Because learning changes everything.

Chapter 01
Introduction to Marketing
Analytics

Copyright 2022 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
 Introduction to Marketing Analytics

How does Expedia,

Orbitz, or Hotels.com How does Spotify know
determine the price to
what songs to suggest for
quote when you are
shopping for a hotel you?
room?

How does Stitch Fix

achieve the highest-ever
rate of purchased items
per “Fix” for its female
customers?

In this chapter, we describe and explain an analytics framework, relevant

marketing analytics concepts, and industry best practices.

© McGraw Hill, LLC 2

 Marketing Analytics Defined

Marketing analytics
uses data, statistics,
mathematics, and
technology to solve
marketing business
problems.

Modeling and
software drive
marketing decisions.
The fastest growing
field of analytics
applications.
Increasingly applied,
and the impact and
benefits are evident.
Access text alternative for this image.

© McGraw Hill, LLC Source: Google Trends. 3

Analytics Level and Their Impact on Competitive Advantage

As organizations adopt more advanced techniques, higher data

management and analysis maturity are required to achieve a competitive
advantage.

Access text alternative for this image.

© McGraw Hill, LLC Source: Adapted from SAS.\ 4

 Analytic Levels

Descriptive analytics are techniques used to explain or quantify the

past.
• Data queries, visual reports, descriptive statistics.
Predictive analytics is used to build models based on the past to explain
the future.
• For example, historic sales can predict future sales.
Prescriptive analytics identifies the optimal course of action or decision.
• UPS route optimization, Amazon’s price optimization.
Artificial Intelligence (AI) and cognitive analytics are designed to
mimic human-like intelligence for certain tasks, like discovering patterns.
• This type of analytics uses machine learning to understand new data.
• Hitachi uses AI to discover patterns typically undetected by humans.

© McGraw Hill, LLC 5

 Defining the Right Business Problems

Understanding requires deep

knowledge of the customer’s path.
• How they search. How do you arrive at the right
business problem?
• Where they purchase.
• Understand the intent behind
• Their satisfaction.
the question.
Problem identification uncovers
• Include stakeholder input
strategic business opportunities.
through discovery methods.
• To improve market share.
• Discovery begins with: what,
• To establish a better customer who, where, when, why, and
relationship. how.
• To position the company to
take advantage of innovation.

© McGraw Hill, LLC 6

 SMART Principles

Access text alternative for this image.

Equally as important as following the SMART

The SMART principles is examining:
principles can be
• The potential success of the analytics
a goal-setting
project.
technique.
• Whether it makes a valuable impact.

© McGraw Hill, LLC 7

 Data Sources
Data consists of both primary and
secondary data.
• Primary data is collected for a
specific purpose.
• Secondary data relies on
existing data collected for
another purpose.
© McGraw Hill, LLC
Sources of secondary data
include:
• Public datasets.
• Online sites.
• Mobile data.
• Channel partners.
• Commercial brokers.
• Corporate information.
• Government sources.
8
 Types of Data
Structured data is made up of
records organized in rows and
columns.
• Can be stored in a database or
in a spreadsheet formula.
• Includes numbers, dates, and
text strings.
• Easy to access and analyze.
© McGraw Hill, LLC
Unstructured data includes text,
images, videos, and sensor data.
• No defined structure.
• Content does not fit into a table
format.
• Requires advance analytics to
prepare and analyze.
• Technology has advanced to
support manipulation and
exploration of this data.
9
 Data Measurement

Access text alternative for this image.

Numerical data can be discrete Categorical data exists when values

(integer) or continuous.
• Discrete data is measured in
whole numbers.
• Continuous data can include
values with decimals.
are selected from categories.
• Binary can have two values.
• Nominal has no meaningful order.
• Ordinal data has meaningful values.

© McGraw Hill, LLC 10

 Metric Measurement Scales

Metric scales can be measured as intervals or ratios.

• Both scales possess meaningful, constant units of measure.
• The distance between each point of the scale are equal.
However, there is a difference between these scales.
• Interval variables do not include an absolute zero.
• Ratio scales have an absolute zero point and can be discussed in
terms of multiples.

© McGraw Hill, LLC 11

 Predictors versus Target Variable

Does weather impact ice cream sales?

Variables are • Weather conditions are the independent
characteristics or variable.
features that pertain
• It influences or drives the dependent,
to a person, place, or target, or outcome variable which is ice
object. cream sales.

