Monday, November 15, 2010

The desi savings story continues....

Check this out - opportune or what?

Indian household savings to be 15x in a decade

NEW DELHI: India may takeover the US in terms of households savings by 2020, touching the USD 5 trillion mark, as the growing economy would boost incomes of people, a study has said. "The household savings rate of 33.4 per cent would translate into incremental savings of USD 5 trillion over the next decade with growing incomes of Indian households," Assocham President Swati A Piramal said in a statement. Currently, the size of Indian household savings is over USD 330 billion, according to a study jointly done by Assocham and PricehWaterhouse Coopers.

 OK, even an avid proponent of breakthrough/non-linear growth curves and all like yours truly has difficulty believing some of those numbers there. The growth rate required for a 15x leap in household savings within a decade are beyond reach. By far. A 3x to 5x leap to ~ 1-1.5 trillion in 2010 USD is certainly do-able though. Sure, in nominal terms, if, say, the USD crashes by 50% or something, the figure quoted above may just about become possible. Who knows.

Which is why I say, be skeptical. It saves so much more time and trouble than otherwise. Wonder what kind of methodology the 'study' has employed here. I for one would certainly like to examine their data, assumptions and choices made.

Here's more meat directly from the Project scope....

 Indian households have traditionally preferred safety of bank deposits and government saving schemes. Less than 10 per cent of their investments are in other financial assets like shares, debenture and mutual funds, which is low as compared to some of the developed economies, Piramal said. "Given the quantum of savings, the need to mobilise savings into productive channels and the opportunity for financial intermediation, the next decade will be an opportunity of a lifetime for Indian capital markets," the study said.
Aha, eh?

Hope that interlude was useful.

Sudhir

Friday, November 12, 2010

Project presentations learnings summary.

Class,

As I write this, am done with all group presentations. Would rather pen down learnings early on before memory and other priorities take their toll.

First off, given the time and other constraints (you had less than a week between dataset-access and deliverable presentation), the output was by and large commendable. Some quick general observations:



1. Research Objective (R.O.) matters.
Recall from lectures 1, 2 & 3 my repeated exhortations that "A clear cut R.O. that starts with an action verb defined over a crisp actionable object sets the agenda for all that follows". Well that wasn't all blah-blah blah. Its effects are measurable, as I came to see.

Suppose the entire group was on board with and agreed upon a single, well-defined R.O., then planning, delegation and recombining different modules into a whole would have been much simplified. Coherence matters much in a project this complex and with coordination issues of the kind you must've faced. It was likely to visibly impact the quality of the outcome, and IMHO, it did.

2. Two broad approaches emerged - Asset First and Customer First.
One, where you define your research objective (R.O.) as "Identify the most attractive asset class." and the other, "Identify the most attractive customer segment." The two R.O.s lead to 2 very different downstream paths.

Most groups preferred the first (asset first) route. Here, the game was to ID the most attractive asset classes using size, monetary value as addressable market or some such criterion and then filter in only those respondents who showed some interest in the selected asset classes. Then characterize the indirect respondent segments obtained and build recommendations on that basis.

I was trying to nudge people towards the second, "Customer segmentation first" route partly because it aligns much more closely with the core Marketing STP (Segmentation-Targeting-Positioning) way. In this approach, the entire respondent base is first segmented along psychographic- behavioral - motivational or demographic bases, then different segments are evaluated for attractiveness based on some criterion - monetary value, count or share etc, and then the most attractive segments are profiled/analyzed for asset class preferences and investments.

Am happy to say that in a majority of the groups, once a group implicitly chose a particular R.O., the approach that followed was logically consistent with the R.O.

3. Some novel, surprising things.
Just reeling off a few quick ones that do come to my mind.

One, how do you select the "most attractive" segment or asset class given a set of options? Some groups went with a simple count criterion - count the # of respondents corresponding to that cluster and pick the largest one. Some groups went further and used a value criterion - multiply the count with (%savings times average income times % asset class allocation) to arrive at a rupee figure. This latter approach is more rigorous and objective, IMHO. There were only 2 groups that went even further in their choice of a attractiveness criterion - the customer lifetime value (CLV) criterion. They multiplied the rupee value per annum per respondent with a (cleaned up) "years to retirement" variable to obtain the revenue stream value of a respondent over his/her pre-retirement lifetime. Post-retirement, people become net consumers and not net savers, so post-retirement is a clean break from pre-retirement. I thought this last approach was simply brilliant. Wow. And even within the two groups that did use this idea, one went further and normalized cluster lifetime earnings by cluster size giving a crisp comparison benchmark.

