Hypothesis Testing with Controlled Experiments: Computing P-value using Z-statistic

Fake Professor

Google the word “experiment”, the answer returned is, “a scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact”

While “Experiment” is a broader term, a controlled experiment specifically is about testing impact of a single factor /variable while the other variables remain constant.

Confused? Don’t worry, read ahead. I will attempt to explain this using a scenario.

Imagine Saidulu is an ice-cream manufacturer who wants to increase the sales of his product “Kya toh bhi Ice-cream”.  His friend, Panthulu, suggests him to double the sugar content in ice-cream in order to achieve higher sales.

Will Saidulu go ahead and increase sugar in his ice-cream? That’s a bad business move. Fortunately Saidulu is smart, he conducts a controlled experiment. Voila!

How does he do that?

First, Saidulu tries to understand his customer segments. He narrows down attributes of his major consumer segment on the parameters…

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Marketing Information Systems

Marketing managers rely mainly on MIS systems and reports generated for the same to establish marketing plans. Marketers rely on three sources of information: internal information, marketing intelligence, and market research.

Internal Information

Marketing managers need to have an internal analysis to determine where does their own company stand. For these they need regular sales reports, shipment reports, purchase reports, margin reports, costing, customer service expenses etc. All these can be obtained through MIS and it is the first type of information a marketing manager looks for.

Marketing Intelligence

The second kind of information which will be needed is the business environment or in other words market intelligence. The Market intelligence pertains to overall demand in the market, the potential of the market, competitors in the market etc. Generally a lot of marketing intelligence is gathered from internal sources itself such as customers, suppliers and distributors. Marketing intelligence from these sources is important to grasp any day to day changes happening in the business environment. For example – A television company will expect lots of sales in a festive environment and your distributors will probably inform you that they will be needing discount in this time. Thus during a festive environment you have to use Price discounts as a sales promotion tactic and at the same time ensure having a higher inventory of televisions. Furthermore, industry information can also be found by professional organizations such as Nielsen and others.

Market Research

While internal information and market intelligence is important, the most important information which a marketing manager can receive is “What a customer wants”. Thus time to time market and consumer research is needed for new product ideas as well as expected improvement in processes. This kind of information can be expensive to gather but is worth the expense. Major changes in industries happen mainly because they are in touch with their end customers and they know what their customer wants. Furthermore, predicting how a market will respond to any changes being made in the marketing plan can be answered by your end customers only and not by your distributors and suppliers. This is why a lot of organizations conduct trial runs.

With these three information, a marketing manager has enough knowledge to go ahead with his marketing plan. If the plan fails, then he has to determine which of the above information is improper. If the marketing plan fails because of internal problems, then his internal company information was improper. If it fails because of poor support from distributors and suppliers, then his marketing intelligence was incorrect. And finally if the end customer does not accept the marketing plan then his market research was improper.

Tata Steel trying to regain its corporate equity

Over the last decade, Tata Steel has lost its equity within the Tata Group of companies. There was a time when every engineer in India used to aspire to work for Tata Steel. Tata Steel was once the dominant company among the Tata Group, but in the last decade it was overshadowed by Tata Consultancy Services (TCS) and Tata Motors Ltd.

Tata Steel wants to regain its position as the number one company within the Tata Group. Though there performances are good, somehow they lost the charm they had earlier, especially as an aspiration for the youth. Tata Steel wants to re-gain its corporate equity. There has been an increased focus on this issue, and you could see a lot of advertisements in both traditional and interactive media working around corporate branding. Various leaders within the company are shown in a move to inspire the youth towards Tata Steel.

Ogilvy worked on this corporate branding activity. They came up with the tag line – “This is not advertising. This is life @ Tata Steel.”

Vodafone Webstore

Vodafone has introduced a new bench mark in the telecom space by introducing a one of a kind self help feature on Facebook named as Vodafone Webstore it features all the services required by customers on a day to day basis.

Now coming to the main point of why such an initiative. Well Vodafone wants to go beyond than just connecting with its customers and whats best other than Facebook?

As almost every netizen has a Facebook account it is easier to grab a pie of customers with this innovative service.Why log out of Facebook to recharge your Vodafone Prepaid Balance?

With this Webstore in Facebook customers don’t have to log out of their account neither do they have to run to the nearest store to get a top up done. The Webstore will help you topup your account, make bill payments and has a lot of VAS services like setting up of caller tunes, downloading full songs, cricket score, number portability, etc. Along with it comes the Vodafone M-Shop for buying deals through mobile.

It does make sense and managing your mobile activities thus makes a lot more easier. Hopefully other operators might just follow suit! Watch out.

Indian Telecom Industry

About 875 million subscribers are now part of Indian Telecom story. Estimated Population of India as per Census is at 1.22 billion population surviving on less than 1 Dollar a day from this comes to around 450 billion.

If we take into account the poverty statistics from the official data, the 400 million balance population survives on less than $ 1 a day, and probably has other things on their priority list rather than having a cellphone.

Or can we say that anyone who can afford it has one…???Indian Telecom space, due to its dynamic nature needs to invent newer Business Models to match the pace of Industry and demands of customers.

Directly or indirectly its clear focus is on 3 Parameters:

Rural Reach – for Expansion.
Revenue Per Minute concept – for Sustenance.
Retention of Subscriber base – for competition.

Let me briefly touch upon current trends through which we can easily visualize existence of 3R’s model focused by operators.

• According to the Telecom Regulatory Authority of India (TRAI), the number of new subscribers for May 2011 fell to 13.35 million compared to April 2011 which was 15.9 million. In March 2011, telecom operators added over 20m subscribers. This clearly indicates Saturation in urban subscriber base.

