how to allocate marketing resources across retailers? · price elasticity then you can see the...

How to allocate marketing resources across retailers?

Example: Cheese Manufacturer (Borden brand)

Data

Cheese manufacturer (Borden)

88 stores in the U.S, 65 weeks

Sales (VOLUME), PRICE, DISPLAY (in-store advertising, percentage of ACV on display), store ID variable (RETAILER)

Data source: R bayesm package More details available : Bayesian Statistics and Marketing, Peter E. Rossi, Greg M. Allenby, Rob McCulloch, p73, WILEY

The impact of price and promotion (In store display)

differs by markets and retailers

Business Problem

Where should marketing resources be allocated across retailers (88 stores)?

DISPLAY advertising budget

PRICE discount promotion (coupon) budget

Method Selection

Sample Data

Choose Sample (cheese, 88 retailers in the U.S.)

The 88 retailers sample data is only available for “Advanced plan” You can get similar results with 13 retailer sample data under “Basic plan”

Variable Selection

Select the variables for Sales, Price, Store, and Promotion, and click the "Run" button

Price Elasticity

Then you can see the store level demand analysis. The interactive histogram shows "price elasticity" across 88 stores. 

Price elasticity = % change in Sales % change in Price

When price is decreased by 10%, the sales will be increased by 9.54%

=price elasticity x % change in price (-0.954*-0.1)

Sales Lift by DISPLAYDISPLAY Sale Lift score shows how much sales could be lifted given DISPLAY in-store ad is 100%

Sales Lift by DISPLAY = {exp(Est_DISPLAY x DISPLAY)-1}x100, when DISPLAY = 1 (100%)

Base Sales Lift score is 100

When in-store DISPLAY ad coverage is 100%, the sales is increased by 462.94%

Results Table

The impact of DISP on sales is (exp(Est_DISPLAY)-1)x100 %

given Display is 1 (100%)

You can get the summary table by clicking the other tab ("Table" , "Est", "R output"). 

What if analysis

In-store Display ad simulation

What if analysis:

When in-store DISPLAY ad coverage is 10%,

the sales is increased by 18.86%

[exp(1.728 * 0.1) -1 ]*100=18.86

Est_DISPLAY is 1.728

Resource Allocation

A marketer should prioritize their DISPLAY

advertising budgets to the most sensitive

stores (DISP Lift scores are high), and allocate

price discount promotions (like discount

coupons) to the most price sensitive markets

where the price elasticity is highest (absolute

value)