UNIT-1

1. Marketing Analytics
Marketing analytics is the process of tracking and analyzing data from marketing efforts,
often to reach a quantitative goal. Insights gleaned from marketing analytics can enable
organizations to improve their customer experiences, increase the return on investment
(ROI) of marketing efforts, and craft future marketing strategies.

According to a report conducted by PwC, highly data-driven companies are three times
more likely than their less data-driven counterparts to see significant improvements in
decision-making. Whether you work with marketers or are one yourself, it’s important to
be familiar with the basics of marketing analytics and how it can inform your
organization's decisions.

The data you use to track progress toward goals, gain customer insights, and drive
strategic decisions must first be collected, aggregated, and organized. There are three
types of customer data: first-party, second-party, and third-party.

• First-party data is collected directly from your users by your organization. It’s
considered the most valuable data type because you receive information about how
your audience behaves, thinks, and feels.
• Second-party data is data that’s shared by another organization about its customers
(or its first-party data). It can be useful if your audience types are the same or have
similar demographics, if your companies are running a promotion together, or if you
have a partnership.
• Third-party data is data that’s been collected and rented or sold by organizations that
don’t have a connection to your company or users. Although it’s gathered in large
volumes and can provide information about users similar to yours, third-party data
isn’t the most reliable because it doesn’t come from your customers or a trusted
second-party source.

While it’s important to know that second- and third-party sources exist, first-party data is
the most reliable of the three because it comes directly from your customers and speaks
to their behaviors, beliefs, and feelings. Here are some ways to collect first-party data.

Surveys

Surveying your current and potential customers is a straightforward way to ask them
about their experiences with your product, their reason for purchasing, what could be
improved, and if they’d recommend your product to someone else—the possibilities are
endless. Surveys can be anything from multi-question interviews to a popup asking the
user to rate their experience on your website.

1
A/B Tests

An A/B test is a way of testing a hypothesis by comparing user interactions with a

changed version of your website or product to an unchanged version. For instance, if
you hypothesize that users would be more likely to click a button on your site if it were
blue instead of red, you could set up an A/B test in which half of your users see a red
button (the control group) and half see a blue button (the test group). The data collected
from the two groups’ interactions would show if your hypothesis was correct. A/B tests
can be a great way to test ideas and gather behavioral data.

Organic Content Interaction

Interaction with organic content—such as blog posts, downloadable offers, emails,

social media posts, podcasts, and videos—can be tracked and leveraged to understand
a user’s purchasing motivation, their stage in the marketing funnel, and what types of
content they’re interested in.

Paid Advertisement Interaction

You can also track when someone engages with a digital ad you’ve paid to display,
whether it’s on another website, at the top of search results, or sponsoring another
brand’s content. This data is crucial in determining where your customers are coming
from and what stage of the funnel they see your ads.

HOW IS MARKETING DATA ANALYZED?

With numerous types and sources of marketing data, it must be aggregated and
structured before analysis. Some platforms you can use to do so are:

• Google Analytics
• HubSpot
• Sprout Social
• SEMRush
• MailChimp
• Datorama
In addition to tracking and aggregating data, you can use several of these platforms to
conduct analyses and pull out key insights with algorithms. You can also manually
analyze data by exporting datasets into Microsoft Excel or another statistical program,
create visual representations of it using graph or chart functions, and run regressions
and other analytical tests.

2
WHY IS MARKETING ANALYTICS IMPORTANT?

Understanding how to gather, aggregate, and analyze data can enable you to extract
useful insights you can use to make a data-informed impact on your organization.

1. Improve the User Experience

Collecting and analyzing your users’ first-party data can reveal how they feel about their
interactions with your product and website. Whether their feelings are explicitly stated
(for instance, in a survey) or implicit in their behaviors (for instance, leaving the website
shortly after loading the page), having this qualitative and quantitative information can
allow your organization to make changes that address their needs and increase the
potential for leads to become customers.

2. Calculate the Return on Investment of Marketing Efforts

Another important function of marketing analytics is calculating monetary gain that can
be attributed to specific marketing channels or campaigns. To calculate the return on
investment for a specific marketing effort, use the following formula:

ROI = (Net Profit / Cost of Investment) x 100

For example, say you release a video explaining the benefits of your product that costs
$1,000 to produce. You track how many people navigate to the product page on your
website immediately after watching the video and see that it led to 30 new customers in
a given period. If your product costs $50, and each new lead bought one, you can
attribute $1,500 of revenue to the video. The net profit, in this case, is $500.

Plugging this into the ROI formula looks like this:

ROI = ($500 / $1,000) x 100

ROI = (0.5) x 100

ROI = 50%

Any time ROI is a positive percentage, the marketing effort—in this case, the video—
can be considered profitable. Without data to understand where leads are coming from,
calculating the financial impact of specific efforts wouldn’t be possible. ROI calculations
can determine which marketing efforts drive the most sales and prove projects' value.

3
3. Plan Future Marketing Strategies

With knowledge of your customers and the ability to track your marketing efforts’ return
on investment, marketing analytics provides an opportunity to create data-driven
strategies for your organization.

By analyzing marketing data, you can discover what’s working, what hasn’t worked, and
how your customers feel about their experiences with your product and website. You
can also get a full picture of the impact that marketing efforts are having on your
company.

With that information, you can plan for the future. What should you do more of to reach
your quantitative goals? Which effort failed to generate new leads and should be
dropped from future plans? Data analytics helps you strategize and answer these kinds
of questions.

2. Understanding customer wants and needs

Understanding customer wants and needs is essential for businesses to develop
products and services that resonate with their target audience and drive customer
satisfaction and loyalty. Here are some key strategies for understanding customer
wants and needs:

1. Market Research: Conducting market research through surveys, interviews, focus

groups, and data analysis can provide valuable insights into customer preferences, pain
points, and purchasing behavior. This helps businesses understand what their
customers want and need from their products or services.

2. Customer Feedback: Actively soliciting feedback from customers through channels

such as customer service interactions, feedback forms, online reviews, and social
media can help businesses identify areas for improvement and gain a deeper
understanding of customer wants and needs.

3. Data Analysis: Analyzing customer data, such as purchase history, browsing

behavior, and demographic information, can provide valuable insights into customer
preferences and trends. This data-driven approach helps businesses tailor their
products and services to better meet customer needs.

4. Customer Persona Development: Creating detailed customer personas based on

demographic, psychographic, and behavioral data helps businesses understand their
target audience on a deeper level. This allows them to tailor their marketing messages,
4
product features, and customer experiences to better align with customer wants and
needs.

5. Competitor Analysis: Studying competitors' products, marketing strategies, and

customer feedback can provide valuable insights into customer preferences and unmet
needs within the market. This helps businesses identify opportunities for differentiation
and innovation.

6. Customer Journey Mapping: Mapping out the customer journey from initial
awareness to post-purchase experience helps businesses understand the various
touchpoints and interactions that shape customer perceptions and preferences. This
allows them to identify opportunities to improve the customer experience and better
meet customer needs at each stage of the journey.

7. Continuous Improvement: Building a culture of continuous improvement and

innovation allows businesses to stay attuned to evolving customer wants and needs. By
regularly gathering feedback, analyzing data, and adapting their products and services
accordingly, businesses can ensure they remain relevant and competitive in the market.

Overall, understanding customer wants and needs requires a combination of research,

analysis, and ongoing engagement with customers. By investing in these efforts,
businesses can develop products and services that deliver genuine value to their
customers and drive long-term success.

3. Understanding data source

Understanding data sources in marketing analytics is crucial for marketers to gain
insights into customer behavior, campaign performance, and overall marketing
effectiveness. Here's how marketers can understand data sources effectively in the
context of marketing analytics:

1. Website Analytics: Website analytics tools like Google Analytics provide valuable
data on website traffic, user behavior, and engagement metrics. Marketers can track
metrics such as page views, bounce rate, session duration, and conversion rates to
understand how visitors interact with their website.

2. Social Media Analytics: Social media platforms offer built-in analytics tools that
provide insights into audience demographics, engagement metrics, and post

5
performance. Marketers can track metrics such as likes, shares, comments, and click-
through rates to measure the effectiveness of their social media campaigns.

3. Email Marketing Analytics: Email marketing platforms like Mailchimp or Constant

Contact offer analytics dashboards that track metrics such as open rates, click-through
rates, and conversion rates. Marketers can use this data to optimize their email
campaigns and improve engagement with their audience.

4. CRM Data: Customer Relationship Management (CRM) systems store valuable

customer data, including contact information, purchase history, and interactions with the
brand. Marketers can analyze CRM data to segment customers, personalize marketing
messages, and track customer lifecycle stages.

5. Advertising Platforms: Advertising platforms like Google Ads, Facebook Ads, and
LinkedIn Ads provide detailed analytics on ad performance, including impressions,
clicks, conversions, and return on ad spend (ROAS). Marketers can use this data to
optimize their advertising campaigns and allocate budget effectively.

6. Market Research: Market research studies, surveys, and focus groups provide
qualitative and quantitative data on customer preferences, attitudes, and behavior.
Marketers can use market research data to identify market trends, understand customer
needs, and inform product development and marketing strategies.

7. Third-Party Data Providers: Marketers can leverage third-party data providers to

access additional demographic, behavioral, and intent data about their target audience.
This data can enhance customer segmentation, targeting, and personalization efforts.

8. Offline Data Sources: In addition to digital data sources, marketers may also analyze
offline data sources such as point-of-sale (POS) data, customer feedback forms, and
call center logs. Integrating offline and online data sources provides a comprehensive
view of the customer journey and helps marketers understand the impact of their
marketing efforts across channels.

By understanding and integrating data from various sources, marketers can gain
actionable insights to optimize their marketing strategies, improve customer
engagement, and drive business growth.

6
4.Data Cleaning

Data cleaning is the process of fixing or removing incorrect, corrupted, incorrectly

formatted, duplicate, or incomplete data within a dataset. When combining multiple data
sources, there are many opportunities for data to be duplicated or mislabeled. If data is
incorrect, outcomes and algorithms are unreliable, even though they may look correct.
There is no one absolute way to prescribe the exact steps in the data cleaning process
because the processes will vary from dataset to dataset. But it is crucial to establish a
template for your data cleaning process so you know you are doing it the right way
every time.

What is the difference between data cleaning and data transformation?

Data cleaning is the process that removes data that does not belong in your dataset.
Data transformation is the process of converting data from one format or structure into
another. Transformation processes can also be referred to as data wrangling, or data
munging, transforming and mapping data from one "raw" data form into another format
for warehousing and analyzing. This article focuses on the processes of cleaning that
data.

How to clean data

While the techniques used for data cleaning may vary according to the types of data
your company stores, you can follow these basic steps to map out a framework for your
organization.

Step 1: Remove duplicate or irrelevant observations

Remove unwanted observations from your dataset, including duplicate observations or

irrelevant observations. Duplicate observations will happen most often during data
collection. When you combine data sets from multiple places, scrape data, or receive
data from clients or multiple departments, there are opportunities to create duplicate
data. De-duplication is one of the largest areas to be considered in this process.
Irrelevant observations are when you notice observations that do not fit into the specific
problem you are trying to analyze. For example, if you want to analyze data regarding
millennial customers, but your dataset includes older generations, you might remove
those irrelevant observations. This can make analysis more efficient and minimize
distraction from your primary target—as well as creating a more manageable and more
performant dataset.

Step 2: Fix structural errors

7
Structural errors are when you measure or transfer data and notice strange naming
conventions, typos, or incorrect capitalization. These inconsistencies can cause
mislabeled categories or classes. For example, you may find “N/A” and “Not Applicable”
both appear, but they should be analyzed as the same category.

Step 3: Filter unwanted outliers

Often, there will be one-off observations where, at a glance, they do not appear to fit
within the data you are analyzing. If you have a legitimate reason to remove an outlier,
like improper data-entry, doing so will help the performance of the data you are working
with. However, sometimes it is the appearance of an outlier that will prove a theory you
are working on. Remember: just because an outlier exists, doesn’t mean it is incorrect.
This step is needed to determine the validity of that number. If an outlier proves to be
irrelevant for analysis or is a mistake, consider removing it.

Step 4: Handle missing data

You can’t ignore missing data because many algorithms will not accept missing values.
There are a couple of ways to deal with missing data. Neither is optimal, but both can
be considered.

1. As a first option, you can drop observations that have missing values, but doing
this will drop or lose information, so be mindful of this before you remove it.
2. As a second option, you can input missing values based on other observations;
again, there is an opportunity to lose integrity of the data because you may be
operating from assumptions and not actual observations.
3. As a third option, you might alter the way the data is used to effectively navigate
null values.
Step 5: Validate and QA

At the end of the data cleaning process, you should be able to answer these questions
as a part of basic validation:

• Does the data make sense?

• Does the data follow the appropriate rules for its field?
• Does it prove or disprove your working theory, or bring any insight to light?
• Can you find trends in the data to help you form your next theory?
• If not, is that because of a data quality issue?

False conclusions because of incorrect or “dirty” data can inform poor business strategy
and decision-making. False conclusions can lead to an embarrassing moment in a
reporting meeting when you realize your data doesn’t stand up to scrutiny. Before you

8
get there, it is important to create a culture of quality data in your organization. To do
this, you should document the tools you might use to create this culture and what data
quality means to you.

❖ Approaches available for dealing with missing data

Dealing with missing data is a critical aspect of data cleaning and preprocessing in data
analysis and machine learning. Here are several approaches available for handling
missing data:

1. Deletion:
- Listwise Deletion: Also known as complete-case analysis, this approach involves
removing entire records (rows) with missing values. While simple, this method can lead
to a loss of valuable data, especially if missing values are spread across multiple
variables.
- Pairwise Deletion: This approach involves using only the available data for each
specific analysis, disregarding missing values for different variables in different
calculations. It maximizes the use of available data but can lead to biased results if
missingness is not random.

