metrics can be used for this purpose:

• CPM (Cost per thousand): This refers to the cost of each 1000 impressions.
• CPP (Cost per person): This is the cost of each person who sees the ad.
• CPA (Cost per action): This is the cost of each action taken, such as a sale
or a lead.
• ROI (Return on investment): This is the most important metric as it
measures the profitability of the advertising campaign. It is the total revenue
generated minus the cost of the campaign and divided by the cost of the
campaign.
Media planners keep a close eye on all these metrics to see how effective their
campaign is and make necessary adjustments.
Benefits Of Media Planning
Media planning isn’t just about laying out which channels to use and how much
budget to allocate. Many benefits come along with it, such as:

• Allocating budget efficiently: A good media plan will allocate the budget in
a way that is most efficient. This means that more people will be reached with
the same amount of money.

• Generating leads: An effective media campaign can generate leads which

can be converted into customers.

• Increasing brand awareness: Media planning can help increase brand

awareness by reaching a larger number of people.

• Improving brand image: A good media campaign can improve the brand
image by showing the target audience a positive image of the product or
service.

• Building relationships with customers: An effective media campaign can

help build relationships with customers by creating a connection with them.

• Analysing customer behaviour: Media planning can help to analyse

customer behaviour and understand what they want. This information can be
used to improve the product or service.

• Creating loyalty: A good media campaign can create loyalty among

customers by making them feel like they are part of a community.

Challenges Of Media Planning

It isn’t all smooth sailing, however. Various challenges come along with media
planning, such as:

• Budget constraints: Companies may not have the funds to allocate for an
effective campaign.
• Competing brands: Brands competing in the same market will be trying to
get their message across, which can make it difficult for a brand to stand out.
• Changing trends: Trends in the media landscape are always changing,
which can make it difficult to keep up.
• Low attention span: People’s attention span is getting shorter, which means
that a brand has less time to make an impression.
Factors Affecting Media Planning
Several factors can affect media planning, including:

• Audience demographics: The target audience’s age, gender, income,

location, etc., affect the choice of media as different channels are better
suited for different demographics. For example, a younger audience is more
likely to be reached through social media.
• Audience behaviour: The target audience’s browsing and buying habits
affect the choice of media. For example, someone who is always on the go is
more likely to see an ad on a mobile device than someone who is always at
home.
• Product type: The type of product being advertised also affects the media
choice as some products are better suited for certain channels than others.
For example, a luxury product would be better advertised on more
personalised channels like Google Ads, while a mass-market product would
be better advertised on more public channels like newspapers.
• Media availability: The availability of channels play a role in media planning.
For example, a renowned TV channel might not have ad spaces during its
prime time shows.
• Media costs: The cost of reaching a target audience affects media planning.
For example, an advertisement on television will be more expensive than
advertising on the radio because television reaches a larger audience.
• Campaign objectives: Different objectives will affect the choice of media as
different channels help achieve different goals. For example, an objective
might be to reach a large audience quickly, which would mean using more
public channels like newspapers or radio.
• Competition: Other players in the market also influence the choice of media
and may force the business to use a similar strategy as theirs.

Media Planning Vs Media Buying

Media planning and media buying are two different but equally important aspects of
a marketing campaign. Media planning is the process of determining which channels
to use to reach the target audience, while media buying is the process of negotiating
with and purchasing ad space from those channels.

That is, media buying comes into the game after media planning has been done and
involves actually purchasing the ad space.
Compared to media buying, which can be a long and tedious process involving
multiple negotiations with different stakeholders, media planning is much simpler.
This is because experts in their respective fields have already decided upon the
channels that are chosen during the media planning stage.

Media Planning Examples

Every brand that wants to advertise needs to do some media planning. The media
planning process can be different for every campaign, but there are some common
elements that all plans include.

Here are some examples of media planning:

Local Fast-Food Restaurant

A fast-food restaurant operating in a busy city centre would probably focus on media
like print and outdoor advertising since their audience is most likely to be out and
about in the city. They might also choose online advertising or social media
marketing to reach customers during peak meal times when they’re looking for quick
but healthy options.

SAAS Brand
A software as a service (SAAS) brand might focus on digital media like Facebook
and Google Ads since their audience is more likely to be online.

This includes both pull and push strategies as they attract the customer
through SEO and SEM keywords and then push content through digital channels.

It might also use LinkedIn Advertising to target business professionals who require
its software.
 What Is Descriptive Analytics?

There are four distinct kinds of business analytics: diagnostic, descriptive, predictive,
and prescriptive analytics. Each one asks a different question:

• Descriptive analytics. What happened?

• Diagnostic analytics. Why did this happen?
• Predictive analytics. Based on past data, what could happen?
• Prescriptive analytics. Taking the other three analytics together as an aggregate, what can we
do about it?
For a more fleshed-out definition, we define descriptive analytics as the most common,
fundamental form of business analytics used to monitor trends and keep track of operational
performance — by summarizing and highlighting patterns in past and existing data.

The practice of descriptive analytics produces business metrics, reports, and KPIs (Key
Performance Indicators) to help businesses track their performance and different trends. As a
result, companies understand what's happened thus far and, when combined with the other types
of business analytics, get an idea of why things happened, what things may occur, and how to
prepare for future events.

Here’s a descriptive analytics example — a very timely one in today’s digital world — social
media engagement. Descriptive analytics provides metrics that help businesses figure out the
return rate on different social media initiatives. These initiatives include engagement rates,
numbers of followers, whether they’re growing or declining, and revenue generated via social
media platforms.

Marketing professionals can use the descriptive analytics with social media engagement to
decide which promotions work and which should be dropped. Social media metrics can also help
businesses prioritize their social media outreach campaigns.

Other descriptive analytics examples include financial metrics that assess a business's health.
This includes reports that show expenses and revenue, inventory and production logs, accounts
receivable and payable records, cash flow, movement in the supply chain, internal and external
surveys, and more. Yes, it's complex—hence—data analytics, in a descriptive way.
 What Does Descriptive Analytics Tell Us?

Alright, so descriptive analytics gives businesses essential information about how it’s doing,
where it’s going, and how it’s stacking up against the competition. But there’s much more to the
story. So what does this tell companies and aspiring professionals in the field?

• The company’s current performance: Descriptive analytics helps businesses keep track of
critical metrics involving individuals, groups and teams, and the company as a whole. For
instance, descriptive analytics can show how a specific sales rep is doing this quarter or which
of the rep’s products sells the most.
• The business’s historical trends: Descriptive analytics gathers information over long periods,
and that accumulated information can be used to track the company's progress by comparing
the metrics for different periods. For example, the corporate bean counters can track sales or
expenses by comparing the results of various quarters, calculating revenue growth by
percentages, and rendering the results on easy-to-read charts.
• The company’s strong and weak points: Descriptive analytics gives professionals the tools to
compare the performances of various business groups using metrics like employee-generated
revenue or expenses as a percentage of revenue. It will also compare these results with known
industry averages or published results from other businesses. These comparisons help
companies see where they’re doing well and where they need to improve.

How Does Descriptive Analytics Work?

Descriptive analytics breaks down into five steps, including:

1. State the Business Metrics

For starters, the business must identify the metrics that it wants to generate based on the essential
business goals of each group within the company or the company's overall goals. For instance, a
company emphasizing growth may emphasize measuring quarterly revenue increases. At the
same time, the company's accounts receivable department might monitor great days' sales and
other metrics that show how much time it takes to collect money from their customers.

2. Identify the Data Required

Next, the company must find the data needed to generate the desired metrics. This task is a
potential challenge since the relevant data may be scattered across many files and applications.
However, companies that employ an Enterprise Resource Planning (ERP) system may have an
easier time because they will already have most or all the needed data in their systems' databases.
 Furthermore, some metrics may also need data from external sources, like e-commerce websites,
industry benchmarking databases, or social media platforms.

3. Extract and Prepare the Data

Extracting, combining, and preparing the relevant data for analysis is potentially time-consuming
if the needed analysis data originates from multiple sources. However, this is a crucial step to
ensure accuracy. Furthermore, this may involve data cleansing to eliminate inconsistencies and
mistakes in the data, a reasonable effort considering the information coming from an eclectic
group of sources and rendering data into a suitable format for analysis tools. Advanced data
analytics types use a process known as data modeling, a framework residing within information
systems to help prepare, arrange, and organize the company's information. Data modeling
defines and formats complex data, turning it into a usable, actionable resource.

4. Analyze the Data

Companies have various tools at their disposal to apply descriptive analytics, ranging
from business intelligence (BI) software to spreadsheets such as ones found in Excel. Descriptive
analytics usually involves using fundamental mathematical operations to one or more of the
variables. For instance, a sales manager might like to monitor the average sales revenue or the
monthly revenue from either established or recently acquired customers.

5. Present the Data

Once business analysts have gone through the necessary steps, all that's left is presenting the
data. First, however, the information must be presented so that everyone can understand it, from
stakeholders to finance specialists. Stakeholders usually appreciate seeing the report in
compelling visual forms, like bar charts, pie charts, or line graphs. Visible data is easier to grasp.
Finance specialists on the other hand, may want the information presented through numbers and
tables.

What Are the Advantages of Descriptive Analytics?

Now, let’s look at the stand-out benefits of descriptive analytics.

• It’s easy to do: Descriptive analysis doesn’t require great expertise or experience in statistical
methods or analytics.
• There are a lot of tools available: There is a cornucopia of analytics tools available to choose
from, products that do most of the heavy lifting. Come to think of it, that helps explain why
it’s easy to perform descriptive analytics!
• It answers the most common business performance questions: Most stakeholders and
salespeople want to know things like "How are we doing?" or "What should we be doing
differently?" Descriptive analytics provides the data needed to answer those questions
efficiently, no matter when or how often they're asked.
But, like any other tool, descriptive analysis isn’t perfect. Here are the two chief drawbacks:

• It’s limited to simple analysis: Descriptive analysis examines the relationship between a
handful of variables, and that’s all.
• It tells you what, but not why: Descriptive analysis reports events as they happened, not why
they happened or what could possibly happen next.

