The best way to introduce Marketing Mix Modeling is the famous saying of John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
Marketing Mix Modeling (MMM) enables marketers to answer this very question shedding light on both halves of the marketing budget to understand what part worked best and what part did not.
MMM applies advanced statistical techniques to historical data, which allows to properly disentangle the sales drivers; break down the contribution of every contributing factor; measure the return on investment (ROI) behind every single channel; predict future performance, and, most importantly, optimize their budget. The methods used by MMM can “yield 20% to 30% improvement in the efficiency of marketing spending, primarily by optimizing media” (Gartner 2016).
MMM is considered a crucial part of a marketing strategy as it offers a scientific way to draft successful marketing plans based on the knowledge stemming from past performances. For a Marketing Mix project to be effective, it should consist of four main phases:
- Data collection and Integrity
- Model-based business measures
- Optimization and Simulation. (Nielsen, 2014).
In this blog, we define the role of Marketing Mix Modeling, identify its components, and provide the reader with a glimpse of the context in which MMM functions.
Deciphering the factors that impact Consumer Behavior:
Consumer behavior (and their perception of products/services) is influenced by a multitude of factors which could be classified into two categories:
- Controllable Factors: these are stimuli that are controlled by the company, for example media (offline and digital media channels), promotions, and price changes.
- Uncontrollable factors: Such as seasonality, competition, pandemic, or the economy
MMM aims to understand the impact of each one of these factors on a company’s sales performance. This constitutes the main difference between market research and MMM. In that, Market Research is based on surveys aimed at understanding how customers perceive a certain brand, their intention to purchase, and their closeness to the brand. On the other hand, Marketing Mix Modeling is based on analyzing the data to understand the consumer based on what they buy. In MMM, it is essential to dissect circa three years’ worth of weekly data. The analysis of this longitudinal data allows to have a good grasp on the marketing activities and the fluctuations they cause in the company’s sales.
Marketing Mix Modeling combines art and science to understand the behavior of consumers and produce actionable recommendation to optimally allocate the marketing budget. MMM is one of the main steps of a marketing strategy and it consists of three indispensable building blocks which are Measurement, Forecasting, and Optimization.
MMM has been developing fast over the last few years by constantly deploying cutting-edge technology. It has also been gaining momentum in the measurement industry for being reliable and privacy compliant. This makes it a future-proof technique. It can thrive in an environment characterized by the strict privacy regulations like GDPR, and CCPA; MMM can now reach high levels of granularity without ever threatening the privacy of individuals.
Our next blog will detail the different steps that compose the must to know and follow process that will ensure the successful delivery of a MMM project. Stay tuned!