2. Imputation:
- Mean/Median/Mode Imputation: Replace missing values with the mean, median, or
mode of the respective variable. While simple, this method may distort the distribution of
the data and underestimate variability.
- Interpolation: Estimate missing values based on neighboring data points. Linear
interpolation, spline interpolation, or time-series-specific methods like linear interpolation
for time-series data can be used depending on the nature of the data.
- Regression Imputation: Predict missing values using regression models trained on
non-missing data. For each missing value, a regression model is fitted using other
variables as predictors.
- K-Nearest Neighbors (KNN) Imputation: Estimate missing values based on the
values of the nearest neighbors in the feature space. This method is effective for
datasets with complex relationships but may be computationally intensive.
- Multiple Imputation: Generate multiple plausible imputed values for each missing
value, creating multiple complete datasets. Analyze each dataset separately and then
combine results to account for uncertainty due to missing data.

9
3. Advanced Techniques:
- Expectation-Maximization (EM) Algorithm: An iterative method to estimate
parameters of statistical models with missing data. It alternates between the expectation
step (estimating missing data) and the maximization step (estimating model
parameters).
- Deep Learning Models: Neural networks can learn complex patterns from data,
including patterns related to missingness. Techniques like autoencoders or generative
adversarial networks (GANs) can be used to impute missing values.

4. Domain-Specific Methods:
- Domain Knowledge: Use domain expertise to impute missing values based on
logical rules or insights about the data generation process.
- Survey Methods: In survey data, techniques like hot deck imputation or cold deck
imputation are commonly used to impute missing values based on similar respondents
or historical data.

Each approach has its advantages and limitations, and the choice depends on factors
such as the nature of the data, the amount of missingness, the underlying mechanism
of missingness, and the analysis goals. It's often recommended to compare the
performance of different methods and assess sensitivity to missing data assumptions.
Additionally, documenting the method used for handling missing data is crucial for
transparency and reproducibility of analyses.

4.Data Imputation Methods

Imputation methods are techniques used to estimate or replace missing values in a
dataset. Here are some common imputation methods:

1. Mean/Median/Mode Imputation:
- Mean Imputation: Replace missing values with the mean of the non-missing values
for that variable.
- Median Imputation: Replace missing values with the median of the non-missing
values for that variable.
- Mode Imputation: Replace missing categorical values with the mode (most frequent
value) of the non-missing values for that variable.

2. Forward Fill and Backward Fill:

10
 - Forward Fill (ffill): Replace missing values with the last observed value in the
dataset.
- Backward Fill (bfill): Replace missing values with the next observed value in the
dataset.
- These methods are commonly used for time-series data where missing values can
be filled based on the previous or subsequent values.

3. Linear Interpolation:
- Estimate missing values based on a linear relationship between adjacent data
points. This method assumes a linear trend between observed values and is suitable for
ordered data (e.g., time-series data).

4. K-Nearest Neighbors (KNN) Imputation:

- Estimate missing values based on the values of the nearest neighbors in the feature
space. This method finds the k-nearest neighbors of each data point with missing
values and imputes missing values based on the average or weighted average of these
neighbors.

5. Multiple Imputation:
- Generate multiple imputed datasets by replacing missing values with plausible
estimates multiple times. This method accounts for uncertainty in imputed values and
provides more accurate estimates of parameters and uncertainty intervals.

6. Regression Imputation:
- Predict missing values using regression models trained on non-missing data. For
each variable with missing values, a regression model is fitted using other variables as
predictors to estimate the missing values.

7. Expectation-Maximization (EM) Algorithm:

- An iterative method to estimate parameters of statistical models with missing data. It
alternates between the expectation step (estimating missing data) and the maximization
step (estimating model parameters) until convergence.

11
 8. Deep Learning Models:
- Neural networks can learn complex patterns from data, including patterns related to
missingness. Techniques like autoencoders or generative adversarial networks (GANs)
can be used to impute missing values.

5.. Various types of charts and dashboard in Excel

•
•
•

Charts are used to represent the data into graphical elements, which makes it very to
easy to interpret the data; it becomes very useful if our data is very large. Excel
provides various charts to represent the excel data and makes it very easy to
understand and analyze the data compare to the excel cells data analysis. There are
various charts available in excel. Namely, they are,
• Line Chart
• Bar Chart
• Column Chart
• Area Chart
• Pie Chart
• Surface Chart
In this example, we will be using random car sales data, including model name and the
number of cars sold, as the dataset and represent it in the various graphs.
Create dataset
In this step, we will be inserting random financial sales data into our excel sheet. Below
is the screenshot of the random data we will use for our various graphs.

12
Line Chart

Line charts are most helpful in representing the trends. This can be very useful to
analyze the ups and downs in a range of data over a particular time span. The data
points in the chart are connected with the lines.
Note: To insert the graph, we need to select our dataset(or data table) and go to insert
and then in the chart section and insert whatever graph we want.

Bar Chart

Bar charts are used to represent the categorical data using the rectangular horizontal
bars with their height and length proportional to the data values it is used to represent.

13
Column Chart

Column charts are used to represent the data in a vertical chart using the vertical bars.
These graphs are mostly used for comparing the data points in the data. Column chart

14
Area Chart

Area charts are used to display graphically quantitative data. It is similar to the line chart
and based on it. The area between the lines is filled with color, and they are easy to
analyze as they are similar to the line chart showing ups and downs in the data.

Pie Chart

Pie charts are circular statistical graphs that are divided into slices of pie in the
proportion to data values to represent the data. They are commonly used to analyze the
percentage allocation of data points incomplete dataset.

15
 Fig6 – Pie Chart

Surface Chart

Surface charts are 3-dimensional charts that are used to represent the data in a 3-
dimensional landscape. They are mainly used to represent the large dataset. They
display a variety of data at the same time.

16
 UNIT-2
1. Market Segmenting based on categories

Market segmentation is a technique you can use to divide your customer base into
subgroups based on shared characteristics, such as age, income, hobbies and location.
The aim of segmentation is to tailor marketing efforts to your ideal customer profile
(ICP), i.e. the customers most likely to buy your product or service.

For example, a customer at an organic food shop is likely to have some or all of these
characteristics:

• Gender: Male or Female

• Age: 25-44
• Income: $100,000+
• Life stage: Home owner, no children
• Interests: Healthy eating, sustainability, sport

Rather than wasting your budget on campaigns that target a broad section of the
market, use messaging that resonates with a market segment made up of customers
with those attributes. You should also consider which channels are likely to drive the
highest engagement.

For this hypothetical organic food shop, a Pinterest campaign marketing products with
sustainable ingredients would be a strategic way to appeal to potential customers. Why
Pinterest and not another social channel? Well, not only do 9 out of 10 Pinners browse
the social media platform for purchase inspiration, it’s also used by up to 80% of
Millennial women and 40% of Millennial men.

Why is a market segmentation strategy important?

According to Bain and Company, businesses that tailor strategies to customer

segments generate yearly profit growth of 15% vs 5% for businesses that don’t. In short,
market segmentation can drive significant growth.

Segmentation techniques are major profit drivers because they help you define your
target market and qualify customers as users of your product or service. You can then
provide the personalization that 73% of shoppers now expect from brands – sending the
right message, through the right channel, at the right time.

Market segmentation also helps you to:

• Enter new markets

• Build products that solve customer pain points
• Streamline sales processes
• Drive more revenue from email marketing

17
 • Drive more revenue from social media marketing
• Increase eCommerce customer retention

4 Key market segmentation types & examples

1. Demographic segmentation: The who

Widely used by D2C ecommerce brands, demographic segmentation is one of the most
simple yet effective kinds of segmentation. You can use demographic segmentation to
split your audience and create customer personas based on objective information, such
as:

• Age
• Gender
• Income
• Level of education
• Religion
• Profession/role in a company

For example, if you segment your audience based on your customers’ income, you can
target them with products that fall within the constraints of their budget. If you’re a small
business or new to ecommerce, this is a straightforward type of segmentation with three
key advantages:

• It’s easy to collect information

• It’s simple to measure & analyze
• It’s cost-effective

Luxury goods manufacturer Montblanc worked with Yieldify to present a selection of

offers across their website. They lifted conversions by 118% with a Father’s Day deal
offering a free gift to customers spending over £200 – a threshold that took the
spending expectations of Montblanc’s target audience into account.

2. Psychographic segmentation: The why

Psychographic segmentation is the process of grouping people together based on

similar personal values, political opinions, aspirations and psychological characteristics.

For example, you can group customers according to their:

• Personality
• Hobbies

18
 • Social status
• Opinions
• Life goals
• Values and beliefs
• Lifestyle

Because these characteristics are subjective, psychographic is a harder segment to

identify – but it’s also the most valuable. The best places to gather data for
psychographic segmentation are through your audience analytic tools and social media,
but you should also use surveys, interviews and focus groups to strengthen your
customer understanding in this segment.

Through psychographic segmentation, you can get a deep insight into your customers’
likes, dislikes, needs, wants and loves. You can then create marketing campaigns that
resonate with their psychographic profile.

Yieldify’s personalization technology helps you create on-site experiences that capture
more psychographic information about your customers. For example, Heidi, a leading
online travel agency, collected information about their customers’ preferred skiing style
with layered lead capture experiences.

3. Geographic segmentation: The where

Geographic segmentation is the process of grouping customers based on where they

live and where they shop. People who live in the same city, state or zip code typically
have similar needs, mindsets and cultural preferences.

The real advantage of geographic segmentation is it provides an insight into what your
customers’ location says about a number of geo-specific variables, such as their:

• Climate
• Culture
• Language
• Population density – (urban vs rural)

As with all market segmentation methods, you’ll need to analyze your data to
understand how each factor influences your customers’ shopping behavior. For
example, people living in colder climates are likely to be in the market for winter clothing
and home heating appliances.

You can also use geographic segmentation to solve practical problems. With Yieldify,
global fashion brand Nautica used geo-targeting to show different customers when they
could guarantee Christmas delivery. Customers in rural areas had to order earlier than

19
urban areas, so Nautica’s delivery countdown timers adapted according to the
customer’s location.

4. Behavioral segmentation: The how

Behavioral segmentation is the process of grouping customers based on common

behaviors they exhibit when they interact with your brand.

For this type of segmentation, you can group your audience based on their:

• Spending habits
• Purchasing habits
• Browsing habits
• Interactions with your brand
• Loyalty to your brand
• Product feedback

Gather this objective data through your website analytics and you can identify patterns
in your customers’ behavior that help predict how they’ll interact with your brand in the
future.

Then you can leverage this hypothesis to provide personalized recommendations that
address your customers needs. For example, Spotify provides its users with curated
daily mixes based on the types of genres and artists they’ve listened to previously.

At Yieldify, we use behavioral segmentation to deliver highly relevant and targeted

campaigns based on behaviors including:

• Number of sessions to your website

• Number of pages visited
• Time spent on site
• URLs visited
• Page types visited
• Exit intent
• Inactivity
• Shopping cart value
• Campaign history
• Referral source

For example, Petal & Pup tailor their email lead generation messaging for visitors
arriving from

20
 ➢ Other types of market segmentation with examples

Demographic, psychographic, geographic, and behavioral are the four pillars of market
segmentation, but consider using these four extra types to enhance your marketing
efforts.

Technographic segmentation

Technographic segmentation groups people based on the technology they use and how
they interact with it. For example, you could segment early adopters of new tech and
target them when you launch a new product to market.

Alternatively, you could present customers with deals depending on what device they
use to shop online. For example, you could show Apple products to consumers who use
Safari.

Generational and life stage segmentation

Generational segmentation expands on demographic segmentation by grouping

customers based on their generation – Boomers, Gen Z, Millennials, etc.

You can also segment customers by factors including marital status, home ownership
and number of children.

For example, Bank of America successfully incorporated life stage segmentation in their
digital marketing strategy. They invited customers using their Family Life Banking
program to specify their life stage circumstances when they signed up. From there, they
directed customers to a microsite designed specifically for that segment.

Transactional segmentation

Using transactional segmentation you can group customers based on their previous
purchase interactions with your brand, including:

• Source of brand discovery – e.g. social media, organic

• Date of most recent order
• Total number of transactions
• Average order value

Firmographic Segmentation

Most of the market segments I’ve discussed focus on D2C brands, but firmographic
segmentation is a tool B2B companies use to create more impactful marketing
campaigns.

21
Firmographic segmentation is the process of analyzing and classifying B2B customers
based on shared company characteristics, and is similar to how D2C marketers use
demographic segmentation.

Use these 7 factors to create firmographic customer segments:

• Industry
• Location
• Company size
• Status
• Number of employees
• Performance
• Executive title
• Sales cycle stage

❖ Benefits of Market Segmentation

1. Better ROI from marketing

According to research from SALESmanago, 77% of marketing ROI comes from

segmented, targeted and triggered campaigns.

2. Set your omnichannel strategy

The deep insights you glean from a strong market segmentation process will help you
set an omnichannel strategy that better addresses your customers’ needs. For example,
if a high percentage of your customers are from Gen Z, tailor your messaging across all
channels to speak to their cultural and social reference points.

3. Build customer loyalty

Market segmentation helps you build the personalized journeys your customers are
craving. According to Accenture, 79% of consumers are more loyal to brands that use
personalization tactics.

4. Reach new markets

Segmentation helps brands identify gaps in the market. For example, world-renowned
camera company Canon took a 40% share in the low-end digital camera market by
spotting an opportunity to sell cameras to children without smartphones.

5. Reduce customer acquisition costs

The insights you glean from creating segmented customer personas will make your
marketing campaigns more effective. That can be said for both D2C and B2B
brands.For example, insurance giant Metlife set annual savings targets of $800

22
million after streamlining its sales process to consider the behaviors and attitudes of
each customer segment.

6. Build better products

With a clearer understanding of who your customers are, you can create products that
better serve their needs, desires and expectations.

7. Higher quality email & SMS leads

You’re more likely to get leads into your email and SMS databases by adapting your
opt-in form according to customer segments. With Yieldify, American footwear company
Rockport drove 30% more revenue per lead using a segmented approach to lead
capture.

8. Drive more revenue from email marketing

Marketers have increased open rates by 14.3% and revenue by up to 760% using
segmented email campaigns.