Descriptive vs. Predictive vs. Prescriptive Analytics

Descriptive Analysis Predictive Prescriptive Analysis

Analysis

Summary What happened? What’s going to What should happen?

happen?

Function It uses data mining and data It looks at historical It takes the conclusions
aggregation to discover historical data and analyzes gleaned from descriptive
data. past data trends to and predictive analysis and
predict what could recommends the best future
happen. course of action.

Pros It’s easy to employ in daily It’s a valuable It offers critical insights
operations. Little experience is forecasting tool. into making the best, most
needed. informed decisions.

Cons It offers a limited view, and It needs lots of It requires a lot of past data
doesn't go beyond the data’s historical data to and often cannot account
surface. work. It will never for all possible variables.
be 100% accurate.
 What is Predictive Analytics?
Predictive analytics is a significant analytical approach used by many firms to assess risk, forecast
future business trends, and predict when maintenance is required. Data scientists use historical data
as their source and utilize various regression models and machine learning techniques to detect
patterns and trends in the data.

The basic goal of predictive analytics is to forecast what will happen in the future with a high
degree of certainty. This distinguishes predictive analytics from descriptive analytics, which
assists analysts in analyzing what has previously occurred, and prescriptive analytics, which uses
optimization techniques to detect optimal solutions to address the trends revealed by predictive
analytics.

So far we have discussed what is predictive analytics, next, let us understand its examples.

Examples of Predictive Analytics

Predictive analytics is used in a wide variety of ways by companies worldwide. Adopters from
diverse industries such as banking, healthcare, commerce, hospitality, pharmaceuticals,
automotive, aerospace, and manufacturing get benefitted from the technology.

Here are a few examples of how businesses are using predictive analytics:

• Customer Service

Businesses may better estimate demand by utilizing advanced and effective analytics and
business intelligence. Consider a hotel company that wants to estimate how many people will
stay in a certain area this weekend so that they can guarantee they have adequate employees and
resources to meet demand.

• Higher Education

Predictive analytics applications in higher education include enrollment management,

fundraising, recruiting, and retention. Predictive analytics offers a significant advantage in each
of these areas by offering intelligent insights that would otherwise be neglected.

1. A prediction algorithm can rate each student and tell administrators ways to serve students
during the duration of their enrollment using data from a student's high school years.
2. Models can give crucial information to fundraisers regarding the optimal times and strategies
for reaching out to prospective and current donors.

• Supply Chain

Forecasting is an important concern in manufacturing because it guarantees that resources in a

supply chain are used optimally. Inventory management and the shop floor, for example, are
critical spokes of the supply chain wheel that require accurate forecasts to function.

Predictive modeling is frequently used to clean and improve the data utilized for such estimates.
Modeling guarantees that additional data, including data from customer-facing activities, may be
consumed by the system, resulting in a more accurate prediction.

• Insurance

Insurance firms evaluate policy applicants to assess the chance of having to pay out for a future
claim based on the existing risk pool of comparable policyholders, as well as previous
occurrences that resulted in payments. Actuaries frequently utilize models that compare
attributes to data about previous policyholders and claims.

• Software Testing

Predictive analytics can help you enhance your operations throughout the full software testing
life cycle.

Simplify the process of interpreting massive volumes of data generated during software testing
by using that data to model outcomes. You can keep your release schedule on track by
monitoring timelines and utilizing predictive modeling to estimate how delays will affect the
project. By identifying these difficulties and their causes, you will be able to make course
corrections in individual areas before the entire project is delayed.

Predictive analytics can assess your clients' moods by researching social media and spotting
trends, allowing you to anticipate any reaction before it occurs.

So far we discussed what is Predictive analytics and its examples. Moving forward, lets
understand what are its analytics tools.
 Predictive Analytics Tools

Predictive analytics tools use data to help you predict the future. Instead, it informs you of the
probability of various scenarios. Knowing these possibilities might assist you in planning various
parts of your business.

Predictive analytics is a subset of data analysis. Descriptive analytics, which helps you determine
what your data represents, is another part of data analytics. Diagnostic analytics identify the root
reasons for what has occurred. Prescriptive analytics is more similar to predictive analytics. This
provides you with actionable advice for making better selections.

In other words, predictive analytics lies between data mining, which searches for patterns, and
prescriptive analytics, which instructs you what to do with this knowledge. Below is a list of the
most popular Predictive Analytics Tools used in the industry.

• SAS Advanced Analytics

SAS is the global leader in analytics, with a plethora of various predictive analytics products
offered. The list is so broad that it may be difficult to determine which tool(s) you will require
for your specific needs. In addition, the firm does not give upfront pricing, making it difficult to
compare prices. Nonetheless, with so many different tools available, chances are SAS offers just
what you want.

• IBM SPSS

IBM SPSS (Statistical Package for the Social Sciences) is a data modeling and statistics-based
analytics program. The software can handle both organized and unstructured data. To meet any
security and mobility requirements, this software is offered in the cloud, on-premises, or via
hybrid deployment.

• RapidMiner Studio

RapidMiner Studio blends data preparation and analysis with unique business implementation.
You may use this code optimal application to automate reporting based on time intervals or to
have events trigger changes in your visualizations.

Using the platform's 60+ native integrations, you may import your own data sets and export them
to other programs. Extensions provide you more functionality, for example, anomaly detection,
text processing, and web mining, but they may cost more than the basic membership fee.

• TIBCO Spotfire
 TIBCO Spotfire includes a variety of tools for working with large data sets. Spotfire is simple
enough for anybody to utilize when it comes to predictive analytics. Spotfire includes a feature
known as one-click predictions. These are pre-programmed methods for classifying and
clustering data.

It also displays relationships and forecasts. Spotfire features an attractive data display. It is
always constantly reading data and updating in real-time. It is simple to create your apps for use
with the platform. Spotfire's machine learning algorithms get a greater in-depth understanding.

• H2O

If you're looking for an open-source predictive analytics solution, H2O should be at the top of
your list. It provides quick performance, low cost, superior features, and great flexibility. The
H2O dashboard provides excellent visualization of data insights.

This tool, however, is designed for experienced data scientists rather than citizen data scientists.
If you've invested in training, this may be a useful tool.

So far we discussed what is Predictive analytics, examples and its types in detail. Moving
forward, let’s understand what are its techniques

Predictive Analytics Techniques

Predictive analytics incorporates a variety of data analysis approaches, including data mining,
machine learning, and others. The following are the techniques used in predictive analytics:

• Decision Trees

A decision tree is an analytics methodology based on Machine Learning that uses data mining
algorithms to forecast the potential risks and benefits of undertaking certain options. It is a visual
chart that resembles an upside-down tree that depicts the prospective result of a decision. When
used for analytics, it can solve all forms of classification problems and answer difficult issues.

• Neural Networks

Neural networks are biologically inspired data processing systems that use historical and present
data to forecast future values. Their architecture allows them to identify complicated connections
buried in data in a way that replicates the pattern detecting systems of the human brain.
 They are widely used for image recognition and patient diagnosis and comprise many layers that
accept data (input layer), compute predictions (hidden layer), and provide output (output layer)
in the form of a single prediction.

• Text Analytics

Text Analytics is used when a company wants to anticipate a numerical number. It is built on
approaches from statistics, machine learning, and linguistics. It assists in predicting the themes of
a document and analyzes words used in the supplied form.

• Regression Model

A regression method is crucial for the organization when it comes to estimating a numerical
number, such as how long it will take a target audience to return to an airline reservation before
purchasing, or how much money someone would spend on vehicle payments over a specific
length of time.
 What Is a Performance Appraisal?

A performance appraisal is a systematic and periodic process of measuring an individual’s work

performance against the established requirements of the job. It’s a subjective evaluation of the
employee’s strengths and weaknesses, relative worth to the organization, and future development
potential.

Performance appraisals are also called performance evaluations, performance reviews,

development discussions, or employee appraisals.

If you conduct a successful performance appraisal, you can get a handle on what the employee
does best and identify areas that require improvement. Appraisals also come in handy for
deciding how to fill new positions in the company structure with existing employees.

What Is a Performance Appraisal: The Types of Performance

Appraisals

Performance appraisals can be broken down into four distinct significant types:

• The 360-Degree Appraisal. The manager gathers information on the employee’s performance,
typically by questionnaire, from supervisors, co-workers, group members, and self-
assessment.
• Negotiated Appraisal. This type of appraisal uses a mediator to help evaluate the employee’s
performance, with a greater emphasis on the better parts of the employee’s performance.
• Peer Assessment. The team members, workgroup, and co-workers are responsible for rating
the employee’s performance.
• Self-Assessment. The employees rate themselves in categories such as work behavior,
attitude, and job performance.
Note that some organizations use several appraisal types during the same review. For instance, a
manager could consult with the employee’s peers and assign a self-assessment to the employee.
It doesn’t have to be a case of either/or.
 What Is a Performance Appraisal: The Methods of Performance
Appraisals

Performance appraisals come in many forms. Managers and human resources staff responsible
for these appraisals need to choose the best methods based on the size of their organization and
what sorts of responsibilities the employees fulfill.

