CRYSTAL BALL GAZING

November 17, 2011 at 3:46 pm 6 comments

Marketing budgets are always based on regression analysis. So each year’s budget is determined by the marketing activities of the previous years and their effectiveness. This is not only an outdated system but also is dangerous for the brand.

Recently Forrester research came up with a report to look at marketing firms that used methods other than regression analysis to determine marketing budgets and investments. Most firms were specialized marketing consulting and analytics firms and almost all of them had developed techniques to use predictive analytics for marketing budget allocation.

So let me give you an example of how this works. In India, this year a lot of hype was created by the Formula 1 race held at the Buddh International circuit in Greater Noida. As last year this event was never held, regression analysis would not have factored this event as a possible marketing opportunity and hence the budget could not have been allocated for this. So most marketing managers using regression techniques would have lost a good opportunity to showcase their brands.

Also in the era of social media and the internet, things are more dynamic. Let’s look at the 50 odd brands that tied up with the Eros/Red Chili’s production Ra One. Now most marketing managers would have taken into account the release of Rajni starrer Robot and the possible impact that movie had on their brands. If they had used a forward looking model like Predictive analytics instead, they might have been able to factor uncertainties and would have gotten a better deal out of the association. Now we have 50 brands associated with a dud. Not sure how many of those brand managers are getting promoted this year.

Finally the time for predicting the future by looking at the past has come and gone, now it is time to look at the future while allocating marketing investments.

Dr Vikram Venkateswaran is a marketing professional with more than 10 years of experience in Healthcare, Life Sciences and Information technology industries. He blogs at http://www.doctersoccer.blogspot.com. He can also be followed on Twitter @drvikram. The views expressed here are his personal views and not of his organization.

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6 Comments Add your own

  • 1. Arch  |  November 18, 2011 at 8:11 am

    While I agree that marketers must be forward looking, one cannot rely on only predictive analytics to detrmine budgets. Marketing is a lot about common sense and marketers should have some clarity on the broad degree of marketing initiatives they intend to undertake in the coming years. For Eg: One may choose to shift the marketing mix to include more of Social media initiatives. In such a case there are figures available on what it would cost (on an average) to run such iniitatives.

    In the case of BIC, I read a rpeort that said the cost of building the track in India ($450 mn) was more or less in keeping with the amounts spent on tracks in developoing countries such as Dubai and Malaysia. So at some level the organisers knew how much they might have to spend. It was not a blind budget of Rs X.

    Due to internet access, most of us can get numbers (both forward looking and past) on what certain marketing initiaives can cost. Ambiguity is only around emerging technology based initiatives such as – cloud computing (how do I market on the cloud? what would be the budget). Unless a firm wants to experiment with marketing on emerging technology, the resaults of predictive analytics should be relied on with moderation.

    Reply
  • 2. Vikram Venkateswaran  |  November 18, 2011 at 12:18 pm

    @ Arch that is an excellent point and probably technology marketers would depend on predictive analytics more than the others. But the problem remains that unless we have know probability of an event happening we are blindly allocating marketing budgets, In India most budget allocation exercise happens around the Feb-March time frame and takes into account the marketing activities of previous year and that is no guide for the events and situation in the coming year.

    Reply
  • 3. Ruchi  |  November 20, 2011 at 9:32 pm

    From what one reads in this post and on giving second thoughts, predictive analysis techniques may work well in case of a completely new event or a marketing initiative which does not have a prior benchmark set in terms of the budget allocations. It would be interesting to have an example of a typical fmcg, etc. firm using predictive analysis and hence the success rate!!

    Reply
  • 4. Vikram Venkateswaran  |  November 21, 2011 at 3:56 pm

    Hi Ruchi

    That is a very good question. The key from a technology point of view is to integrate a modeler for predictive scenario building along with a analytics tool. So a SPSS can be integrated with Cognos. Success rate is difficult to determine as this is a new concept but you might want to check out Best Buy who are attempting this. If you hear of any other examples do let me know.

    Reply
    • 5. Ruchi  |  November 21, 2011 at 9:37 pm

      Thanks for the insight on Best Buy using the concept. A quick internet search suggests that even Nokia, Samsung, Masterfoods, etc. have tried using the concept, HP being one of the innovators using it since the mid 90’s…interesting!!!

      And when one thinks of the concept being used in the Indian market context, the recent highlight on proposed policy changes in sectors including FMCG, Aviation, pension markets could be watched out for. With expected increase in FDIs soon in the aforementioned sectors, one can follow if and how such concepts would be used by the Wal Marts, Telcos of the world when they compete for space in Indian market.

      Reply
  • 6. Vikram Venkateswaran  |  November 25, 2011 at 8:21 am

    @Ruchi, that is very interesting thanks you. When you say Nokia, Samsung et all have used this concept does that mean they are no longer using it? Also HP has used it since the 90’s? Wow that is not something my employers would like to hear. But still this is excellent and probably we can collaborate on a piece on the Indian market and predictive analytics for marketing budgets in view of the policy changes, especially the FDI policy change on Retail.Do let me know your views on the same.

    Reply

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