Two, how to select the basis variables for a good clustering solution? Regardless of which approach you took, a good segmenting solution in which clusters are clear, distinct, sizeable and actionable would be required. One clear thing that emerged across multiple groups was that using only the Q27 psychographics and the Demographics wasn't yielding a good clustering solution. The very first few runs (<1 minute each on JMP and I'm told several minutes on MEXL) should have signaled that things were off with this approach. Adding more variables would have been key. Typically, groups adding savings motivation variables, Q7 constant sum etc were able to see a better clustering solution. There is seldom any ideal clustering solution and that's a valuable learning when dealing with real data (unlike the made-up data of classroom examples).

One group that stood out in the second point approach used all 113 variables in the dataset in a factor analysis -> got some 43 odd factors -> labeled and IDed them -> then selectively chose 40 from among the 43 as a segmenting basis and obtained a neat clustering solution. The reason this approach stands out in my mind 'brute force approach' is that there's no place for subjective judgment, no chance that some correlations among disparate variables will have been overlooked etc. It's also risky as such attempts are fraught with multi-collinearity and inference issues. Anyway, it seemed to have worked.

Three, when entry into real estate financial products, a regional break up that plays upon the geographic variation captured in the primary data would have been a good thing from the XYZ point of view. Would help them prioritize and better allocate resources in managerial decision making etc.

Anyway, like I have repeatedly mentioned - effort often correlates positively with learning. So I'm hoping your effort on this project did translate into enduring learning regarding research design, data work, modeling,  project planning, delegation and coordination among other things.

I wish you all the best in your future endeavors.

Goodbye and Goodluck.

Sudhir

P.S.
Would appreciate constructive feedback that may help the MKTR course next year. Many thanks to the kindred souls in Section D for the 'Thank You' card, I thought that was sweet.

Wednesday, November 10, 2010

For folks who have missed quizzes

Hi all,

There have been folks who have happened to miss quizzes for whatever reason. I'm writing this up to say, 'Don;t worry about it'. You won't get a zero in the quiz you've missed. We'll find some way to impute your quiz marks such that nobody - you or the rest of your section - is disadvantaged in any way.

Sudhir.

Project presentations Update

Class,

Just reviewed the first 10 presentations. I must impressive, given the time crunch and other constraints you folks were operating under.

The remaining groups which are to present, here's some updates for you.

Am told there are some evening events groups do not want to miss. At the same time, I would like this thing over for sections A and B today. Hence, this is what I propose:

If at least half a group's members can be present, then they are welcome to make their project presentation at any convenient time slot of thier choice between 2 and 9.30 pm today in my office or in the AC2 conference room (where I'm trying to arrange for a projector and computer).

The same shall go for sections C and D tomorrow as well.

Sudhir

Tuesday, November 9, 2010

Phase III: The way forward

Class,

The last of the traditional lectures for the last of the sections are done. The only thing remaining is the course project phase III. Some guidelines on what to expect and do:

1. In each section, the order in which groups will present will be randomly drawn. About 5, at most 6 group presentations can be accommodated in lec 10 class time itself. The other groups shall be given time slots to present between 7.30 and 9.30 pm at the AC2 LT/ MLT or NMLT on the same day as their lecture 10.

2. The time between the start of 2 consecutive presentations should be no more than 20 minutes. Ideally, budget 15 minutes for the presentation and about 3-4 minutes for Q&A. Short clarification Questions can be asked anytime during the presentation but the more long-winded questions should come only at the end. Each time will be shown a 2 minute warning sign before their 15 minutes are up.

3. The format in which the submission files are named and the content format is explained briefly in this blog post here. Kindly adhere to the same as far as possible. Use of slide animations, highlighting, multimedia etc to better make a point are welcome.

4. Only the PPTs that have been submitted prior to the blackboard dropbox deadline can be used for the presentations. We will bring the PPTs and load them a priori onto the Classroom computer. No laptop from your side would be required for the presentation.

5. Kindly ensure your entire group is present for the presentation and is reasonably up to date on and on-board with broad aspects of the project.