Methods of performance appraisals include:

• 720-Degree feedback: You could say that this method doubles what you would get from the
360-degree feedback! The 720-degree feedback method collects information not only from
within the organization but also from the outside, from customers, investors, suppliers, and
other financial-related groups.
• The Assessment Center Method: This method consists of exercises conducted at the
company's designated assessment center, including computer simulations, discussions, role-
playing, and other methods. Employees are evaluated based on communication skills,
confidence, emotional intelligence, mental alertness, and administrative abilities. The rater
observes the proceedings and then evaluates the employee's performance at the end.
• Behaviorally Anchored Rating Scale (BARS): This appraisal measures the employee’s
performance by comparing it with specific established behavior examples. Each example has
a rating to help collect the data.
• Checklist Method: This simple method consists of a checklist with a series of questions that
have yes/no answers for different traits.
• Critical Incidents Method: Critical incidents could be good or bad. In either case, the
supervisor takes the employee’s critical behavior into account.
• Customer/Client Reviews: This method fits best for employees who offer goods and services
to customers. The manager asks clients and customers for feedback, especially how they
perceive the employee and, by extension, the business.
• Field Review Method: An HR department or corporate office representative conducts the
employee's performance evaluation.
• Forced Choice Method: This method is usually a series of prepared True/False questions.
• General Performance Appraisal: This method involves continuous interaction between the
manager and the employee, including setting goals and seeing how they are met.
• Human Resource Accounting Method: Alternately called the “accounting method” or “cost
accounting method,” this method looks at the monetary value the employee brings to the
company. It also includes the company’s cost to retain the employee.
• Management By Objective (MBO): This process involves the employee and manager
working as a team to identify goals for the former to work on. Once the goals are established,
 both parties discuss the progress the employee is making to meet those goals. This process
concludes with the manager evaluating whether the employee achieved the goal.
• Performance Tests and Observations: This method consists of an oral test that measures
employees' skills and knowledge in their respective fields. Sometimes, the tester poses a
challenge to the employee and has them demonstrate their skills in solving the problem.
• Project Evaluation Review: This method involves appraising team members at the end of
every project, not the end of the business year.
• Ratings Scales: These ratings measure dependability, initiative, attitude, etc., ranging from
Excellent to Poor or some similar scale. These results are used to calculate the employee's
overall performance.

What Are the Objectives of a Performance Appraisal?

Although we've already mentioned some of the objectives and methods of performance
appraisals, let's clearly delineate them in their easy-to-understand section. First, a performance
appraisal aims to:

• Provide helpful information to help make decisions regarding transfers, promotions,

terminations, etc.
• Supply the necessary data to identify employee training and development program
requirements.
• Help make confirmation/acceptance decisions regarding employees who have completed a
probationary period.
• Help make decisions regarding raising an employee's salary, offering incentives, or changing
variable pay.
• Clarify expectations and facilitate communication between managers and subordinates.
• Help employees realize their whole potential performance level.
• Collect relevant employee data and keep the records for various future organizational
purposes.
 The Benefits of Performance Appraisals

Here is a list of advantages that performance appraisals bring to the table:

• They help supervisors plan promotions for solid, performing employees and dismiss
inefficient workers.
• They help the organization decide how to compensate the employees best. Also, companies
can use performance appraisal records to help determine extra benefits and allowances.
• They can call attention to employee weaknesses and help set up training programs in-house.
• The performance appraisals can help make changes in the selection process which inevitably
help hire better employees.
• Performance reviews effectively communicate the employee's performance status and provide
a great way to give feedback on how the employee is doing at their job.
• Performance evaluations are a great motivational tool, providing a snapshot of the employee's
efficiency. This snapshot, in turn, can incentivize the individual to improve their performance.

Suggested Tips and Techniques for Performance Appraisals

Here are three valuable tips and techniques to maximize the effectiveness of your performance
appeals.

• Document your appraisal sessions: Document your employee performance appraisal

meetings and store the notes in your go-to database system. By documenting and keeping
these notes, you will have easy access when you need them to make decisions about an
employee or conduct follow-up meetings.
• Use outlines: Create an outline template to be used for all your company’s performance
appraisals. This practice promotes a consistent company-wide review structure and helps
employees better prepare for the appraisal meeting.
• Check in with your employees more frequently: Nothing is more dispiriting and frustrating
for an employee who performs their jobs in a particular way, only to be told at the end of the
year that they’ve been doing it all wrong and it will affect their performance reviews. Teams
need to know if they’re doing well and on the right track, so consider conducting performance
appraisals at shorter intervals.
Do You Want to Improve Your Performance?

The more knowledge and skills you possess, the easier it is to deliver an outstanding
performance on the job. And, of course, an excellent performance appraisal gets you noticed,
promoted, and most likely better compensation.

Simplilearn offers a full range of online classes and bootcamps that can give your skills that
much-needed boost, regardless of what IT field you’re in. For instance, if you’re involved in the
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Cybersecurity is a hot topic today, and if you want to improve your skill set or change careers,
check out Simplilearn’s cyber security offerings.

Mobile computing has taken off over the last few years, which means a greater demand
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Or perhaps you want to brush up on management skills. Simplilearn offers classes in both project
management and quality management.
 Pricing is often one of the most difficult things to get right in business. There are several factors
a business needs to consider in setting a price:

• Competitors – a huge impact on pricing decisions. The relative market shares (or market
strength) of competitors influences whether a business can set prices independently, or
whether it has to follow the lead shown by competitors
• Costs – a business cannot ignore the cost of production or buying a product when it comes to
setting a selling price. In the long-term, a business will fail if it sells for less than cost, or if its
gross profit margin is too low to cover the fixed costs of the business.
• The state of the market for the product – if there is a high demand for the product, but a
shortage of supply, then the business can put prices up.
• The state of the economy – some products are more sensitive to changes in unemployment
and workers wages than others. Makers of luxury products will need to drop prices especially
when the economy is in a downturn.
• The bargaining power of customers in the target market – who are the buyers of the product?
Do they have any bargaining power over the price set? An individual consumer has little
bargaining power over a supermarket (though they can take their custom elsewhere). However,
an industrial customer that buys substantial quantities of a product from a business may be
able to negotiate lower or special prices.
• Other elements of the marketing mix – it is important to understand that prices cannot be set
without reference to other parts of the marketing mix. The distribution channels used will
affect price – different prices might be charged for the same product sold direct to consumers
or via intermediaries. The price of a product in the decline stage of its product life-cycle will
need to be lower than when it was first launched.

Nine Factors to Consider When Determining Your Price

1. Your Costs

If your rate doesn't include enough just to break-even, you're heading for trouble. The best
thing to do is sum up all your costs and divide by the number of hours you think you can bill a
year. Whatever you do, DON'T think you can bill every hour. You must account for sick days,
holidays, hours working on the business, hours with no work and so on.

Also make sure you factor in all the hidden costs of your business like insurance, invoices that
never get paid for one reason or another, and everyone's favourite - taxes.
2. Your Profit

Somewhat related to your costs, you should always consider how much money you are trying
to make above breaking even. This is business after all.

3. Market Demand

If what you do is in high demand, then you should be aiming to make your services more
expensive. Conversely if there's hardly any work around, you'll need to cheapen up if you hope
to compete.

Signs that demand is high include too much work coming in, other freelancers being overloaded
and people telling you they've been struggling to find someone to do the job. Signs that
demand is low include finding yourself competing to win jobs, a shortage of work and fellow
freelancers reentering the workforce.

4. Industry Standards

It's hard to know what others are charging, but try asking around. Find out what larger
businesses charge as well as other freelancers. The more you know about what others are
charging and what services they provide for the money, the better you'll know how you fit in to
the market.

5. Skill level

Not every freelancer delivers the same goods and one would expect to pay accordingly. When I
was a freelancing newbie I charged a rate of $25 an hour for my design, when I stopped
freelancing recently my rate was $125 an hour. Same person, but at different times I had a
different skill level and hence was producing a different result. Whatever your rate, expect it to
be commensurate with your skill.

6. Experience

Although often bundled with skill, experience is a different factor altogether. You may have two
very talented photographers, but one with more experience might have better client skills, be
able to foresee problems (and thus save the client time and money), intuitively know what's
going to work for a certain audience and so on. Experience should affect how much you charge.

7. Your Business Strategy

Your strategy or your angle will make a huge difference to how you price yourself. Think about
the difference between Revlon and Chanel, the two could make the same perfume but you
would never expect to pay the same for both. Figure out how you are pitching yourself and use
that to help determine if you are cheap'n'cheerful, high end or somewhere in between.

8. Your Service

What you provide for your clients will also make a big difference to your price tag. For example
you might be a freelancer who will do whatever it takes to get a job just right, or perhaps you
are on call 24-7, or perhaps you provide the minimum amount of communication to cut costs.
Whatever the case, adjusting your pricing to the type and level of service you provide is a must.

9. Who is Your Client

Your price will often vary for different clients. This happens for a few reasons. Some clients
require more effort, some are riskier, some are repeat clients, some have jobs you are dying to
do, some you wouldn't want to go near with a stick. You should vary your price to account for
these sorts of factors.

What is value-based pricing?

Value-based pricing is one of the popular pricing methods businesses use in setting prices to
their products and services. It is a customer-centric pricing strategy where companies base their
prices on how much their target market believes a product is worth. Instead of looking within
the company (considering your costs, profit margins, etc.) or laterally (maintaining competitive
prices against business competition), this strategy looks outward, towards your target market’s
needs, wants, and willingness to pay.

This strategy works best for companies offering products and services that enhance a
customer’s self-image or provides unique life experiences when availed. Such products should
be customer-focused, tailor-made to fit the wants and needs of your target market. Its
perceived value depends on how much customers are willing to pay to own those products or
experience those services.
Since value-based pricing is consumer-centric, businesses who want to apply this pricing
strategy need to have in-depth research and communication with its customers. Data gathered
from customer feedback is essential to make this strategy work as accurately as possible.

Aside from open communications and strong relationships with customers, your company must
also deliver high-quality products and services that satisfy the standards set by your target
market.

Other factors that may give you an edge with value-based pricing are your brand recognition,
your reputation in the industry, and your connections and associations with the big leagues.
Prestige, uniqueness, limited editions, history, and influence are also factors that can add value
to your products and services.

For example, raw materials for a painting can cost around £60, but if the painter was, say,
Leonardo da Vinci, his name, prestige, history, and the fact that his death makes his paintings
limited, makes that painting’s value way higher.

Of course, the conditions do not have to be that drastic in order to employ value-based pricing
successfully. For small business owners, all you need are:

• a good brand
• high-quality and in-demand products and services
• amazing track record
• creative marketing strategies, and
• great rapport and customer relations.

Advantages of Value-based Pricing

1. You can easily penetrate the market.

It is easier for you to penetrate a market that is not brand-loyal and relatively undiluted,
especially if your products and services are packaged differently. New and limited edition items
see stronger sales when value-based pricing is applied.

