Mix Modeling at Coca-Cola - Predictive Analytics World
Transcript of Mix Modeling at Coca-Cola - Predictive Analytics World
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Mix Modeling at Coca-Cola
Ram Krishnamurthy
Group Director Marketing Strategy & Insights
Predictive Analytics World
Oct 21, 2009
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The Coca-Cola Company …
Established 1886. . . .123 years young!
About $32 billion in revenue in 2008
Over 90,000 associates world wide; 85% outside the US
Nearly 500 brands in 200 countries
©The Coca-Cola Company. All rights reserved. Page 2
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And some more of our brands outside the US..
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6Ps Framework for our Company Vision
Classified: Internal Use page 4
PROFIT
PRODUCTIVITY
PARTNERS
PEOPLE
PLANET
PORTFOLIO
The Coca-Cola
Company earlier
this year unveiled a
new plastic bottle
made partially from
plants …
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Where do Predictive Analytics fit in ?
Classified: Internal Use page 5
PROFIT
PLANET
PARTNERS
PEOPLE
PRODUCTIVITY
PORTFOLIO
Managing
time, people,
money for
greatest
effectiveness
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©The Coca-Cola Company. All rights reserved. Page 6
Prediction is about What If…
What if we could sell just 0.1% more volume, with the same marketing spend?
− It would be worth
in operating income to The Coca-Cola Company
$21 million
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Variety of Predictive Analytic Tools
Marketing Variance Analysis
Choice Based Conjoint Studies
New Product Volume Forecasting Models
Experiments, controlled store tests
Analysis of Consumer Survey Tracking Data
Market Structure Analyses
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Marketing Variance Analysis – A Discipline
Etc.
Econometric Models
Syndicated
Media Data
Syndicated Retail
Data, KO &
competitors Weather Data
Shipments
Data Hierarchies
and codes
Macro
Economic
Data
Volume & Profit Forecast
Marketing Program Correction
Marketing Variance Analysis
Volume Response to Drivers
TV Price In-store Temperature
Holidays,
Consumer
Promos
Data Harmonization & Integration
Diagnostics
A&U, Panel, etc.
Business
questions
Fin
ancials
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MVA in the larger context
Forecasting
ExecutingDebriefing
Planning
Business Plan
CentricVolume & OI
Objectives
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MVA Competencies
PeopleProcess:
Management
RoutinesModels
Actual vs Predicted
Log(Vol) = β1 + β2*log(price) + …
DataSoftware
For Scenario Planning
Greater
Returns On
Marketing
InvestmenTs
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Modeling Approaches
Suppliers: short list of strategic partners
Statistical methods:
− Tried : Neural Networks, Systems Dynamics, MCI
− Commonly used : Regression and regression like techniques
− Today’s favorite: Bayesian
Critical need to incorporate prior learning
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Non-linear Dynamic Hierarchical Massive
Inputs (X)
Advertising Calendar
Promotions
CoverageCompetitor
Output (Y)
SalesMacro
Model
Y = f(X)
Hierarchical Bayesian Approach
Learning processPrior Information
Bayesian
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Seasonality
National holidays
Regional holidays
A Typical Model ArchitectureC
ale
nd
ar
Temperature
Precipitation
Floods
We
ath
er
Publicity/Corporate News
Private Consumption
GDP
Mac
ro
Weighted distribution by Channel, by Pack
Dis
trib
uti
on
Own price
Internal competitor price
External competitor price
Pri
ce
VO
LUM
E SA
LES
Mo
nth
ly d
ata
in T
ho
usa
nd
Un
it C
ase
s
TV
Own GRPs
Internal competitor GRPs
External competitor GRPs
Non-Tv AdvertisementM
ed
ia
Mar
keti
ng
Dri
versEx
tern
al D
rive
rs Exec
uti
on
D
rive
rs
PromotionBy Brand
By Pack
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Some Standard ROI Analytics to Support Business Processes
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ROI of Alternative Plans
A B C D E
Executing
ForecastingPlanning
Debriefing
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Process enabled through a Software platform – secure for handling financials
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A Couple of Illustrations of MVA in Action..
