Marketing Analytics

By: Ashit Tewary

Ashit Tewary – Marketing Analytics – Introduction 1

 Topics in Marketing Analytics
• Introduction to Marketing Analytics

• Meaning and importance of Marketing Analytics

• Data Preparation and Data cleaning

- Various steps in data preparation and data cleaning and Importance of structured and unstructured data

• Customer driven marketing - Understanding customer and market profiling and Customer Life time value

• Pricing strategies

• Shelf space optimization

• Market Basket Analysis

• RFM analysis

• Analytical Software – Power BI

Ashit Tewary – Marketing Analytics – Introduction 2

 Introduction to Marketing Analytics

Ashit Tewary – Marketing Analytics – Introduction 3

 Marketing Analytics

Marketing analytics is the study of data garnered through marketing campaigns in order to discern
patterns between such things as how a campaign contributed to conversions, consumer behavior, regional
preferences, creative preferences and much more.

This analysis allows marketers to achieve higher ROI on marketing investments by understanding what is
successful in driving either conversions, brand awareness, or both.

Importance of Marketing Analytics

• It allows marketing teams to serve the right ad, at the right time, on the right channel to move
consumers down the sales funnel.

Ashit Tewary – Marketing Analytics – Introduction 4

 What? How?

Ashit Tewary – Marketing Analytics – Introduction 5

 Marketing Analytics

Ashit Tewary – Marketing Analytics – Introduction 6

 Analysis Vs Analytics

Analysis Vs Analytics
Analysis' looks backward and creates a historical view for marketers to
know what has happened in the past. 'Analytics', on the contrary, looks
forward to model the future tin order to predict a result. Regardless of
their respective natures, both are equally important to marketers.

Ashit Tewary – Marketing Analytics – Introduction 7

 Marketing Analytics?

Marketing analytics is the study of data garnered through

marketing campaigns in order to discern patterns
between such things as how a campaign is contributed to
conversions,consumer behaviour,regional preferences ,
creative preferences and more.The goal of marketing
analytics is to use these patterns and findings to optimize
future campaigns.

Ashit Tewary – Marketing Analytics – Introduction 8

 Definition ofMarketing Analytics

Marketing analytics is the practice of measuring, managing and

analyzing marketing performance to maximize its effectiveness
and optimize return on investment (ROI).

Ashit Tewary – Marketing Analytics – Introduction 9

 Types Of Marketing Information Needed

● Internal Data (CRM, ERP, Web Analytics, Financial data)

● Competitive intelligence: competitive intelligence is the ethical collection and analysis of competitor
information.Companies use the results to take strategic decisions , market advantage and differentiation.

● Marketing Research

● Web Marketing (WordPress and Google Analytics): Visit, Unique visitor, Page impression, Click per page (Adv.),
Click-through rate, Conversion rate, Bounce rate, Return visit

Ashit Tewary – Marketing Analytics – Introduction 10

 Product Marketing Analytics

Ashit Tewary – Marketing Analytics – Introduction 11

 How Organizations Use Marketing Analytics?

● Product intelligence: taking a deep dive into products to

understand how products stack up within markets.
● Customer trends and preferences
● Product development trends
● Messaging and media
● Competition
● Predict future results

Ashit Tewary – Marketing Analytics – Introduction 12

 Data Storage in companies?

● Servers and Data Centers

● Cloud Storage
● Data Lake
● Data Warehouses
● CRM
● ERP

CRM is the best approach in terms of relationship with your customer

it will give you the absolute solution of managing the data and also
give you the vast opportunity to utilize them to explore your business
for example SALESFORCE.

Ashit Tewary – Marketing Analytics – Introduction 13

 Analytics Ecosystem

Ashit Tewary – Marketing Analytics – Introduction 14

 Customer Profiling

Ashit Tewary – Marketing Analytics – Introduction 15

 What is customer profiling?

Customer profiling is defined as a description of customer, or a set of customers that includes

✓ Demographic

✓ Geographic

✓ Psychographic characteristics

✓ buying patterns

✓ Credit worthiness and

✓ Purchase history

Ashit Tewary – Marketing Analytics – Introduction 16

 Steps in customer profiling

Focus on the
Review your
problem that your Dig into Collect customer
customer journey
business is trying to demographics feedback
map
resolve.

Analyze and iterate

Examine contextual Understand your
on consumer
data industry
personas

Ashit Tewary – Marketing Analytics – Introduction 17

 Consumer personas

Ashit Tewary – Marketing Analytics – Introduction 18

 Why Consumer personas?

Ashit Tewary – Marketing Analytics – Introduction 19

 What is Consumer personas?

“Personas are fictional representations of your ideal customers, based on real data about customer

demographics and offline & online behavior, along with educated speculation about their personal

histories, motivations, and concerns”

Source: Hubspot

Ashit Tewary – Marketing Analytics – Introduction 20

 Segmentation

Ashit Tewary – Marketing Analytics – Introduction 21

 Customer Segmentation

❖ Segmentation is the process of dividing potential markets or consumers

into specific groups.

❖ Market research analysis using segmentation is a basic component of

any marketing effort.

❖ It provides a basis upon which business decision makers maximize

profitability by focusing their company’s efforts and resources on those
market segments most favorable to their goals.

Ashit Tewary – Marketing Analytics – Introduction 22

 Types of Segmentation

Ashit Tewary – Marketing Analytics – Introduction 23

 Customer Segmentation

❖ There are four main types of segmentation used in market research

analysis:

➢ A priori

➢ Usage

➢ Attitudinal

➢ Need

Ashit Tewary – Marketing Analytics – Introduction 24

 Customer Segmentation Types … 1

A priori
❖ a priori is defined as relating to knowledge that proceeds from theoretical deduction rather than from observation
or experience.

❖ For purposes of market research analysis this means making certain assumptions about different groups that are
generally accepted as pertaining to that group.

❖ For example, deducing that adults over 50 are not as tech savvy as twenty somethings is a safe assumption based
on the reasoning that high tech devices were not as widely available to the older generation than they are to the
younger.

❖ However, be careful to check your assumptions since they can change over time. In 30 years, that statement may no
longer be true.

Ashit Tewary – Marketing Analytics – Introduction 25

 Customer Segmentation Types … 2

Usage Segmentation (also used frequently)

❖ Usage segmentation is completed either by decile or
pereto analysis.

