eter’s guide to marketing mix modeling
CMOs are expected to lead profitable growth in 2023 by boards and the C-suite, despite macroeconomic pressures like the ” triple pinch“, which makes everything more expensive.
Marketing budgets as a percentage of revenue have rebounded to over 9% last year, according to the 2022 Gartner CMO Spend and Strategy Survey. However, they remain lower than they were for 2020, which forces CMOs to do more with less.
Smart CMOs are looking to MMM to increase media performance and quantify the impact of their marketing .
What is marketing mix modeling?
Marketers are still struggling to answer fundamental questions about marketing’s impact on the business. For example, “How effective is my digital advertising at driving in-store sales?” “How will a 10% increase to upper-funnel media affect bookings?”
They can be answered by marketing mix modeling (MMM).
MMM’s goal is to measure the effectof advertising across channels and control for external factors such as inflation or consumer mood.
Three ways to use the outputs of MMM:
- To show the incremental effect marketing investments have on overall business performance, I am a scorekeeper
- To predict the effect that increasing or decreasing marketing budgets will have upon marketing’s contribution towards the overall budget.
- As a coach ,to suggest changes to marketing investments that will improve performance.
MMM is a simple tool that helps marketing leaders plan future marketing spending and measure past performance.
The impact measurement can be varied. While a lot of attention is given to incremental revenue, modeling multiple outcomes is becoming a popular trend. This includes store traffic and new account signups. Although the details of each modeling approach are different, they all use aggregate data (not user-level). MMM can thus easily avoid user privacy and other digital tracking concerns. It also considers a wide variety of channels, both digital and conventional, and external influences.
MMM in action: Regional banks uncover large channel performance differences and lower overall marketing spend via television cuts. However, they can increase top-line sales by investing more in radio and magazine placements.
MMM has a long history and continues to evolve. Your marketing organization might benefit from revisiting MMM if you have dismissed marketing mix 10 years ago due to “insights at the channel level only” or “results that are only updated quarterly.”
MMM measures brand investment financials
Marketers must prioritize brand investment in order to stay ahead of inflation and shifting media consumption habits.
MMM can assist CMOs to quantify one of the most difficult investments to measure: upper funnel activities that build brand consideration and sentiment but do not drive immediate sales. MMM can deliver monthly updates on brand metrics, which are useful in filling the gaps in less frequent brand-tracking surveys.
Imagine a product/service with a 6-month sales cycle. A healthy marketing budget and investments throughout the marketing funnel are key to driving sales.
The average marketing mix model takes into account three years of historical data. This means that the MMM would be able to capture, quantify, or measure the vast majority (upper-funnel) spend. MMM would have a greater midfunnel impact. Cuts to paid search are a common way to see digital video, TV, and Instagram gain a boost. This results in a media mix that’s more efficient overall and for the same amount of money.
MMM is a core capability for measuring temperature
MMM can offer significant opportunities to increase media investment returns, but the models must be constantly reevaluated to deliver the expected benefits. Trust in your MMM will result in higher growth than those of your industry peers.
MMM provides a holistic view of marketing ROI and can often challenge traditional wisdom.
Imagine a persuasive email that encourages prospects to search for a brand’s website within 24 hours. This leads to an incomplete checkout which triggers retargeting and ultimately a sale. Who gets credit? Email, paid search and retargeting. Each channel’s credit could be tripled, but it won’t reveal any insights about relative channel contributions. Because it considers the entire ecosystem, marketing mix can divide credit for the sale among the channels.
These scenarios can often lead to false reservations about a model, so it is crucial to get finance involved early in the process. Also, communicate to senior leaders how important it is to the company’s success.
Consider the following questions when your team is reviewing your marketing mix model:
- Are you able to prioritize the MMM insight objectives? Are your marketing mix models actionable? This means that the outputs can be used to inform marketing activities. This could include adjusting spending levels but also shifting to ad frequency and channel mix.
- Are you able to assess your marketing mix model in a way that ensures it is delivering real incremental business performance? Can executives trust the results?
- Are you taking advantage of the MMM’s simulation, optimization, and scenario planning opportunities to enhance your future marketing efforts?
Interviews with marketing leaders revealed that many talked about future improvements to their MMM programs, including testing new data sources to better understand external factors.
We were all able to answer the question, “What’s next for your marketing mix efforts?” At least once per year, ideally more often, gather key stakeholders to help you build models, collect data and adjust media plans. Next, you will discuss and agree to at least one improvement, which focuses on prioritization or validation, as well as optimizing existing efforts.
It is important to realize that improving MMM means more than reaching your first destination.
The first MarTech article was Marketing mix modelling: A marketer’s guide.