mmo business intelligence

business intelligence in practice

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MMO isn’t another piece of informationnor another (expensive ;) tool to play with...

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MMO is the way which gives you

the whole world of your business

with understanding of its natural laws, evaluation of observed effects and direct implications to your every day business decisions in

Marketing and its components’

Mix aiming towards sensible

Optimization and efficiency

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Milestones of Marketing Mix Optimization

The term “marketing mix” was firstly used in 1953 by Neil Borden in his American Marketing Association presidential address*.

Marketing mix components, famous 4Ps, were introduced in 1960 by E. Jerome McCarthy.

Marketing mix optimization projects started in the late 1980’s and early 1990’s in the FMCG/retail industry.

First efforts in other industries – finance, telco, etc. – emerged relatively later due to its significantly more complicated nature.

*source: Wikipedia 4

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Sales

Incremental sales

Baseline sales

Competition, its commercial activitiesExternal factors, e.g. GDP, income

SeasonalityDistribution, sales coverage

Brand equity, customer retention

ATLBTL

Sales support: incentivesSales support: personnel

Price promo, subsidiesPricing (w.r.t. competition)

Product innovation, extensionProduct performance, functionality

MMO is a process that results in tangible outputs for marketing management, optimization and planning.

MMO is a data-driven business research aiming towards discovering, interpreting, and the development of sales mechanism.

Simply, MMO explains and measures market response to sales drivers.

Understanding what drives sales / market share

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brand equity, customer retention, distribution

Promo

Sales

external factors, including competition

Place

Price

Product

Contribution of marketing elements to overall performance

14%

10%

20%

16%

15%

25%

Sales

Σ=100%

Baseline represents expected sales

when no short-term marketing activity

is present

MMO assesses the impact of each

of the marketing mix components

on incremental sales

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ROI analysis

8,2 6,933,1

9,3 4,6

133,8

64,4

260,4

47,8

0,7

16,3

9,37,9

5,1

0,2

50% discount i-net ad spend sales incentives price discount outdoor spend

InvestmentIncremental salesROI

Return on investment (ROI) is an example of direct application of MMO market understanding.

We compare costs (investment) to incremental sales generated by each mix component to assess ROI

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Econometric model behind the MMO research enables “what-if” interactive analysis playing with budget allocation.

Imagine, that your current budget could be either slightly reallocated into or even increased by 12 mil. and reallocated into .

Marketing Mix Optimization

Incremental profit from the reallocation is about 35 mil. or 92 mil., which means incremental net profit of 35 mil. or 92-12=80 mil.*

0

20

40

60

80

100

50% discount TV ad spend DM spend Sales incentives

Radio ad spend Incrementalsales

mil. CZK

*real example of budget allocation

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Business and Data Audit

Each client is unique and MMO is a business research, so detailed understanding of client’s needs is critical. Since MMO is a data-driven modeling, data audit of all relevant sources is necessary.

If data sources are not available or sufficiently structured, we design new data pipelines.

Econometrical Modeling

Since MMO is not a boxed commodity ready to be shipped, each project has to be assembled and tuned accurately. However, there exists general attitude, process, which we employ together with our experience (for instance, we usually suggest to starting with a single product; once we all are convinced that the model makes sense from both statistical and business point of view, we go on to build models for all remaining products).

Marketing Mix Optimization

In addition to detailed results, figures, and simulators,... we want to deliver more – understanding and knowledge which puts the client forward. We work together with the client on implementation of the MMO process into its business. MMO is a powerful frame of reference for past evaluation and future inference.

Typical project workflow

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1. MMO is based on sales data and marketing activities. Although the data are essential, we experience that alleged lack of data is not a barrier – in that case, let us collect the data first.

2. MMO is a long-term project requiring commitment and open cooperation• 0,6 FTE for internal project manager with varying levels of utilization for entire project duration

• 1-2 weeks for data owners, sector heads

3. Mind & Process changes – successful realization of the added value brought by MMO requires often a refreshed mind-set and a re-design of the internal business process. The client has to be ready for such a change.

4. Budget – MMO projects usually require larger budgets, with a significant variance given by the scope of the project.

5. Scope – we recommend to start off on a smaller scale with a pilot project which will test both the client and the vendor as to their ability to realize the project and utilize the results (e.g. select few important products, etc.). In later stages the project scope can be broadened.

A few things to be aware of...

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References

The Core Group is a business research and consultancy department of TNS AISA. TNS has extensive experience with MMO projects in various fields – from FMCG to telco and finance. The Core Group has been developing MMO methodology in the Czech market for past 3 years.

This extensive knowledge base ensures reliable, in-time delivery and continuous support and access to up-to-date methods.

The Core Group:• Large MMO project in 2007-2008 for a prominent retail bank• 2 product lines modeled• Modeling of acquisition and profit

TNS Norway• Several MMO projects in telecommunication sector (sales and churn modeled)

TNS US• Vast experience with MMO projects in various fields – FMCG, finance

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Business intelligence refers to skills, technologies, applications and

practices used to help a business acquire a better understanding

of its commercial context.

Business intelligence applications provide historical, current, and

predictive views of business operations aiming to support better

business decision-making. [Wikipedia]

That's what MMO is about.

Business intelligence in practice

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The Core Group has executed an extensive MMO project in a prominent Czech retail bank in 2007-2008

The project included:

• Modeling of 2 product lines

• Modeling of acquisitions and profits

• Optimization of marketing budget to yield higher ROI

• Delivery of Optimization tool

Outcomes:

• Reliability of models around 90%

• Identified opportunity for cost saving in excess of 30m CZK

• Identified opportunity for profitability growth in excess of 140m CZK

• Initiation of changes in media mix, campaign timing optimization, changes in distribution channels

Case study – finance sector Czech Republic

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Marketing Mix Optimization tool

Marketing Mix Optimizer is an application which provides interface for MMO econometrical model.

The application offers, except of historical overviews and summary statistics, interactive environment for simulations and scenario evaluation.

Moreover, built-in mathematical functions suggest optimal budget allocation.

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Various business assignments

Business assignments for MMO could be basically divided into two groups:

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1. Interactive simulations where you can manually adjust marketing mix and immediately see estimated result on sales.

2. Marketing mix optimization via automated allocation given either total budget or target to achieve.

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Example of Marketing Mix Optimization tool

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Example of Marketing Mix Optimization tool – cont.

Relevant business factors included in the MMO model.

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Values of input factors which could be interactively changed by the user.

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Estimated profit change decomposed into factors.

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Example of budget reallocation

Given current total marketing budget, just reallocate 2 mil. CZK from TV to Internet.

This means 5% decrease of TV spends and 37% increase of Internet spends.

Expected incremental net profit equals 4.9 mil. CZK.

Contacts

Ondřej ŠtěpánekConsultantTelephone: ++420-272 177 222Mobile: ++420-606 778 021Email: [email protected]

Pavel VaněčekProject ManagerTelephone: ++420-272 177 184Mobile: ++420-602 617 801Email: [email protected]