❖ The former splits the groups into ten equal parts

and the latter distributes according to the top 20%
and the remaining 80%.

❖ Usage segmentation helps to drill down more

deeply than a priori because it indicates which priori
group is the heaviest user of your product.

Ashit Tewary – Marketing Analytics – Introduction 26

 Customer Segmentation Types … 3

Attitudinal (Cluster analysis)

❖ Using cluster analysis to create customer psychological profiles is difficult because it is limited by the input data
used.

❖ Demographic data is the least helpful, whereas preference data (scaling) is better suited toward this type of
analysis.

❖ However, once a usage segmentation is created, it’s exceptionally helpful to know the motivating factors behind
the purchasing decisions of the heaviest users of your product

Ashit Tewary – Marketing Analytics – Introduction 27

 Psychographic Segmentation

Developing Category Attitudes (statements)

Grouping respondents with similar

pattern of agreements on those statements

Christening segment from their endorsements

Sizing, profiling the various segments

Ashit Tewary – Marketing Analytics – Introduction 28

 Customer Segmentation Types … 4

Needs Based Segmentation

❖ Needs based segmentation is the concept that the market can be divided based on customer need.

❖ This type of analysis is used to develop products that sell rather than trying to sell products a business developed.

❖ Needs based segmentation uses conjoint analysis to separate the groups according to functional performance.

❖ Using cluster analysis, it’s goal is to determine the driving forces behind the performance data.

Ashit Tewary – Marketing Analytics – Introduction 29

 Summarizing

Ashit Tewary – Marketing Analytics – Introduction 30

 Cluster Analysis

Ashit Tewary – Marketing Analytics – Introduction 31

 What is Cluster Analysis?

❖ A loose definition of Clustering - The process of organizing objects into groups whose

members are similar in some way.

❖ A cluster is therefore a collection of objects which are similar between them and are

dissimilar to the objects belonging to other clusters

❖ Cluster analysis helps in grouping the observations in the dataset.

❖ It is part of the unsupervised learning techniques since there is no target variable in the

dataset

Ashit Tewary – Marketing Analytics – Introduction 32

 Example of Cluster Analysis

❖ Banks use cluster analysis to

group their customers based on
which they could offer special
services.

❖ In biology classification of plants

and animals given their features

❖ In Marketing finding groups of

customers with similar behavior
given a large database of
customer data containing their
properties and past buying
records.

Ashit Tewary – Marketing Analytics – Introduction 33

 What is the Objective of Cluster Analysis?

Ashit Tewary – Marketing Analytics – Introduction 34

 What are the Techniques?

Cluster Analysis

Small Data (N<100) Large Data (N>100)

Hierarchical Clustering K-Means

Ashit Tewary – Marketing Analytics – Introduction 35

 What is Hierarchical Clustering?

❖ Hierarchical clustering, also known as hierarchical cluster analysis, is an algorithm that groups similar
objects into groups called clusters. The endpoint is a set of clusters, where each cluster is distinct from
each other cluster, and the objects within each cluster are broadly similar to each other.

Ashit Tewary – Marketing Analytics – Introduction 36

 Hierarchical Clustering is of two types.

❖ Divisive Hierarchical Clustering is also termed as a top-down clustering approach.

➢ In this technique, entire data or observation is assigned to a single cluster. The cluster is further
split until there is one cluster for each data or observation.

❖ Agglomerative Hierarchical Clustering is popularly known as a bottom-up approach, wherein each

data or observation is treated as its cluster. A pair of clusters are combined until all clusters are merged
into one big cluster that contains all the data.

Ashit Tewary – Marketing Analytics – Introduction 37

 Hierarchical Clustering is of two types.

Ashit Tewary – Marketing Analytics – Introduction 38

 Precautions

❖ The variables need to be standardized to remove scale effect

❖ Multicollinearity is a problem in Cluster analysis. So correlated variables should be excluded from

the model

❖ Outliers also need to be treated.

Ashit Tewary – Marketing Analytics – Introduction 39

 K Means

Ashit Tewary – Marketing Analytics – Introduction 40

 K-Means Clustering

❖ The k-means algorithm is implemented in 4 steps (assumes partitioning criteria is: maximize intra-
cluster similarity and minimize inter-cluster similarity)

1. For a given number of partitions (say k), the partitioning method will create an initial partitioning.

2. Then it uses the iterative reallocation technique to improve the partitioning by moving objects
from one group to other.

3. Initial centroids are often chosen randomly.

➢ Clusters produced vary from one run to another.

4. The centroid is (typically) the mean of the points in the cluster.

➢ Closeness is measured by Euclidean distance

❖ K-means will converge for common similarity measures as given above

Ashit Tewary – Marketing Analytics – Introduction 41

 Step-By-Step

The algorithm steps is as below,

1. Normalize the data so that all the variables are on the same scale.

2. Partition objects into k non-empty subsets (or pick k initial means). Its mandatory to pass the
number of clusters in the beginning itself

3. Compute the mean (center) or centroid of each cluster of the current partition. Assign each object
to the cluster with the most similar (closest) center.

4. Go back to Step (iii)

5. Stop when the new set of means does not change

Ashit Tewary – Marketing Analytics – Introduction 42

 Example

Ashit Tewary – Marketing Analytics – Introduction 43

 Example

Ashit Tewary – Marketing Analytics – Introduction 44

 How to find the Optimal Number of Clusters?

❖ The Elbow Method is one of the most popular methods to determine this optimal value of k.
❖ To find the optimal number of clusters we use a metric, the metric is called the Within Cluster Sum Of
Squares(WCSS).

❖ In WCSS, we take the sum of squares distance between each point inside the cluster and the respective centroid
for all clusters.

❖ WCSS is quite a good metric in terms of understanding or comparing the goodness of fit between two different
K-Means cluster. The value of WCSS keeps on decreasing as we increase the number of clusters.

❖ On increasing the number of clusters and the value of WCSS decreases as the distance is decreasing.
Ashit Tewary – Marketing Analytics – Introduction 45
 Scree Plot/Elbow Chart

❖ The x-axis is the number of clusters

❖ The y-axis is the within sum of

squares(wss)

❖ The point at which the chart bends or

the wss becomes small would be
considered as the optimal number of
clusters

❖ Thus for the given data, we conclude

that the optimal number of clusters for
the data is 3.