6. Some basic common-sensical ground rules - (i) Kindly refrain from entering or leaving the classroom when a presentation is in progress. It is needlessly distracting. Kindly use the interval between two presentations to exit/enter. (ii) Kindly feel free to ask questions from a group but no more than 1 question from 1 student/group to a presenting group.

7. Please sign and hand over the peer evaluation form to your section AAs anytime between Wednesday to Friday.

8. The evlauation criteria for Phase III include, broadly -
(A) The quality and clarity of the methodology
(B) Logical flow and consistency of Analysis
(C) Clarity of communication
(D) Handling of Q&A
(E) Quality of recommendations

Pls feel free to use whatever software works for you - MEXL, SAS, SPSS whatever.

Hope that clarifies.

Sudhir

Monday, November 8, 2010

Project related travails

Hi All,

I've been meeting groups all afternoon and evening today and some things have come up which IMHOmerit wider dissemination:

1. Have some basic roadmap in mind before you start: This is important else you risk getting lost in the data and all the analyses that are now possible. There are literally millions of ways in which a dataset that size can be sliced and diced. Groups that had no broad, big-picture idea of where they want to go with the analysis inevitably run into problems.

Now don't get me wrong, this is not to pre-judge or straitjacket your perspective or anything - the initial plan you have in mind doesn't restrict your options. It can and should be changed and improvised as the analysis proceeds.

Update: OK. Some may ask - can we get a more specific example? Here is what I had in mind when I was thinking broad, basic plan from an example I outlined in the comments section to a post below:
E.g. - First we clean data out for missing values in Qs 7,10,27 etc -> then do factor analysis on psychogr and demogr -> then did cluster analysis on the factors -> then we estimate segment sizes thus obtained -> then we look up supply side options -> arrive at recommendations.

Hope that clarifies.

2. Segmentation is the key: The Project essentially, at its core, boils down to an STP or Segmentation-Targeting-Positioning exercise. And it is the Segmentation part which is crucial to getting the TP parts right. What inputs to have for the segmentation part, what clustering bases to use, how many clusters to get out via k-means, how best to characterize those clusters and how to decide which among them is best/most attractive are, IMHO, the real tricky questions in the project.

3. Kindly ask around for JMP gyan: A good number of folk I have met seemed to have basic confusion regarding factor and cluster analyses and how to run these on JMP. This after I thought I'd done a good job going step-by-step over the procedure in class and interpreting the results. Kindly ask around for clarifications etc on the JMP implementation of these procedures. The textbook contains good overviews about the conceptual aspects of these methods.

I'm hopeful that at least a few folk in each group have a handle on these critical procedures - factor and cluster. I shall, for completeness sake, again go through them quickly tomorrow in class.

4. The 80-20 rule applies very much so in data cleaning: Chances are under 20% of the columns in the dataset will yield over 80% of its usable information content. So don't waste time cleaning data (i.e. removing missing values, nonsense answers etc) from all the columns, just the important ones only. Again, you need to have some basic plan in mind before you can ID the important columns.

Also, not all data cleaning need mean dropping rows. In some instances, missing values can perhaps be safely imputed using column means or medians or the mode (depending on data type).

Chalo, enough for now. More as updates occur.

Sudhir

Some project related Qs and clarifications

Folks,

Based on queries and comments received in class today re the project, let me try to quickly putup stuff that IMHO mertits wider dissemination.

1. Let me rush to clarify that no great detail is expected in the supply side Q.

As in, you're not expected to say - "XYZ should offer an FD [fixed deposit] with a two year minimum lock-in offering 8.75% p.a.".

No.

Saying "XYZ should offer FDs in its product portfolio." is sufficient.

2. Make the assumption that the sample adequately represents the target population - of young, urban, upwardly mobile professionals.

3. Yes, data cleaning is a long, messy process. But it is worthwhile since once it's done, the rest of the analyses follow through very easily indeed, in seconds.

4. It helps to start with some idea or set of conjectures about a set of product classes and a set of potential target segments in mind, perhaps. One can then use statistical analyses to either confirm or disprove particular hypotheses about them.

5. There is no 'right or wrong' approach to the problem. There is however a logical, coherent and data-driven approach to making actionable recommendations versus one that is not. I'll be looking for logical errors, coherency issues, unsustainable assumptions and the like in your journey to the recommendations you make in phase III.


Hope that clarifies.

Sudhir