By Nisha Purswani, Vice President – Client Solutions (Analytics and Data Science) at The Smart Cube
Marketing Mix Modelling (MMM) has been around since 1960 and its key purpose is to understand how the different factors of a marketing mix will impact sales. In the past couple of years, MMM has rapidly evolved as a result of the changes to business environments brought about by the COVID-19 pandemic. Companies must adapt to the uncertain circumstances of the current market landscape and update their trade and media strategies accordingly. This is where MMM comes in, to enable a successful strategy and give businesses the detailed insights they require.
The benefits of being able to understand growth drivers and develop informed strategies based on scientific evidence must not be underestimated. An MMM solution will enable organisations to provide decision-makers with the ability to test potential scenarios and strategies with accuracy. It will also give a holistic view of the effectiveness of marketing campaigns and ultimately result in better allocation of budgets. All of this can lead to improved brand loyalty, increased trust, and better ROI. So, how do businesses achieve this?
An MMM solution is a big step up from simply tracking KPIs and undertaking customer research surveys. Whereas in the past a strategy may have revolved around how many clicks a marketing campaign has received, MMM gives true visibility into how those clicks translate into sales. The benefits of this are clear but the challenge is that modern companies have multiple pressures to adapt to – predominantly due to the increasing digitisation of society and the shift to digital media away from the traditional advertising channels of TV, print, and radio.
Today this means the data sources and data granularity of media consumption has significantly evolved. In addition, consumers expect more from companies and brand loyalties are more fragile than before. This means that, in addition to brand and marketing, pricing and availability are hugely important when it comes to driving sales.
Then there is the undeniable impact that the COVID-19 pandemic has had on almost all business processes in almost all industries. This event changed everything from demand for products and services to the way people consume media. Companies are learning from this that the unexpected can happen at any time, and preparation is key.
Continual measurement and testing
Organisations with an MMM solution in place typically monitor the short-term impacts of their investments, with updates taking place on a six-monthly or yearly basis. However, markets and behaviours change much more frequently than that these days. Therefore, a modern MMM solution should be able to measure growth and track ROI in a continuous manner.
This is the first step in the process, but to be truly successful, an MMM solution must also provide simulation capabilities. Once a company has implemented continual measurement, it is vital that they test various scenarios. These simulation capabilities allow departments to thoroughly explore all potential possibilities, including alternate budget allocations on media vehicles, and analyse which campaigns will perform best, on which channels, at which point in time. The result is that they will be able to identify opportunities of higher impact.
The key to this is having a regular stream of actionable data, the latest analytics techniques, including simulation and what-if modelling, and a way of presenting those findings to decision-makers in an easily digestible format. This can be costly and must not be approached half-heartedly. What often happens is that businesses assign the task to teams that are already working at full capacity, and do not have the bandwidth to take on such a large project. Instead, businesses should either outsource the MMM solution to a dedicated company or build a specific internal team solely to manage the strategy.
Assess long-term impacts
The true value of a marketing campaign has to be measured over a longer period. Indeed, marketing strategies should never be solely about quick wins, they should instead focus on building a brand identity and attracting a loyal customer base. This is the long-term goal and why it is so important that businesses are always looking to the future with their measurements. However, long-term brand equity is significantly harder to measure than short-term value.
Part of the problem is that measuring long-term impacts requires a data set that spans a long period of time, which is often not what companies have access to. But there are existing data sets and multiple ways to examine long-term impacts, primarily through modelling or analysing brand metrics, price sensitivity, or activation data. For example, we know that TV, video on-demand, and print have the greatest long-term impact of all media channels. Whereas search, display, and radio ads tend to perform better in the short term.
The real measure of success is the ability to balance both the potential short and long-term impacts of your strategies. And to then focus equally on easy-to-measure short-term results, as on hard-to-measure long-term results. Indeed, Davide Fabrizio, Insight Analytics Director at Deloitte’s Analytics Unit, argues that it shouldn’t be an even balance but businesses should actually, “think of 20-30% in the short term and 70-80% in the long term.”
When it comes to deciding where budgets should be allocated, short-term insights are perfect for guiding decision making, assuming they are regularly updated. Then when it comes to wider strategic changes to marketing campaigns and brand-focused advertising, long-term ROI must be a key consideration.
Adapt to sudden market changes
The past couple of years have been unbelievably challenging for people and companies across the world. From a business perspective the COVID-19 pandemic has taught leaders to expect the unexpected and prepare accordingly. A key part of this is being able to adapt their MMM strategies and understand how these unexpected events impact customer behaviour.
When huge changes are taking place, robust marketing mix analysis is needed for two reasons. Firstly, to ensure that any increases or decreases in sales are correctly tracked so that there is no misunderstanding about whether they were the results of marketing investments or external factors. And secondly, to make the most of budgets and trade spend.
Today’s technologies give companies the opportunity to build MMM strategies that can account for current economic conditions and sudden shifts, providing insights into long- and short-term impacts and how best to spend budgets. The difficulty is that these typically rely on historical data to make predictions, which means models need to evolve to capture the impact of events in almost real-time. However, by updating the models to enable them to process granular insights continually, these challenges can be overcome. The key is making sure that any model is built with the ability to easily adapt to demands of the current market.
An MMM strategy is vital for organisations who want to optimise spend, grow market share, do more with existing or shrinking budgets, or test hypothetical investments in a safe environment. But it can’t be an afterthought: instead businesses must dedicate time to building the best capability for their needs. Whether that involves creating a dedicated internal team or outsourcing the task to an external specialist company, it is worth the investment. The insights gained will empower marketing teams, revenue managers, sales departments, analytics teams and more to deliver more effectively, which ultimately will boost