How do I spend my next dollar ?
Models for Learning
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A Couple of Illustrations of MVA in Action..
How do I spend my next dollar ?
Models for Learning
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Marketing Spend
Lo
ca
l C
urr
en
cy
BC
Un
it C
as
es
(m
il)
Brand
Contribution
Volume,
Revenue
BC Max
How do I spend my next one dollar ?
Continue to Invest in this zone
Review Investment in
This Zone
Q : How do we get our Brand to stay in this zone ?
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Volume simulations with P&L overlay allows
us to compare different media ….
-0.02
-0.015
-0.01
-0.005
0
0.005
% Change in SPEND
%C
ha
ng
e in
PR
OF
IT
TV Media
Non TV Media
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…And Allocate The Next Media Dollar Across Brands..
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Current GRP Levels
GRPs
Br 1 Br 2 Br 3Br 4 Br 5 Br 6
Incr
em
en
tal V
olu
me
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How do we improve ROI of a marketing lever?
(Volume from Marketing Activity)
x(Profit/Unit)
Spend on Marketing
Activity
ROI =
Efficiency
Effectiveness
1) Elasticity Ad Quality, size of potential target, Integrated
Messaging2) Execution tactics
3) Profit / Unit4) Size of brand
Negotiate RatesChoose lower cost
tactics to reach target
Classified: Internal UsePage 21
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© 2008 The Coca-Cola Company. All rights reserved. Page 22
Optimize to grow volume 1.4%
Portfolio Volume Scenarios
100.0
101.4
-0.28
1.34
0.33
Base Case cut X mil
from Lever 1
Optimize
Lever2
Add X mil to
Lever 3 &
optimize
End result
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. . . And profit grows by 2.5%
Portfolio System Brand Profit
102.5
100
0.03
2.50
- -
Base Case cut X mil
from Lever 1
Optimize
Lever 2
Add X mil to
Lever 3 &
optimize
End result
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100,0 100,2
0,80 -0.56
2008 Base Case 1% Price Reduction
Cut Media $X End result
Vo
lum
e In
dex
Country X Case Study: should we reduce media to fund a price cut?
Volume
100,0
99,4
-0.46
-0.12
2008 Base Case 1% Price Reduction
Cut Media $X End result
Pro
fit
Ind
ex
Profit
© 2008 The Coca-Cola Company. All rights reserved. Page 24
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A Couple of Illustrations of MVA in Action..
How do I spend my next dollar ?
Models for Learning
©The Coca-Cola Company. All rights reserved. Page 25
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Models for Learning
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Metrics Models
PredictedOutcome
PlanInvestment
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Mental vs Formal Models
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MentalModels
FormalModels
How does it work in real life ?What drives consumer behavior ?
How do we quantify this ?What should go into the equation ?
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An Example in the Context of Consumer Promotions
The ratio between the value of the gift/coupon obtained by the
consumer and the price of the SKU
Equivalent discount
A Typical Promotion
• Chance based eg a draw
• A small pay-off for buying product eg gift , price-off , extra volume – usually on packaging
Sales = f (Equivalent Discount)
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10%
25%
45%
Discount
The elasticities seem to be in line with discount levels
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Discount45% 25% 10%
Volume Lift is okay – but high standard deviation suggests Discount may not explain all of the Lift..
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So we re-think the Mental Model ….
Current Model
Sales = f (Equivalent Discount)
New Model
Sales = f (Attractiveness of Premiums
x
Perceived Ease of Winning It )
Do I get a motor-cycle or a T-shirt ?
Should I buy 300 Cokes or only 10 ?
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Models for Learning
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Metrics from Consumer
SurveysModels
PredictedOutcome
PlanInvestment
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Real Redemption Forecast
Real Redemption Forecast
Some practical applications – predicting Redemption levels
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“Don’t try to predict the future…make it
happen !”
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Questions?