Alpha Furniture Outlets

Marketing Optimization Model

Situation

• The following is a case study based on real data. Names have been masked to protect confidentiality.

• Alpha Furniture Outlets recently hired a new CMO, Robert Emory. Alfa suffered from anemic +1% growth and Robert was charged to find ways to improve marketing productivity.

• Robert started by engaging in a marketing modeling project. The purpose of this project was to determine what current marketing activities were working and which were not. Most importantly, the ultimate goal was to develop fact-based evidence to drive and accelerate Alpha’s growth over the next year.

Alpha Furniture Model Architecture

We begin with a framework or architecture for a brand model. The model will include digital and mass media, Store Sales and Direct Marketing Campaigns

Digital Banner Ads

DM New Year Campaign

Digital Paid Search

DM Christmas Campaign

Store Sales

Competitor TV

National & Local TV

Press or Print Media

Radio & OOH Media

Seasonality

Weekly POS Store

Sales

Model Validation

-1000

0

1000

2000

3000

4000

5000

1/5/2004 1/5/2005 1/5/2006 1/5/2007

Actual

Model

Variance

R2=96.1 Holdout R2=97.7 MAPE = +/- 7.7%

HoldoutForecast

Below shows how our predictive model fits to actual sales and how well we were able to predict a blind holdout

About 6.3% of Alpha’s sales have been generated by marketing and advertising over the past year. This equals 16.8 million in revenue from marketing. This is 2.88

revenue per dollar of investment and a net profit of $1.16 per dollar

93.7%

1.0%

0.9%

2.0%

0.5%

1.9%

6.3%

Alpha Sales Decomposition

Baseline

Campaign.NewYear

Campaign.Christmas

Campaign Store.Sales

Press

Internet

Outdoor

Radio

Local TV

National TV

Skipping the Christmas DM Campaign cost Alpha about 2% in revenue growth. The largest factor driving positive growth was

Press or Print media. Overall growth is just 1.3%

-1.9%-0.5%

0.0%0.0%0.0%0.0%0.0%0.0%

0.1%0.1%0.1%0.1%0.1%0.1%0.2%

0.4%

-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0%

Campaign.Christmas

Campaign.NewYear

Internet

National TV

Radio

Competitor3_Outdoor

Campaign Sales

Digital Banner Ads

Competitor1_Press

Competitor1_TVPress

Digital Paid Search

Basaeline

Outdoor

Competitor4_Press

Local TV

Press

Alpha Furniture Annual Marketing Variance

Annual % Variance Contr

Marketing Efficiencies: Revenue per $ Million is highest in print followed by TV. Sales & Campaigns rather ineffective

- 2 4 6 8

10 12 14 16

0.01 0.01 0.02 0.14 0.66 1.09

3.94 5.97

11.46

14.22

Rev

en

ue

Mill

ion

s

Rev Per $MM

Rev Per $MM

Maximizing Marketing ROI. Increasing spending from $14.5 to $18.3 million will generate additional +$0.8 million profit

-

5.0

10.0

15.0

20.0

25.0

30.0

1,120

1,130

1,140

1,150

1,160

1,170

1,180

1,190

1,200

0 10 20 30 40

Revenue

Marginal Cost

Marginal RevenueCurrent Spend$14.5MM

Optimal spend whereNet returns maximized

Optimization recognizes the pivotal role of TV and Press. With higher investments in these, Alpha can gain +4.3% ($48 million)

in revenue for the same budget

Contribution Current Optimal

National TV 9 0.05 1.08

Local TV 1,344 3.00 5.90

Radio 3 0.60 0.06

Outdoor 281 2.50 0.13

Digital Search & Banners 655 0.20 1.74

Press 1230 3.00 3.80

Campaign Sales 534 2.30 0.20

Campaign.Christmas 0 0.10 1.30

Campaign.NewYear 593 3.00 0.30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

National TV

Local TV

Radio

Outdoor

Digital Search & Banners

Press

Campaign Sales

Campaign.Christmas

Campaign.NewYear

14.5 14.5