2. Identification of demographic and psychographic segmentation

Demographic and psychographic segmentation are common approaches used in
marketing to divide a market into distinct groups based on different characteristics and
traits. Here's how you can identify each type of segmentation:

1. Demographic Segmentation:

Demographic segmentation divides the market based on demographic variables such

as age, gender, income, education, occupation, marital status, ethnicity, and family size.
Here's how you can identify demographic segments:

- Age: Grouping customers into age brackets such as teenagers, young adults,
middle-aged, and seniors.
- Gender: Segmenting customers based on gender, such as male, female, or non-
binary.
- Income: Dividing customers into income categories such as low-income, middle-
income, and high-income earners.
- Education: Classifying customers based on their level of education, such as high
school diploma, bachelor's degree, or postgraduate education.

23
 - Occupation: Segmenting customers based on their occupation or industry, such as
professionals, blue-collar workers, or students.
- Marital Status: Grouping customers based on their marital status, such as single,
married, divorced, or widowed.
- Family Size: Segmenting customers based on the size of their household, such as
singles, couples, or families with children.
- Ethnicity: Classifying customers based on their ethnic or cultural background, such
as Caucasian, African American, Hispanic, Asian, etc.

2. Psychographic Segmentation:

Psychographic segmentation divides the market based on psychological variables

such as attitudes, values, lifestyles, interests, beliefs, personality traits, and behavior.
Here's how you can identify psychographic segments:

- Lifestyles: Grouping customers based on their activities, interests, and opinions

(AIO), such as outdoor enthusiasts, health-conscious individuals, or fashionistas.
- Values and Beliefs: Segmenting customers based on their core values, beliefs, and
principles, such as environmentalists, religious groups, or social activists.
- Personality Traits: Classifying customers based on their personality characteristics,
such as introverts, extroverts, risk-takers, or conscientious individuals.
- Interests and Hobbies: Grouping customers based on their interests, hobbies, and
leisure activities, such as sports fans, foodies, travelers, or gamers.
- Attitudes: Segmenting customers based on their attitudes and opinions towards
specific topics or issues, such as political affiliations, environmental concerns, or brand
preferences.
- Behavioral Patterns: Classifying customers based on their buying behavior, usage
patterns, brand loyalty, or product preferences, such as early adopters, brand loyalists,
or price-sensitive shoppers.

Identifying demographic and psychographic segments requires collecting relevant data

through surveys, market research, customer interviews, or analysis of existing customer
databases. By understanding the characteristics and traits of different segments,
marketers can tailor their products, services, and marketing strategies to meet the
specific needs and preferences of each segment, thereby maximizing customer
satisfaction and engagement.

24
4.Targeting strategies
There are various types of marketing targeting strategies, some of which are discussed
here:

1. Undifferentiated Marketing

Undifferentiated Marketing, also referred to as mass marketing, is a strategy where a

company chooses to ignore market segment differences and instead targets the entire
market with a single offer. This approach focuses on what consumers have in common
regarding their needs, rather than what sets them apart. It is worth noting, however, that
most contemporary marketers hold reservations about this strategy. Difficulties often
arise when attempting to develop a product or brand that can effectively satisfy the
diverse range of consumers’ needs. Furthermore, mass marketers often encounter
challenges when competing against more focused firms that excel at satisfying the
specific needs of distinct segments and niches.

2. Differentiated Marketing

Differentiated Marketing, also known as segmented marketing, is a strategy where a

firm targets multiple market segments and creates distinct offers for each segment. This
approach involves tailoring products or services to meet different customer groups’
specific needs and preferences.
There are several examples of differentiated marketing that can be observed. General
Motors aims to cater to various customer segments by producing cars that cater to
different budgets, purposes, and personalities. Hindustan Unilever and Procter &
Gamble offer multiple variants and brands of soaps and laundry detergents,
respectively, targeting different consumer preferences.
VF Corporation, a prominent company in the apparel industry, employs differentiated
marketing extensively. Their brands, such as Riders, Rustler, and Wrangler, target
specific segments within the jeanswear category. VF Corporation further divides its
brands into major segments, including Jeanswear, Imagewear (workwear), Outdoor,
and Sportswear, each serving distinct consumer needs. The company’s portfolio also
includes specialized brands like Nautica for high-end casual apparel inspired by sailing
and the sea, Vans for skate shoes, Reef for surf-inspired footwear and apparel, Lucy for
upscale activewear, and 7 for All Mankind for premium denim and accessories. Through
differentiated marketing, VF Corporation effectively taps into different consumer
aspirations and preferences, allowing them to cater to diverse customer segments in
various lifestyle categories.

25
3. Concentrated Marketing

Concentrated Marketing, also known as niche marketing, is a strategic approach where

a company chooses to target one or a few smaller segments or niches instead of
pursuing a small share of a larger market. This strategy allows the company to focus its
efforts on capturing a significant portion of a specific customer group.
By catering to niche markets, the company gains a deep understanding of the unique
needs and preferences within those segments, establishing a distinct reputation for
fulfilling those requirements. This specialized knowledge enables the company to fine-
tune its products, pricing, and marketing strategies to precisely meet the demands of
the carefully defined customer segments. Moreover, concentrated marketing enables
efficient resource allocation, as the company can concentrate its resources on serving
the customers it can serve best and most profitably.
In contrast to larger market segments that attract multiple competitors, niches are
smaller and may have limited competition, sometimes even with only one or a few
players. This provides an opportunity for smaller companies to focus their resources on
serving niche markets that might be overlooked or deemed unimportant by larger
competitors. Many successful companies initially establish themselves as niche players,
utilizing their expertise and unique offerings to gain a foothold against more resourceful
rivals. As they grow, these companies often expand into broader markets while
leveraging their initial success in the niche segment. For instance, a notable example is
Nirma, which began by exclusively targeting the market for low-priced detergent in rural
and semi-urban areas and eventually became one of India’s leading detergent brands.
Concentrated marketing empowers companies to leverage their specialization and
knowledge of niche markets to create a competitive advantage. By focusing on specific
customer needs, these companies can deliver tailored solutions and establish strong
relationships with their target audience. This approach allows for strategic growth,
effective resource allocation, and a more precise and efficient marketing strategy.

4. Real Marketing

Real marketing, often referred to as genuine marketing or authentic marketing, is a

concept that emphasizes the importance of building meaningful and honest connections
with customers. It involves creating and implementing marketing strategies that
genuinely reflect the values, mission, and identity of the company.
In real marketing, the focus goes beyond superficial advertising techniques and empty
promises. Instead, it revolves around understanding the needs, desires, and aspirations
of the target audience and developing products, services, and messaging that resonate
with them on a deeper level. Real marketing is driven by authenticity, transparency, and
integrity.
This approach involves building trust and credibility with customers by delivering on
promises, providing value, and engaging in ethical business practices. Real marketing
aims to establish long-term relationships with customers based on mutual respect and

26
shared values. It involves actively listening to customer feedback, addressing concerns,
and continuously improving products and services to meet customer expectations.
Real marketing also recognizes the power of storytelling and emotional connections. It
leverages narratives and experiences to create meaningful brand associations and
forge emotional bonds with customers. By conveying the company’s genuine purpose
and passion, real marketing seeks to inspire and engage customers on an emotional
level. Ultimately, real marketing is about fostering authenticity, trust, and customer-
centricity. It is a holistic approach that goes beyond promotional tactics and focuses on
creating real value for customers, building strong relationships, and nurturing a genuine
brand identity.

5. Micromarketing

Micromarketing is a marketing approach that involves tailoring products and marketing

programs to cater to the unique preferences and needs of specific individuals and
locations. Unlike differentiated or concentrated marketing that focuses on specific
market segments or niches, micromarketing goes a step further by customizing
offerings to suit individual customers.
The example of Zappos demonstrates micromarketing in action. Zappos, an online shoe
retailer, emphasizes creating value for its target customers through personalized
experiences. They offer features like free and fast shipping, easy returns, and
exceptional customer service. By understanding the individual preferences of
customers, Zappos aims to provide a tailored and satisfying shopping experience.
Micromarketing recognizes that each customer is unique and aims to cater to their
specific tastes and needs. It goes beyond mass customization by focusing on delivering
personalized offerings and experiences to individual customers. By treating each
customer as an individual, micromarketing seeks to build strong customer relationships
and enhance customer satisfaction. Overall, micromarketing is a customer-centric
approach that acknowledges the importance of catering to the specific preferences and
needs of individual customers. It involves tailoring products, services, and marketing
efforts to create unique and personalized experiences, fostering customer loyalty and
satisfaction.

6. Local Marketing

Local marketing is a strategic approach that involves customizing brands and

promotional efforts to meet the unique needs and preferences of local customer groups,
including neighbourhoods and individual stores. It allows companies to create tailored
experiences that resonate with the specific characteristics of each local market. A
notable example of successful local marketing can be seen in Walmart’s approach.
They adapt their merchandise and store formats to cater to the distinct preferences and
demands of customers in different neighbourhoods.

27
With advancements in communication technology, a new era of location-based
marketing has emerged. Marketers now can reach customers wherever they are,
leveraging mobile phone services and GPS devices. This enables them to provide
relevant information and offers to customers when they are near their stores and
actively seeking to make a purchase decision. Studies have shown that customers
perceive location-specific information as valuable rather than intrusive advertising,
enhancing the overall customer experience.
For instance, Starbucks has embraced location-based marketing by introducing a store
locator service for mobile devices. Customers can easily find the nearest Starbucks
shop by sending a text message with their zip code and receiving a prompt response
with up to three nearby store locations. This service not only helps customers locate
stores conveniently but also positions Starbucks as a brand that values customer
feedback and actively listens to their preferences. As the use of GPS devices continues
to grow, the potential for location-based marketing is expected to expand significantly.

7. Individual marketing

Individual marketing, also known as one-to-one marketing or personalized marketing, is

a customer-centric approach that focuses on tailoring products and marketing programs
to meet the specific needs and preferences of individual customers. Unlike traditional
mass marketing, which treats customers as a homogeneous group, individual marketing
recognizes and embraces the uniqueness of each customer.
In the past, customers were treated as individuals by craftsmen who created custom
suits, shoes, and furniture based on their specific requirements. With the advancement
of technology, companies now can engage in customized marketing on a larger scale.
This has given rise to the concept of mass customization, where firms interact with
customers one-on-one to design and deliver products and services that are uniquely
tailored to their individual needs.
For example, companies like Dell allow customers to configure their custom computers,
while Branches Hockey produces personalized hockey sticks based on individual
preferences. Nike offers the option to personalize sneakers with various colours and
custom embroidery, and websites like myMMs.com enable customers to order batches
of M&Ms with their photos and personal messages printed on each candy.
Moreover, individual marketing extends beyond product customization. Marketers are
finding innovative ways to personalize promotional messages, such as using facial
recognition technology to deliver targeted ads based on individual shopper attributes. In
the business-to-business sector, companies like John Deere offer highly configurable
products, allowing customers to customize seeding equipment to their specific
requirements.

28
5. Profiling the customers using clustering analysis
Profiling customers using clustering analysis involves grouping customers into distinct
segments based on similarities in their characteristics or behavior. Clustering algorithms
identify patterns and similarities in the data without the need for predefined labels.
Here's how you can profile customers using clustering analysis:

1. Data Collection and Preparation:

- Collect relevant data about your customers, including demographic information (age,
gender, income), psychographic variables (lifestyles, interests, attitudes), and
behavioral data (purchase history, website interactions, etc.).
- Clean and preprocess the data by handling missing values, standardizing or scaling
numerical variables, and encoding categorical variables.

2. Feature Selection:
- Select the features (variables) that are relevant for clustering analysis. This may
include demographic, psychographic, and behavioral variables that you believe
influence customer segmentation.

3. Choose a Clustering Algorithm:

- Select an appropriate clustering algorithm based on the nature of your data and the
desired outcomes. Common clustering algorithms include K-means clustering,
hierarchical clustering, DBSCAN, and Gaussian mixture models.
- Consider factors such as scalability, interpretability, and the ability to handle different
types of data (e.g., numerical, categorical).

4. Determine the Number of Clusters:

- Decide on the optimal number of clusters (segments) for your data. You can use
techniques such as the elbow method, silhouette score, or dendrogram visualization to
identify the appropriate number of clusters.

5. Apply the Clustering Algorithm:

- Apply the chosen clustering algorithm to the prepared data to group customers into
clusters based on their similarities.
- Adjust parameters of the clustering algorithm as needed to optimize the clustering
results.

29
 6. Interpret the Clusters:
- Analyze the characteristics and behaviors of customers within each cluster to
understand the differences and similarities between segments.
- Create customer profiles for each cluster by identifying key traits, preferences, and
behaviors that define the segment.

7. Validation and Evaluation:

- Validate the clustering results to ensure that the identified clusters are meaningful
and useful for decision-making.
- Evaluate the quality of clustering using metrics such as silhouette score, Davies–
Bouldin index, or visual inspection of cluster separation.

8. Apply Insights to Marketing Strategies:

- Use the customer profiles and insights gained from clustering analysis to tailor
marketing strategies, product offerings, and communication channels to each customer
segment.
- Implement targeted marketing campaigns, personalized recommendations, and
customer engagement initiatives to better meet the needs and preferences of each
segment.

By profiling customers using clustering analysis, businesses can gain deeper insights
into their customer base, improve customer segmentation, and develop more effective
marketing strategies that drive customer satisfaction and loyalty.
6. market basket analysis

• TechTarget Contributor

Market basket analysis is a data mining technique used by retailers to increase sales by
better understanding customer purchasing patterns. It involves analyzing large data
sets, such as purchase history, to reveal product groupings, as well as products that are
likely to be purchased together.

The adoption of market basket analysis was aided by the advent of electronic point-of-
sale (POS) systems. Compared to handwritten records kept by store owners, the digital
records generated by POS systems made it easier for applications to process
and analyze large volumes of purchase data.

30
Implementation of market basket analysis requires a background in statistics and data
science, as well as some algorithmic computer programming skills. For those without
the needed technical skills, commercial, off-the-shelf tools exist.

