1. Marketing Resource Allocation Marketing Analytics

2. Optimal Marketing:Misallocations Revealed

3. Resource Allocation Process • Determine the objective function? • Market Share, Profits, Customer Lifetime Value etc. • Build a econometric (regression) model for the unknown values in the objective function • The regression model will be a function of marketing inputs of interest. E.g., price, advertising, sales calls etc. • Once the regression model is obtained, predict the objective function using the regression function • Identify the optimal value of the marketing input that maximizes the objective function. • Hint: Solver • Hint: Regression function connects marketing inputs to the objective function

4. Resource Allocation Process Linear Regression Number of New Prescriptions Sales Calls Profit Per Physician Direct to Consumer Advertising Probability of a New Prescription Logistic Regression Marketing Cost

5. Resource Allocation Process • Profit per physician = # of New Prescriptions * prob (New Prescriptions) - # of Sales Calls * Unit cost of Sales Calls – # of DTC Spots * Unit Cost of a DTC Spot • # of New Prescriptions = a + b1*# of Sales Calls + b2 * # of DTC Spots • prob (new prescriptions) = exp (u) / [1+exp(u)] • u = c + d1* # of sales calls + d2* # of DTC spots • Regression gives you; • a, b1, b2, c, d1, d2

6. Relationships Among Metrics • Marketers generally rely on a portfolio or “dashboard” of metrics to better assess market dynamics and derive focused strategies and solutions. • Marketers should appreciate the relationship between and among metrics as well as the limitations inherent in each. • But, KISS

7. System of Identities • Decomposition and diagnosis • Triangulation • Empirical Models and Dashboards Marketing Analytics

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10. Empirical & Definitional Relationships

11. The Three Pillars Econometrics Experimentation Decision Calculus