2. EXECUTIVE SUMMARY
Marketing Portfolio Management: decision on which products to
promote (or not).
Critical as effectiveness (doing the right thing) has to precede
efficiency (doing things right).
Results in segmentation criteria for products with respect to the
promotional responsiveness and expected results from
investments.
Allocation of promotion investments to products based on chosen
criteria, estimate expected results from investments.
Bernd Schossmann, Summer 2015
3. APPROACH & ANALYSIS
STEPS TO BE TAKEN
Define Frame: evaluation criteria for portfolio segments, investment
options and objectives
Allocate Products to Portfolio Classes: match products to classes
and estimate expected returns from investments
Review: check for alignment with overall strategy, performance,
product transitions, new launches
Bernd Schossmann, Summer 2015
4. Promo Response (change
in units with promotion
invest change)
(units/value)
How much should we
invest into that product?
What return can we expect
from our investment?
Expected Potential (value)
Advantage over
Competition (qualitative)
How many USPs by
product?
What use are the USPs for
our customer?
Market Size (value)
Market Growth (units)
Penetration (%)
How sensitive is the market
against promotion?
Ranking for key products, then sanity check with team
CRITERIA CHOSEN
EXAMPLE
Bernd Schossmann, Summer 2015
5. QUANTITATIVE FRAMEWORK FOR
PROMO RESPONSE MODELING
General rule to split markets1,2:
Constant elasticity1:
Regression (after logarithmic transformation1):
Profit-maximizing promo to pricing ratio1:
Model actually used3:
i
ee
i
ee
ii
cpipcaia
ppaapapaq ,,,
peaeq pa lnlnlnln
p
a
e
e
pq
a
2121 qqMCMRMR
Source: (1) Shy (2008): How to Price, Cambridge University Press; (2) Dorfman/Steiner (1954): „Optimal Advertising and Optimal Quality“,
American Economic Review 44: 826-836; (3) adapted from (1)
(q = quantity demanded, a = promo spend, p = price, ea = demand elasticity of
own promo, ep = demand elasticity of own price)
pa
ee
papaq ,
(e cai = cross demand elasticity of promo competitor i, e cpi = cross demand
elasticity of price competitor i)
Bernd Schossmann, Summer 2015
6. KEY RESULTS OF ANALYSIS
Best estimate on when and what to expect from promotion
investment and/or price change (based on historic data)
Preferential strategy: price change vs. promotion invest
Ranking of relative sensitivities
Quite accurate short-term forecasts
Bernd Schossmann, Summer 2015
7. IS IT WORTH IT?
+:
• Comprehensive and solid analysis
• Does deliver deep insights and proves/disproves opinions (e.g. real
competitor found, gives substance to stories from the field)
• Works well for large volume products (volume sales, good promo
data)
• Not too sensitive against data issues (outliers)
-:
• Very involved and time-consuming
• Not good for low volume products (data availability, impact of
shocks,...)
• Sensitive to mistakes in analytical process – careful here!
• Hard to understand (and therefore hard to sell – do people believe
you?)
Bernd Schossmann, Summer 2015