© McGraw Hill, LLC 12

Modeling Types: Supervised versus Unsupervised Learning
Supervised learning suggests
the target variable is known.
• A training dataset helps
“learn” the relationship.
• A validation dataset assesses
the algorithm’s accuracy.
• A testing dataset evaluates
the final selected algorithm.
• The algorithm is applied to
new, unlabeled data.
If the target variable is continuous,
results are a prediction.
If categorical, supervised learning
is called a classification.
© McGraw Hill, LLC
Unsupervised learning has no
previously defined target variable.
• The goal is to model data to
discover and confirm patterns.
This technique may include:
• Association analysis such as
offering product suggestions
based on past purchases.
• Cluster analysis which groups
customers based on key
variables.
13
 Exhibit 1-9 Supervised Learning Steps

Access text alternative for this image.

© McGraw Hill, LLC 14

 Exhibit 1-11 The 7-Step Marketing Analytics Process

Access text alternative for this image.

• The 7-step marketing analytics process is iterative and continuously

evolves to develop and manage improvements in the modeling cycle.
• Each step plays an important role in achieving a successful outcome.

© McGraw Hill, LLC 15

 Step 1: Business Problem Understanding

Most marketing analytics models are Exactly what are you trying to
developed when a business identifies a understand and solve?
problem. How will the stakeholder(s)
• The idea is to develop a model use the results?
using analytics to better understand Who will be affected by the
the problem and design a solution. results?
• A key element is to question Is this a single, short-term
whether the problem is the correct problem or an ongoing
problem. situation?

© McGraw Hill, LLC 16

 Step 2: Data Understanding and Collection

The analyst must identify where data is stored, its format, and how it can
be combined to understand the question.
• Examine databases, interview stakeholders, and observe processes to
confirm the identified problem is the actual problem.
Once the problem is understood, the analyst samples data from
databases for records to analyze.
• For example, examining past purchases and customer returns.
Marketing analysts must have a good understanding of the types and
sources of data.
• The data’s origin may directly affect the decision.

© McGraw Hill, LLC 17

 Step 3: Data Preparation and Feature Selection

Data in different formats is combined in this step.

• Identify the unit of analysis; the target and the predictor variables.
• Examine target and predictor data columns both visually and
statistically.
• Clean the data – deal with missing values, data errors, and outliers.
• Merge data from different sources so data is measured consistently
and then used to develop the models.

Other features are further refined in this step.

• Adjusting date formats.
• Increase accuracy by including predictors with a strong target variable
relationship – some may be eliminated or transformed.
• Understanding the meaning of each variable and its unit of analysis is
essential in this step.

© McGraw Hill, LLC 18

 Step 4: Modeling Development

In this step, the analyst selects the method to use.

• Choice depends on the target variable and problem.
• Options – classification, prediction, clustering, or association.
If the problem is unsupervised, the analyst partitions data into datasets.
• Training, validation, and testing.
The analyst should decide on appropriate modeling techniques.

Different models should be tried to find the one providing accuracy,

speed, and quality.
• The chosen model should be simple, practical, and useful.

© McGraw Hill, LLC 19

 Step 5: Model Evaluation and Interpretation

The model is evaluated to identify the algorithm providing

the best solution.

The algorithm is initially run on the validation dataset.

If the validation shows high accuracy, the model can be

thought to predict new cases and address the problem.

© McGraw Hill, LLC 20

 Step 6: Model and Results Communication

It is key for the analyst to present the model in a way other people can
understand, particularly management.
• A good approach is to collaborate with key stakeholders early-on.
• A full understanding of the model is important.
• Whether simple or complex, the model should be explainable in
straightforward terms with appropriate visualizations.

© McGraw Hill, LLC 21

 Step 7: Model Deployment

The model is not finished until it has been implemented and running on
real-time records to offer decisions or actions.
• This step involves other key stakeholders who need trained to
implement the system.

A key consideration throughout the 7-step marketing analytics modeling

process is to evaluate the ethical dimensions of the analysis.
• Are the privacy and anonymity of the subjects being protected?
• Does a bias exist in the data that could impact the analytics results?
• Are the model results accurate?
• The model may be correct, but the objective is unfair to some subjects
or unrealistic in its predictions.
• Another issue is that the data, features, data cleaning, and the model
are determined by analysts – ethics is imperative.

© McGraw Hill, LLC 22

 End of Main Content

Because learning changes everything. ®

www.mheducation.com

Copyright 2022 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.