1b. The Science of Marketing (Class Slides)

Master of Science
in Management 1
The Science
of Marketing
Fall Semester 2023 - Prof. Markus Christen

organization/business
what is the purpose?
ambition (operation goals -> selling products or services)
MISSION / VISION
marketing : need money to develop a concept or
product
need marketing to communicate with the others parts,
Goals to implementaing the strategies
VALUE
PROPOSITION
Core Product
Activities / Market
RESOURCES &
INDUSTRY
CAPABILITIES
Marketing Science – Fall Semester 2023 page

©Prof. M. Christen 02
organization/business both cases : goal is to improve
two generic goals growth : improve (should not limited society or humans)
growth: how to get more from ‘it’ innovation: how to develop a new ‘it’

marketing
how can it be (made more) scientific?
why marketing science?

1 marketing is about managing exchanges
in an effective and efficient way to
achieve organizational objectives
how to be ‘scientific’?
2 ambition needs goals need actions need
knowledge: how to develop knowledge
and make better decisions?
New Coke vs. L’Oréal Ombré

3 what went wrong in the case of New
Coke? why? why did L’Oréal Ombré
succeed? what are the differences?

01 why marketing science?
marketing: an old practice
but a young science
competitive pressure

business success
historical perspectives
If a man can write a better

book, preach a better sermon,
or make a better mousetrap
than his neighbor, you will
find a broad hard-beaten road
to his house, though it be in
the woods.
Marketing is what
Edwin Land
you do when your
product is no good.
Ralph Waldo
Emerson

business success
historical perspectives – NOT!
“You have a product

so revolutionary;
you'll have no
problem selling it.”
Mousetrap Marketing

business success
historical perspectives – NOT!
Compensatory Marketing
these compensatory marketing assume that the consumer is stupid, uninformed, not interested, …. and we
should assume that the inverse

ex : iphone 15 -> technologies
not superior compare with the
competitors but the force of
apple was that they always
business success improve the consumer
experience, good to
technology & marketing understanding the problems of
the consumers and improve
not a contest btw marketing and technologies -> you need to be good on the both fields the confort ans facilitate the
use of the iphone
= > really good at keeping the
attention of the consumers
for apple be careful not to fell
in compensatory marketing
Marketing compensatory marketing customer - centric (the steps of improvement of
the technologies that they
create are smaller each year)
deep insights -> understands
the consumers
superior offers -> new
technologies, new ideas, …
Good Price monopoly marketing mousetrap marketing excellent experience ->
purchase experience
ex : starbucks doesn’t invent a
new coffee but an
Product/Production Superior Offer experience : create a new
place to stay (appart from
house and work)
making good decisions
intuition vs. data

intuition
is subject to severe biases
“I think there is a world market for maybe five computers”
Thomas Watson, IBM Chairman in 1943 “We don’t like their sound and guitar music
is on the way out.”
“...interesting and well formed, but in order to earn Decca Recording Company
better than a C the idea must be feasible.” in 1962
Yale professor to undergraduate Fred Smith

about an idea for overnight delivery courier.

data about markets and customers
are not readily available
aggreagate data (sells, markets, behaviours, …) individual data (beyond purchase data)

marketing: managing exchanges
is more than advertising & selling
seller STP buyer
Objectives Objectives
value Data value

capture creation

marketing
four interlinked processes
SHORT TERM
LONG TERM
STRAT- MARKETING OPERATIONNAL MARKETING

STEPS QPS
DECISIONS
PLANS RESULTS
PREDICTIVE
EVALUATION
ANALYSIS
RESULTS
INSIGHTS
ANALYSIS PERFORMANCE

from marketing
to marketing science
Marketing Science teaches a systematic approach to build models

based on theories and methods from economics, psychology and statistics to
help you develop a winning marketing strategy and implement it through
effective and efficient marketing actions
Marketing Science introduces you to marketing as an academic discipline and

research process that seeks to understand phenomena of customer and firm
behavior to help managers and policy makers as well as those who advice
them make better decisions and to better prepare you for your thesis.