2. You can command higher price points

Prestigious and culturally important items have higher perceived values. Products such as art,
fashion, collectibles, and luxury cars are perfect examples of these. Customers care more about
the perceived values of these products and are willing to pay more. Basically what they buy is
the prestige of the name, the well-known skills, and talent of the creator, and the appreciating
value over time, or of a complete set, of these items.
3. It proves real willingness-to-pay data

Willingness-to-pay data is the maximum price your target market is willing to shell out for what
they believe is the value of your products and services. This helps you conceptualize the overall
demand for your products and helps you put a profit-generating price on them.

4. It helps you develop higher quality products

The constant feedback from your consumers helps you identify future product developments to
continue satisfying the needs of the market. Value-based pricing relies on your consumer’s
perceived value, and perceived value depends on factors including quality. This provides a
wealth of information not just on pricing, but also on how you can improve your business.

5. It increases focus on customer services

Customer-centric pricing is for the benefit of customer satisfaction. This also helps you improve
customer service and provide an unparalleled customer experience.

6. It promotes customer loyalty

Providing customer satisfaction, amazing customer service and unique customer experiences
breeds customer loyalty. Of course, this means providing quality products and services that
justify the perceived value your customers have attached to it.

7. It increases brand value

Value-based pricing increases your brand value by establishing that your business is dedicated
to putting your customers first and ensuring that the products and services you provide are top-
notch. Your high prices are justified by the superior quality of products and customer
experience your brand provides.

8. It balances supply and demand

Value-based pricing provides a rough sketch of the demand for your product in the market. You
have an approximation of the number of customers who can afford and are willing to buy, your
products. This helps your business create a supply to fit the demand accordingly.
Disadvantages of Value-based Pricing

1. Difficult to justify the added value for commodities

Value-based pricing for businesses selling commodities will find it harder to justify the added
value of their products. The abundance of options and competition in the market makes it
tougher unless there’s something special about your product.

2. Perceived value is not always stable

Perceived value is subjective, and it changes due to cultural, social, economic, and technological
factors that are outside your control. Moreover, customers that grew accustomed to your
products can grow desensitized to its perceived value and might start to see less value in it.
Also, competitors might come up with a better offer that comes with a higher perceived value.
With value-based pricing, this means you are forced to lower your prices in these situations,
which can severely affect revenues and profit.

3. Price is harder to set

Your whole target market might have to vary perceived values for your products and services,
making it harder to set a price point that works for every customer. In cases like this, market
research, customer feedback, and competitor analysis can only go as far as giving you
confidence in your pricing. However, you’ll only see the results after comparing your sales
forecast to your actual sales.

4. Niche market, and market competition

As such, you get a niche market. While niche market usually means customer loyalty, it also
means you have tapped a very limited number in your actual market. When market
competition arrives, your already limited market gets smaller.

5. Requires ample research, time, and resources

In order to execute value-based pricing correctly, you need extensive market research. This is
time-consuming and requires a lot of resources. This is usually not as feasible for starting
businesses.

6. Not an exact science

Unlike other pricing strategies, value-based pricing is not an exact science. With the subjectivity
and potential instability of consumer’s perceived value, pricing is also subject to change.
Whereas strategies like cost-plus pricing rely on hard numbers, value-based pricing depends on
customer preference and willingness-to-pay.
7. Makes scalability difficult

Value-based pricing works best for businesses in smaller sizes and sells highly specialized
products. It is difficult to apply to a larger audience, which makes it hard to expand the
business.

8. Production costs

Specialized products and continuous efforts to develop product lines and services mean higher
production costs. You will need excellent raw materials and highly skilled labourers to maintain
and improve product quality.

Advantages Of Cost Volume Profit Analysis

Main benefits or advantages of cost volume profit (CVP) analysis can be studied as follows:

1. Decision Making

CVP analysis helps the management to make sound decision regarding distribution channel,
make or buy decision, pricing, production method etc. by showing the relationship between
cost, volume and profit.

2. Fair Pricing

Cost volume profit (CVP) analysis helps to fix optimum price of the product and services by
comparing the competitor's product price.

3. Determination Of Break Even Point

CVP analysis helps to calculate the break even point at which total revenues are equal to total
costs.

4. Determination Of Margin Of Safety

CVP analysis helps to determine the margin of safety (position above the break even point).

5. Profit Planning
CVP analysis assists management in profit planning by estimating the profit at different output
levels.
6. Cost Control

CVP analysis is an effective tool to control unnecessary production and distribution costs.

7. Budgeting

Management can prepare budget on the basis of CVP analysis because it provides relevant data
and information about cost, volume and profit.

8. Product Selection

Cost volume profit analysis helps to select the most profitable product by analyzing the
relationship between revenues and costs.

Features of an Ideal Compensation Plan

1. Simple

The compensation plan should be simple, easy to understand and calculate according to the
sales positions and territorial assignments.

2. Steady Income

The compensation plan should be such which could provide regular income to the Salesforce.

3. Based on the Merits

The compensation plan should be based on the individual merits, ability, and efficiency of the
salesman.

It should have the magnetic power of attractive able and efficient salesman to this Enterprise.

4. Lower Administrative Cost

The compensation plan should bear the minimum administrative cost so that the same may be
implemented by the Enterprise.
5. Continuous Incentive

The compensation plan should provide continuous incentives to salesmen so as to evoke

loyalty, sincerity and hard working on the path of a salesman.
For instance, it should have the provision of Commission on sales besides the salary

6. Flexible

The compensation plan should be flexible so so that it may provide satisfaction to all types of a
salesman working on different posts in different areas.
The compensation
salesman working on
plan
different
should posts
be flexible
in different
so so that
areas.
it may provide satisfaction to all types of a

7. Fair to Salesforce

The compensation plan should be such in which the salesman might feel that he is paid
sufficiently in relation to his qualifications, experience, ability, cost of living and his efforts,
etc. It must have provision for promotion.

8. Fair to Management

The compensation plan should also be fair to management, like, related to the volume of sells
and be reasonable to the work turned out by the salesman.

9. Competitive

The compensation plan should be competitive.

It should develop the spirit of competitions amongst the salesman.

The compensation plan should provide superior income to Superior performers.

10. Effective Control

The compensation plan should provide effective control of management on the salesman.

“Management likes a plan which facilitates control over how salesman spends their time”.

It should be possible for the sales manager to bring to book a salesman who is not complying
with the instructions and wasting away his efforts in un compensation transactions.

11. Miscellaneous

Besides the above, an ideal compensation plan should also:

1. Be helpful in increasing sales.
2. Evolve confidence of salesman.
3. The effect of promptness in payments.
4. Distinguish between performing different tasks and achieving results and goals.
5. Develop active cooperation amongst the salesman, and
6. Raise the morale of the salesman.

Features of a Good Compensation Plan

A good compensation plan has the following features:

1. It must be simple to understand.

2. There should be equal work for equal pay

3. It should offer minimum wages to workers and incentives for good performance

4. It should attract and train people in the organization.

5. It should motivate workers to contribute their best to organizational goal by linking Wages with
output

6. It should satisfy lower and higher-order needs of the employees.

7. It should maintain balance and harmony amongst managers and workers. Confects should be
reduced.

8. It must be consistent with what competitors are paying to their workers.

9. It should be consistent with cost of living.

10. It should have incentive schemes so that workers who excel in their performance earn more than
their fellow workers.

11. It should have scope for promotions and pay hikes.

12. It must be bases on merit and job evaluation of workers.

 Advertising Budget Definition
An advertising budget is an amount set aside by a company planned for the
promotion of its goods and services. Promotional activities include conducting a
market survey, getting advertisement creatives made and printed, promotion by
way of print media, digital media, and social media, running ad campaigns, etc.
Table of contents

• Advertising Budget Definition

o Advertising Budget Basis
o Process of Creating Advertising Budget
o Advertising Budget Methods
o Factors Affecting Advertising Budget
o Strategies
o Advantages
o Disadvantages
o Importance of Advertising Budget
o Conclusion
o Recommended Articles

Advertising Budget Basis

The advertising budget of a company is based on the following factors:

• Type of advertising campaign that it intends to run

• Selection of target audience
• Type of advertising media
• Company’s objective of advertising

Process of Creating Advertising

Budget
The following steps are followed to set up this budget –
• Setting advertising goals based on the company’s objectives.
• Determine the activities that are required to be done.
• Preparing the components of the advertising budget;
• Getting the budget approved by management;
• Allocation of funds for activities proposed under the advertisement plan;
• Periodically monitoring the expenses being incurred during the advertising
process;

Advertising Budget Methods

The most common methods are discussed as follows:

• Percentage of Sales: Under this method, the advertising budget is set as a

percentage of either the past sale or expected future sales. Small businesses
usually use this method.
• Competitive Parity: This method advocates that a company sets an
advertising budget similar to the one set up by its competitor to yield similar
results.
• Objective and Task: This method is based on the advertising objectives of this
method. Once the objectives are decided, the cost is estimated to complete
those objectives, and accordingly, a marketing budget is set.
• Market Share: In this method, the advertising budget is based on a
company’s market share. For a higher market share, less marketing budget is
set.
• All available Funds: This is a very aggressive method under which all
available profits are allocated towards advertising activities. This method can
be used by start-up businesses that need advertisements to attract customers.
• Unit Sales: Under this method, the advertisement cost per article is calculated
and based on the total number of articles, it is set.
• Affordable: As the name suggests, the company sets its budget based on
how much it can afford.
 Factors Affecting Advertising Budget
• Existing Market Share: A company with a lower market share will be required
to spend more on its promotional activities. On the other hand, companies
with larger market shares can spend less on their promotional activities.
• The competition level in the industry: If there is a high competition level in
the industry in which the company operates, the advertising budget would be
required to be set on a higher side to get noticed by audiences. In case a
monopoly exists or where there is the least level of competition involved, the
company will need to invest less in marketing.
• Stage of the Product Life Cycle: It is a well-known fact that in the initial
introduction and growth stages of a product or service, more amounts would
be required for advertising. While in the later stages of the product life cycle,
the need for advertising will decline.
• Decided frequency of Advertisement: The advertising budget will also
depend on how frequently a company wants to run its ads. Frequent ads will
call for a greater budget.

