Learning to Drive A Marketing Machine

1. Learning to Drive A Marketing Machine Ted Mitchell

2. Questions on the Basic Concept of Rates, Ratios, Percents, etc. Ted Mitchell

3. The primary function of a business • Is to make a profit! • The overall performance of a business is measured by the • 1) Amount of profit it makes • 2) Amount of Resources it uses to make the profit • 3) The efficiency at which it uses those resources to make the profit

4. A car’s primary function is • To allow you to travel distances • Overall measures of a car’s performance would include • The distance it can travel • The amount of gas it uses to make the trip • The efficiency at which it uses the gasoline

5. 1) You have a car that gets 25 miles per gallon. • Miles per gallon, mpg, is the conversion rate of a machine (car) that converts gallons of gasoline into miles of distance travelled. • Can you tell from the mpg how many miles you drove? Yes or No • Can you tell from the mpg how many gallons you used? Yes or No

6. Basic Concept of the Car as a Machine • Converts gallons of gas (Input) into a distance driven (Output) • Output: Miles driven = conversion rate of the machine (a car) x Input: Gallons of Gas • Conversion rate = miles per gallon • Conversion rate = (Output: Miles) / Input: Gas • You can tell nothing about the overall performance from the conversion rate alone

7. The efficiency of your car’s performance

8. You can tell nothing about the • Overall performance • 1) Output Generated: Distance travelled • 2) Input Used: Amount of gasoline used • From a knowledge of the machine’s efficiency or conversion rate alone • However it is an Identity so if you know 2 of the three you can calculate the third

9. It is an Identity

10. 2) You have a car that gets 25 miles per gallon. • Your friend has a car that gets 20 miles per gallon. • Can you tell from the mpg that you drove more miles than your friend? Yes or No • Can you tell from the mpg that you used fewer gallons than your friend? Yes or No • Can you tell from the mpg that you both drove the same number of miles? Yes or No • Can you tell from the mpg that you both used the same number of gallons? Yes or No

11. It is an Identity

12. From two conversion rates • Such as miles per gallon • 1) You can tell nothing about the comparison of two performances except that a car that gets 25 mpg is more efficient than a car that is getting 20 mpg • 2) Never Assume that the two cars being compared drove the same distance or used the same number of gallons of gas

13. You can NOT compare the overall Performance of Two Machines • If you only know the conversion rates of the two performances • You need to know the values of the output and the input as well as the conversion rate of the machine

14. 3) After a tune-up your car improved • its fuel consumption by 10 miles per gallon from last month to this month. • Can you tell from the change in mpg how many miles you drove? Yes or No • Can you tell from the change in mpg how many gallons you used? Yes or No • Can you tell from the change in mpg that you drove more miles this month than last month? Yes or No • Can you tell from the change in mpg that you used fewer gallons this month than last month? Yes or No • Can you tell from the change in mpg that you drove the same number of miles this month than last month? Yes or No • Can you tell from the change in mpg that you used the same number of gallons this month as last month? Yes or No

15. Comparing Two Cars

16. You can NOT compare the Two Performances • If you only know the percentage change or difference in the conversion rates of the two performances • You need to know the values of the output and the input as well as the conversion rate of the machine

17. 4) You have a truck that got 20 miles per gallon last week. • You also own a car that got 50 miles per gallon last week. • From the above information is it possible to correctly calculate the average number of miles each vehicle was driven. • From the above information is it possible to correctly calculate the average amount of gas the vehicles used. • From the above information is it possible to correctly calculate the average miles per gallon of your two vehicles?

18. What is the average miles per gallon?

19. What is the average miles per gallon?

20. You ShouldNOT calculate the average of rates as if they were whole numbers • The average rate is NOT the mean of the rates • Mean of the two rates, (20 mpg + 50 mpg)/2 ≠ 35 mpg • Rates are NOT whole numbers!

21. Averaging Two Performances

22. To calculate an average rate • You need the • 1) total or the average amount of gas used by the two vehicles • 2) total or the average amount of distances driven by the two vehicles

23. Averaging Two Performances

24. Averaging Two Performances

25. Forecasting

26. You can NOT correctly calculate • The average conversion rate of many performances with out knowing either • 1) the total amount of input and the total amount of output used • 2) the average amount of input and the average amount of output used

27. Examples of Driving the Marketing Machine • Generating awareness of your product in the minds of potential customers • Generating sales revenue from the number of hours you keep the café open

28. 5) This year your product has an awareness level in your potential market of 60% Awareness level is a conversion rate that converts total potential customers into potential customers who are aware of your product. • Can you tell from the percent awareness level the actual number of potential customers who are aware of your product? • Can you tell from the percent awareness level the total number of potential customers in your market?

29. Performance of Awareness Building Machine

30. You can NOT measure the overall Performance • of the Awareness Building machine • If you only know the conversion rate of a performance • You need to know the values of the output and the input as well as the conversion rate of the machine • However if you know any two of the three values you can calculate the third value

31. 6) Your firm’s ‘customer awareness level’ decreased by 10% last year. • Can you tell how many potential customers you had last year? • Can you tell how many potential customers were aware of your product last year? • Can you tell by how much the potential market increased or decreased from last year? • Can you tell if you have more, or less, potential customers who are aware of your product than you had last year?

32. Performance of Awareness Building Machine

33. You can NOT measure the overall Performance • of the Awareness Building machine • If you only know the change or difference in the conversion rate, ∆r, of a performance • You need to know the values of the change in output and the change in input as well as the change in conversion rate of the machine • However if you know any two of the three values you can calculate the third value

34. Biz-Café is a Marketing machine • In which the sales revenue generated per hour is the rate at which the number of operating hours is converted into sales revenue • Output: Dollars of Sales revenue, R =(conversion rate, sales per hour) x Input: Hours, H • Where the conversion rate,Dollar Sales per Hour = (Sales Revenue, R)/(Hours, H)

35. 7) You own two Biz-Cafes • The first café is generating sales of $100 per hour each week. The second café is generating sales of $120 per hour each week. • From the above can you calculate which café is making the most revenue? • From the above can you calculate which café is staying open for the most hours? • From the above can you correctly calculate the average revenue per hour?

36. What is the Average conversion rate of the Biz-Café Machines?

37. Average Performance of Biz-Café Machines

38. Why is the average rate NOT $110 per hour? • Your businesses were open a total of 180 hours last week. • We are told that your average revenue was $110 per hour so we expect to see your total revenues to be • Input: 180 hours x $110 per hour = $19,800 • But your total revenues are only $19,600 • Why is that?

39. Average Performance of Biz-Café Machines

40. Average Performance of Biz-Café Machines

41. Average Performance of Biz-Café Machines

42. Average Performance of Biz-Café Machines

43. It is NEVER safe to assume • 1) Anything about a overall machine’s performance being good or bad from the conversion rate alone • 2) That two performances are comparable if you only have the two conversion rates or ratios of efficiency • 3) That the average conversion rate is equal to the mean of the conversion rates

44. An Exam Question • The efficiency of your servers is measured in sales revenue per server. Your sales revenue per server has dropped by 10% from last week’s performance. It is obvious and safe to assume that your Biz-Café is now generating less revenue this week than last week! • True or False? • It is definitely false!