Marketing Mix Modeling101(MMM)
The right ingredients for a fully optimized marketing budget
If you’ve heard the term Marketing Mix Modeling thrown around a lot lately and you still don’t quite get it, dig no further as this article is all you need for a good introduction to MMM.
But before we dive into the slightly technical side of this article, let’s just imagine you’re baking a cake. And your aim is to identify the ingredients -and how much you need of each one- to make the most delicious cake.
The ingredients are your different media investments, such as the money you’ll spend on search, social media, offline advertising, promotions or how much salesforce you need. Each ingredient serves a specific purpose, and some ingredients work best together (synergy). You now need to know what appropriate amount of each ingredient it requires to create the perfect cake!
Marketing Mix Modeling is the process of measuring the impact of those ingredients on your cake to determine the best recipe!
How does that work? Simply put, you just need to look at recipes used in the past where you varied the dose of one ingredient at a time, measure the impact on the cake, and track all these changes to determine which ingredients worked best together. This will give you more and more information on how your ingredients work together. The mastery of this phase will help you create the best recipe where your ingredients are optimized to reach the best performance!
The not so fun definition? Marketing Mix Modeling is a set of tools and techniques used to analyze the marketing mix. It helps marketers understand the strengths and weaknesses of their marketing strategy. This in turn, helps them make informed decisions about future marketing activities.
These tools help marketers identify which marketing activities are working well and which are not. They also assist marketers with analyzing how each element of the marketing mix affects another. An effective marketing mix model will help you understand your company’s current position in the market and provides prescriptive analysis on what needs to be done in the future to optimize your marketing performance.
EVERY BUSINESS NEEDS
A COOK WHO GETS MMM
Marketing has always been a crucial aspect of any business. However, it can be challenging for companies to evaluate how successful their marketing efforts are. Similarly, it’s a challenge to assess their budget allocation strategy without the right tools and methods.
This is why Marketing Mix Modeling is a great solution for this dilemma, and it is also why every business should have a partner or an internal team that could deliver a successful MMM project. The latter will help you identify and quantify the relationships between various marketing channels and key performance indicators, such as sales (or any other chosen KPI), by examining historical data on various components of your company’s marketing mix. As a result, your business will be able to assess the effectiveness of each channel and you can adjust your marketing strategy as needed.
But this is not the only reason MMM can benefit your business, especially with all the current economic uncertainties.
Marketing Mix Modeling provides a comprehensive method to measure marketing efforts: It takes into account different internal and external factors that could impact the sales performance; unlike other techniques that only focus on the analysis of the digital touchpoints of the customer journey.
Marketing Mix Modeling allows businesses to analyze the impact of all elements of their marketing mix, such as the political or environmental circumstances.
Marketing Mix Modeling can be used in a cookie-less environment: With cookies diminishing, marketers and analysts are looking for new alternatives to measure their performance. Marketing Mix Modeling has proved to be the go-to solution for the post-cookies’ era; it can use granular data from miscellaneous sources to measure the effectiveness of marketing efforts. This allows companies to continue measuring the effectiveness of their marketing efforts even in a cookie-less environment.
A powerful tool to predict future sales trends: Marketing Mix Modeling uses historical data analysis to forecast future sales trends, helping businesses in planning for growth and making necessary changes to their marketing strategies.
Marketing Mix Modeling is a future-proof technique: With the growing regulations of data privacy, MMM faces no issues thriving, because of its inherent nature that protects the anonymity and privacy of individuals.
HOW DOES MMM WORK?
In real life, Marketing Mix Modeling (MMM) typically entails gathering information on a variety of marketing-related factors, including spending/activity on advertising, promotions, sales force activity, pricing, and distribution.
Once these ingredients are available, they are cleaned and organized before the analysts apply multiple transformations on them to get the real story behind each one of them.
Following initial analysis and features’ engineering, the data is then examined using multiple statistical methods. With the help of these methods, data patterns and relationships can be found, and the relative effects of various marketing mix components on sales can be estimated. Now you can have a clear understanding of what worked and what did not in your marketing activities.
The project does not stop here though, as you can use simulation and optimization techniques that will allow you to measure the effects of various future scenarios and marketing mix variables and test the potential outcomes.
This will help you decide the optimal plan that leads to the highest return on investment.
MMM 101 : Conclusion
Marketing Mix Modeling is not always as simple as baking a cake. But your first model certainly can be. You can aim to measure your ROI and Contribution in the first iteration. Then, through a process of testing and learning, and through the support of the right partner, you can move on to more elaborate models. Thus, you’ll be able to measure how changes in each marketing mix variable affects the other as well as your sales.
This type of insight will allow you to embark on a continuous and efficient journey of improving your marketing strategy and consequently growing your revenue and ensuring the success of your business.
