Mix Modeling at Coca-Cola

Ram Krishnamurthy

Group Director Marketing Strategy & Insights

Predictive Analytics World

Oct 21, 2009

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

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 …

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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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

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

MVA in the larger context

Forecasting

ExecutingDebriefing

Planning

Business Plan

CentricVolume & OI

Objectives

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

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

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

Some Standard ROI Analytics to Support Business Processes

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ROI of Alternative Plans

A B C D E

Executing

ForecastingPlanning

Debriefing

Process enabled through a Software platform – secure for handling financials

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 ?

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

…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

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

© 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

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

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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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Models for Learning

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Metrics Models

PredictedOutcome

PlanInvestment

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 ?

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..

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 ?

Models for Learning

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Metrics from Consumer

SurveysModels

PredictedOutcome

PlanInvestment

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?