CAUSALITY
marketing science
course framework reaction competition Goal: acquire, develop,
retain target customers
environment by creating superior value
for customers and
partners; develop
competitive advantage.
Fuel: understand
customer and market
behavior to predict the
effect of marketing exchange insight revenues
actions and anticipate
opportunities for the
organization.
Purpose: contribute to the

Marketing: manage
survival of the
exchanges with target
organization and the
customers through
developing, advertising,
selling, pricing, delivering
$ realization of its
objective; this is not
limited to achieving
products and services.
actions performance financial objectives.
costs
CORRELATION
results -> correlation with the results ? ©Prof. M. Christen 018
why do i have these results ?
causal links goes to customers = action - reaction
Fundamental purpose is to achieve the firms goals (need the customers to do that)
need to understand the customers behaviour ? how there are going to reacts -> linked the actions to the
customers behaviour
marketing science
core ingredients
microeconomics judgment
study of individuals, households and firms’ ability to integrate conflicting data and
behavior in decision making and allocation of viewpoints and form an opinion or make a
resources decision that is based on careful thought
statistics data
collection, classification, analysis, and facts and statistics collected together for
interpretation of numerical facts, for drawing reference or analysis; includes quantitative
inferences on the basis of their likelihood and qualitative variables
psychology models
study of the human mind and its functions, translation of inputs, competitive actions and
especially those affecting behaviour in a environmental variations into observable
given context market outcomes

02 let’s be scientific about it.
marketing science aggregate level -> individual
what data, how and why?
Market Data Financial Data Customer Data

related to marketing : research, communication
performance not related : financial department
basic accounting metrics

brand profits / revenus = participation
Brand Sales Marketing to the profit of each sales
Revenues ROS brand profit / marketing and sales
€29.4M Gross 38% expenses =. marketing return on
- cost of goods sold Profit invest
€17.76M
Percent
-> efficiency about our research
Margin
Brand Profit return on profits
60.5%
€11.18M
Marketing & Sales

Expenses Operating Income
€6.58M Marketing €7.04M
ROI
170%
Other Operating
Expenses
€4.14M
Marketing Science – Fall Semester 2023 most profitable field : macro page
marketing action
break-even analysis
Profit = Q(P - VC) - FC ≥ 0
Q(BE) = FC / P - VC
P - VC = Margin
Profit (before) = profit (after) -> Q(BE) = variation FC / P - VC
Qo (Po - VC) - FC = Q1 (P1 - PV) - FC
Q1 = Qo * (Po - VC / P1 - VC) -> Q1 / Qo = % Q(BE)

performance
a very simple model
performance reaction actions
brand profit = revenues - costs

performance
a very simple model
revenues = quantity * price
quantity = market share * market size
reaction market size = number of customer (N) * frequence they buy (F) * unit per purchase (U)
number of customers = potential customers * conversion rate
P = number of product
C = number of channels
Y = Regions
i = discount factor
from brand profit to customers behavior -> actions
from brand profit to compagny value -> NPV sum of r, c and p
actions
costs = COGS + distribution costs + advertising and selling costs
product place costs promotion

03 New Coke vs. L’Oréal Ombré.
research process
a systematic approach to develop knowledge
Translate the managerial

product « taste »
question into a research Selection and design of
question relevant data collection and
Problem analysis methods for solving
Definition Project the identified problems
Design
« bund »
Use the information to Decision various formulations
develop actionable and
recommendations Actions Data
Collection
Establish the target
Analysis and population, source of data 200k taste test
Interpretation and sampling procedure
magic formula
Process the data to generate
valuable information via statistical
inference and visualization

Coca-Cola USA
market share problem?

New Coke
why is it the right option?
problem ability evidence

New Coke
why is it the right launch?
big press event Coca-Cola ad machine everybody talks about it

New Coke
biggest marketing blunder
1. Problem: Does Coca-Cola have a sales or

market share problem? Why? What is the
evidence? What is the research approach?
2. Action: Does the implemented action (new

formula) address Coca Cola’s business
problem in 1984? Why? What is the
evidence? How was the decision reached?
3. Reaction: Why was New Coke such a

disaster: bad research, bad strategy, bad
actions, or bad luck?

start with identify the future trend
L’Oréal Ombré
source of the data for the trends : observing customers (on line )
-> but not quantitative ressource
what are the key differences? to conform this we have to go bak on quantitative infos
Tie dye
1. Problem: What is the business challenge at
L’Oréal? Why? What is the evidence? What is
the research approach?
2. Action: Does the implemented action (new

product) address L’Oréal’s challenge? Why?
What is the evidence? How was the decision
reached?
3. Reaction: Why was L’Oréal Ombré a success:

good research, good strategy, good actions,
Ombré or good luck?
Splat
04 research process.
research
is subject to biases too
…to specific research problem
From a broad managerial problem…
Problem
Growth:
Definition Project
1. How do we grow in this existing market? Design
2. How do we enter a new market?
3. How do we turn this technology into new business?
Performance Gap: Reporting