Ashit Tewary – Marketing Analytics – Introduction 46

 Pricing Strategy

Ashit Tewary – Marketing Analytics – Introduction 47

 Pricing Strategies

❖ Pricing decisions are clearly complex and difficult, and many marketers neglect their pricing
strategies.

❖ Marketers must take into account many factors in making pricing decisions—the company, the
customers, the competition, and the marketing environment.

❖ Pricing decisions must be consistent with the firm’s marketing strategy and its target markets and
brand positionings.

Ashit Tewary – Marketing Analytics – Introduction 48

 What are pricing analytics?

❖ Pricing analytics are the metrics and associated tools used to understand how pricing
activities affect the overall business, analyze the profitability of specific price points, and
optimize a business’s pricing strategy for maximum revenue.

❖ With data analytics, you can price according to your target market. Analytics enables
companies to dramatically improve profitability by developing optimal pricing strategies to
win more contracts and offer the most value to customers

Ashit Tewary – Marketing Analytics – Introduction 49

 Pricing in Digital world (Challenges)

❖ Get instant price comparisons from thousands of vendors.

❖ Check prices at the point of purchase

❖ Name their price and have it met (Auction)

❖ Get products free (Freemium)

❖ Monitor customer behavior and tailor offers to individuals

Ashit Tewary – Marketing Analytics – Introduction 50

 Pitfalls in Pricing strategy

❖ Calculate product cost and add industry’s traditional margins.

❖ Not revising price often enough to capitalize on market changes

❖ Setting price independently of the rest of the marketing program rather than as an intrinsic
element of market-positioning strategy

❖ Not varying price enough for different product items, market segments, distribution channels,
and purchase occasions

Ashit Tewary – Marketing Analytics – Introduction 51

 Consumer Psychology and Pricing

❖ Reference Prices - Fair price, Typical price, Last price paid, Upper bound, Lower bound, Historical
Competitor Prices, Usual Discounted Price

❖ Price-Quality Inferences- Consumers use price as an indicator of quality.

❖ Price Endings

❖ Price that end in 9 are more influential when consumers’ price knowledge is poor, when they purchase
the item infrequently or are new to the category.

❖ Prices that end with 0 and 5 are also popular and are thought to be easier for consumers to process and
retrieve from memory

❖ One study showed that demand actually increased one-third when the price of a dress rose from $34 to
$39 but was unchanged when it rose from $34 to $44

Ashit Tewary – Marketing Analytics – Introduction 52

 Pricing helps to achieve 4 objectives

Custome
r

Competi
tion Pricing Revenue

Profit

Ashit Tewary – Marketing Analytics – Introduction 53

 What are pricing analytics?

❖ With data analytics, you can price according to your target market. Analytics enables companies to
dramatically improve profitability by developing optimal pricing strategies to win more contracts and
offer the most value to customers

❖ Pricing analytics are the metrics and associated tools used to understand how pricing activities affect
the overall business, analyze the profitability of specific price points, and optimize a business’s pricing
strategy for maximum revenue.

Ashit Tewary – Marketing Analytics – Introduction 54

 How pricing analytics improve profitability?

❖ Acquire more insights on customers

❖ Pricing analytics show which customer segments are the most (and least) profitable and which
respond best to specific pricing strategies. Aligning your pricing with those customer segments increases
both revenue and profit, keeping customers happy and helping reduce churn.

❖ Data lets you quickly learn which customers are most likely to buy and exactly how much they value
your solution to their problems

❖ Identify quick pricing wins

❖ Nearly every company has holes in their pricing strategy just waiting to be patched — pricing leaks,
underpriced or overpriced product tiers, or missed upsell opportunities.

Ashit Tewary – Marketing Analytics – Introduction 55

 Steps in Setting a Pricing Policy

1. Selecting the Pricing Objective

2. Determining Demand

3. Estimating Costs

4. Analyzing Competitors’ Costs, Prices, and Offers

5. Selecting a Pricing Method

6. Selecting the Final Price

Ashit Tewary – Marketing Analytics – Introduction 56

 1. Pricing Objectives

❖ Survival: Companies pursue survival as their major objective if they are plagued with overcapacity,
intense competition, or changing consumer wants. Survival is a short-run objective; in the long run,
the firm must learn how to add value or face extinction.

❖ Maximum Current Profit: Here, company estimate the demand and costs associated with
alternative prices and choose the price that produces maximum current profit, cash flow, or rate of
return on investment. This strategy assumes the firm knows its demand and cost functions; in
reality, these are difficult to estimate.

❖ Maximum Market Share (market-penetration pricing): The market is highly price sensitive and a
low price stimulates market growth. Production and distribution costs fall with accumulated
production experience a low price discourages actual and potential competition

❖ Maximum Market Skimming

❖ Product-Quality Leadership
Ashit Tewary – Marketing Analytics – Introduction 57
 2. Determining Demand

❖ Price Sensitivity

❖ Price sensitivity is defined as how much the price of a product impacts the customer’s
demand or willingness to buy.

❖ In economics, price sensitivity is described in terms of elasticity of demand

Price elasticity of demand = % change in quantity demanded / % change in price

Ashit Tewary – Marketing Analytics – Introduction 58

 Elasticity of Demand

Ashit Tewary – Marketing Analytics – Introduction 59

 Price Elasticity

❖ 1 percent decrease in the cost of foreign travel, for example, can result in a 4 percent increase in
demand for foreign travel.

❖ Managers need to understand the price elasticity at each price point to make optimal pricing
decisions.

Ashit Tewary – Marketing Analytics – Introduction 60

 Example

Widget Inc. decides to reduce the price of its product, Widget 1.0 from $100 to $75.

The company predicts that the sales of Widget 1.0 will increase from 10,000 units a month to
20,000 units a month.

To calculate the price elasticity of demand, first, we will need to calculate the percentage change
in quantity demanded and percentage change in price.

% Change in Price = ($75-$100)/($100)= -25%

% Change in Demand = (20,000-10,000)/(10,000) = +100%

Therefore, the Price Elasticity of Demand = 100%/-25% = -4. This means the demand is
relatively elastic.
Ashit Tewary – Marketing Analytics – Introduction 61
 Factors That Reduce Price Sensitivity

❖ The product is more distinctive.

