MARKETING PLAN USING ADVERTISING DATA

This case study is from the book -

James, G., Witten, D., Hastie, T., Tibshirani, R. (2014) An Introduction to Statistical Learning with Applications in R. Springer, Chapter 3

PROBLEM
Suggest a marketing plan for next year that will result in high product sales.
Data shows advertising expenditure in three media = TV, Radio, Newspaper. This data
can be used to manage the advertising expenditure in each of the three media to
enhance sales. Therefore, if we determine that there is an association between
advertising and sales, then it is possible to adjust advertising budgets, thereby indirectly
increasing sales. In other words, develop a model that can be used to predict sales on
the basis of the media budget.

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 QUESTIONS (1/2)
 What information would be useful in order to provide such a recommendation?
 Is there a relationship between advertising budget and sales? Check the association
between advertising expenditure and sales to see the money spent on advertising.
 How strong is the relationship between advertising budget and sales? Assuming that
there is a relationship between advertising and sales, will strength of relationship
help in predict sales with a high level of accuracy?
 Which media contribute to sales? Do all three media—TV, radio, and newspaper—
contribute to sales, or do just one or two of the media contribute?
 How accurately can we estimate the effect on sales? For every dollar spent on
advertising in a particular medium, by what amount will sales increase? How
accurately can we predict this amount of increase?
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 QUESTIONS (2/2)
 How accurately can we predict future sales? For any given level of television, radio, or
newspaper advertising, what is our prediction for sales, and what is the accuracy of
this prediction?
 Is the relationship linear? If there is approximately a straight-line relationship
between advertising expenditure in the various media and sales, then linear
regression is an appropriate tool. If not, then it may still be possible to transform the
predictor or the response so that linear regression can be used.
 Is there synergy among the advertising media? Perhaps spending $50,000 on
television advertising and $50,000 on radio advertising results in more sales than
allocating $100,000 to either television or radio individually. In marketing, this is
known as a synergy effect, while in statistics it is called an interaction effect.
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 SIMPLE LINEAR MODEL USING TV & SALES
The ADVERTISING budgets are input variables while SALES is an output variable.
The X will represent TV advertising and Y represent sales. Then we can regress sales
onto TV by fitting the model.
𝑦 = 𝛽0 + 𝛽1 × 𝑥
𝒔𝒂𝒍𝒆𝒔 = 𝖰𝟎 + 𝖰 𝟏 × 𝑻𝑽

Possible questions to answer are

 Is TV advertising contributing to sales?
 How much increase in sales is associated with a given increase in TV advertising?

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 ADVERTISING DATASET

 The Advertising dataset consists of the sales of a product in 200 different markets,
along with advertising budgets for the product in each of those markets for three
different media: TV, radio, and newspaper.
 Data consists of 4 variables = TV, Radio, Newspaper and Sales
 Data has 200 rows.
 There is no missing value or duplicate row.

 Data File Name – Advertising.csv