Types of market basket analysis

Retailers should understand the following types of market basket analysis:

• Predictive market basket analysis. This type considers items purchased in

sequence to determine cross-sell.
• Differential market basket analysis. This type considers data across different
stores, as well as purchases from different customer groups during different times of
the day, month or year. If a rule holds in one dimension, such as store, time period
or customer group, but does not hold in the others, analysts can determine the
factors responsible for the exception. These insights can lead to new product offers
that drive higher sales.
Algorithms for market basket analysis
In market basket analysis, association rules are used to predict the likelihood of
products being purchased together. Association rules count the frequency of items that
occur together, seeking to find associations that occur far more often than expected.

Algorithms that use association rules include AIS, SETM and Apriori. The Apriori
algorithm is commonly cited by data scientists in research articles about market basket
analysis and is used to identify frequent items in the database, then evaluate their
frequency as the datasets are expanded to larger sizes.

The arules package for R is an open source toolkit for association mining using the R
programming language. This package supports the Apriori algorithm, along with the
following other mining algorithms:

• arulesNBMiner
• Opusminer
• RKEEL
• RSarules
Examples of market basket analysis
Amazon's website uses a well-known example of market basket analysis. On a product
page, Amazon presents users with related products, under the headings of "Frequently
bought together" and "Customers who bought this item also bought."

Market basket analysis also applies to bricks-and-mortar stores. If analysis showed that
magazine purchases often include the purchase of a bookmark, which could be

31
considered an unexpected combination as the consumer did not purchase a book, then
the bookstore might place a selection of bookmarks near the magazine rack.

Benefits of market basket analysis

Market basket analysis can increase sales and customer satisfaction. Using data to
determine that products are often purchased together, retailers can optimize product
placement, offer special deals and create new product bundles to encourage further
sales of these combinations.

These improvements can generate additional sales for the retailer, while making the
shopping experience more productive and valuable for customers. By using market
basket analysis, customers may feel a stronger sentiment or brand loyalty toward the
company.

Basket analysis, also known as market basket analysis or association analysis, is a data
mining technique used to identify relationships between items purchased together. It is
commonly applied in retail and e-commerce settings to understand customer
purchasing behavior and optimize product placement, promotions, and cross-selling
strategies. Here's how basket analysis works:

1. Transaction Data Collection: The first step in basket analysis is to collect

transactional data, typically in the form of sales records or transaction logs. Each
transaction contains information about the items purchased together in a single
transaction.

2. Create Transaction-Item Matrix: Convert the transaction data into a binary matrix,
often referred to as a transaction-item matrix or a market basket matrix. In this matrix,
each row represents a transaction, and each column represents an item. The matrix
elements are binary values indicating whether each item was present (1) or absent (0)
in each transaction.

3. Calculate Support: Calculate the support for each item or itemset, which represents
the proportion of transactions containing that item or itemset. Support is calculated as
the number of transactions containing the item or itemset divided by the total number of
transactions.

4. Generate Association Rules: Use the transaction-item matrix to generate association

rules that indicate relationships between items. Association rules are typically in the
form of "if-then" statements, where the antecedent (left-hand side) represents the items

32
 being purchased together, and the consequent (right-hand side) represents the items
likely to be purchased as a result.

5. Calculate Confidence and Lift: For each association rule, calculate the confidence
and lift to assess the strength and significance of the relationship between the items.
Confidence measures the probability of purchasing the consequent given the
antecedent, while lift measures the degree of association between the antecedent and
consequent, taking into account the baseline probability of purchasing the consequent.

6. Filter and Interpret Rules: Filter the association rules based on minimum support,
minimum confidence, and minimum lift thresholds to focus on meaningful and
actionable insights. Interpret the rules to understand purchasing patterns and identify
opportunities for product placement, promotions, and cross-selling.

7. Apply Insights: Use the insights gained from basket analysis to optimize marketing
strategies, such as product bundling, recommendation engines, targeted promotions,
and layout design. By understanding which items are frequently purchased together,
businesses can enhance the customer shopping experience, increase sales, and
improve customer satisfaction.

Basket analysis provides valuable insights into customer behavior and can help
businesses make data-driven decisions to maximize revenue and profitability.

6. Positioning analytics

Positioning analysis is a process of analyzing how a company's current brand is

perceived by the marketplace. When identifying target market opportunities, a
company needs to compare the way its brand is perceived with the needs of the
targeted market. Small businesses especially want to target markets that offer a good
opportunity for success.

Positioning Analysis

1. A position is the way a company's brand fits into targeted market segments relative to
competitors. Companies try to established differentiated brand benefits to stand out
from competitors. Ultimately, customers decide how to react to a company's brand and
position relative to others. When conducting positional analysis, the key is to
determine what position the company intends to have and how its brand is actually
perceived by customer markets.

33
 Target Markets

1. Target markets are smaller, discrete segments of customers companies have

identified or pulled out of a larger target market. The point in targeting a specific group
of customers with similar traits is to focus marketing messages to impact your top
customers and to avoid waste in marketing to people that would not buy. Companies
want to target the most profitable potential customers first and follow up with other
market segments that offer good opportunities.

Perceptual Mapping

1. One of the ways a company can analyze its brand's position relative to potential target
markets is through a process called perceptual mapping. As outlined in a report titled
"Positioning Analysis: Marketing Engineering Technical Note" by Decision Pro Inc.,
perceptual map is a visual process of mapping the potential connection between what
a company and its brand offers relative to what particular market segments want. The
map includes an analysis of what your brand intends to offer, what a potential target
market needs, and how that target market perceives your brand as a possible option
for meeting those needs.

Positioning analytics involves analyzing market positioning strategies to understand how

a brand is perceived relative to its competitors and target market. Here's how
positioning analytics works:

1. Define Market Segments: Identify the relevant market segments based on factors
such as demographics, psychographics, geographic location, behavior, and needs.
Market segments should be distinct, measurable, and accessible.

2. Gather Data: Collect data from various sources to understand customer perceptions,
preferences, and behaviors related to the product or service category. This may include
surveys, focus groups, social media monitoring, customer reviews, and competitor
analysis.

3. Identify Key Attributes: Determine the key attributes or characteristics that customers
consider when evaluating products or services in the market. These attributes could
include quality, price, features, convenience, reliability, brand reputation, and customer
service.

4. Positioning Mapping: Create positioning maps to visualize how brands are perceived
relative to each other based on key attributes. Positioning maps can be two-dimensional
(e.g., quality vs. price) or multidimensional, using perceptual mapping techniques to
represent multiple attributes simultaneously.

34
5. Competitive Analysis: Analyze competitors' positioning strategies to understand their
strengths, weaknesses, and market positioning relative to your brand. Identify
opportunities to differentiate your brand and fill gaps in the market.

6. Perceptual Mapping: Use statistical techniques such as factor analysis, cluster

analysis, or multidimensional scaling to develop perceptual maps that represent the
underlying structure of customer perceptions. These maps help identify patterns and
clusters of brands based on similarity in customer perceptions.

7. Segmentation Analysis: Segment the market based on customer perceptions and

preferences to identify distinct groups of customers with similar needs and preferences.
Analyze each segment's positioning to tailor marketing strategies and messaging to
effectively reach and resonate with each segment.

8. Brand Positioning Strategy: Develop a brand positioning strategy based on insights

from positioning analytics. Define the unique value proposition and positioning
statement that communicates the brand's distinctive benefits and differentiation relative
to competitors.

9. Monitor and Evaluate: Continuously monitor market dynamics, customer preferences,

and competitor actions to evaluate the effectiveness of the brand positioning strategy.
Adjust positioning strategies as needed to adapt to changes in the market and maintain
relevance with target customers.

Positioning analytics provides valuable insights into how brands are perceived in the
market and helps inform strategic decisions related to brand positioning, marketing
messaging, and competitive differentiation. By understanding customer perceptions and
preferences, businesses can develop compelling positioning strategies that resonate
with their target audience and drive competitive advantage.

❖ Perceptual Maps

What is product positioning?

35
Positioning defines what makes your product different from market alternatives, so you
can focus on nailing your product messaging to effectively explain its value to potential
customers.

In the words of April Dunford, positioning expert:

“Product positioning describes the specific market you intend to win and why you are
uniquely qualified to win it.”

As part of the positioning process, PMMs often create a product marketing map – but
what are they, and how can they improve your positioning strategy?

In this article, we’ll focus on:

• What a positioning map is

• What a perceptual product positioning map is
• Positioning map vs. perceptual product positioning map
• Why they’re useful
• How to create a perceptual product positioning map

As the saying goes “time waits for no man”, so without further ado…

What is a Positioning Map?

Forget fumbling in the dark, positioning maps shine a light when you need it most.
Essentially, a positioning map is a visual tool used to analyze how your product or
service compares to competitors in the minds of customers.

These maps plot your brand and key competitors on a graph, with the axes representing
important attributes like price, quality, and features. The goal is to identify white space
opportunities and areas where you can differentiate.

An effective positioning map highlights the unique value proposition of your offering,
which means you can gain actionable insights to craft killer messaging that speaks to
your differentiating value. When creating a positioning map, it's critical to focus on the
key decision drivers for your target audience.

Thoughtfully selecting attributes to plot will ensure your map provides meaningful
competitive insights. When creating your map, laser focus on what your customers truly
care about, selecting specific attributes to plot will ensure your map provides the
meaningful competitive insights needed to win their hearts and minds.

36
What is a perceptual product positioning map?

A perceptual product positioning map is a graphical representation of how your product

compares with the competition. It’s a two-dimensional chart comprising a horizontal and
vertical axis that represents key attributes such as price, features, and any relevant
criteria that can be used for comparison purposes.

Positioning strategies vary from company to company. But irrespective of the approach
you adopt, you need to step into the shoes of your customer, see the buying process
through their perspective, and ask: “How does my product compare with market
alternatives?”

Positioning maps vs. perceptual maps

What you intend and what customers believe may be worlds apart. A positioning map
shows your intended position – where you want your product to be perceived.

37
Perceptual maps reveal where customers actually perceive you against your
competitors.

Reality check – the two views often clash. But perceptual maps are there to reveal
areas where consumer perceptions don't align with your desired positioning. This is no
bad thing – it’ll inform your messaging and can highlight opportunities to shift
perceptions.

Together, positioning maps and perceptual product positioning maps form a dynamic
duo to guide strategy. Perceptual maps expose gaps between desired and actual
position. This intelligence fuels messaging to shift opinions and correct course. While a
positioning map takes a strategy angle, a perceptual map provides an unbiased
consumer perspective. Comparing the two gives a complete competitive picture and
powerful input for positioning success.

Why do you need a perceptual product positioning map?

A perceptual product positioning map can provide invaluable support for your
positioning strategy and play a significant role in helping you achieve your primary
target: To identify a niche in the market, exploit it, and create a kick-ass product your
competitors can’t match.

When completed thoroughly and accurately, they can consolidate your current
knowledge about your personas, or better still, provide you with new insights to help you
understand consumer behavior, market trends, and gaps in the market.

So, now you know the what, and the why, let’s move on to the how

7. MDS

Multidimensional Scaling (MDS) is a statistical technique used in marketing analysis to

visualize and analyze the perceptual structure of consumer preferences, brand
positioning, and product attributes. MDS helps marketers understand how consumers
perceive similarities and differences among products, brands, or other stimuli by
mapping them into a low-dimensional space while preserving their pairwise
dissimilarities or similarities. Here's how MDS is used in marketing analysis:

1. Data Collection: Gather data on consumer perceptions, preferences, or evaluations

related to brands, products, or attributes. This data could come from surveys, rating
scales, choice experiments, or other sources.

38
2. Define Dissimilarity or Similarity Matrix: Construct a dissimilarity or similarity matrix
based on pairwise comparisons of the stimuli (e.g., brands, products) by consumers.
Each cell in the matrix represents the perceived dissimilarity or similarity between two
stimuli, typically measured using rating scales or other preference indicators.

3. Choose MDS Algorithm: Select an appropriate MDS algorithm based on the type of
data and analysis goals. Common MDS algorithms include classical MDS (cMDS),
metric MDS, non-metric MDS, and multidimensional unfolding.

4. Dimensionality Reduction: Apply the chosen MDS algorithm to the dissimilarity or

similarity matrix to project the stimuli into a low-dimensional space (usually 2D or 3D).
The goal is to find a configuration of points in the low-dimensional space that best
represents the original pairwise dissimilarities or similarities.

5. Interpretation and Visualization: Interpret the MDS solution to understand the spatial
relationships among the stimuli. Visualize the results using scatter plots or other
graphical techniques, where each point represents a stimulus, and the distances
between points reflect their pairwise dissimilarities or similarities.

6. Brand or Product Positioning: Analyze the MDS plot to identify clusters, patterns, or
trends that reveal insights into brand positioning, consumer preferences, or product
attributes. For example, brands or products that are closer together in the MDS plot are
perceived as more similar by consumers.

7. Segmentation and Targeting: Use MDS results to segment the market based on
consumer perceptions and preferences. Identify distinct consumer segments with
similar preferences or perceptions and develop targeted marketing strategies tailored to
each segment.

8. Competitive Analysis: Compare the positioning of your brand or products with

competitors in the MDS plot to assess competitive advantages, identify areas for
differentiation, and inform strategic decision-making.

9. Validation and Sensitivity Analysis: Validate the MDS results using statistical
techniques and sensitivity analysis to assess the stability and robustness of the findings.
Consider alternative MDS configurations and test their sensitivity to different input
parameters or assumptions.

39
By applying MDS in marketing analysis, businesses can gain valuable insights into
consumer perceptions, preferences, and brand positioning, enabling them to make
more informed decisions about product development, marketing strategies, and
competitive positioning.

8. Developing differentiation strategies

Developing differentiation strategies involves identifying unique attributes or
characteristics of a product, service, or brand that set it apart from competitors and
create value for customers. Here are steps to develop effective differentiation strategies:

1. Market Analysis:
- Conduct a thorough analysis of the market landscape, including competitors, target
audience, and industry trends.
- Identify key competitors and analyze their products, pricing, distribution channels,
marketing strategies, and strengths and weaknesses.
- Understand the needs, preferences, and pain points of your target audience through
market research, surveys, and customer feedback.