❖ Buyers are less aware of substitutes.

❖ Buyers cannot easily compare the quality of substitutes.

❖ The expenditure is a smaller part of the buyer’s total income.

❖ Part of the cost is borne by another party.

❖ The product is used in conjunction with assets previously bought.

❖ The product is assumed to have more quality, prestige, or exclusiveness.

❖ Buyers cannot store the product.

Ashit Tewary – Marketing Analytics – Introduction 62

 Estimating Demand

❖ Surveys

❖ Price experiments

❖ Statistical analysis

Ashit Tewary – Marketing Analytics – Introduction 63

 Estimating Cost

❖ Total costs consist of the sum of the fixed and variable costs for any given level of production.

❖ Fixed costs, also known as overhead, are costs that do not vary with production level or sales revenue. A
company must pay bills each month for rent, heat, interest, salaries, and so on, regardless of output.

❖ Variable costs vary directly with the level of production. These costs tend to be constant per unit produced, but
they’re called variable because their total varies with the number of units produced.

❖ Average cost is the cost per unit at that level of production; it equals total costs divided by production.

❖ The decline in the average cost with accumulated production experience is called the experience curve or
learning curve.
Ashit Tewary – Marketing Analytics – Introduction 64
 Analyzing Competitors’ Costs, Prices, and Offers

❖ A competitive pricing strategy helps a business adjust its pricing based on the prices of its
competitors in the market.

❖ The goal of competitive pricing is staying competitive with other companies offering similar
products or services in the same market. If the firm's offer is similar to a major competitor's
offer, then the firm will have to price close to the competitor or lose sales

❖ However, if a company has a unique selling proposition, such as higher quality or better service,
it can set its prices higher than its competitors without losing market share, leading to an
increase in profits.

Ashit Tewary – Marketing Analytics – Introduction 65

 Steps to Competitive Pricing Analysis

❖ Identifying the direct and indirect competitors

❖ Gather data on their pricing strategies by visiting their websites and physical stores or
purchasing their products.

❖ Or use advanced tools such as PriceShape, Repricer, Quicklizard, SYMSON to monitor

competitors' prices and provide real-time updates

❖ Analysing the data to identify patterns and trends in their competitors' pricing strategies. Look
for pricing premiums, promotional, volume discounts, and bundle pricing.

❖ Determine their pricing strategy. Competitive pricing analysis is an ongoing process that
requires monitoring competitors' pricing strategies regularly. This allows businesses to stay up
to date and adjust their pricing strategy to remain competitive
Ashit Tewary – Marketing Analytics – Introduction 66
 Pricing Techniques

1. Mark up / Cost Plus Pricing

2. Target Return pricing

3. Perceived-Value Pricing (NLP)

4. Value Pricing (NLP)

5. Everyday low pricing (EDLP)

6. Going-Rate Pricing (NLP)

7. Price Bundling (NLP)

Ashit Tewary – Marketing Analytics – Introduction 67

 Price Bundling

Ashit Tewary – Marketing Analytics – Introduction 68

 Price Bundling

❖ Bundle pricing is a business strategy where companies group several products together into a bundle
and sell them at a single price, rather than attribute individual prices to each item.

❖ Bundle pricing focuses on the idea of consumer surplus and the notion that customers typically have a
predetermined price that they're willing to pay for an item.

❖ Consumer surplus is the difference between the price that the customer is willing to pay and the
amount that a business charges for a product. If they spend less than their predetermined budget, the
consumer is likely to believe they received a good deal. Hence the customer always try to maximize
their surplus.

❖ Types of bundle pricing strategies:

➢ Pure bundling is a pricing strategy where businesses sell particular items exclusively with one another only.

➢ Mixed bundling, or custom bundling, occurs when you offer customers the option to purchase a bundle and the
option to purchase the items individually.
Ashit Tewary – Marketing Analytics – Introduction 69
Ashit Tewary – Marketing Analytics – Introduction 70
Ashit Tewary – Marketing Analytics – Introduction 71
 What is RFM Analysis?

Ashit Tewary – Marketing Analytics – Introduction 72

 What is RFM Analysis?

❖ RFM stands for

✓ Recency,

✓ Frequency, and

✓ Monetary value,

each corresponding to some key customer trait.

❖ These RFM metrics are important indicators of a customer’s behavior because frequency and monetary
value affects a customer’s lifetime value, and recency affects retention, a measure of engagement

Ashit Tewary – Marketing Analytics – Introduction 73

 RFM Metrics - Recency

❖ How recently did the customer purchase?

❖ Refers to the last time someone purchased from

your business.

❖ For apps, it can be opened. Any metric you wish to

increase.

❖ Even a category-related purchase can be part of it.

❖ What it means is a client who has bought recently is

more likely to repeat as compared to one who

hasn’t purchased for a long time.

Ashit Tewary – Marketing Analytics – Introduction 74

 RFM Metrics - Frequency

❖ How often do they purchase?

❖ Refers to the number of times a consumer/ customer has

purchased in a given period.

❖ Frequency helps with behavior patterns. Anything which is

done 5 times is different than done 1 time. So customers

with 5 purchases are different from customers with 1

purchase.

❖ The logic here is a customer who buys often will

probably return in comparison to one who rarely

purchases.

Ashit Tewary – Marketing Analytics – Introduction 75

 RFM Metrics - Monetary

❖ How much do they spend?

❖ Refers to the amount a client has spent in the same

period.

❖ Obviously, one who has bought more is expected

to return more often than one who has not.

❖ Examples

➢ Average Revenue per customer - ARPU.

➢ In ecommerce should be LTV (Lifetime value) of the

customer.

Ashit Tewary – Marketing Analytics – Introduction 76

 Benefits of RFM Analysis

Ashit Tewary – Marketing Analytics – Introduction 77

 Questions for a Brand

❖ While working on improving metrics like conversion rate, retention rate or loyalty, average order value, a brand
need to answer the following questions –

➢ Who are your best customers?

➢ Who is most likely to churn?

➢ Who has the potential to become the best customers?

➢ Which of your customers can be retained?

➢ Which of your customers are most likely to respond to engagement campaigns?

