Traditional Marketing Mix models attempt to explore the tradeoffs amongst different marketing channels and the spends associated with them. The weaknesses of these models are, generally, their static nature and the restrictive assumptions required to apply their results. For these reasons, an American pharmaceutical company, one of the largest in the world, engaged with Sterling Simulation to explore the benefits of agent-based modeling, prior to launching a new product. The use-case was presented by Scott Hebert, Vice President of Sterling Simulation at the AnyLogic Conference 2015.
A multi-national pharmaceutical company recently launched a new non-generic drug. Since the company already owned the leading non-generic drug in that market, cannibalization was a concern. The goal was to create market share for the new drug, while maintaining or increasing market share for the well-established drug by modifying types of promotional spend. Traditionally, the Analytics Department would employ a Marketing-Mix Model (MMM) to determine the impact of promotional spend, but the company was looking for further insight into the mechanics behind the MMM. After exploring multiple options, they determined agent-based modeling, and ultimately AnyLogic would allow for the greatest flexibility and visualization.
A major U.S. airline was facing a situation where opportunities to extend the existing strategy were limited, coupled with an increasing cost structure due to competition, commodity prices, and acquisition integration activities. The airline began to explore several options to generate new profits through ancillary products or changes to existing policies and was under intense pressure from board members, Wall Street and various analysts to do so. PwC, the world’s second largest professional services network, was employed by the Airline to model the predicted impact of the client’s ticket market share and company brand sentiment after introducing new products or policy changes.
Many people, who are interested in sales forecasting, are familiar with the book Predictably Irrational by Dan Ariely. The abstract of the book states: “Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. From drinking coffee to losing weight, from buying a car to choosing a romantic partner, we consistently overpay, underestimate, and procrastinate. Yet these misguided behaviors are neither random nor senseless. They're systematic and predictable—making us predictably irrational.” The irrationality of human decisions is the basis of behavioral economics. Predictably Irrational, and many other books, give many examples which argue the idea of consumer rationality. Businesses are irrational too, as they are guided by human beings.
The winner of the simulation modeling contest, organized by The AnyLogic Company on RunTheModel.com, has been decided. Alex Shcherbyna, from the Ukraine, won with his Times Square Outdoor Advertising Effectiveness model. His model is a presentation of simulation for an outdoor advertising estimation in the media planning industry. In an interview, Alex tells us how he got this far.