2. SWOT Analysis:
- Perform a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to
identify your company's internal strengths and weaknesses, as well as external
opportunities and threats in the market.
- Identify areas where your company can capitalize on its strengths and opportunities
to differentiate itself from competitors.

3. Unique Value Proposition (UVP):

- Develop a unique value proposition that clearly communicates the unique benefits
and value your product or service offers to customers.
- Highlight the key features, advantages, and benefits that make your offering different
and superior to alternatives in the market.

4. Product Differentiation:
- Innovate and differentiate your product or service by adding unique features,
functionalities, or capabilities that address unmet customer needs or pain points.

40
 - Focus on areas such as product quality, performance, reliability, durability, design,
customization options, and user experience.

5. Service Differentiation:
- Provide exceptional customer service and support that goes above and beyond
customer expectations.
- Offer personalized experiences, fast response times, knowledgeable staff,
convenient service channels, and hassle-free returns or refunds.

6. Brand Differentiation:
- Develop a strong brand identity that reflects your company's values, mission, and
personality.
- Communicate your brand story, ethos, and unique selling points through branding
elements such as logos, slogans, messaging, and visual identity.

7. Price Differentiation:
- Differentiate your offering based on pricing strategies such as premium pricing, value
pricing, or skimming pricing.
- Position your product or service as a high-value proposition by emphasizing quality,
exclusivity, or added benefits that justify a higher price.

8. Distribution Differentiation:
- Differentiate your distribution channels by offering unique distribution methods or
partnerships that enhance accessibility, convenience, or reach.
- Explore alternative distribution channels such as online marketplaces, subscription
services, or direct-to-consumer sales.

9. Marketing Differentiation:
- Develop creative and targeted marketing campaigns that highlight your unique value
proposition and resonate with your target audience.
- Differentiate your messaging, positioning, and branding to stand out in a crowded
market and capture attention.

10. Continuous Improvement:

41
 - Monitor market trends, customer feedback, and competitive activities to identify
opportunities for further differentiation and improvement.
- Continuously innovate and evolve your product, service, and marketing strategies to
stay ahead of competitors and meet changing customer needs.

By developing effective differentiation strategies, businesses can create a compelling

competitive advantage, attract and retain customers, and drive long-term success in the
market.

42
 UNIT-3

1. Collaborative filtering
Collaborative filtering is a recommendation system technique used to predict a user's
interests or preferences based on the preferences of similar users. It relies on the
assumption that users who have expressed similar preferences in the past are likely to
have similar preferences in the future. Collaborative filtering does not require explicit
knowledge about items or users; instead, it identifies patterns and similarities in user
behavior to make recommendations. Here's how collaborative filtering works:

1. User-item Matrix:
- Represent user preferences as a matrix where rows correspond to users and
columns correspond to items (e.g., movies, products).
- Each cell in the matrix represents a user's rating or interaction with an item. If a user
has not rated or interacted with an item, the cell may be empty or filled with a
placeholder value.

2. Similarity Calculation:
- Calculate the similarity between users or items based on their ratings or interactions.
Common similarity measures include cosine similarity, Pearson correlation coefficient,
and Jaccard similarity.
- For user-based collaborative filtering, similarity is calculated between pairs of users
based on their ratings for shared items.
- For item-based collaborative filtering, similarity is calculated between pairs of items
based on the ratings they received from shared users.

3. Neighborhood Selection:
- Select a neighborhood of similar users or items for each target user or item. The size
of the neighborhood may be determined based on a fixed number of nearest neighbors
or a threshold similarity value.
- Neighborhood selection helps reduce computational complexity and improve
recommendation quality by focusing on the most similar users or items.

4. Prediction:

43
 - Predict the user's rating or preference for items they have not yet rated or interacted
with based on the ratings of the selected neighborhood.
- For user-based collaborative filtering, predictions are typically calculated as weighted
averages of the ratings of similar users, where the weights are based on the similarity
between users.
- For item-based collaborative filtering, predictions are calculated as weighted
averages of the ratings of similar items, where the weights are based on the similarity
between items.

5. Top-N Recommendations:
- Generate top-N recommendations for each user by selecting the highest predicted
ratings for items they have not yet rated or interacted with.
- Present the recommended items to the user through a user interface, website, or
mobile app, along with additional information such as item details, ratings, and reviews.

6. Feedback Loop:
- Collect feedback from users on the recommended items to continuously improve the
recommendation system.
- Incorporate user feedback into the recommendation process through techniques
such as implicit feedback, user ratings, or explicit feedback surveys.

Collaborative filtering is widely used in e-commerce, streaming services, social media

platforms, and other applications to personalize recommendations and improve user
engagement. It enables businesses to leverage the collective wisdom of users to make
accurate and relevant recommendations, thereby enhancing the user experience and
driving customer satisfaction.

2. Classifying customers using linear discriminant analysis

Linear Discriminant Analysis (LDA) is a statistical technique used for dimensionality
reduction and classification. In the context of classifying customers, LDA can be used to
identify patterns and relationships in customer data and classify customers into
predefined categories or segments based on their characteristics. Here's how you can
classify customers using Linear Discriminant Analysis:

44
1. Data Preparation:
- Gather customer data from various sources, such as demographic information,
purchase history, behavioral data, and any other relevant variables.
- Preprocess the data by handling missing values, encoding categorical variables, and
scaling or standardizing numerical variables if needed.

2. Define Target Classes:

- Determine the target classes or segments into which you want to classify customers.
These could be predefined segments based on business objectives, such as high-value
customers, low-value customers, loyal customers, etc.

3. Feature Selection:
- Select the features (independent variables) that are relevant for classifying
customers into the target classes. These features could include demographic variables,
purchase behavior, engagement metrics, etc.

4. Dimensionality Reduction with LDA:

- Apply Linear Discriminant Analysis to the customer data to reduce the dimensionality
of the feature space while preserving class discriminatory information.
- LDA seeks to find a linear combination of features that best separates the different
classes or segments in the data.
- The output of LDA is a set of linear discriminants (components) that maximize the
separation between classes.

5. Model Training:
- Train a classification model using the transformed features obtained from LDA and
the target classes.
- Common classification algorithms for customer classification include logistic
regression, decision trees, random forests, support vector machines (SVM), or neural
networks.

6. Model Evaluation:
- Evaluate the performance of the classification model using appropriate metrics such
as accuracy, precision, recall, F1-score, or ROC-AUC.

45
 - Use techniques such as cross-validation to assess the generalization performance of
the model and ensure it is not overfitting the training data.

7. Customer Classification:
- Use the trained classification model to predict the class labels or segments for new
or unseen customer data.
- Each customer will be assigned to one of the predefined classes based on the
model's predictions.

8. Post-Analysis Interpretation:
- Interpret the results of customer classification to understand the characteristics and
behaviors that differentiate customers in each segment.
- Use insights gained from customer classification to tailor marketing strategies,
personalized recommendations, and customer engagement initiatives for each
segment.

Linear Discriminant Analysis is particularly useful when dealing with multi-class

classification problems and when the classes are well-separated in the feature space.
By leveraging LDA for customer classification, businesses can gain valuable insights
into customer segmentation and effectively target and personalize marketing efforts to
different customer segments.

3. Product development using conjoint analysis

Conjoint analysis is a powerful technique in product development for understanding how
consumers make trade-offs among different product attributes. Here's how it can be
used in the product development process:

1. Identifying Attributes: Conjoint analysis starts with identifying the key attributes of a
product that influence consumers' purchasing decisions. These attributes could include
things like price, features, brand, design, and so on.

2. Defining Attribute Levels: For each attribute, different levels are defined. For
example, if the attribute is "price," levels could be low, medium, and high. If the attribute
is "screen size" for a smartphone, levels could be small, medium, and large.

46
3. Creating Choice Sets: Conjoint analysis involves presenting consumers with
hypothetical product profiles that vary in terms of the levels of the attributes. These
profiles are combined into choice sets, and consumers are asked to choose their
preferred option from each set.

4. Collecting Data: Through surveys or other means, data is collected on consumers'

choices. This data is then analyzed to understand the relative importance of different
attributes and the preferences for specific levels within each attribute.

5. Estimating Utility Functions: Conjoint analysis uses statistical techniques to estimate

utility functions, which quantify the value consumers place on different levels of each
attribute. These utility functions can then be used to predict consumer preferences for
new product configurations that were not explicitly tested.

6. Optimizing Product Design: Armed with insights from the conjoint analysis, product
developers can optimize product designs to better meet consumer preferences. This
might involve adjusting features, pricing strategies, or other elements of the product to
maximize its appeal to the target market.

7. Market Segmentation: Conjoint analysis can also be used to identify segments within
the market with distinct preferences. This allows for targeted product development
strategies tailored to different consumer segments.

Overall, conjoint analysis provides a structured approach to understanding consumer

preferences and guiding product development decisions, ultimately leading to products
that better align with what consumers value most.

4. Measuring effectiveness of advertising

Measuring advertising effectiveness starts with understanding the impact and
reach of your advertising campaign. With this in mind, here are seven ways to get
it right from the beginning.

Set Clear Goals

Avoid any ambiguity by making sure your goals are clear from the outset.
This is where SMART marketing goals come into play. Short for Specific,
Measurable, Achievable, Relevant, and Timely, this framework is ideal for
successful goal setting.

47
Specific
First of all, ensure your goals are specific, precise and definite. So, instead of just
wanting to increase your number of Twitter followers, set a goal of increasing them
by 10% within one month.

Measurable
Goals must be measurable, so putting metrics in place will seamlessly quantify
and track the progress of your specific goals.

Achievable
Are your goals realistic? Identify and utilise available resources, define issues and
expectations, and plan the most effective route forward. This could result in
scaling objectives down for goals to remain achievable.

Relevant
Setting goals in line with your values and long-term targets is another important
point to consider. So, make sure your goals align with your broader business
goals, too.

Timely
Goals must also have a deadline to achieve a particular metric. It's OK to be
ambitious, but remember to be realistic too!

If you're looking for more flexibility, greater collaboration, and a diverse range of
perspectives, running a virtual brainstorming session with a remote team is also
worth investigating.

Site Traffic Analysis

By comparing site traffic before and after the campaign, you can see if more
people are visiting your website.

From finding and analysing competitor keywords to optimising page speed, Search
Engine Optimisation (SEO) also plays a key role in maximising advertising
effectiveness. After all, search engines offer the highest conversion rate for
advertising. Google has the highest conversion rate (8.2%), followed by Bing
(7.6%) and then Facebook.

You may also wish to consider domain redirect traffic advertising. This happens
when a domain name is purchased and 'parked' for future development. For
example, you could purchase a .ai domain from Only Domains and redirect your
Anguilla-based users to promoted landing pages of interest.

48
Assess Lead Quality

How likely are your leads to turn into customers? This is determined by your lead
quality. You can gauge the quality of a lead by:

• Assessing the types of pages they visit

• Time spent on every page
• Learning how they discovered the page

Scrutinise Key Metrics

Analysing your campaign's performance pre-campaign and post-campaign will

ultimately establish what worked and what needs to be changed.

Some of the most effective product metrics that can be used to effectively
measure advertising effectiveness include the following:

Average Click-Through rate (CTR)

The ratio of clicks on your link to impressions your link generates.

For example, video advertising gets the most click-throughs. A recent HubSpot
survey backs this up, with 92% of video marketers reporting video advertising
gives them a positive ROI, up from 87% in 2022.

Conversion Rates
The number of users who’ve completed a desired action. This is ca lculated by
taking the total number of users who convert, dividing it by the overall size of the
audience, and then translating it into a percentage.

Did you know the latest market insights from Statista reveal mobile e-commerce
sales now make up 60% of all global e-commerce sales? So, it’s essential to take
mobile advertising conversion rates into consideration, too.

Cost per Click (CPC)

Pay per click is calculated by dividing the overall cost of your ad spend by the
number of clicks your ads have received.

Return on Ad Spend (ROAS)

Referring to the amount of revenue earned for every cent spent on a campaign,
ROAS is calculated by dividing the revenue applied to your ad campaign by the
cost of the campaign.

Return on Investment (ROI)

Not to be confused with ROAS, ROI is the profit generated per ad dollar.

49
Revenue
Regularly review your revenue goals to check they are correctly aligned with your
marketing strategy.

Gather Survey Data

The strength of audience survey data cannot be underestimated. By asking the

right questions, you'll be able to find out how many people saw your ad, find out
viewers' opinions on the campaign and verify if potential leads find your brand
memorable.

Generating lots of ideas just like a discussion forum, data ingestion processing is
also worth considering for transporting data from one or more sources to a target
site for further analysis.

Review Omnichannel Marketing Strategies

According to PWC's latest study, the number of companies investing in a multi-

channel experience jumped from 20% to more than 80% since 2012.

Also known as the 'omnichannel' experience, the cross channel marketing method
unifies your message across all platforms for a smoother, more interactive
experience for everyone involved. It's about creating a seamless, personalised
story about your brand across multiple channels. However, getting the mix of
media correct for your specific audience can be a daunting task.

As well as a variety of intuitive marketing tools, ways to measure the success of

your omnichannel marketing strategy include:

• Cost Per Impression (CPM)

• Social media engagement metrics, e.g. likes, shares, and comments
• Customer Lifetime Value (LTV)
• Churn rate

When we think of ‘big brands’ who’ve built a successful cross channel marketing
strategy, coffee-giant Starbucks really stands out. By combining a fun-to-use
rewards app and a free rewards card with the latest mobile payment technology,
Starbucks’ omnichannel strategy ticks all the boxes for modern consumers on the
go.

Many of the biggest brands out there are aligning effective cross-
channel marketing strategies with a variety of advertising effectiveness techniques
to propel accurate results. In line with key advertising effectiveness principles,

50
effective cross channel marketing strategies should focus on visibility,
measurement, personalisation, and optimisation for the best possible outcome.