Ashit Tewary – Marketing Analytics – Introduction 78

 Difference with Traditional Segmentation

Ashit Tewary – Marketing Analytics – Introduction 79

 Benefits …1

❖ The RFM model (RFM analysis) may work for small and medium scale enterprises because of Its’:

✓ Inherent simplicity

✓ Effectiveness in direct marketing campaigns

✓ Affordability

✓ DIY nature

❖ Large company having the wherewithal at your command, using RFM along with predictive analytics
models is highly recommended.

❖ Predictive analytics does a far better job at forecasting sales and offers a better RoI segmentation based
on RFM. But, then again, this is a costly method and not everyone can afford it.

Ashit Tewary – Marketing Analytics – Introduction 80

 Benefits …2

❖ Conducting an RFM analysis on your customer base and sending personalized campaigns to high value
targets has massive benefits for your eCommerce store.:

✓ Personalization: By creating effective customer segments, you can create relevant, personalized
offers.

✓ Improve Conversion Rates: Personalized offers will yield higher conversion rates because your
customers are engaging with products they care about.

✓ Improve unit economics

✓ Increase revenue and profits

Ashit Tewary – Marketing Analytics – Introduction 81

 Benefits of RFM Analysis

Ashit Tewary – Marketing Analytics – Introduction 82

 Benefits …1

❖ The RFM model (RFM analysis) may work for small and medium scale enterprises because of Its’:

✓ Inherent simplicity

✓ Effectiveness in direct marketing campaigns

✓ Affordability

✓ DIY nature

❖ Large company having the wherewithal at your command, using RFM along with predictive analytics
models is highly recommended.

❖ Predictive analytics does a far better job at forecasting sales and offers a better RoI segmentation based
on RFM. But, then again, this is a costly method and not everyone can afford it.

Ashit Tewary – Marketing Analytics – Introduction 83

 Benefits …2

❖ Conducting an RFM analysis on your customer base and sending personalized campaigns to high value
targets has massive benefits for your eCommerce store.:

✓ Personalization: By creating effective customer segments, you can create relevant, personalized
offers.

✓ Improve Conversion Rates: Personalized offers will yield higher conversion rates because your
customers are engaging with products they care about.

✓ Improve unit economics

✓ Increase revenue and profits

Ashit Tewary – Marketing Analytics – Introduction 84

 How To Do RFM Analysis?

Ashit Tewary – Marketing Analytics – Introduction 85

 Goal of RFM Analysis

❖ Before starting with RFM Analysis, the main goal of the entire process is to find 8-10 actionable segments to
work on improving brand metrics.

❖ RFM analysis starts with customer data to Recency / Frequency / Monetary metrics, mapping users into
3X3X3 or 5X5X5 matrix and finally grouping segments to come up with 8-10 actionable segments.

❖ Before starting, we need to finalize 2 things –

➢ Desired Event For Analysis

▪ Mostly purchase, but you can do for any desired event. You can also bifurcate purchase to focus on
purchase of category X and it’s patterns. But to keep things simple start with purchase.

➢ Timeframe of Analysis

▪ Max 2 years. Although recency takes care of that, but still life time value will become lop sided for
taking very long timeframe for analysis.

Ashit Tewary – Marketing Analytics – Introduction 86

 Steps to do RFM Analysis

❖ Collect customer data

❖ Scale Recency, Frequency, Monetary

❖ Create RFM Segments

❖ RFM Groups

❖ RFM Actionable Analysis

Ashit Tewary – Marketing Analytics – Introduction 87

 RFM Segmentation Examples: Segments That Make Sales

RFM Score: ABC

A/B/C: Ranking 1 to 4 where 1 is Highest Rank

Ashit Tewary – Marketing Analytics – Introduction 88

 Scenarios

❖ RFM Score: 111

❖ RFM Score: X1X

❖ RFM Score: XX1

❖ RFM Score: X13, X14

❖ RFM Score: 44X

Ashit Tewary – Marketing Analytics – Introduction 89

 1. Core - Your Best Customers

❖ RFM Score: 111

❖ Who They Are: Highly engaged customers who have bought the most recent, the most often, and
generated the most revenue.

❖ Marketing Strategies: Focus on loyalty programs and new product introductions. These customers have
proven to have a higher willingness to pay, so don't use discount pricing to generate incremental sales.
Instead, focus on value added offers through product recommendations based on previous purchases.

Ashit Tewary – Marketing Analytics – Introduction 90

 1. Core - Your Best Customers

❖ RFM Score: 111

❖ Uber targets their "core" RFM customer

segment, introducing their new Uber Eats
offering.

Ashit Tewary – Marketing Analytics – Introduction 91

 2. Loyal - Your Most Loyal Customers

❖ RFM Score: X1X

❖ Who They Are: Customers who buy the most often from your store.

❖ Marketing Strategies: Loyalty programs are effective for these repeat visitors. Advocacy programs and
reviews are also common X1X strategies. Lastly, consider rewarding these customers with Free Shipping
or other like benefits.

Ashit Tewary – Marketing Analytics – Introduction 92

 2. Loyal - Your Most Loyal Customers

❖ RFM Score: X1X

❖ Costco compliments their membership

business model with a custom credit
card to further increase repeat purchase
rates and expand wallet share.

Ashit Tewary – Marketing Analytics – Introduction 93

 3. Whales - Your Highest Paying Customers

❖ RFM Score: XX1

❖ Who They Are: Customers who have generated the most revenue for your store.

❖ Marketing Strategies: These customers have demonstrated a high willingness to pay. Consider
premium offers, subscription tiers, luxury products, or value add cross/up-sells to increase Average
Order Value (AOV). Don't waste margin on discounts.

Ashit Tewary – Marketing Analytics – Introduction 94

 4. Promising - Faithful customers

❖ RFM Score: X13, X14

❖ Who They Are: Customers who return often, but do not spend a lot.

❖ Marketing Strategies: You've already succeeded in creating loyalty. Focus on increasing monetization
through product recommendations based on past purchases and incentives tied to spending
thresholds (pegged to your store AOV).

Ashit Tewary – Marketing Analytics – Introduction 95

 4. Promising - Faithful customers

❖ RFM Score: X13, X14

❖ Example of Target using

lifecycle marketing on
specific RFM segments.
Notice how they pair
financial discounts with
spending thresholds to drive
repeat purchase and
increase customer
profitability.

