Marketing Mix Modeling (MMM) – Regression Analysis

Regression

A common need in marketing analytics is forecasting the sales of a

product.

The variable you want to predict is the dependent variable

The variable used for prediction is the independent variable
The regression coefficients denote the relative importance of
their respective predictor variables, in driving the response
variable. The coefficient b1 for instance, represents the amount
the dependent variable y is expected to change for one unit of
change in the predictor x1, while the other predictors in the
model are held constant.
The linear model is theoretically unsound because it suggests
that the response variable, sales for instance, increases
indefinitely. However from a practical standpoint, for a small
operating range, a linear model can provide a good
approximation of the true relationship.
 Multiple Regression

Simple Linear Regression and Correlation”) may not explain all or even most
of the variance in the dependent variable (Y).

Therefore, to gain better and more accurate insights about the often
complex relationships between a variable of interest and its predictors, as
well as to better forecast, one needs to move towards multiple regression in
which more than one independent variable is used to forecast the
dependent variable (Y).

Utilizing multiple regression may lead to improved forecasting accuracy

along with a better understanding of the variables that actually cause Y.
RESULTS
Ordinary least-squares (OLS)
Ordinary least-squares (OLS) models assume that the analysis is fitting a model of a relationship between one or more
explanatory variables and a continuous or at least interval outcome variable that minimizes the sum of square errors, where an
error is the difference between the actual and the predicted value of the outcome variable. The most common analytical method
that utilizes OLS models is linear regression (with a single or multiple predictor variables).

Ordinary least squares (OLS) regression: a technique in which a straight line is used to estimate the relationship between
two interval/ratio variables. The line that minimizes the sum of the squared errors (the distance between the line and each
observation) is said to be the "best-fitting line."
 LOGISTIC REGRESSION
Many marketing problems and decisions deal with understanding or
estimating the probability associated with certain events or
behaviours, and frequently these events or behaviours tend to be
dichotomous—that is, of one type or of another type.

When this is the case, the marketing analyst must predict a binary
dependent variable (one that assumes the value 0 or 1, representing
the inherent dichotomy) from a set of independent variables. Some
examples follow:
Predicting from demographic behaviour whether a person will (dependent
variable = 1) or will not (dependent variable = 0) subscribe to a magazine or
use a product.
■ Predicting whether a person will (dependent variable = 1) or will not
(dependent variable = 0) respond to a direct mail campaign.

Often the independent variables used are recency (time since last
purchase), frequency (how many orders placed in last year), and monetary
value (total amount purchased in last year.

■ Predicting whether a cell phone customer will “churn” (dependent

variable = 1) by end of year and switch to another carrier. The dependent
variable = 0 if you retain the customer.
*Logistic regression is widely used to predict a binary dependent variable.