Unite Campaign Results With Revenue

Of course, the ultimate outcome is to increase revenue. But shareholders and

directors aren't interested in the results of one ad, they want to know exactly how it
will influence long-term financial results.

Thankfully, there are online platforms designed to predict how changes in brand
value affect overall revenue streams. Useful for evaluating the financial impact of
media investment that leads to top-line earnings, linking campaign outcomes to
revenue can help to cut wasted ad spend and notably reduce risks, too.

For improved risk mitigation, better flows of materials and information, and higher
efficiency rates, increasing numbers of companies are investing in the
latest supply chain optimisation software, too. Combined with a detailed
advertising effectiveness strategy, you can alleviate risks, control and red uce
costs, and boost revenues and profitability with ease.

5. Demand forecasting using multiple regression

Demand forecasting using multiple regression involves using historical data on various
factors that affect demand to predict future demand levels. Here's how it typically works:

1. Data Collection: Gather historical data on the dependent variable (demand) and
independent variables (factors believed to influence demand). Independent variables
can include things like price, advertising expenditure, seasonality, competitor actions,
economic indicators, and any other relevant factors.

2. Data Preprocessing: Clean the data and prepare it for analysis. This may involve
handling missing values, dealing with outliers, and transforming variables if necessary
(e.g., taking the logarithm of skewed variables).

3. Model Specification: Choose the appropriate independent variables to include in the

model based on their perceived impact on demand. This is often done through domain
knowledge, exploratory data analysis, and statistical tests.

51
4. Model Estimation: Use multiple regression analysis to estimate the parameters of the
regression equation. The regression equation will have the form:
\[ Y = \beta_0 + \beta_1X_1 + \beta_2X_2 + ... + \beta_nX_n + \varepsilon \]
Where:
- \( Y \) is the dependent variable (demand).
- \( X_1, X_2, ..., X_n \) are the independent variables (factors affecting demand).
- \( \beta_0, \beta_1, \beta_2, ..., \beta_n \) are the coefficients of the independent
variables.
- \( \varepsilon \) is the error term.

5. Model Evaluation: Assess the goodness-of-fit of the regression model using metrics
like \( R^2 \) (the coefficient of determination), adjusted \( R^2 \), and residual analysis.
These metrics help determine how well the independent variables explain the variation
in the dependent variable.

6. Forecasting: Once the model is validated, use it to forecast future demand. Input
future values of the independent variables into the regression equation to obtain
predictions of future demand levels.

7. Monitoring and Updating: Continuously monitor the performance of the forecasting

model and update it as necessary. Changes in market conditions, consumer
preferences, or other external factors may necessitate revisions to the model.

Multiple regression allows for the incorporation of multiple factors affecting demand
simultaneously, providing a more comprehensive and accurate forecast compared to
simpler methods. However, it's important to note that assumptions of multiple
regression, such as linearity, normality of residuals, and absence of multicollinearity,
should be carefully checked and addressed to ensure the reliability of the forecasts.

6. Product management

The day-to-day tasks include a wide variety of strategic and tactical duties. Most product
managers or product owners do not take on all these responsibilities. At least some of
them are owned by other teams or departments in most companies.

But most product professionals spend the majority of their time focused on the following:

52
 • Conducting Research: Researching to gain expertise about the company’s
market, user personas, and competitors.

• Developing Strategy: Shaping the industry knowledge they’ve learned into a

high-level strategic plan for their product—including goals and objectives, a
broad-strokes overview of the product itself, and maybe a rough timeline.

• Communicating Plans: Developing a working strategic plan using a product

roadmap and presenting it to key stakeholders across their organization:
executives, investors, development teams, etc. Ongoing communication across
their cross-functional teams throughout the development process and beyond.

•
o Coordinating Development: Assuming they have received a green light
to move forward with their product’s strategic plan, coordinate with the
relevant teams—product marketing, development, etc.—to begin
executing the plan.
o Acting on Feedback and Data Analysis: Finally, after building, testing,
and introducing the product to the marketplace, learning via data analysis
and soliciting direct feedback from users, what works, what doesn’t, and
what to add. Working with the relevant teams to incorporate this feedback
into future product iterations.

What isn't Product Management?

Product managers owning the day-to-day details of a product’s development is a

common misconception. As we describe on our product management vs. project
management page, this is the role of a project manager.

53
Product management’s strategic function

Product management is a strategic function. Tasking product managers with

determining a product’s overall reason for being—the product’s “Why?”

They’re also responsible for communicating product objectives and plans for the rest of
the company. They must ensure everyone is working toward a shared organizational
goal.

Product management encompasses a broad set of ongoing strategic responsibilities.

They shouldn’t be responsible for the ground-level details of the development process.

Innovative organizations separate this function and assign tactical elements to project
managers, such as scheduling and managing workloads. This distinct division leaves
the product manager free to focus on the higher-level strategy.

What is the Product Management Process?

There is no single “right” way to manage a product. Processes will evolve and adapt to
the organization, the product lifecycle stage, and product team members’ and
executives’ personal preferences.

But the discipline has developed some consensus regarding best practices. So while
rigid adherence isn’t required and there isn’t the same level of zealotry as one might find
when discussing Agile, the basic tenets are widely accepted.

54
Defining the problem

It all begins with identifying a high-value customer pain point. After that, people or
organizations are trying to do something, and they can’t. Or, if they can, it’s expensive
or time-consuming or resource-intensive or inefficient, or just unpleasant.

Whether it’s moving a person or thing from Point A to Point B, finding the perfect gift,
reaching the right audience, keeping people entertained, or some other objective,
what’s currently available isn’t quite cutting it. People want something better or
something they don’t have at all.

Product management turns these abstract complaints, wants, and wishes into a
problem statement looking for a solution. Solving that problem and easing that pain is
the spark and motivation for everything that comes next. Without a clearly articulated
goal that directly impacts that pain point, there’s not much hope that the product will
gain traction or staying power.

Quantifying the opportunity

There are many problems and pain points, but not all are worth solving. This is when
product managers swap their customer-centric hats for a business one.

To justify investment in building a new product or solution, product management must

answer the following questions and be able to build a business case based on the
answers they find:

• What is the total addressable market?

• Is the problem or pain severe enough that people will consider alternative
solutions?
• Are they willing to pay for an alternative solution (or is there another way to
monetize the solution)?

Once product management has evaluated the potential market, they can then try to
address it if there’s a significant enough opportunity.

Researching potential solutions

With a target in mind, product management can now thoroughly investigate how they
might solve customer problems and pain points. They should cast a large net of
possible solutions and not rule anything out too quickly. For example, suppose the
organization already has some proprietary technology or IP or a particular area of
expertise to give the company an advantage. In that case, those potential solutions will
likely leverage that somehow.

However, this does not mean that product managers should start drafting requirements
and engaging the product development team. They’ll first want to validate those

55
candidates with the target market, although it is prudent to bounce some of these ideas
off the technical team to ensure they’re at least feasible. Product management will often
develop personas to see whether there’s actual interest among those cohorts using any
of the table’s ideas.

Skipping this step and jumping right into building something can be a fatal flaw or cause
severe delays. While there are no guarantees, getting confirmation from potential
customers that the idea is something they’ll want, use, and pay for is a critical gate in
the overall process and achieving product-market fit.

7. Marketing-mix allocation

Marketing mix allocation involves determining how to distribute resources (such as

budget, time, and effort) across various marketing tactics or elements to achieve
marketing objectives effectively. The marketing mix typically includes the four Ps:
Product, Price, Place, and Promotion. Here's how marketing mix allocation can be
approached:

1. Set Objectives: Clearly define your marketing objectives. These could include
increasing brand awareness, generating leads, driving sales, expanding market share,
or improving customer retention.

2. Understand Target Audience: Develop a deep understanding of your target audience,

including their demographics, psychographics, behaviors, and preferences. Different
segments may respond differently to various marketing tactics, so tailor your mix
accordingly.

3. Evaluate Marketing Tactics: Identify and evaluate different marketing tactics or

elements that can contribute to achieving your objectives. This could include advertising
(online, offline), public relations, social media marketing, content marketing, events,
sponsorships, direct marketing, and more.

4. Analyze Costs and ROI: Assess the costs associated with each marketing tactic and
estimate the potential return on investment (ROI). Consider both direct costs (e.g.,
advertising spend) and indirect costs (e.g., time and resources required for
implementation). Calculate the expected ROI for each tactic based on historical data or
industry benchmarks.

56
5. Allocate Resources: Allocate your marketing resources based on a combination of
factors, including:
- Marketing objectives: Allocate more resources to tactics that directly contribute to
achieving your objectives.
- Target audience: Invest in tactics that resonate most with your target audience.
- ROI potential: Prioritize tactics with higher expected ROI.
- Competitive landscape: Consider what tactics your competitors are using and how
you can differentiate.
- Seasonality and trends: Adjust your allocation based on seasonal fluctuations and
emerging trends in the market.

6. Monitor and Adjust: Continuously monitor the performance of each marketing tactic
and adjust your allocation as needed. Analyze key metrics such as reach, engagement,
conversion rates, and ROI to determine what's working well and what needs
optimization.

7. Integrated Approach: Recognize that the marketing mix elements are interrelated,
and a holistic, integrated approach is often more effective than focusing on individual
tactics in isolation. Ensure consistency and alignment across all elements of the
marketing mix to create a cohesive brand experience for your audience.

By strategically allocating your marketing mix resources, you can optimize your
marketing efforts to achieve your objectives efficiently and effectively.

57
 UNIT-4
1. A recommendation engine
It is a type of data filtering tool using machine learning algorithms to recommend the
most relevant items to a particular user or customer. It operates on the principle of
finding patterns in consumer behavior data, which can be collected implicitly or
explicitly.
A recommendation engine is a system that analyzes data on user preferences,
behaviors, and interactions to provide personalized recommendations. These
recommendations can be for products, services, content, or any other items of interest
to the user. Here's how a recommendation engine typically works:

1. Data Collection: The recommendation engine collects data on user interactions, such
as purchases, ratings, reviews, clicks, views, searches, and social media activity. This
data provides insights into user preferences and behavior.

2. Data Preprocessing: The collected data is cleaned, processed, and transformed into
a suitable format for analysis. This may involve handling missing values, dealing with
outliers, and encoding categorical variables.

3. Feature Engineering: Relevant features are extracted from the data to represent
users, items, and interactions. These features could include user demographics, item
attributes, user-item interactions, and contextual information.

4. Algorithm Selection: Various algorithms can be used for recommendation, including:

- Collaborative Filtering: Recommends items based on the preferences of similar
users or items.
- Content-Based Filtering: Recommends items similar to those the user has liked or
interacted with in the past.
- Hybrid Approaches: Combine collaborative filtering and content-based filtering to
leverage the strengths of both approaches.
- Matrix Factorization: Decomposes user-item interaction matrices to uncover latent
factors and make recommendations.
- Deep Learning: Utilizes neural networks to learn complex patterns from data and
generate recommendations.

58
5. Model Training: The recommendation algorithm is trained on historical data to learn
patterns and relationships between users, items, and interactions. This involves
optimizing model parameters to minimize prediction errors or maximize
recommendation accuracy.

6. Recommendation Generation: Once the model is trained, it can generate

personalized recommendations for users based on their preferences and behavior.
Recommendations can be generated in real-time or in batch mode, depending on the
application.

7. Evaluation and Optimization: The performance of the recommendation engine is

evaluated using metrics such as accuracy, precision, recall, and serendipity. The engine
is continuously optimized by experimenting with different algorithms, features, and
parameters to improve recommendation quality.

8. Feedback Loop: User feedback on recommended items is collected and used to

update the recommendation model. This feedback loop helps the engine adapt to
changing user preferences and improve the relevance of recommendations over time.

Recommendation engines are widely used in e-commerce, streaming services, social

media platforms, news websites, and other domains to enhance user experience,
increase engagement, and drive business outcomes.

2. Recommender problem
The recommender problem, also known as the recommendation problem, refers to the
challenge of providing personalized recommendations to users based on their
preferences and behavior. It involves predicting which items a user is likely to be
interested in, such as products, movies, music, articles, or any other type of content or
item.

The recommender problem typically involves several key aspects:

1. Data Collection: Gathering data on user interactions, such as purchases, ratings,

views, clicks, searches, and social media activity. This data provides insights into user
preferences and behavior.

59
2. Data Representation: Representing users, items, and interactions in a suitable format
for analysis. This may involve encoding users and items as vectors or matrices, with
features representing user attributes and item attributes.

3. Model Selection: Choosing an appropriate recommendation algorithm or model to

make personalized recommendations. Common approaches include collaborative
filtering, content-based filtering, matrix factorization, and deep learning-based methods.

4. Model Training: Training the recommendation model on historical data to learn

patterns and relationships between users, items, and interactions. This involves
optimizing model parameters to minimize prediction errors or maximize
recommendation accuracy.

5. Recommendation Generation: Generating personalized recommendations for users

based on their preferences and behavior. Recommendations can be generated in real-
time or in batch mode, depending on the application.

6. Evaluation and Optimization: Evaluating the performance of the recommendation

system using metrics such as accuracy, precision, recall, and serendipity. The system is
continuously optimized by experimenting with different algorithms, features, and
parameters to improve recommendation quality.

7. Feedback Loop: Collecting feedback from users on recommended items and using
this feedback to update the recommendation model. This feedback loop helps the
system adapt to changing user preferences and improve the relevance of
recommendations over time.

The recommender problem is a fundamental challenge in many applications, including

e-commerce, streaming services, social media platforms, news websites, and more.
Effective recommender systems can enhance user experience, increase engagement,
and drive business outcomes such as sales, subscriptions, and user retention.

3. Retail analytics

Retail analytics provide retailers with the data they need to make informed decisions
regarding crucial elements of a retail business – such as;

• Inventory

60
 • Pricing
• Planning

Removing the “guesswork” helps retail businesses increase profit growth, and scale to
become a dominant force within their vertical.

That said, it’s important to note that there are different methods of analyzing and using
retail data – some more effective and efficient than others.