Ashit Tewary – Marketing Analytics – Introduction 96

 5. Rookies - Your Newest Customers

❖ RFM Score: 14X

❖ Who They Are: First time buyers on your site.

❖ Marketing Strategies: Most customers never graduate to loyal. Having clear strategies in place for first
time buyers such as triggered welcome emails will pay dividends.

Ashit Tewary – Marketing Analytics – Introduction 97

 5. Rookies - Your Newest Customers

❖ RFM Score: 14X

❖ Starbucks is excellent at moving

customers across RFM segments. Above,
they use email to bring customers into
their loyalty rewards program.

Ashit Tewary – Marketing Analytics – Introduction 98

 6. Slipping - Once Loyal, Now Gone

❖ RFM Score: 44X

❖ Who They Are: Great past customers

who haven't bought in awhile.

❖ Marketing Strategies: Customers leave

for a variety of reasons. Depending on
your situation price deals, new product
launches, or other retention strategies.

Ashit Tewary – Marketing Analytics – Introduction 99

 Market Basket Analysis

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 What is Market Basket Analysis?

❖ Market Basket Analysis (Association Analysis) is a mathematical modeling technique based upon the
theory that if you buy a certain group of items, you are likely to buy another group of items.

❖ It is used to analyze the customer purchasing behavior and helps in increasing the sales and maintain
inventory by focusing on the point of sale transaction data.

❖ Given a dataset, the Apriori Algorithm trains and identifies product baskets and product association rules

Ashit Tewary – Marketing Analytics – Introduction 10

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 How does it help?

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 Why use it?

❖ Develop combo offers based on products sold together

❖ Organize and place associated products/categories nearby inside a store

❖ Determine the layout of the catalog of an ecommerce site

❖ Control inventory based on product demands and what products sell together

Ashit Tewary – Marketing Analytics – Introduction 10

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 Market Basket Analysis

Ashit Tewary – Marketing Analytics – Introduction 10

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 Support, Confidence and Lift

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 Important Terms
❖ Transaction is a set of items (Itemset).

❖ Frequency

❖ Support: Its the popularity of an item. It is the measure of how often the collection of items in an
association occur together as percentage of all transactions

In mathematical terms, the support of item A is the ratio of transactions involving A to the total number
of transactions.

❖ Confidence: Likelihood that customer who bought both A and B. Its divides the number of transactions
involving both A and B by the number of transactions involving B.

Confidence(A => B) = (Transactions involving both A and B)/(Transactions involving only A)

Ashit Tewary – Marketing Analytics – Introduction 10

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 Important Terms
❖ Frequent itemset : If an itemset satisfies minimum support, then it is a frequent itemset.

❖ Strong Association rules: Rules that satisfy both a minimum support threshold and a minimum
confidence threshold

❖ Lift =

= Support (A & B)

(Support A) X (Support B)

= Prob (A & B)

(Prob A) X (Prob B)

Lift(A => B) = Confidence(A, B) / Support(B)

Ashit Tewary – Marketing Analytics – Introduction 10
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 Terms - Example

❖In a store, there are 1000 transactions overall.

❖Item A appears in 80 transactions and Item B occurs in 100

transactions.

❖Items A and B appear in 20 transactions together.

Ashit Tewary – Marketing Analytics – Introduction 10

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 Example

❖ In a store, there are 1000 transactions overall.

❖ Item A appears in 80 transactions and Item B occurs in 100 transactions.

❖ Items A and B appear in 20 transactions together.

❖ The simplest one, Support is the ratio of number of times two or more items occur together to the total number
of transactions.

Support of Pr(A & B) = 20/1000 = 2%

❖ Confidence is a conditional probability that a randomly selected transaction will include Item A given Item B.
Confidence is given by

Pr(A/B) = 20/100 = 20%.

❖ Lift can be expressed as the ratio of the probability of Items A and B occurring together to the multiple of the
two individual probabilities for Item A and Item B.

Lift = Pr(A,B) / Pr(A).Pr(B) = (20/1000)/((80/1000)x(100/1000)) = 2.5.

Ashit Tewary – Marketing Analytics – Introduction 10
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 Steps involved in Association Rule Mining

Step 2: Generate strong association rules from the frequent itemsets..

❖ Association rules are generated by building associations from frequent itemsets generated in step 1.

❖ This uses a measure called confidence to find strong associations.

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 An Apriori Example

❖ Consider a sample dataset where Association Rules need

to be mined using the Apriori algorithm.

Step 1: Set a minimum support and confidence

threshold.

❖ We set the threshold as 50% implying that we define an

itemset as frequent if it occurs at least once in 2
transactions.

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 An Apriori Example

Step 2: Generate candidate itemsets.

❖ The candidate 1-itemsets consist of all individual

products and their support counts respectively. For
instance, [A] occurs in 3 out of 4 transactions.

❖ The greyed out rows represent itemsets whose support

counts do not meet the threshold requirement

❖ L1: [A], [B], [C]

Ashit Tewary – Marketing Analytics – Introduction 11

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 An Apriori Example

Step 2: Generate candidate itemsets … contd

❖ The candidate 2-itemsets consists of all possible 2 item set

combinations of L1 and their respective support counts. For
instance, [A, C] occur together in 2 out of 4 transactions.

❖ L2: [A,C]

❖ Candidate 3-itemsets are to be generated from L2,

containing all 3-item combinations. However, at L2 we are
left with just 2 items and we cannot generate candidate 3-
itemsets.

Ashit Tewary – Marketing Analytics – Introduction 11

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 An Apriori Example

Step 3: Mine Association Rules

❖ To mine Association Rules from candidate itemsets, a measure called confidence is used. It is simply defined
as an association rule between items.

❖ Consider an itemset [ Bread, Butter ]. Two possible scenarios can be considered here:

1. People who buy bread, also buy butter. The sale of butter is driven by that of bread. This makes sense
because any dish involving bread often involves butter.

2. People who buy butter, also buy bread. The sale of bread is driven by butter. This does not make sense as
butter can be used for anything and not just with bread.