Future Growth in subscriber base will definitely boost only incase Rural market is tapped. Increase in Rural penetration will primarily depend upon how government makes a lucrative policy or a law which gives Right to mobile to every citizen. Apart from this, government needs to rejuvenate existing USOF (Universal Service Obligation Fund) to ensure maximum and active participation from private Telecom Service providers.

• Heat on the Bottomlines is ‘ON’ for Telecom companies. Bharti Airtel saw net profits 31 percent while Reliance Communications saw a vertical drop of 86 percent.

The reasons for the two declines were different: Bharti lost due to the costs of its African acquisition, while Reliance had too much debt on its books. But the underlying story is the same: Indian growth is reaching saturation point, even while the cost of doing business is rising.

The 3G (third generation) telecom spectrum auctions has forced most companies to borrow, and this is showing in higher costs.

• With Mobile Number Portability (MNP) in place it’s becoming more fierce competition – another sign that the market is not big enough for all to gain and prosper. Here a subscriber can take his number and shift to a different operator, this has been a gaining ground for big boys of the industry (Vodafone, Airtel and Idea) compare to the smaller players.

The industry is also seeing a major shift away from CDMA (code division multiple access) services to GSM (global system of mobile).The losers are Reliance Communications and Tata Teleservices.Market leaders like Bharti Airtel are foraying into new markets like Africa for growing numbers.

While players like Uninor and MTS are offering low tariffs to gain numbers, along with concentrating on retaining subscribers and engaging high value customers line other operators.

Concept of Revenue Per Minute (RPM) is gaining momentum in industry as Operators now want the subscriber who spends more time on the network using data, roaming or other value added services. Big Boys are no longer chasing the subscriber looking for cheap voice call rates.

Experts feel that over a period of time voice calls will be free and they will charge subscriber only on Value added Services (VAS). 3G services will drive future of Wireless industry. Hence Operators today want is a subscribers who can give more revenues per minute (RPM) by sticking to their network.

By April 2011, India had 9m subscribers to 3G services launched by various operators. E&Y expects this number to reach 142 m by 2015, accounting for 12% of the total subscriber base.

Likewise in all other industries In telecom industry too we have two camps. Big Boys (Bharti, Vodafone and Idea), who have large subscriber bases, and the challengers, who are new entrants or looking to break into the top 3 (RCom, Aircel, Uninor).

The battle between ‘Big Boys’ and ‘Challengers’ continues on various grounds – Starting from Termination charges to subscriber acquisition through MNP.

As per TRAI estimates MNP has hurt CDMA service providers like Reliance Communications (Rcom), Tata Teleservices & BSNL more than GSM providers. Mobile users have moved to Vodafone, Idea and Bharti from RCom, Tata Teleservices and BSNL. As many as 10 million, or just less than 1% of the total subscribers, have utilized MNP service.

Like will every victory has its cost here too the gain from MNP for Big Boys is costly enough. For example, Bharti Airtel reported a decline of 2.4% in revenues per minute (RPM) and 1.6% in the operating profit margin for the quarter to March 2011 compared to the quarter ended December 2011. For Vodafone too, RPM fell 2.6% during the March 2011 quarter.

Consolidation in telecom space will reduce competition significantly and will offer a better level playing field to the operators. Still poor M&A rules in this sector stall any potential deal in same circle for operators. Industry still hopes for better and clear rules to be laid down by regulator for consolidation.

About the Author:
Tejas Dave is Regional Telecom Research/Business Analyst associated with one of the leading Telecom Operator in India. Previously he has worked with other Telecom operators and Worlds Largest Tower company. His role primarily gives him an opportunity to closely work with senior leaders of the Company,Industry and Government. He is also associated with Academic and professional organisations like WB India,World Economics Association,IDEAs & AMA.

Problems because of mother brand endorsement

Mouthwash was relatively a new category and it was primarily driven by Medical Shops channel, as the consumers generally used to use Mouthwash only when prescribed by the dentists for some medical conditions. Colgate being a pioneer of the oral category, had the challenge to create consumer pull to this category and the brand. Colgate used its communication very well to create the pull, and it gained well from the Indian Metro consumer. Following is the TV commercial of Colgate Plax, which is a similar version from that of Australia.

Colgate Plax, Australia

Colgate Plax, India

With medical shops still being a major channel for this category, where brands like Listerine, Hexidine, Betadine are more prescribed than Colgate by the doctor. Consumers may not look at brand Colgate as having that curative efficiency. Also, Colgate being a household brand might not have the equity as being a prescribed medicine, as people may not feel a Colgate product to be a medicine.

The issue here is based on two targets:
1. Colgate wants more and more ordinary consumers to pick its mouthwash from the stores. Here the brand Colgate plays a major role.
2. As the medical shop channel is very important for the category, they would want doctors to prescribe the mouthwash and ideally consumers to not have ‘non-medicine’ perceptions towards Colgate. Here the brand Colgate may not be serve the intention.

The consumers of the same product behave differently in two different channels.This is one of the examples of the complexity created by the mother brand endorsement. Possibly, the way out of this complexity is to develop a new brand without any endorsement by the mother brand Colgate. Pulling out a queue from David Aaker, J&J seems to have adopted a similar strategy where there brands are not endorsed by the mother brand.

The thoughts expressed in this blog are completely my personal views and opinions based on observation and secondary research. The blog does not represent the views and ideas of any organizations or institutions I am associated with. Thank you.

Brand development vs. Brand building

Brand development
This is about creating exciting and compelling visions for our brands and developing plans across the full marketing mix. It includes brand communications, innovation and renovation as well as channel-specific propositions.

Brand building
Here we translate those visions into a local market context, plan practical activity and make sure those plans are executed flawlessly. Through leading the country operations, this team’s job is to deliver market share and revenue.