1. Why are we losing money? Data
2. Why do we have lower returns than our Collection
competitors?
3. Why do we have lower returns than last year? Analysis and
Interpretation

marketing research process
1. problem definition
1. What is the managerial problem?
2. What decisions need to be made?
Problem 3. Who is responsible for solving this problem?
Definition Project
Design 4. What parts of the problem can be addressed
through research/data analysis?
5. Who is paying for the research?
Reporting
Data Example
Collection “Why are sales falling? Can it be a result of a decrease
in store traffic? How can we increase store traffic?”
Analysis and Example
Interpretation “How can we grow? Can we introduce a new product?
What is a profitable ‘gap’ in the market?”

2. project design
1. What are the research questions?
2. What type of study could address those
Problem research questions?
Definition Project
Design 3. How much is already known?
Reporting
Data Example
Collection “What is the image of the store? How is the image of
the store changing relative to competitors’ image?
What is the relative average price of the store?”
Analysis and
Interpretation

project design
types of projects
Purpose Example Data Collection
• Generate general insights What demands do customers • Observation/Listening
into a problem place on a new game console? • Qualitative survey
Exploratory
• Identify decision options • Ad-hoc survey
• Identify relevant variables
• Precise description of a How does our brand image • Ad-hoc survey

Descriptive
phenomenon / state compare to the competition? • Panel
• Secondary data collection
• Identify and quantify What are the drivers of the • Ad-hoc survey
Causal presumed relationships / purchase process and how • Panel
interactions strong are they? • Experiment

3. data collection
1. What kind of data is needed?
2. Can existing data be used?
Problem 3. What is the source of data and how should
Definition Project
Design data be collected? Is it feasible?
4. How should different sources of data be
merged and cleaned?
5. How should data be stored and made available
Reporting
for later use?
Data
Collection Example
“Do we do interviews or surveys? Can we look at
Analysis and exciting sales data per store? How will the final
Interpretation dataset look like?

data collection
scope
Description Advantages / Disadvantages
+ Maximum compilation of
information
Full Collection from the + Fewer statistical uncertainties
collection whole population
– Expensive to implement
– Not always feasible
Scope of
data collection
+ Cost-efficient to implement
– Satisfying statistical
Collection from a
Partial requirements on the sample
portion of the
collection selection
population (sampling)
– Statistical uncertainties in the
statements (sampling error)

data collection
types
Description Advantages
• Data does not yet exist and

+ Optimal adaptation of the
must be collected by the
Primary researcher or third parties
data to the project goals
data • Example: Ad-hoc survey on
+ Greater control over the
data quality
satisfaction
Types of
data collection
• Data already exists or is
collected by third parties at
+ Lower costs
Secondary specific intervals and in
standardized form + Lower time requirement
data (if the data already exists)
• Examples: Population
statistics, retail panels

4. analysis and interpretation
1. What method will be used to analyze the
results?
Problem 2. What kind of visualizations will be used to
Definition Project explore the data and communicate the
Design results?
3. What are the links between the empirical
inferences and the actions?
Reporting
Data
Collection Example
“What kind of data summaries are relevant to report?
Analysis and Can we run a regression to understand correlations?
Interpretation Can we infer the impact of marketing actions?”

analysis and interpretation
overview of methods
Uni-/bivariate Multivariate
techniques techniques
Parametric Nonparametric Dependence Interdependence

statistics statistics analysis analysis
Explanation Variables are measured Variable is measured in Presumed relationships Relationships between
metrically (e.g. body categories (e.g. gender) between variables variables should be
size) should be evaluated discovered
x2
Examples • t-test, ANOVA • Chi-square test, • Multiple regression, • Factor analysis,
(variance analysis) Kolmogorov-Smirnov discriminant analysis cluster analysis
• For two variables: test
correlation analysis
Source: Aaker, D.A., V. Kumar, G.S. Day and R.P. Leone (2012), Marketing Research, 11th edition, New York et al.: John Wiley & Sons.