Strategies
Let us have a look at some strategies a company can follow.

• Social Media Marketing: One can start by making profiles of the businesses
on social media platforms like Facebook and Instagram, which can help reach
out to larger audiences cost-effectively.
• Referral Benefits: In this strategy, you ask your customers to refer your
business pages to their friends and family. This way, your customers do the
marketing for you. You provide referral benefits and points when such
referrals are buying the products.
• Content Marketing: Start a blog and update interesting content that attracts
your audiences. This strategy, combined with other strategies, will benefit the
business.
• Email Marketing: This strategy will depend on your database’s strength and
relevance.
• Pay per click ad: In this strategy, you pay per ad you run on social media
platforms. Based on your selected target audience, the ad is run and reaches
the audience.

Advantages
Let us have a look at some advantages a company can follow.

• It helps to understand the advertising requirements and allocate the budget

toward each necessary activity.
• The company’s overall advertisement expense remains monitored, ensuring
that actual expense remains within a prescribed limit.
• When the budget is followed, it is ensured that the advertisement activities are
done as per advertisement goals only, and no unnecessary expense is
incurred.
• Each advertisement activity is kept under supervision and remains controlled
well within budget.

Disadvantages
• An inaccurate budget can attract unnecessary costs since the target of the
budget would not be met.
• It may be a costly affair for companies.
• Since advertising costs will also be ultimately recovered from the customers,
the prices of the products will increase.

Importance of Advertising Budget

Ever wondered why companies spend so much on running advertisements?
The company intends to attract audiences to its brand name through
advertisement. Advertisement helps a company reach out to larger audiences
and introduce them to its products and services. Because of this, the sales
increase, which enables the company to earn more profits. It is important that
before setting the advertising budget, the company’s objective is understood.
Factors Affecting Promotion Mix – 10 Main Factors:

1. Nature of the Product:

Promotion mix will vary according to the nature of the product. Consumer
goods require mass advertisement. But industrial goods require personal
selling, advertising, displays etc. Complex and technical products like
computer need personal selling.
Non-technical products require advertising as promotional device. In case
where there is no brand differentiation personal selling should be the method
of promotion. Where there is brand differentiation advertising should be
emphasized.

2. Nature of the Market:

For industrial market, advertising plays an informative role, but for consumer
market it plays as informative as well as persuasive role. The promotion
strategy varies with the target groups depending on age, sex, education,
income, religion etc.

3. Stages in the Product Life Cycle:

The marketing objectives and strategies are different at each stage of the
product in its life cycle. During the introductory stage intensive advertising
and personal selling are required for effecting product awareness.
During growth stage advertising should be extended to maximize the market
share. During maturity stage persuasive advertising and sales promotion
techniques are beneficial. But at the declining stage advertisement and sales
promotion are reduced to the minimum.

4. Market Penetration:
A product having good market penetration is well-known to the buyers. In that
situation, middlemen are motivated to spend more an advertising.

5. Market Size:
It there is limited number of buyers, direct selling is enough. But if the market
size is large the promotional tool is mainly advertising.
6. Characteristics of Buyers:
Experienced buyers of industrial product need personal selling. The
experience of buyers, the time available for purchase, influence of friends,
retailers etc. are the factors affecting promotion mix.

7. Distribution Strategy:
If the products are directly sold by the manufacturer personal selling is the
tool of promotion.
Advertising is only a supporting tool. Personal selling and advertising is
required for market penetration. If the product passes through a longer
channel more importance should be given to advertising and less importance
to personal selling.

8. Pricing Strategy:
Pricing influences promotion strategy. If the brand is priced higher than the
competitor’s price, personal selling is used. If the price is comparatively low
only little promotion is needed. If the middlemen are allowed higher profit
margin, sales promotion at dealer level is important.

9. Cost of Promotion:
The cost of the media of advertising and sales promotion tools should also be
considered while deciding the promotional mix.

10. Availability of Funds:

If the funds are adequate the firm can spend more for advertising and sales
promotion. But small firms with limited resources can depend on personal
selling.
What is Market Share?

Market share is used to give you an idea of how large, powerful or important your business is
within its particular sector. You can calculate your share by taking your total sales and dividing
the figure by the total sales of the entire sector or market you are selling in.

A company that maintains its share over time is growing its revenues in line with its
competitors. But an increase shows a speedier, market-leading, boost in revenue.

How to increase market share

Increasing market share means increasing the effort put into sales as a company and using
additional or new strategies to facilitate your journey to get there.

Companies looking to increase their market share can take several approaches, including:

1. Finding your niche and making products that fit into it

Tap into your company’s unique characteristics that set you apart from your competition. Are
you known for brilliant design? Do you build powerful user interfaces that are easy to navigate?
Identify the things that help customers remember your products and keep them coming back
for more. If you incorporate these things into your products, you can create a clear brand
identity, which helps you increase your market share.

2.Understanding your direct competitors

To increase your market share, you first need to understand the market.

Get to know what other leaders in your market are doing and how your offerings compare with
theirs. If there are gaps in your offerings, look for unique and innovative ways to fill those gaps
better than your competition does.

3. Innovate and change your products as society changes

There's a reason the Commodore 64 isn't the world's best-selling computer anymore, even
though it once was. Other companies changed their products along with society's changes and
found new, innovative ways to build computers that addressed customers' needs better than
Commodore could.

That's why it's important to keep innovating and iterating on your products. If you don’t, you'll
be left behind.
 4.Engage with your customers

Since you’re trying to increase your market share, and your market is represented by
customers, it makes sense to engage with them. Customers know what they want and what
their needs are, so asking them through a survey or social media is a great way to find out what
else your company could do for them. Plus, when customers notice you’re interested in their
feedback, they’ll be more likely to buy and recommend your products.

5. Keep delivering great products and making customers happy

This is as obvious as it is important — you can’t increase your market share with unhappy
customers. If you focus on delivering great products and features, excellent customer service
and engagement, and keep innovating, you're much more likely to increase your market share.

Advantages of Share Market Investment

• Probability of high returns over the short-term

The biggest advantage of share market investment is that it has the potential to generate
inflation-beating returns within a short period of time as compared to other investment
avenues like bank FDs, saving accounts etc.

• Ownership stake in the company.

When you buy shares of a public listed company, no matter how small your share size is, it gives
you proportionate control over the company. This ownership of shares will in turn grant you
the voting rights and you will receive dividends, bonus, etc.

• High liquidity

Unlike other investment avenues, shares do not have any lock-in period. Investors can buy and
sell shares through the stock exchanges within seconds.

• Your rights are well protected by SEBI

The stock market is regulated by the Securities and Exchange Board of India (SEBI). SEBI strictly
monitors market participants like brokers, sub-brokers, advisors and stock exchanges to
safeguard the interest of the shareholders.
• Tax benefits
o Long-term capital gains i.e. investments held for more than 12 months are taxed at 10% over Rs
1 Lakh only.
o Short-term capital gains i.e. investments held for less than 12 months are taxed at 15% + 3%
cess.
o Any capital loss can be offset or carried forward for up to eight financial years.

Disadvantages of Share Market Investment

• Volatility

Investments in the share market are considered risky since the markets are volatile and shares
can fluctuate and even hit lower circuits.

• Risk

Risk is the possibility of an investor experiencing losses due to factors that affect the overall
performance of the financial markets. Risks are of two types:

o Systematic risk

Systematic risk tends to influence the overall market and it cannot be eliminated through
diversification.

Example: Natural calamities, political turmoil, terrorist attacks, etc.

o Unsystematic risk

Unsystematic risk is unique to a specific industry or a company and it can be diversified.

• Stockholders are paid last.

When a company is winded up, shareholders are the last one to get paid whereas bondholders
and creditors of the company get paid first.

• Emotional Roller Coaster

The stock prices rise and fall frequently due to volatility. Many investors tend to buy a share at
a high price out of greed and sell at a low price out of fear. Hence, coffee- can investing is the
best strategy to avoid roller coaster investing.
 How to make your share market investments less risky.

• Diversify your investment to reduce your risk according to:

o Investment types

You should diversify your stock portfolio by investing in bonds, commodities etc to create an
overall well diversified portfolio.

o Different sectors

Your stock portfolio should include stocks from diversified sectors like Pharmaceutical, FMCG,
Banks, IT, etc.

o Through mutual funds and SIP’s

Mutual fund investments are considered less risky than investing in the share markets. It allows
you to own hundreds of shares selected by an expert fund manager.

• Follow a staggered investment strategy.

Remember, buy in a staggered manner when there is panic in the market and sell on euphoria.

CONCLUSION:

Although there are several advantages of share market investment, investors must be cautious
while making investment decisions. Understanding the basics of the stock market and doing
proper research before investing is advisable to mitigate risks and maximize returns.
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What are the types of media?

The types of media are the different channels through which information and
entertainment reach an audience. Media often includes the content itself as well as the
physical device needed to transmit it, such as television programming and a television.
You can divide media into four distinct categories:

Print media: Print media refers to printed materials, such as books and magazines,
that contain words and images.

Broadcast media: Broadcast media includes information transmitted through one of

several mass communication channels, such as television and radio.

Internet media: Internet media is content distributed online and can include emails
and online publications.

Out-of-home media: Out-of-home media, or OOH, is media that reaches people when
they are outside of their homes, like billboards.

Related: Types of Advertisements and What Makes Them Successful

Factors to consider when selecting types of

media
Selecting which type of media your business may use depends on several factors,
including:

Your budget

Size and nature of your business

Your product or service

Media availability

Your marketing goals

Print media
Here are the different types of print media along with the corresponding advantages and
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Newspapers
News and other organizations create national, regional (local) or special interest
newspapers and often distribute them daily. They disseminate an extensive amount of
information at a low price to readers. Newspapers can include several ad types, such as
classified ads, display ads and inserts.

Advantages of newspapers

Large volume of readers: According to surveys conducted by the Pew Research

Center , the data from 2018 indicates that 16% of adults got their news from a daily
newspaper.

High frequency: Most national and local newspaper organizations deliver daily.

Inexpensive: Newspapers are usually $3 or less, and you can receive a discount if you
pay for a yearly subscription.