❖ The confidence measure helps identify which product drives the sale of which other product. For any two
products, A drives B represented as {A ⇒ B} is not the same as B drives A, {B ⇒ A}. If the confidence of an
association rule {A⇒B} is 60%, it means that 60% of the transactions containing A also contain B together.
Ashit Tewary – Marketing Analytics – Introduction 11
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 An Apriori Example

Step 3: Mine Association Rules

❖ Confidence measures the occurrence of products together

in a dataset.

❖ Consider the candidate itemset output at L2: [ A, C ]. These

are the frequent itemsets with support of 50%.

❖ Since both rules have confidence greater than

50%, both are accepted. However, {C ⇒ A}
occurs with confidence 100% implying that on
most occasions, C drives the sale of A.

Ashit Tewary – Marketing Analytics – Introduction 11

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 An Apriori Example

Step 3: Mine Association Rules

❖ Lift

❖ Independence of meat and vegetable purchases implies that the likelihood of a transaction involving
meat is 0.30 irrespective of a transaction involving a vegetable purchase.

❖ Thus independence implies that 1,000 (0.40) (0.30) =120 transactions should involve purchase of meat
and vegetables. Because 200 transactions involved a purchase of meat and vegetables, knowing that a
transaction involves meat makes it 1.67 times (200/120) more likely that a transaction involves
vegetables. This is consistent with Equation 1, which tells you that the lift for vegetables and meat is

Ashit Tewary – Marketing Analytics – Introduction 11

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 Customer Churn

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 What is customer churn?

❖ Customer churn, also known as customer attrition, is when someone chooses to stop using your
products or services. In effect, it’s when a customer ceases to be a customer.

❖ Customer churn is measured using customer churn rate. That’s the number of people who stopped
being customers during a set period of time, such as a year, a month, or a financial quarter.

Ashit Tewary – Marketing Analytics – Introduction 11

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 What is customer churn?

❖ Business X has lost 200 B2C customers over a monthly period. It had 4,000 customers at the beginning
of the month and ended with 3,800.

❖ Using the churn rate formula

Churn Rate = Lost Customers ÷ Total Customers at Start of Chosen Time Period) x 100,

churn rate for Business X is 5% monthly.

❖ By using a churn rate formula like this, you can turn it into like-for-like data that help you measure
progress over time. You can also express your churn rate in terms of value if it makes sense to do so,
helping you to calculate the average revenue cost of losing customers.

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 Why does customer churn matter?

Generally speaking, a high customer churn rate is bad news for a couple of reasons:

❖ Your competitors can snap up your market share

❖ Dissatisfied customers negatively impact your brand - A churned customer may well be an unhappy
customer.

❖ Customer churn costs you more

❖ Customer churn can impact future growth

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 Causes of customer churn

1. Your service isn’t up to scratch - indicator of poor service

2. Your product fit or market fit might be lacking

3. You don’t understand your target audience well enough

4. Your pricing isn’t right

5. Your competition offers better services or products

6. Your market is seasonal

7. Your renewal offers aren’t tempting

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 Customer churn analysis and measurement

• Operational and experience insights

• Operational insights - declining repeat purchases, reduced purchase amounts, and customer service
ticket answer rate),

• Experience insights - along the customer journey, is foundational to predicting churn. For example, a
customer who has declined in recent visits and gives a Net Promoter Score of 7 after their latest
shopping experience could have an increased probability of churning.

• Conversation analytics

• Relational feedback

• Transactional experience measurement

• Key experience measurement throughout the customer journey

• Competition analysis

• Customer segment analysis

Ashit Tewary – Marketing Analytics – Introduction 12
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 How to predict customer churn

• Once you’ve built out a holistic view of your customer’s experience history with your brand, you need to
combine it with operational data, such as repeat visits or credit card usage, to identify key drivers of
churn and begin making predictions.

• There are four key elements of churn

prediction and prevention:

1. Understand the drivers of customer churn

2. Automatically identify at-risk customers

3. Define thresholds for taking action based

on the likelihood of churn

4. Easily create tickets and take immediate

action for closed-loop follow-up

Ashit Tewary – Marketing Analytics – Introduction 12

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 How to reduce customer churn and retain existing customers

• Reducing customer churn isn’t just about saving at-risk customer relationships from the point of no
return, although that’s an important part of the picture. Reducing the conditions for churn is something
you can do at every stage of the customer lifecycle, through initiatives like:

• Improving CX

• Educating your customer

• Rewarding loyalty

• Recognizing your best customers

• Listening to more than just top-level customer comments

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 Customer Lifetime Value

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 Customer Lifetime Value

❖ Customer lifetime value (CLV) is a primary metric for understanding your customers.

❖ To be more precise, it's a prediction of the value your relationship with a customer can bring to your
business.

❖ This approach helps organizations demonstrate the future value they can generate from their
marketing initiatives

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 How Do You Calculate Customer Lifetime Value?

❖ There are four KPIs that determine your LTV(CLV)

✓ Average Order Value (AOV),

✓ Purchase Frequency (F),

✓ Gross Margin (GM)

✓ and Churn Rate (CR)

Adding all will give customer life time value

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 How to calculate your Average Order Value (AOV)

❖ AOV = Total Sales Revenue / Total Number of Orders

❖ Total Sales Revenue (annual): $1,000,000

Total Number of Orders (annual): 40,000
1,000,000 / 40,000 = 25
Company A has an Average Order Value of $25

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 How to calculate your Purchase Frequency (F)

❖ F = Total Number of Orders / Total Number of Unique Customers

❖ PURCHASE FREQUENCY ANALYSIS: COMPANY A

✓ Total Number of Orders (annual): 40,000

Total Number of Unique Customers (annual): 15,000
40,000 / 15,000 = 2.67
Company A has a Purchase Frequency of 2.67

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 How to calculate your Gross Margin (GM)

❖ How to calculate your Gross Margin (GM)

✓ GM = [Total Sales Revenue – Cost of Goods Sold (COGS)] / Total Sales Revenue (express the result as a %)

❖ COGS (Cost of Goods Sold)= Beginning Inventory (inventory left from last year) + Additional Purchases During
Period Cost – Ending Inventory (inventory left at the end of the year)

✓ Beginning Inventory: $180,000

Additional Purchases During Period: $450,000
Ending Inventory: $160,000
180,000 + 450,000 – 160,000 = 470,000
Company A has a Cost of Goods Sold of $470,000

❖ Total Sales Revenue: $800,000

COGS: $470,000
[800,000 – 470,000] / 800,000 = 0.41

❖ Company A has a Gross Margin of 41%

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 Customer life time period :1/churn rate

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 CLV

❖ Average Order Value: $25,

Average Purchase Frequency: 2.67,
Gross Margin: 41%,
Churn Rate: 60% -> Customer Lifetime Period: 1.67

❖ 25 (AOV) * 2.67 (F) * 0.41 (GM) * 1.67 = $45.7(CLV).