5. reporting
1. Who will read and use the report?
2. What is the technical level of the audience?
Problem 3. Which initial questions can now be answered?
Definition Project
Design 4. What kind of managerial recommendations will
be given?
Reporting
Example
Data “Should we show our results in statistical language?
Collection Should we mention that our results indicate that
many stores should be closed, and the budget
Analysis and reallocated to existing stores?”
Interpretation

reporting
potential sources of error
Error Sources Description
Sampling errors • Statistical errors in the sampling procedure over which the user
has no influence
Project design - Selection • Errors due to non-random selection of respondents
- Population specification • Errors due to definition of an inappropriate population
- Measurement • Errors due to use of invalid scaling and analysis methods
- Experimental design • Errors in the design of an experiment
Project execution - Data analysis • Errors due to the editing, coding and analysis of data
- Questioning • Errors due to confusing / ambiguous questioning
- Recording • Errors due to the transmission of data
Respondents - Nonresponse bias • Distortion of the results by people who are not willing to
participate in the survey
- Response bias • Error due to intentionally or unintentionally inaccurate
responses to questions
Source: Aaker, D.A., V. Kumar, G.S. Day and R.P. Leone (2012), Marketing Research, 11th edition, New York et al.: John Wiley & Sons.

academic research
many different methodolgies
• Christen, M., Boulding, W., & Staelin, R. (2009). Optimal Market Intelligence Strategy When
Management Attention Is Scarce. Management Science, 55(4), 526-538.
http://www.jstor.org/stable/40539167.
• Mitra, A., & Lynch, Jr., J.G., (1995). Toward a Reconciliation of Market Power and Information
Theories of Advertising Effects on Price Elasticity, Journal of Consumer Research, Volume 21, Issue
4, March 1995, Pages 644–659, https://doi.org/10.1086/209425.
• Mizik N., Jacobson R. (2003). Trading off between Value Creation and Value Appropriation: The
Financial Implications of Shifts in Strategic Emphasis. Journal of Marketing, 67(1), 63-76.
http://www.jstor.org/stable/30040511.
• Anderson SJ., Chandy R., & Zia B. (2019). The Impact of Marketing vs. Finance Skills on Business
Performance. Management Science, 64(12), 5559-5583. https://doi.org/10.1287/mnsc.2017.2920.

conclusions.
not a taste problems but a problem with the young generation and the image of coca
focus on the wrong problem
doesn’t like it bcs of the taste but bcs of the change
coca cola had stay focus only on numbers and datas
session 1
key lessons
marketing science
1 goal: making better business decisions à requires analysis and judgment
research: what matters is the quality of the question and not the size of the data
theory: understanding of individual customer behavior and market level interactions is critical
company goals
2 marketing objective: effective and efficient use of company resources à create and capture value
profit equation: decomposition of profitability into drivers of company value à customer behavior
measurement: financial results are not enough to identify problems à a focus of the course
market and customer analysis

3 methods: qualitative and quantitative à explore, confirm, quantify
data: words vs. deeds à incentive compatibility
collection: observation vs. experimentation à correlation vs. causality

01 next
defining & measuring customer value
1. get Enginius license
2. form your team
3. read LRB Chapter 2 & Economic Value article
There is nothing
more dangerous than
the perfect solution
to the wrong problem.


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Master of Science

Fall Semester 2023 - Prof. Markus Christen

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

why marketing science?

New Coke vs. L’Oréal Ombré

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

If a man can write a better

Marketing Science – Fall Semester 2023 page

“You have a product

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

“I think there is a world market for maybe five computers”

Yale professor to undergraduate Fred Smith

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

seller STP buyer

value Data value

Marketing Science – Fall Semester 2023 page

STRAT- MARKETING OPERATIONNAL MARKETING

Marketing Science – Fall Semester 2023 page

Marketing Science teaches a systematic approach to build models

Marketing Science introduces you to marketing as an academic discipline and

Marketing Science – Fall Semester 2023 page

Purpose: contribute to the

Marketing Science – Fall Semester 2023 page

what data, how and why?

Market Data Financial Data Customer Data

Marketing Science – Fall Semester 2023 page

basic accounting metrics

Marketing & Sales

Marketing Science – Fall Semester 2023 page

performance reaction actions

brand profit = revenues - costs

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

Translate the managerial

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

problem ability evidence

Marketing Science – Fall Semester 2023 page

big press event Coca-Cola ad machine everybody talks about it

Marketing Science – Fall Semester 2023 page

1. Problem: Does Coca-Cola have a sales or

2. Action: Does the implemented action (new

3. Reaction: Why was New Coke such a

Marketing Science – Fall Semester 2023 page

2. Action: Does the implemented action (new

3. Reaction: Why was L’Oréal Ombré a success:

Performance Gap: Reporting

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

• Precise description of a How does our brand image • Ad-hoc survey

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page

• Data does not yet exist and

Marketing Science – Fall Semester 2023 page

Marketing Science – Fall Semester 2023 page