High level of reader engagement: Readers must decide to purchase a newspaper

and when they read it, increasing their level of engagement with the content.

Geographic specificity: Ads can target a local or national audience.

Disadvantages of newspapers

Possibility of becoming ruined: Printers use inexpensive, low-quality paper that

becomes discolored and brittle.

Inability to target specific demographics or lifestyles: Newspaper readers are a

diverse population. Ads in newspapers cannot target specific genders, ages, hobbies
or economic class.

Short period of relevance: Most newspapers contain daily events and news that lose
relevance within a day or two.

Audience must be able to read: Newspapers are only available for those who can
read and those who have access to shops or delivery.

Magazines
Magazines can be consumer-related or business-related. Consumer magazines include
those focused on glamour, lifestyles, entertainment and special interests. Consumer
magazines are often printed monthly. Business magazines share news, information,
reviews and research related to a specific industry and can include trade journals and
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Advantages of magazines

Higher quality physical product: Magazine printers use glossy, higher quality paper
than newsprint.

Targeted lifestyles and demographics: Because magazine readership is segmented

by gender, interest or industry, advertisers can choose the most relevant publications.

Long period of relevance and usefulness: Magazines contain information and

articles that can be useful for months or years, such as recipes, research and
informational pieces.

High level of reader engagement: Readers are engaged in reading magazine articles,
rather than being passive observers.

Disadvantages of magazines

Low frequency: Magazine subscriptions often reach readers monthly. Other readers
may purchase magazines inconsistently.

Expensive: Advertising in magazines can be more expensive than advertising in

newspapers.

Competition: Many magazines have similar audiences, which leads to increased

competition for reader attention and ad space.

Direct mail
Direct mail includes informational flyers or postcard promotions delivered via USPS to
the home or business address of a specified list of customers.

Advantages of direct mail

Highly specific audiences: Companies can pay for mailing lists filtered by zip code,
income level, family size and more to reach individuals and families most likely to
purchase products or services.

Convenient and free for consumers: Customers do not have to make any extra effort
to see your content.

Opportunity for creativity: Direct mail provides an opportunity for advertisers to

invoke creativity to gain readers' attention.

Personalization: Advertisers can personalize mail with recipients' names.

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Disadvantages of direct mail
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High cost of creation and demographic research: Direct mail can incur high costs if
advertisers purchase extensive lists, send a large quantity or use nontraditional sizes
or shapes.

Time requirement: Direct mail requires advanced planning for creation, printing,
mailing and delivery.

Low response rate: Most direct mail recipients do not respond to mailers.

Broadcast media
Here are the different types of broadcast media along with the corresponding
advantages and disadvantages:

Television
Television provides audiences with audio and visual stimuli to deliver information and
entertainment.

Advantages of television

High viewership rates: Millions of viewers watch popular television shows or live
events, like sports.

Ads appear automatically: Viewers see ads without making any extra effort.

Highly targeted to key demographics: Advertisers can use market research for time
blocks, channel and type of program to target their desired audience.

Flexibility: Television advertising allows for creative, emotional or shocking methods

for gaining viewer attention.

Disadvantages of television

High cost: Television ads, especially those during popular shows and events, are
expensive.

Channel changing or fast-forwarding: Viewers have the option to skip your ad.

Limited viewer attention: Viewers may experience distractions that prevent them
from paying attention to your ad.

Short ad lifespan: Television ads are typically 15, 30 or 60 seconds long.

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Radio offers listeners audio programming, including music, news and podcasts.

Advantages of radio

Low cost: Radio advertisements are typically cheaper than television ads.

Flexibility: Advertisers can target listeners based on time, geographic location,

channel and program.

Vast coverage: Radio programming has millions of listeners nationwide.

Ability to reach low-income audiences: Many populations that may not have access
to other mediums usually have radio access.

Disadvantages of radio

Channel changing or fast-forwarding: Listeners may not pay attention to your ad.

Short ad lifespan: Radio ads are typically 15, 30 or 60 seconds long.

Less retention due to multiple ads airing consecutively: Radio ads appear in blocks,
which could detract from listener retention.

No visual elements: Relying only on audio content may diminish listener retention
and response.

Movies
Movies provide opportunities for advertisers to incorporate their products outside of a
traditional advertisement. The characters may mention or use a specific product due to
an advertising deal between the movie studio and the company selling the product. For
instance, many movies incorporate product placement of certain car or truck brands.
Additionally, movie theaters often run ads just before showing a film.

Advantages of movie advertising

Vast reach: Movie attendance, on average, includes over 1 billion viewers annually.

Engaged audience: Moviegoers expect to pay attention.

Capitalizing on the experience: Going to the movies provides a unique collective,

emotional experience that advertisers can take advantage of.

Limited distractions: Generally, movie theaters are free of loud noise, visual
distractions and background interruptions.
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Disadvantages of movie advertising

Low recall of ads or products: When products are placed in movies—or ads during
the pre-show—they may be harder to remember.

High cost: Movie cinema ads are expensive compared to print media ads.

Low frequency: Audiences may not see movies as frequently at a cinema due to
increased costs and competition from streaming services.

Internet
Internet media refers to audio and visual content transmitted online. It can include
words, images, graphics and interactive elements. Here are some different types of
internet media along with the corresponding advantages and disadvantages:

Email
Companies use email messages to reach customers quickly and directly.

Advantages of email

Inexpensive: Sending and receiving a basic email is free.

Easy to create: You can write an email to customers with a few simple lines. Several
email marketing programs provide email templates and free images.

Less research: Often, you won't need to do extensive research for customer email
addresses as customers provide them frequently at points of sale.

Disadvantages of email

Low click-through rates: While many people may open your email, far fewer will click
links to visit your site.

Competition: Many companies use email marketing campaigns. Additionally, some

email servers are identifying and filtering marketing emails.

May feel intrusive to consumers: Customers may not remember providing their
email address to you or accepting an agreement to receive emails. Be sure your email
includes a link to unsubscribe from future emails.

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Social media is a crucial component of many companies' marketing plans because of its
popularity and longevity.

Advantages of social media

Large audience: Billions of people use social media worldwide.

Highly targeted ads: Companies can use the large amounts of data collected on
users, like habits, purchase history and friends.

Can be inexpensive: Using social media organically to post and interact with
customers can be free or very inexpensive.

Interactive: Social media posts can have interactive capabilities for viewers, increasing
engagement.

Direct connection to consumers: Companies can use social media to speak directly to
consumers in real time.

Large amount of performance evaluation data available: Advertisers can use a

number of programs to monitor, track and report on social media ad performance.

Disadvantages of social media

Competition: Other companies seeking to reach your same audience may compete
for the same ad space.

User research can become expensive: The more in-depth your research, the more
expensive it will be.

Can feel intrusive to consumers: Customers may feel a lack of privacy when viewing
highly targeted ads.

Potential for negative comments: Open comments sections may include negative
posts.

Time-consuming: Building a brand and using social media effectively requires

frequency, consistency and a high level of responsiveness to gain followers.

Related: What Is Social Media Marketing?

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Out-of-home media
Out-of-home (OOH) media reaches consumers where they spend their time outside,
including city streets, highways and transit stations. The following are types of OOH
media along with the corresponding advantages and disadvantages:

Billboards and outdoor signs

Billboards and outdoor signs may appear along busy streets, recreation centers, city
sidewalks and retail centers.

Advantages of billboards and outdoor signs

Wide reach: In high-density areas, hundreds or thousands of people may see your
ads.

Inexpensive: Billboards and posters are cheaper than many other forms of
advertising.

Frequency: People who travel the same route or frequent the same locations see your
ads regularly.

Impactful messaging: Advertisers can use the small amount of space on a billboard
or sign to create powerful statements that attract attention.

Disadvantages of billboards and outdoor signs

Limited audience targeting: The audience for outdoor advertising is often less
targeted, as advertisers cannot filter for demographics.

Low response rate: While billboards and posters can remind consumers of your
brand, they may rarely lead to action.

Audience desensitization: If consumers see your ads daily for months, they may
become desensitized to the message.

Transit station ads

You can find OOH media in bus stations, subway stations, train stations and airports
where there is always a lot of foot traffic. The advantages and disadvantages of these
types of ads are similar to billboards and outdoor signs.

Advantages of transit station ads

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Inexpensive

Impactful messaging

Disadvantages of transit station ads

Limited audience targeting

Low response rate

Performance difficult to measure

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 CUSTOMER CHOICE ANALYSIS
Customer Choice analysis on the other hand refers to customer choice models
which helps to ascertain the purchase decisions made by the customers. It is
essential for companies across the globe to know not only about their customer
base but also to gain insights on how different features like prices, design,
durability etc. influence customer choices. Quantitative analysis help great deal
nowadays to gain insights in this direction.

These long list of questions are exciting to explore and so are consumer models.
Overall there are 3 types of consumer models:

• Count — how much they buy

• Timing — When do they buy

• Choice — What do they buy

ADVANTAGES OF DECISION MAKING

Gives More Information

Good decision-making process acquires enough information before taking any
action. In decision making, there is a large number of peoples involved. It is
undertaken by the whole group rather than by a single individual. Each person
gives his perspective to handle a particular situation.

They all represent there facts and figures according to their skill. This generates
enough information which can be used for better understanding of the situation.
This helps managers in taking corrective decisions.

Increase People’s Participation

Decision making in the organisation is done by a group of peoples working in the
organisation. It is not carried out by a single individual rather than by a group of
people. Each people actively participates in decision making of the organisation.
They are free to present their creative ideas without any boundations.

Also, none of them is individually criticized for any failure but the whole group is
responsible to handle. This increases the participation level of different people in
the organisation.

Provide More Alternatives

Companies are able to get different alternatives for a particular situation through
group decision making. There are different people working as a group for proper
decisions. Each person looks differently to a particular problem.

They give their own perspectives and ideas for it. This way there are different
options available to choose. All the alternatives are properly analysed in light of
handling situation. The best one is chosen to arrive at a better result.