❖ This means that the investment in a customer should be less than 45.7

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 Discounted Cash Flow Analysis

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 Discounted Cash Flow Analysis

Cash flow: Cash flow for the given year. Cash flow refers to the money moving in and out of your business. But we will focus
on the net cash flow which is the net of inflows and outflows.

Cash flow 1: Cash flow for the first year.

Cash flow 2: Cash flow for the second year.

Cash flow n: The period number. Time periods can be years, quarters, months, etc.

r: The discount rate. The discount rate is used to find the present value of future cash flows. You’ll have to do some research
to determine the appropriate discount rate for your calculation—it shouldn’t be lower than the inflation rate.
Ashit Tewary – Marketing Analytics – Introduction 13
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 Discounted Cash Flow Analysis

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 Discounted Cash Flow Analysis

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 Power BI

Ashit Tewary – Marketing Analytics – Introduction 13

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 What is Power BI

❖ Power BI is a collection of software services, apps, and connectors that work together to
turn your unrelated sources of data into coherent, visually immersive, and interactive
insights.

❖ Your data might be an Excel spreadsheet, or a collection of cloud-based and on-premises

hybrid data warehouses. Power BI lets you easily connect to your data sources, visualize and
discover what's important, and share that with anyone or everyone you want.

Ashit Tewary – Marketing Analytics – Introduction 13

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 What are the advantages of Power BI?

❖ It’s easy to use, even for non-technical people.

❖ It has a powerful toolkit for conducting ETL (extraction, transformation, and loading the data).

❖ It helps share the insights from the data with data consumers.

❖ It accommodates fast updates of the data in use from the data sources.

❖ It is equipped with template dashboards and SaaS solution reports.

❖ It allows real-time dashboard and report updates.

❖ It allows results displays on various devices (computers, tablets, and mobile phones).

❖ It ensures quick and safe connection to the data sources in the cloud or locally.

❖ It enables data querying using natural language processing.

❖ It provides hybrid configuration and smart deployment.

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 What are some disadvantages of Power BI?

❖ The software is not very intuitive for the beginners.

❖ Dashboard and report sharing is limited: only users with the same email domain can access
the results.

❖ The majority of data sources don't support real-time connections to Power BI interactive
dashboards and reports.

❖ Power BI for free users can't process datasets larger than 1 GB.

❖ We can't store an adjusted filter in the saved Power BI visual report filter. In addition, the
filter is always displayed on the report, which isn’t always convenient

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 What are the main business applications of Power BI?

Since Power BI is a business intelligence application, we can apply it to a range of business spheres. Its most
crucial applications include the following:

❖ Extracting meaningful business insights from the available raw data

❖ Creating compelling live reports and insightful interactive dashboards

❖ Identifying the current state of different departments or projects

❖ Tracking progress and KPIs of different departments or projects

❖ Detecting the strong and weak sides of a project from the standpoint of its performance

❖ Distributing the roles inside the team

❖ Granting access to the dashboards and reports to the relevant group of team members

❖ Displaying various statistics of a certain business on many different applications and websites in a favorable
light for a potential customer
Ashit Tewary – Marketing Analytics – Introduction 14
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 The parts of Power BI

❖ Power BI Desktop to create reports

❖ Power BI Report Builder to create reports and publish those reports to the Power BI
service, where you view them.

❖ Power BI Mobile app to monitor progress on sales quotas, and to drill into new sales lead
details.

❖ Power BI service - to view reports and dashboards

Ashit Tewary – Marketing Analytics – Introduction 14

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 The parts of Power BI

❖ Power BI for business users

❖ Power BI Desktop for report creators

❖ Power BI Report Builder for enterprise report creators

❖ Power BI for administrators

❖ Power BI for developers

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 Power BI Desktop v/s Power BI Service
❖ Power BI Desktop is an application that you
download and install for free on your local computer.

❖ Desktop is a complete data analysis and report

creation tool that is used to connect to, transform,
visualize, and analyze your data.

❖ It includes the Query Editor, in which you can

connect to many different sources of data, and
combine them (often called modeling) into a data
model.

❖ Then you design a report based on that data model.

❖ Reports can be shared with others directly or by

publishing to the Power BI service.

❖ Sharing reports requires a Power BI Pro license.

Ashit Tewary – Marketing Analytics – Introduction 14

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 Power BI Desktop v/s Power BI Service
❖ The Power BI service is a cloud-based
service, or software as a service (SaaS).

❖ It supports report editing and

collaboration for teams and organizations.

❖ You can connect to data sources in the

Power BI service, too, but modeling is
limited.

❖ The Power BI service is used to do things

such as creating dashboards, creating and
sharing apps, analyzing and exploring your
data to uncover business insights, and much
more.

❖ Your license determines what you can do in

the Power BI service.
Ashit Tewary – Marketing Analytics – Introduction 14
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 Three sections in Power BI

❖ The top nav panes, different in Power BI Desktop and the service

❖ The report canvas

❖ The Fields, Visualizations, and Filters panes

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 Power BI Desktop

❖ Power BI Desktop is a free application you install on your local computer that lets you
connect to, transform, and visualize your data.

❖ With Power BI Desktop, you can connect to multiple different sources of data, and combine
them (often called modeling) into a data model.

❖ This data model lets you build visuals, and collections of visuals you can share as reports,
with other people inside your organization.

❖ Most users who work on business intelligence projects use Power BI Desktop to create
reports, and then use the Power BI service to share their reports with others.

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 The most common uses for Power BI Desktop are:

❖ Connect to data.

❖ Transform and clean data to create a data model.

❖ Create visuals, such as charts or graphs that provide visual representations of the data.

❖ Create reports that are collections of visuals on one or more report pages.

❖ Share reports with others by using the Power BI service.

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 Thank You

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