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Marketing Mix Using

Agent-Based Modeling
November 17-18, 2010
Curt Stenger
Kevin Li

12/09/2021 1
A few words before we dive in…

• About Curt:
– VP, Analytic Services
– Experience in Marketing Science and Analytics
• About Kevin:
– Product Manager, ThinkVine
– Background in new product consulting and forecasting
• Rules of engagement:
– We would like this to be more of a guided discussion and not a one-
way presentation
– Please ask questions whenever
Our thought process behind this discussion

• Complexity in the world around us


– Background from a 50000 ft view
• Definition of complexity sciences
– Generalizations and brief background
• Drilling down to agent-based models (ABMs)
– Why the need?
• Applying ABMs to the marketplace
– Our methodology
• Case studies
From the beginning…

Let’s all think of processes that are complex and


uncertain in the world around us.
What comes to Kevin’s mind?
We are all involved with stocks, bonds, mutual funds, etc.
The financial market is a complex and uncertain environment.

A lot cooks in the


kitchen!
(Complex)

Oops!
(Uncertain)
Do you ever see a traffic jam coming?
Ever think about why you always quote someone 4-6 hours when
you’re driving 300 miles? Uncertainty and complexity.

Way too many cooks in


the kitchen! (Complex)

How did this


happen to me?
(Uncertain)
Forecasting Airline Demand
How can an airline manufacturer
determine how many planes to
build 30 years from now?

Parker, VIRTUAL MARKETS: THE APPLICATION OF


AGENT-BASED MODELING TO MARKETING SCIENCE, 2010
Plug-In Hybrid Vehicles
How do you judge a new product
sales volume affect by macro
cultural issues?

Eppstein, “An agent-based model for estimating


consumer adoption of PHEV technology”, 2010
How do people exit the building in a fire?
Turning the tables around

Your turn.
Others?
Why do birds How do you
fly in a V? win a war?

Why do ants
Why is your build their
brain shaped a colonies this
certain way? way?
Introducing the complexity sciences

A system in which large networks of components with no


central control and simple rules of operation give rise to
complex collective behavior, sophisticated information
processing, and adaptation via learning or evolution
(Mitchell, 2009)
Complexity Sciences and ABM

• Has been in the lexicon of social and physical science since Von
Neumann’s “machine.”
• Key examples include:
– Biology
• John von Neumann: self-reproducing automata (‘50s)
• John Conway: game of Life (‘60s)
• Chris Langton: artificial life (late ‘80s)
– Social science
• Simon, March and Cyert: the ‘behavioral school’ and simulation of few agent
systems (‘50s and ‘60s)
• Tom Schelling: tipping model of segregation (late ‘60s)
– Computer science
• artificial intelligence (AI)
• robotics
• distributed AI (DAI)
• multi-agent systems (MAS)
• object-oriented programming (OOP)
Ethnology of Simulation Modeling

From Roger Parker, VIRTUAL MARKETS: THE APPLICATION OF


AGENT-BASED MODELING TO MARKETING SCIENCE
Why the need for dynamic models?

t
Why the need for dynamic models?

If I were to ask you to predict what will happen in the


future, what would you do?

t
Why the need for dynamic models?

Probably something close to this?

Best fit and extrapolate

today
But reality is not so simple…
Different things can happen!
We care about which path will happen and
how it’ll get there.

Possible futures

today
t
Same example using ABM

ABM

today
t
Same example using ABM

ABM What if?

today
t
Same example using ABM

ABM and... what if?

today
t
Same example using ABM

ABM or… what if?

today
t
Same example using ABM
We care about the underlying assumptions. If we
understand the bottom-up behavior, we can generate the
aggregate output.

ABM or… what if?

today
t
Applying ABMs to the consumer marketplace

In a traditional model, TV drives sales.


In reality, TV influences consumers to buy more.
A Simple Simulation
• Typical new product forecasts
use simple aggregate
assumptions about the effect
of media and word of mouth
when estimating the diffusion
of new products

• Simple simulations like this one


allow the testing of the impact
of different levels of media on
the acceptance rate of a new
product at the consumer level.

• Yellow people are users


• Blue are target
• Flags are “ads”
• Ads and WOM influence targets to buy

25
Today’s general framework

Experience need!

Use media, see ads


Choose channel

Evaluate in-store
Talk about it! options

Use inventory

Choose brand, pack,


number
Experience product
How do we do it?
First, we create a representative sample of virtual consumers (50K+) inside
of our simulation environment from the bottom up. Each consumer agent
is different from one another demographically.
How do we do it?
Then, we assign them media usage habits using known sources…
How do we do it?

…and build behavioral rules to link demographics to media consumption.