Improves The Degree Of Acceptance And Commitment

Companies always face the chances of conflict among its staff working in the
organisation. Through group decision making each person gets equal right to
share his views and ideas.

Here decisions are not imposed on the peoples but are created with their
participation. It develops a sense of loyalty and belongingness among people
towards the business. They easily accept the decisions taken and are committed
to their roles.

Improves The Quality Of Decisions

Decision making helps in taking quality decisions at the right time. There are
different experts engaged by organisations in their decision-making group. These
peoples have through knowledge and creative thinking.

They analyse each and every aspect of every alternative available to them for
handling situations. Best among the different alternatives available is chosen. It
enables in quality decision making which helps in easy attainment of objectives.

Helps In Strengthening The Organisation

It helps in improving the strength of the organisation. Decision making provides a
platform to each individual working in an organisation to equally represent their
ideas. Everybody gets an equal right to take part in managing the organisation.
It develops a sense of cooperation and unity among individuals working there.
They all come together and works towards the accomplishment of the company’s
goals. This increases the overall productivity of the organisation and strengthens
its overall structure.

DISADVANTAGES OF DECISION MAKING

Costly
The first and foremost disadvantage of decision making is that it is too expensive
to process. Decision making in organisations involves different peoples for taking
proper action. Putting different people together in one requires large efforts.
Also, it is too hard to analyse the different perspectives provided by people in a
group. It all requires large funds to systematically collect information from
different people.

Time-Consuming
Decisions are of no use if they are not taken timely. Decision making involves a
series of steps to be followed to arrive at a particular conclusion. There are
different people taking part in decision making. It takes times and efforts to plan,
organise and coordinate different people for meeting and have quality
discussions. All these things make prove to be time-consuming and may delay in
taking proper action.

Individual Domination
This is another disadvantage of the decision-making process in an organisation.
There may be a possibility that all members are not treated equally in a group
created for decision making. Few peoples may try to control the whole affairs and
may dominate over whole discussions in meetings. People differ in their
knowledge and experience in dealing with situations. This enables some people in
dominating over whole group and demoralising other peoples.

Ambiguous Responsibility
Another disadvantage of decision making is that responsibility is not clear. In the
case of individual decision making, responsibility is on a single person. But in the
case of group decision making, the whole group is involved and responsibility is
not clear. This reduces the scope of accountability to one person.
HENCE, ON A HIGH LEVEL, THERE ARE 3 TYPES OF CONSUMER CHOICE MODELS:

1) Collective choice models: It assumes that every customer will rank certain items
in the same order — eg. When an FMCG company creates a new product —
usually it is based on the presumed collective consumer preferences

2) Segment-based choice models: Once found an optimal number of segments

given the business, business problem and end goal, it divides entire consumer base
into those segments and assumes that each customer in the same segment will
rank items in the set in the same order while those in different segments will rank
items such that at least one ranking will differ. Eg. — When different offers,
discounts, and products are offered to customers grouped on various criteria such
as loyalty, frequency, recency, location, gender, etc.

3) Individual Choice Models: It assumes that each customer will rank items
differently. Although, even if only limited permutations of ranking are possible,
each individual is evaluated and treated separately taking into account individual
preferences and personalities on a more granular level — eg. Recommendation
systems on e-commerce websites

1) Choices affect the Choice Models — The very first question that the data
scientist should ask herself/himself, ‘what is the consumer buying-decision
making journey?’ Unclear right? Think in this way — how your buying of milk-can
differ from buying a laptop? The consumer is involved in both cases. Choices are
made in both cases. A variety of options, possibly a similar number of options, are
available in both cases. So how are the two decision-making and purchase-
behavior different? — The difference lies in the answer to the question — how
and through what psychological decisions — consumer makes the final decisions?
While milk-can options are dependent on the store’s stock and the consumer
usually chooses any one option out of all those placed in the shelf, laptop
purchases include days of research, brainstorming, and rather visiting only that
store which is expected to have desired option. Further, certain choices are
dependent on the store stock, however, certain other choices of features such as
brand, RAM, price, etc in the chosen alternative are more dependent on
consumers ‘pre-set’ preferences than the stock itself. Choice models have this
assumption that consumers see all the options present together at a particular
time and make decisions based on their utility ranking. Thus, depending on the
business setting, one might need to alter the choice models, create complex
constraints, hypothesize complex functions to make a good model. Reading more
on the theory of choice models, assumptions behind each method of solving them
and also strengthening one’s probability and statistics game, for example, this is a
good compilation, can lead to great insights and better modeling.

2) Variable reduction v/s information loss — This trade-off is one of the most
important decisions that a data scientist needs to make while solving a business
problem. Imagine your dataset has colors of cars and there are 100+ kinds of
unique colors. What is the first thought, that will come to your mind as a data
scientist? Let’s reduce these color categories because, after one-hot encoding, it
will lead to 100 columns!!!

3) Choosing the right target variable — The target variable is the dependent
variable that is to be first modeled and then predicted. And sometimes this target
cannot be explicit, rather it has to be either created or decided on the basis of
business acumen depending on the end goal that is to be solved. The target
variable in choice models is usually the binary variable if a customer picked a
particular choice or not and then it is modeled either using Machine Learning or
Maximum likelihood Estimation. Most importantly, it has to be ensured that the
dataset follows the underlying assumptions behind the choice model. In our class,
for example, cars are sold out sequentially in a particular dealership and we had
daily level data of how many cars are sold. Applying this straightforward choice
model would force the model to ‘assume’ that each customer on a particular day,
saw all the options, which in reality is not true. In fact, in reality, the ‘most
consumer-preferred option’ is getting sold out at first, which our model would
learn as being rejected. So we, in the end, used ‘stock-time of the car in the
dealership’ as the target variable, as it indicates the ‘popularity’ of the car — the
longer the car stays, the lesser popular it is and the sooner it gets sold out, the
more popular it is. Next to it, while applying regression on this newly created
target variable, the model didn’t perform well. Wasn’t it intuitive as well? With a
small dataset of 1000k x k dimensions, does it make sense for the model to predict
accurately if a car will get sold in 35 days or 36 days? More than sense, most
importantly, is it even needed for our business problem to be solved? And hence,
we converted this variable into a binary variable where the cut or the ‘popularity
stock-time threshold’ was chosen based on the dealership i.e. the market segment
it was serving. This XGBoost model outperformed all the models giving an average
AUC of 80%.

4) Consumer market/segment — Collective choice models, although simple, deal

with the issue of generalizing too much to lose the important information about—
varying customer behaviors. Even if your client or business problems ask to create
a collective consumer preference model — a data scientist should always ask
oneself — Can I incorporate these varying customer behavior in prediction? We
had this option of creating a separate model for each car dealership, which is
usually more than 50 miles apart. Its always a good idea, to make a collective as
well as separate market/area wise models and compare them if the average AUC
improves for the latter or not. The downside of the latter is the ‘reduced size of
data’. And hence, this trade-off has to be carefully analyzed keeping in mind the
business problem we are solving!
5) Real-world Implementation — What happens when we create a successful
model? — We hand it over to the client? — Right? — Here’s how it went: In one
call, we told the team that we have successfully made the model with xx accuracy!
There was some appreciation but expected excitement was lacking which makes
sense? The people who use the model in the end, usually, aren’t expected to be
proficient with machine learning? — Can they transform the new inputs into the
desired format and then call the predict function successfully? No, right? It could
be challenging! and Hence, I learned that a data science project, especially one
that solves the business problems isn’t complete without a user interface, even if a
basic one built inside the Jupyter notebook itself. It is a must for them to be able
to implement the model in the real world. In the next call, when we showed them
a very basic UI where they can insert all the inputs— they were amazed! The
model was the same, it was just the comfort and convenience that UI added,
which made all the difference!

CUSTOMER PROFITABILITY ANALYSIS:

Customer profitability analysis is a process of analyzing customers and their

spending habits. It can be used as a financial performance indicator. It can be used
to find out how profitable it is to keep each customer. Businesses can improve their
decision-making. They can also improve overall business operations using this
metric.

Customer profitability analysis involves the comparison of the revenue generated by

a company. This data comes from its different types of customers. It includes the
average customer costs incurred in generating that revenue. The goal here is to
identify which customers are profitable for a business. It helps determine which
ones are not. This is an important business strategy.

This allows the business to focus on optimizing exposure to more valuable

customers. There are many ways to understand your customer base. This includes
identifying an individual customer’s lifetime value (LTV). This helps you determine if
it’s a smart investment to market to each customer.

HOW DO YOU CALCULATE CUSTOMER PROFITABILITY?

Customer profitability analysis makes use of the following formula to determine

profitability:

Total profit per customer = Total annual revenue generated – Total costs incurred.

To better understand this, let’s look at an example.

Let’s say a company sells five different products. It has customers A and B. Customer
A buys all five products. Customer B only buys four of the same five products. The
total revenue generated from both customers is $45,000. The average cost incurred
to generate that revenue totals $30,000.

Total profit generated by customer A = Total revenue generated – Total costs

incurred = $45,000 – $30,000 = $15,000.

Total profit generated by customer B = Total revenue generated – Total costs

incurred = $45,000 – $25,000 = $20,000.

Customer B is more profitable than Customer A. This is true even though customer
B bought fewer products.

HOW TO ANALYZE CUSTOMER PROFITABILITY

While this is a basic metric, it can be used in numerous situations. The following are
potential uses of a good customer profitability analysis:

Identify which customers to focus on.

Determine which customers have the greatest potential positive impact on the
bottom line. It involves focusing more time and resources in a focused manner. It
could be more profitable to focus on a smaller group of customers. This helps
businesses avoid unprofitable customers. It also helps cut down on time wasted on
less profitable customers
Set targets for every customer, including those that are not profitable or break
even.
Setting a target could be as simple as tracking the current spending habits of each
customer. It becomes more involved when you have to create a model that predicts
future spending behavior. It includes customer profitability analysis.

Graph your customers’ profitability over time.

This helps you analyze how customers are performing over time. It’s one way to
spot long-term trends in customer profitability. Use it to predict the future spending
behavior of customers. You can also identify changes in their buying habits. You can
also use it to identify the profile of better-performing customers. Using this
information helps you target your marketing efforts toward better customers. You
can apply customer profitability analysis to other important business metrics. These
include Market Share Analysis, Customer Churn Rate, and more.