Let’s dig a little deeper into what retail data analytics is, the different types of retail data,
some different methods used to analyze it and how you can determine if you’re getting
the most out of your retail analytics process.

What is Retail Data Analytics?

Retail data analytics is the process of collecting and studying retail data (like sales,
inventory, pricing, etc.) to discover trends, predict outcomes, and make better, more
profitable business decisions.

Done well, data analytics allows retailers to get more insight into the performance of
their stores, products, customers, and vendors — and use that insight to grow profits.

Virtually all retailers are doing some form of data analytics — even if they’re only
reviewing sales numbers on Excel.

But there is a very big difference between an analyst firing up Excel to sift through
spreadsheets and using purpose-built AI to analyze billions of data points at once.

To understand this difference, you first need to understand the 4 different types of retail
data analytics.

What are the Types of Retail Analytics?

There are four types of retail analytics that each play an important role in providing
today’s retailers with key insights into their business operations.

The four different types are;

• Descriptive Analytics
• Diagnostic Analytics
• Predictive Analytics
• Prescriptive Analytics

61
1. Descriptive Retail Analytics

The most common type of data analytics, descriptive analytics helps retailers organize
their data to tell a story.

It works by bringing in raw data from multiple sources (POS terminals, inventory
systems, OMS, ERPs, etc.) to generate valuable insights into past and present
performance.

Traditionally, analysts did this manually in Excel; gathering data from different sources,
formatting it, charting it, etc. Today, a lot of this data gathering and reporting work can
be automated with BI tools and integrations.

Simply put, descriptive analytics uses data to describe “what” is happening in your
business. But it doesn’t do much to answer the “why” — unless combined with other
types of data analytics that can show patterns and correlations.

2. Diagnostic Retail Analytics

The simplest form of “advanced” analytics — diagnostic analytics helps retailers use
data to answer the “why” of specific business problems.

Taking the same raw data used in descriptive analytics, diagnostic analytics uses
statistical analysis, algorithms, and sometimes, machine learning, to drill deeper into the
data and find correlations between data points.

Diagnostic analytics can also be used to find anomalies and flag potential problems as
they happen (if results do not match pre-programmed benchmarks and business rules).

Historically, the most accomplished analysts did all of this manually. They would sift
through data, apply statistical models, look for patterns, and find correlations.

But in today’s data-heavy world, this is nearly impossible for a human to do. With
billions of data points and increasing complexity, larger retailers can’t effectively use
diagnostic analytics without machine learning and AI.

As you’ll find below, there are virtually no standalone “diagnostics” solutions for
retailers. This is because the fundamentals of diagnostic analytics (discovering hidden
relationships between variables in your business) is much better used to predict the
future and automate complex retail analysis.

3. Predictive Retail Analytics

If descriptive analytics shows you the “what” of what’s happening in your business, and
diagnostic analytics tells you the “why” — predictive analytics tells you “what’s next.”

62
This is the second most advanced type of analytics.

Effective predictive analytics uses findings from both descriptive and diagnostic
analytics to forecast the future. This is because to accurately predict what happens
next, you must first understand what’s already happened and what caused it.

Predictive analytics automatically detects clusters and exceptions and uses complex
algorithms and statistical methods to predict future trends.

Like other types of analytics, many retailers attempt to manually do this work, with
analysts compiling data in Excel and applying generic statistical models to project
trends into the future.

Unfortunately, retail businesses are very complex, and there are too many correlations
between factors (demand, price, inventory, product assortment, competitors, consumer
behaviour, etc.) for any human to account for all of them manually. That’s why simple
sales forecasts are much less accurate than demand forecasts.

Thus, to accurately forecast the future and account for the most important correlations,
retail predictive analytics must use a combination of AI, advanced mathematics, and
intelligent automation.

4. Prescriptive Retail Analytics

Prescriptive analytics is the final frontier of analytics, and also the most advanced type.

The aforementioned types of analytics can tell retailers “what” is happening, “why” it
happened, and “what will happen next.” Prescriptive analytics can tell retailers “what
you should do next” to get the best results.

To make good recommendations, a prescriptive analytics system needs to not only

know what is likely to happen in the future but also needs to know what actions will lead
to the best possible future outcome.

This is a tricky proposition because there are a nearly infinite number of actions a
business can take to generate some change in the numbers.

There are multiple approaches:

• Running simulations on a finite number of different initial conditions (different

assortment, allocation, pricing, etc.) and choosing the conditions that lead to the
highest profit
• Using algorithmic AI, purpose-built for retail to make recommendations that lead
to the best possible mathematical outcome (profit, GMROI, etc.)
• Teaching a machine learning program to identify patterns and clusters of actions
that lead to the best outcomes

63
Of course, the specific way different analytics companies achieve this is a closely
guarded secret. But fundamentally, the process needs to generate recommendations
that retailers can confidently follow 99% of the time.

Examples of Retail Data Analytics Applications

One of the biggest reasons to use data analytics to guide decision-making is to ensure
your decisions are based on actual truth (cold, hard numbers), not just someone’s
perception of reality.

Analytics can also help you understand what’s going on with your business in much
greater detail than you could otherwise.

Practically speaking, a retailer can use data analytics to:

• Understand the value and number of products sold in an average order

• Recognize which products sell the most, the least, and everything in-between
• Identify your most valuable customers
• Discover what your true demand was as well as past lost sales
• Determine optimal suggested order quantities and recommend purchase
quantities and allocations
• Establish the optimal price point for a specific product at any specific location

These (and other) insights can equip you to better understand the metrics of your
business and implement strategies that help you get to where you want to go.

As you grow, analyzing data needs to become a core part of your business to improve
decision-making and develop effective retailing strategies.

It’s no surprise then, that there exists a massive, thriving industry for retail analytics
solutions. Below, we’ll discuss some of these applications, how they work, and what
benefits you could see from using them.

1. Business Intelligence

To effectively manage and organize their data, many businesses turn to Business
Intelligence tools. Because BI tools help you structure and visualize your data, they are
an example of descriptive analytics.

Many retailers conduct basic BI using native features in their ERP (Enterprise Resource
Planning) system, or by importing data directly into Microsoft Excel.

Slightly more sophisticated retailers will use dedicated BI software like:

64
 • Power BI
• Tableau
• SAP
• QlikView
• Apache Spark

These applications support multiple data sources, appealing visualizations, and some
degree of data manipulation.

The most sophisticated BI usually involves data scientists that use programming
languages (like Python) that give them a greater degree of flexibility for data
manipulation, data visualization, and data modelling.

While valuable, all of the examples above require a lot of human input and are quite
time-consuming to manage. This is especially true for medium to large retailers running
hundreds or thousands of stores (and tens or hundreds of thousands of products). This
is why many retailers have dedicated teams of analysts in most departments to
generate reports.

By their sophistication, advanced analytics solutions like Retalon can often automate
most of the manual, repetitive tasks associated with traditional BI practices.

2. Sales Forecasting

Another common application of data analytics in retail is forecasting sales.

Simply put, sales forecasting is the process of looking at historical sales data, finding
trends, and projecting them into the future to predict sales.

This helps retailers with everything from purchasing inventory and managing their OTB
budgets to setting high-level financial targets for the company.

As the name suggests, sales forecasting is predictive in nature — and it is the most
rudimentary type of predictive analytics used by retailers.

Because businesses have been attempting to forecast sales for centuries, there are
many different approaches to doing so:

• Using last year’s numbers to estimate sales for this year

• Market research (surveys, observation, etc.)
• Pundit estimates
• Statistical models in Excel
• Dedicated software

65
Many retailers have their own homegrown solution to predicting future sales, usually
combining dozens (if not hundreds) of Excel sheets, ERP features, dedicated software,
and teams of analysts.

While sales forecasting is the backbone of many retail planning processes — this is
perhaps the biggest area of data analytics in need of an overhaul. This is because sales
forecasting is quite often inaccurate, and fails to account for the complexity of the retail
business.

For example, if retailers sold out of a product last year, most sales forecasting methods
would lead them to make the same mistake — even if they could potentially sell
substantially more.

For this reason, most sales forecasting has fallen out of vogue, replaced by more
sophisticated predictive analytics.

3. Demand Forecasting

As mentioned above, demand forecasting is a much more sophisticated type of

predictive analytics in use by retailers.

Rather than attempting to predict sales using merely historical sales data, demand
forecasting uses a much broader range of data to calculate the demand for each
product, at each store, at specific time intervals. This makes demand forecasting much
more accurate than traditional sales forecasting.

Read more about sales forecasting vs. demand forecasting here.

In short, the main benefits of this type of retail analytics are:

• More accurate prediction of the future state of the business

• The creation of simulations or “what-if” scenarios
• Ability to adjust on the fly as things change on the ground
• Unification of key retail functions (eg. Promotions and inventory management)

As always, there are multiple ways to forecast demand. In increasing order of

sophistication, retailers can use:

• MS Excel with statistical models

• Generic statistical modelling/analytics software
• Retail-specific analytics software with AI

While the two former options can be enough for smaller retailers — they become
cumbersome (if not impossible) to use with very large data sets (like those found in
medium to large retailers).

66
This is because demand forecasting doesn’t just look at sales data, it will also make use
of data from:

• Historical pricing
• Historical inventory
• Assortment breadth and depth
• Product clusters and families
• Seasonality
• Supply chain variability
• Competitor activity
• Consumer trends
• Etc.

You can imagine how difficult it would be to manually compile, analyze, and model all of
this data for billions of unique Store / SKU combinations.

The best way retailers have to make use of demand forecasting is to find a retail
predictive analytics software vendor with a proven track record of working with
retailers in their vertical.

Using specialized software like this gives retailers a slew of benefits.

For example, you can test changing individual variables such as product price, new
store openings, new product launches (and others) to see the impact this might have on
your bottom line metrics — and adjust your inventory, prices or marketing strategy
accordingly.

4. Unified Advanced Retail Analytics

This is the most powerful form of analytics that can produce the highest ROI if applied
correctly.

Falling under the final type of analytics (prescriptive analytics), unified advanced
analytics aims to combine the benefits of business intelligence, powerful diagnostics,
and accurate demand forecasting with intelligent automation that recommends the most
profitable actions across the business.

You can expect good unified analytics software to:

• Automate reporting and data visualization

• Accurately forecast demand for every product at every store at specific time
frames
• Allow for flexible simulations and “what-if” scenarios for new product launches,
store openings, etc.
• Automatically recommend thousands (if not millions) of micro-optimizations
across assortment, allocation, pricing, etc.

67
 • Reconcile all changes and updates across all departments and data sources

Of its complexity and specialization, this type of analytics can only be provided by
software vendors that specialize in advanced retail analytics.

With it, you can not only automate hundreds of repetitive tasks (compiling reports,
consolidating data between departments, analyzing etc.) but also optimize at a
granularity that human analysts are simply not capable of.

Various solutions provide this level of advanced data analytics including Retalon’s retail
analytics platform, which leverages highly accurate demand forecasts and advanced AI
to generate hundreds, thousands, or even millions of granular optimizations that
improve the bottom line.

Furthermore, this type of software is fully customizable and can be configured to auto-
accept certain suggestions or require human approval for others for more control.

4. RFM

Recency, frequency, monetary value (RFM) is a model used in marketing analysis that
segments a company’s consumer base by their purchasing patterns or habits. In
particular, it evaluates customers’ recency (how long ago they made a
purchase), frequency (how often they make purchases), and monetary value (how
much money they spend).

RFM is then used to identify a company’s or an organization’s best customers by

measuring and analyzing spending habits to improve low-scoring customers and
maintain high-scoring ones.

Understanding Recency, Frequency, Monetary Value

The RFM model is based on three quantitative factors:1

1. Recency: How recently a customer has made a purchase

2. Frequency: How often a customer makes a purchase
3. Monetary value: How much money a customer spends on purchases

RFM analysis numerically ranks a customer in each of these three categories,

generally on a scale of 1 to 5 (the higher the number, the better the result). The “best”
customer would receive a top score in every category.

68
These three RFM factors can be used to reasonably predict how likely (or unlikely) it is
that a customer will do business again with a firm or, in the case of a charitable
organization, make another donation.

The concept of recency, frequency, monetary value (RFM) is thought to date from an
article by Jan Roelf Bult and Tom Wansbeek, titled “Optimal Selection for Direct Mail,”
published in a 1995 issue of Marketing Science.2

RFM analysis often supports the marketing adage that “80% of business comes from
20% of the customers.”

Recency

The more recently a customer has made a purchase with a company, the more likely
they will continue to keep the business and brand in mind for subsequent purchases.
Compared with customers who have not bought from the business in months or even
longer periods, the likelihood of engaging in future transactions with recent customers
is arguably higher.

Such information can be used to get recent customers to revisit the business and
spend more. In an effort not to overlook lapsed customers, marketing efforts might be
made to remind them that it’s been a while since their last transaction, while offering
them an incentive to resume buying.

Frequency

The frequency of a customer’s transactions may be affected by factors such as the

type of product, the price point for the purchase, and the need for replenishment or
replacement. If the purchase cycle can be predicted—for example, when a customer
needs to buy more groceries—marketing efforts may be directed toward reminding
them to visit the business when staple items run low.

Monetary Value

Monetary value stems from how much the customer spends. A natural inclination is to
put more emphasis on encouraging customers who spend the most money to continue
to do so. While this can produce a better return on investment (ROI) in marketing and
customer service, it also runs the risk of alienating customers who have been
consistent but may not spend as much with each transaction.

Nonprofit organizations, in particular, have relied on RFM analysis to target donors, as

people who have been the source of contributions in the past are likely to make
additional gifts.

69
Significance of Recency, Frequency, Monetary Value

RFM analysis allows a comparison between potential contributors and clients. It gives
organizations a sense of how much revenue comes from repeat customers (vs. new
customers), and which levers they can pull to try to make customers happier so they
become repeat purchasers.

Despite the useful information that is acquired through RFM analysis, firms must take
into consideration that even the best customers will not want to be over-solicited, and
the lower-ranking customers may be cultivated with additional marketing efforts. It
works as a snapshot of the clientele and as a tool to prioritize nurturing, but it should
not be taken as a license to simply do more of the same old, same old sales
techniques.