Media usage habits realistically impact media effectiveness:


Younger people on Digital Ads are seen more on average by
average use more Internet: younger consumers than other demographics:

Agent’s age negatively correlated Agent’s digital minutes positively correlated


to digital media minutes to probability to see a digital ad

Natural correlations affect sales separately from media, as in reality.


Older people tend to Agents with more education These higher earning agents are more
earn higher incomes: Also tend to earn more: likely to purchase luxury goods:

Agent’s age positively correlated Agent’s years education positively If Agent income is in top X% of population
with years education and income correlated with income then probability to buy luxury watch +Y%
How do we do it?
Each agent is different from another, but aggregate averages still hold true
for population (heterogeneity).
How do we do it?

Lastly, we simulate likely sales outcomes based off of how


these consumers react to different mixes of marketing activity.

Simulated Interactions

Consumers Marketing
How do we do it?
1 Train the Tool = CALIBRATE
We recreate the past 2 years of sales from the “bottom up” by building rules that
explain why those sales outcomes occurred.
2 Prove the Tool = VALIDATE

Once trained, we compare the most recent 6-months of actual sales (data not used to
3 Usethe
train themodel)
Tool = SIMULATE
to a simulation of the most recent 6-months of sales.

Once the model has been calibrated & validated, we can begin to project forward and
provide clients with the ability to run “what if” planning scenarios.
Train Prove Use
The model is trained by using your demographic, marketing & sales data. Track against hold out data Forecast
2 Years Sales History 1-2 Quarters Future

Simulated
Actual
Model Fit
With a weekly MAPE of 4.6%, we have strong evidence that the ACME Brand model fits
historical sales data very well.

Stat Cases (K)

Actual

Simulated
Our goal is to achieve
a weekly MAPE (Mean
Absolute Percentage
of Error), of 15% or
less.
Marketing Impacts FY10
•FY10 sees an investment of $10.8MM in TV with a modest $.29 ROI
•Trade has highest level of ROI
•Print, ASM, and PR have high variability due to low spends

Stat % of % Mkt Spend % Eff. ROI


Cases Stat Vol ($K) Spend Index ROI +/-
(K) Cases

20 0.2% 0.6% 59 0.2% - - -

0 0.0% 0.0% 550 1.6% - - -

177 1.7% 5.6% 7965 23.5% 24 0.24 0.02

8 0.1% 0.3% 47 0.1% - - -

20 0.2% 0.6% 343 1.0% 64 0.65 0.45

280 2.7% 8.9% 10728 31.7% 28 0.29 0.01

2643 25.8% 83.9% 14137 41.8% 201 2.05 0.01

7085 69.2%

Total 10233 33829


Long-term Impact of TV

Base Volume (MM) Lift from Network TV (MM) Network TV Reach

Base Volume (87 Week Total) = 320.26MM


Lift from Network TV = 62.66MM (11.23%)

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ThinkAhead: Graphical Representation
We model the “path to purchase” for your product, from the
marketing levers you pull all the way to consumer purchase.
Benefits

• Incorporates the consumer (50K different consumers)


– Demographics
– Media consumption behavior
– Shopping behavior
• Natural consequences of the model mimics reality, i.e.
emergence
– Sales decline because people leave, not because your marketing
suddenly contributes negative volume
• The “right” people buy
– Can get a read on segmentation and loyalty
– Heavy media users tend to buy more and vice versa
• Saturation occurs naturally due to non-linear assumptions
– Awareness, purchasing, etc.
• Future simulations and past diagnostics much more realistic
ThinkVine: Who We Are

• Founded in 2000, ThinkVine is an Analytic Services and Simulation


Software consultancy, with a strong focus on market & consumer
modeling, analytics and decision support systems. 

• In addition to traditional analytic techniques, we also apply leading-


edge techniques from the complexity sciences to tackle tough
business problems. These include:
– Agent-Based Models & Simulations
– Genetic algorithms
– Neural networks
– Game Theory

• ThinkVine works with some of the world’s top companies across a


broad range of industries such as: consumer packaged goods,
advertising & media, energy, technology, and financial services.
Core Product

• Our core product is the ThinkVine ThinkAhead platform


– Marketing simulation and planning tool
– Launched in 2009
– Historical diagnostics with robust forecasting capability
– Built as an agent-based model
– Delivered through software as a service
• We answer complex business questions such as:
– Attribute: What did digital do for me in the context of other tactics?
– Evaluate: 8MM Facebook fans or another $5MM in trade?
– Forecast: If I shift 20% of print into digital, what will happen?
– Improve: What’s the best way to close the volume gap for this fiscal?
– Target: Am I hitting my target segments with my media?
– Portfolio: Should I spend on cat food or canned vegetables?
– And more…
Our Clients

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