MISCONCEPTIONS ABOUT CUSTOMER PROFITABILITY ANALYSIS

There are several misconceptions about customer profitability analysis. It’s

important to be aware of these misconceptions. This helps you avoid making the
following mistakes:

Mistake #1: Not Accounting for Multiple Products

It’s easy to assume that every product is equal in this type of metric. All products
may not have the same impact on your business.

Mistake #2: Not Tracking the Costs Incurred

It’s easy to forget about other costs. These costs may impact your business’s overall
profitability. These costs include warehousing, handling, shipping, and related items.
It’s always best to include the total costs in your equation. This is because they will
all impact your business in some way.

Mistake #3: Calculating Profitability by Customer Instead of Product

It’s easy to get confused when trying to calculate customer profitability. This is
especially true with multiple products. It can be difficult to compare apples-to-
apples with this method. You can avoid this problem by looking at profitability. This
would be for individual products instead of customers.
Mistake #4: Picking the Wrong Timeframe
It’s easy to look at data and mistake random fluctuations for real trends. It’s best to
use customer profitability analysis over a long period. This could be one that
includes multiple years on the same calendar.

HOW TO USE CUSTOMER ANALYSIS TO MAKE DECISIONS IN YOUR

BUSINESS

It’s one thing to have a calculation of customer profitability. It’s another thing for it
to be applied in your business. These tips can help. You can take actionable steps
from customer profitability analysis.

Analyze your top-performing customers and compare them with the rest.
Compare their spending habits over time to determine how they are doing. Look for
patterns that can be applied to other customers. For instance, you could track the
amount of time it takes them to place an order. A customer who places large orders
regularly is likely to continue.

Compare your most profitable customers using detailed analysis.

It’s important to identify their common traits. Once you know what they are, you
can apply them to the rest of your customer base

Decide on targeted offers for better-performing customers.

Think about value-added products and services. These products will enhance their
experience when using your product or service. You can also offer discounts or free
shipping in exchange for buying in bulk.

KEY TAKEAWAYS
It’s best to spend a lot of time understanding your business metrics. Some basic
metrics include customer profitability, market share, and more. Once you have a
basic understanding of these metrics, you can use them to improve your business.
This is true for all types of businesses from retail stores to larger corporations.

Customer profitability analysis is used to determine which customers are profitable.

It helps businesses focus on the right customers. This allows you to set the right
goals for each customer. Using customer profitability analysis, you can also predict
how profitable customers will be in the future. You can also identify potential trends
in their buying habits.

CUSTOMER PROFITABILITY FORMULA

To calculate CPA, you need the annual profit per customer, and the total
duration a customer stays with your business.

Annual profit = (Total revenue generated by the customer in a year) –

(Total expenses incurred to serve the customer in a year)

The total revenue can be generated by the following sources that you need
to include:

• Recurring revenue
• Upgrades to the higher plans
• Cross-buying relevant products

And, expenses can be incurred from the following sources which also you
need to consider:

• Cost of customer service

• Maintaining a customer success team
• Loyalty perks
• Operational cost

Finally, when you have the annual profit, the customer profitability
analysis calculation goes like this:

CPA = (Annual profit) x (no. of years customer stays with company)

BENEFITS OF CUSTOMER PROFITABILITY ANALYSIS

CPA allows you to understand the business from a profitability viewpoint.
Methods like activity-based costing help you assign a cost to each activity
associated with a product or service. Businesses can leverage customer
account profitability analysis in the following areas to benefit from this
method.
Trim out the cost factors
One of the most common exercises to analyze customers is customer
segmentation. After segmentation, businesses can segregate the group of
customers that are costing more than others. It is still viable to do
business with a low-profit generating group. But on a deeper analysis, if
you find a group of customers that are costing more than the revenue they
are generating, then it is advisable to shut your services to them. By
letting them go, you are making your customer base more efficient in your
growth engine.

Marketing to the right segment

When the customer segmentation according to profit range has been
identified, they can be used for further operations. The attributes of the
most profit-generating customer group must be recorded and used for
further acquisition. Marketing teams can design their campaigns based on
those attributes to attract more such customers. Furthermore, based on
their profitability range, marketers can decide what deals and discounts
they can offer to the prospects.

It takes commonly from five or six months to more than a year to recover
the customer acquisition cost. CPA can give the estimated duration for the
ROI on marketing by extrapolating on the attributes of customer
segmentations with different profit margins. This helps in setting up the
overall budget for marketing and advertisements that a company can
afford.

Customized retention strategy

After finding the customer group with different profitability, companies
can customize their retention strategies for each group. For the customers
with the highest profitability, companies can afford to give a service of the
highest quality. That means, they can spend more on serving those elite
customers.

What engagement model to choose from – high-touch or low-touch? How

many CSMs must be employed for a specific group of customers?
Questions like these can be easily answered when you know the cost
behind each choice and the profit a customer group would generate. To
retain high-value customers, through CPA, you get a clear margin of how
much you can spend on building their loyalty. Initiatives like customer
loyalty programs can be easily designed based on the profit margin for a
customer segment.

Enhancing operational efficiency

The main reason for a customer group to generate lower profits is not
always the customer. There might be few flaws in the internal operations
of the company that is costing them more to serve the customers.

According to a customer profitability analysis example, let’s say the lower

profit customer group is consuming a lot of resources to deal with the
same issue in a product over and over again. Instead of allocat ing
resources to that recurring issue, it might be beneficial for the company to
build a feature in the product itself that resolves the issue. This would not
only lower the operational cost but would also make your product better
for future customers.

How to do Customer profitability analysis

To do a Customer profitability analysis, you need to follow a certain
approach. The key is to segment the customer base, determine revenues,
attribute costs and also have an activity-based costing approach. Let us
know all the steps in depth here.

Segmenting customers
The base for a profitability analysis is customer segmentation. This will
differ across industries and companies. It can be demographic - based on
customer age, income, area, etc. It can also be psychographic that is based
on customer needs, behaviours, values, interests, and attitude.

Revenue Attribution
Once segmentation is done, you need to calculate revenue for each
segment. The annual revenue is a sum of all segments. Adjustments like
discounts, fees, service charges must be included and adjusted
accordingly.

Cost attribution
Calculate the annual cost per segment. This will be customer costs, service
costs, product costs, sales, marketing, and distribution costs. These costs
are usually hidden and need to be added to determine the cost attribute.

Analysis – Profit, Less profitable, unprofitable

Profitable customer segmenting also requires analysis of segments.
Classifying those segments that have better revenues over costs is
necessary. It must include calculating profitability over the lifetime of
customers.

Develop strategies to maximise profits based on focus on specific segments

The next step is to create strategies that increase reven ues, create long
term relationships, and enhance customer retention and loyalty programs.
Strategies can include elimination of least profitable aspects, re-
engineering customer groups into profitable ones by increasing revenue
and decreasing costs.

Review the Impact

Any new strategy or practice needs to be implemented and worked up
accordingly. This needs to be reviewed after appropriate periods of time to
understand impact on customers.

Mistakes made while performing customer profitability analysis

While performing customer profitability analysis, it is necessary to track
some mistakes. If you know these mistakes in advance,you can avoid
making them. Customer profitability analysis allows you to spot long -term
customers, identify buyer habits, and improve targeting towards
customers.
To calculate customer profitability, you need to track customer behavior
and activity. The market is, however, subject to changes and different
resources. All this makes it necessary to reduce errors in calculating
customer profitability as much as possible.

Assuming every product is the same

Customer profitability analysis requires you to assume every product is
different. One mistake often made is not accounting for the difference in
products. If you assume that all products are equal, it leads to varied
impacts. You must keep all differences in mind to measure the right
impact. In multi-product enterprises, it is tougher to ascertain the impact
of a specific product. However, calculating customer profitability in the
right manner drives improved customer retention.

Not taking into account all the costs involved

Sometimes while calculating customer profitability, one might forget other
costs involved. It is easy to forget all the costs involved in the business. If
you don’t track these costs, it will reduce the overall profitability. Costs in
any company can include sales costs, marketing, transporta tion, handling,
warehousing, and more. These costs might sometimes be omitted from the
equation.

Calculating profitability in terms of the customer instead of product

Customer profitability analysis can go wrong if profits are calculated
against the customer. For example- while calculating customer profitability
analysis, one should not see how much profit was generated from one
customer. The process needs to be measured as profit generated from the
product. The product must be the central focus of the profitability
structure. Profitability needs to calculate per product.

Selecting the incorrect time frame

While conducting the customer profitability analysis, it is necessary to pick
the right time frame. The time frame needs to be long to enhance results.
This helps since you get the right picture of the customer’s lifetime value.
The time frame needs to cover the aspects of product usage. If you include
a short time frame, you cannot be sure if the customer underwent product
adoption or not.

What should be done to improve customer profitability analysis

Customer profitability analysis helps determine which customers are in the
profitable bracket. It helps improve businesses to include customer
satisfaction, value, and market share. Customer profitability helps track
potential trends so that businesses can be steered that way. You can also
decide on better pricing strategies for the business. Customer profitab ility
analysis, if done right, allows matching customers with better -performing
customers to draw insights and offer targeted content.

Keeping track of the product performance, customer product-usage time

length, product features, and all costs- internal and external will help
improve the customer profitability analysis.

Wrapping Up
While client profitability analysis seems like a very beneficial process,
there are few flaws too associated with it. Companies most often do not
have the right resources to accurately calculate the CPA. The activity-
based costing, and hence customer profitability analysis, is not easy to
calculate because the cost of resources is often blurry for each activity.39

The cost of attracting and retaining the customer must be calculated over
the entire lifetime of the customer. Hence, sometimes customer lifetime
value gives a more clear picture than CPA. It gives you the entire value a
customer would generate in their lifetime rather than the annualized value
of a CPA. Nevertheless, the CPA can be a useful tool to re -examine your
business strategies and allocate the right resources to serve the right
customers.