Why is the recency, frequency, monetary value (RFM) model useful?

The recency, frequency, monetary value (RFM) model is based on those three
quantitative factors. Each customer is ranked in each of these categories, generally on
a scale of 1 to 5 (the higher the number, the better the result). The higher the customer
ranking, the more likely it is that they will do business again with a firm. Essentially, the
RFM model corroborates the marketing adage that “80% of business comes from 20%
of the customers.”

What is recency in the RFM model?

The recency factor is based on the notion that the more recently a customer has made
a purchase with a company, the more likely they will continue to keep the business
and brand in mind for subsequent purchases. This information can be used to remind
recent customers to revisit the business soon to continue meeting their purchase
needs.

What is frequency in the RFM model?

The frequency of a customer’s transactions may be affected by factors such as the

type of product, the price point for the purchase, and the need for replenishment or
replacement. Predicting this can assist marketing efforts directed at reminding the
customer to visit the business again.

What is monetary value in the RFM model?

Monetary value stems from how much the customer spends. A natural inclination is to
put more emphasis on encouraging customers who spend the most money to continue
doing so. While this can produce a better return on investment (ROI) in marketing and
customer service, it also runs the risk of alienating customers who have been
consistent but have not spent as much with each transaction.

70
5. Market basket analysis customer churn
Market basket analysis and customer churn are two distinct but related concepts in the
field of data analysis and customer relationship management.

Market Basket Analysis:

Market basket analysis is a data mining technique used by retailers to understand the
purchasing patterns of customers. It involves analyzing transaction data to identify
relationships between products that are frequently purchased together. The primary
objective of market basket analysis is to uncover associations and dependencies
between items in a customer's shopping basket. This information is valuable for various
purposes, including:

1. Cross-Selling and Upselling: Retailers can use insights from market basket analysis
to recommend related products to customers at the point of sale. For example, if a
customer purchases bread and eggs, they might also be interested in purchasing butter.

2. Inventory Management: By understanding which products are frequently purchased

together, retailers can optimize their inventory management processes, ensuring that
popular items are adequately stocked and reducing the risk of stockouts.

3. Promotion Planning: Market basket analysis can inform promotional strategies by

identifying product combinations that drive sales. Retailers can create bundled offers or
discounts on complementary items to incentivize customers to make additional
purchases.

4. Store Layout Optimization: Insights from market basket analysis can also be used to
optimize the layout of retail stores, placing complementary products in close proximity to
encourage cross-selling.

Customer Churn:
Customer churn, also known as customer attrition, refers to the rate at which customers
stop doing business with a company over a certain period of time. It is a critical metric
for businesses, especially subscription-based services or industries with high customer
acquisition costs. Customer churn analysis involves identifying customers who are at
risk of churning and implementing strategies to retain them. Key aspects of customer
churn analysis include:

71
1. Data Collection: Gathering data on customer interactions, transactions, and
behaviors, as well as demographic and firmographic information.

2. Churn Prediction: Using statistical and machine learning techniques to build

predictive models that identify customers likely to churn in the future. Predictors may
include factors such as usage patterns, customer demographics, customer satisfaction
scores, and engagement metrics.

3. Segmentation: Segmenting customers based on their likelihood of churning and their

value to the business. This allows companies to prioritize retention efforts and tailor
strategies to different customer segments.

4. Retention Strategies: Implementing targeted retention strategies to reduce churn,

such as personalized offers, loyalty programs, proactive outreach, and improvements to
the customer experience.

5. Evaluation and Monitoring: Continuously monitoring churn rates and the effectiveness
of retention strategies, and iterating on approaches based on feedback and
performance metrics.

While market basket analysis focuses on understanding purchasing patterns and

optimizing sales strategies, customer churn analysis is concerned with retaining
customers and minimizing attrition. However, both concepts rely on analyzing customer
data to derive actionable insights and improve business outcomes.

6. Customer lifetime value

Customer lifetime value (CLV) is one of the key stats to track as part of a customer
experience program. Customer lifetime value is a measurement of how valuable a
customer is to your company, not just on a purchase-by-purchase basis but across
entire customer relationships. Learn how to calculate customer lifetime value and
increase your customer ROI with our guide.

What is customer lifetime value (CLV)?

Customer lifetime value is the total worth to a business of a customer over the whole
period of their relationship with the brand. Rather than looking at the value of individual
transactions, this value takes into account all potential transactions to be made during a
customer relationship timespan and calculates the specific revenue from that customer.

72
There are two ways of looking at customer lifetime value: historic customer lifetime
value (how much each existing customer has already spent with your brand)
and predictive customer lifetime value (how much customers could spend with your
brand). Both measurements of customer lifetime value are useful for tracking business
success.

Free eBook: The Ultimate Guide to Improving Customer Loyalty

Historic customer lifetime value

If you’ve bought a $40 Christmas tree from the same grower for the last 10 years, for
example, your customer lifetime value has been $400 – pretty straightforward. This is
an example of historic customer lifetime value– a measure that works by looking
back at past events. It’s helpful to understand what an existing customer has brought to
your brand and for building profiles of ideal customers, but it’s not as useful for
predicting future revenue when considered alone.

Predictive customer lifetime value

You can also calculate predictive customer lifetime value. This is an algorithmic
process that takes historical data and uses it to make a smart prediction of how long a
customer relationship is likely to last and what its value will be. It can take into account
customer acquisition costs, average purchase frequency rate, business overheads and
more to give you a more realistic customer lifetime value prediction. It can be a more
complex way to calculate customer lifetime value, but it can help you to see when you
need to invest in your customer loyalty.

How is customer lifetime value different from other customer metrics?

Customer lifetime value is distinct from the Net Promoter Score (NPS) that measures
customer loyalty, and CSAT that measures customer satisfaction because it is tangibly
linked to revenue rather than a somewhat intangible promise of loyalty and satisfaction.

It’s a confirmed understanding of how much loyal customers bring to your business
financially, or in the case of predictive customer lifetime value, how much they are likely
to bring based on past data.

Knowing existing customers’ lifetime values helps businesses to develop targeted

strategies to acquire new customers and retain existing ones while maintaining profit
margins. Read on to understand why customer lifetime value is a key metric to track,
and how to calculate and improve on it.

73
Why is customer lifetime value important to your business?

It helps you save money

Customer lifetime value is an important metric to track, as it costs less to keep existing,
loyal customers than it does to acquire new ones. Recent research has found that even
in sectors with potentially easier customer acquisition, such as e-commerce, there’s
been a 222% increase in costs for new customers over the last eight years.

Focusing on increasing the current customer lifetime value of your existing customers is
a great way to drive growth. Rather than relying on new customers (and spending lots to
get them), you can figure out what keeps your customer base loyal and replicate your
actions for increased value with existing customers.

It helps you spot and stop attrition

Customer lifetime value is a great metric to use to spot early signs of attrition and
combat them. Let’s say you notice that customer lifetime value is dropping, and pinpoint
that customers are neglecting to sign up for a continuation of an ongoing subscription of
your product or service. You might decide to launch or improve a loyalty program to
tempt customers back, or provide better customer support or marketing efforts around
renewal times to help encourage customers to sign up again. This will help to increase
customer lifetime value and business revenue again.

It helps you find your best customers and replicate them

Your best customers will have a higher customer lifetime value, and through careful
analysis you’ll be able to understand the commonalities between these individuals.
What drives them to buy into your brand again and again? Is it a common need, a
particular income bracket, a specific geographical location? You can define a whole
customer segment based on these higher value existing customers alone.

Once you’ve analyzsed the drivers for high customer lifetime value and created a buyer
persona specifically for this type of customer, you can seek out new customers using
this information. Once you’ve got them on board, you have your predictive customer
lifetime value to rely on for future revenue.

What is Customer Lifetime Value (LTV)?

The customer lifetime value (LTV), also known as lifetime value, is the total revenue a
company expects to earn over the lifetime of their relationship with a single customer.
The customer lifetime value calculation accounts for the customer acquisition

74
costs, operating expenses, and costs to produce the goods or services that the
company is manufacturing. Many companies tend to overlook the LTV metric but the
lifetime value of customers is essential to the growth of a company.

The lifetime value calculation is given as:

How to Calculate the LTV of a Company?

• Average purchase value – It is calculated by dividing the company’s total

revenue over a period of time by the total purchases made by its customers
during that same timeframe.
• Average purchase frequency rate – It is calculated by the total purchases
made over a period of time by the individual customers that made those
purchases during that time.
• Customer value – It is calculated by multiplying the average value of the
purchase by the number of times the purchase is made.
• Average customer lifespan – It is the average number of years that a customer
continues to buy the company’s goods and services.
• Lifetime value calculation – The LTV is calculated by multiplying the value of
the customer to the business by their average lifespan. It helps a company
identify how much revenue they can expect to earn from a customer over the life
of their relationship with the company.

Numerical Example

The average sales in a clothing store are $80 and, on average, a customer shops four
times every two years. The lifetime value is calculated as LTV = $80 x 4 x 2 = $640.

75
Furthermore, the profit margin in the clothing store is 20%, hence the CLV is as follows:
CLV = $80 x 4 x 2 x 20% = $128.

The lifetime value figure can help a business estimate future cash flows and the number
of customers they need to obtain to achieve profitability.

What Factors Contribute to Lifetime Value?

The lifetime value of a business depends on how popular the brand is among
customers. For example, if a customer lacks any loyalty to the brand and does not face
any switching costs when buying a rival company’s product, it can result in a negative
impact on the lifetime value of the company. Following are the factors that affect the
LTV of a company:

1. Churn rate

The churn rate describes how often customers stop shopping at a business that they
were once loyal customers of. The rate can differ from business to business and
depends on the competitive advantage of the company and their ability to keep
customers interested in their products. Usually, small businesses and startups tend to
face a high churn rate.

2. Brand loyalty

It measures how loyal the customers are to the brand and who keep buying their goods
and services. Building brand loyalty can help retain customers and decrease the churn
rate. A company with a lot of loyal customers will generate a high lifetime value.

How to Increase the LTV?

There are many tactics that businesses can implement to boost efficiency and increase
customer retention rates, thereby increasing their LTV:

76
1. Good communication

Open communication between the business and the customer can help a customer
relate to the brand better. It is important for companies to listen to feedback from their
customers as it can help them improve and grow. Effective communication reduces the
churn rate as well.

2. Re-engage customers

An effective way to increase LTV is to engage with customers who previously

purchased goods and services from the company. It is particularly useful for companies
with a long shelf life, and it can help improve brand recognition.

3. Increase brand loyalty

The lifetime value of a company can help with future growth projections and increase
profitability. LTV can be increased by implementing strategies to increase brand loyalty.

7. Overview of text mining and sentimental analysis

Text mining and sentiment analysis are two closely related fields within natural
language processing (NLP) that involve extracting insights and understanding from
textual data. Here's an overview of each:

Text Mining:
Text mining, also known as text analytics, is the process of deriving meaningful
information and insights from unstructured textual data. It involves a range of
techniques and methods for processing, analyzing, and interpreting large volumes of
text. Some key aspects of text mining include:

1. Text Preprocessing: Cleaning and preparing the text data for analysis, which may
involve tasks such as removing punctuation, stopwords, and special characters, as well
as tokenization and stemming/lemmatization.

2. Text Representation: Converting textual data into a numerical format that can be
used for analysis. Common representations include bag-of-words, TF-IDF (Term

77
Frequency-Inverse Document Frequency), word embeddings (e.g., Word2Vec, GloVe),
and document embeddings (e.g., Doc2Vec).

3. Text Analytics Techniques: Applying various techniques to extract insights from text,
including:
- Text Classification: Categorizing text documents into predefined categories or labels
based on their content.
- Named Entity Recognition (NER): Identifying and classifying named entities such as
people, organizations, locations, dates, and numerical expressions.
- Topic Modeling: Discovering latent topics or themes within a collection of
documents.
- Text Summarization: Generating concise summaries of longer texts.
- Information Extraction: Identifying and extracting structured information from
unstructured text.

4. Visualization and Interpretation: Visualizing the results of text mining analyses to

facilitate interpretation and understanding. Visualization techniques may include word
clouds, topic maps, and hierarchical clustering.

Text mining is used across various domains and applications, including information
retrieval, social media analysis, customer feedback analysis, market research, and
sentiment analysis.

Sentiment Analysis:
Sentiment analysis, also known as opinion mining, is a specific application of text
mining that focuses on identifying and extracting sentiment or opinion from textual data.
The goal of sentiment analysis is to determine the sentiment polarity (positive, negative,
neutral) expressed in a piece of text, as well as the strength and intensity of the
sentiment. Key components of sentiment analysis include:

1. Sentiment Classification: Classifying text documents, sentences, or phrases into

categories representing different sentiment polarities (e.g., positive, negative, neutral).

2. Feature Extraction: Identifying features or indicators of sentiment within the text, such
as sentiment-bearing words, phrases, emoticons, or linguistic patterns.

78
3. Sentiment Lexicons: Using sentiment lexicons or dictionaries that contain lists of
words annotated with their sentiment polarity (e.g., AFINN, SentiWordNet) to assign
sentiment scores to text.

4. Machine Learning Approaches: Applying machine learning algorithms, such as Naive

Bayes, Support Vector Machines (SVM), or Recurrent Neural Networks (RNNs), to train
models for sentiment classification.

5. Aspect-Based Sentiment Analysis: Analyzing sentiment at a more granular level by

identifying sentiment towards specific aspects or features of a product, service, or topic.

Sentiment analysis is widely used in business and marketing for monitoring customer
opinions, brand reputation management, product feedback analysis, social media
monitoring, market research, and customer service optimization.

Overall, text mining and sentiment analysis are powerful tools for extracting insights
from textual data and gaining valuable understanding of customer opinions,
preferences, and behaviors. They enable businesses to make data-driven decisions and
take proactive measures to enhance customer satisfaction and improve overall
performance.

79