By Nisha Purswani, Vice President – Client Solutions (Analytics and Data Science) at The Smart Cube
Marketing mix modeling (MMM) has been around since 1960 and its main purpose is to understand how the various factors in a marketing mix will impact sales. Over the past two years, MMM has evolved rapidly due to changes in business environments brought about by the COVID-19 pandemic. Companies need to adapt to the uncertain circumstances of the current market landscape and update their business and media strategies accordingly. This is where MMM comes in, to enable a successful strategy and give businesses the detailed information they need.
The benefits of being able to understand the drivers of growth and develop informed strategies based on scientific evidence should not be underestimated. An MMM solution will allow organizations to provide decision makers with the ability to accurately test potential scenarios and strategies. This will also give a holistic view of the effectiveness of marketing campaigns and ultimately lead to better allocation of budgets. All of this can lead to better brand loyalty, increased trust, and better ROI. So how do companies achieve this?
An MMM solution is a big step up from just tracking KPIs and conducting customer surveys. Whereas in the past, a strategy could revolve around the number of clicks received by a marketing campaign, MMM gives true visibility into how those clicks translate into sales. The benefits are obvious, but the challenge is that modern businesses have to adapt to multiple pressures, mainly due to the increasing digitization of society and the shift to digital media away from the traditional advertising channels of television, the press written and radio.
Today, this means that the data sources and granularity of media consumption data have evolved significantly. In addition, consumers expect more from companies and brand loyalty is more fragile than before. This means that in addition to branding and marketing, pricing and availability are extremely important when it comes to driving sales.
Then there is the undeniable impact that the COVID-19 pandemic has had on almost every business process in almost every industry. This event changed everything from the demand for products and services to the way people consume media. Businesses learn that the unexpected can happen at any time and that preparation is key.
Continuous measurement and testing
Organizations with an MMM solution in place typically monitor the short-term impacts of their investments, with semi-annual or annual updates. However, markets and behaviors change much more frequently than that these days. Therefore, a modern MMM solution should be able to measure growth and track ROI on an ongoing basis.
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 continuous measurement in place, it is essential that they test different scenarios. These simulation capabilities allow departments to thoroughly explore all potential possibilities, including alternative budget allocations on media vehicles, and analyze which campaigns will perform best, on which channels, when. The result is that they will be able to identify higher impact opportunities.
The key to this is having a steady stream of actionable data, the latest analytical techniques, including simulation and what-if modeling, and a way to present those results to decision makers in an easily digestible format. This can be costly and should not be approached halfway. What often happens is that companies assign the task to teams that are already working at full capacity and do not have the bandwidth to undertake such a large project. Instead, companies should either outsource the MMM solution to a dedicated company or build a specific internal team just to manage the strategy.
Assess long-term impacts
The true value of a marketing campaign should be measured over a longer period. Indeed, marketing strategies should never be solely focused on quick wins, rather they should focus on building a brand identity and attracting loyal customers. That’s the long-term goal and that’s why it’s so important that companies always look to the future with their metrics. However, long-term brand equity is much more difficult 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 datasets and multiple ways to look at long-term impacts, primarily through modeling or analyzing brand metrics, price sensitivity, or activation data. For example, we know that television, video-on-demand, and print media have the greatest long-term impact of all media channels. While search, display and radio ads tend to perform better in the short term.
The true measure of success is the ability to balance the potential short-term and long-term impacts of your strategies. And then to focus as much on the short-term results that are easy to measure as on the long-term results that are difficult to measure. Indeed, Davide Fabrizio, Insight Analytics Director at Deloitte Analytics Unit, says it shouldn’t be an even balance, but companies should actually “think 20-30% short-term and 70-80% long-term. term “.
When it comes to deciding where budgets should be allocated, short-term information is perfect to guide decision-making, assuming it is regularly updated. Then, when it comes to broader strategic shifts in marketing campaigns and brand-driven advertising, long-term ROI should be a key consideration.
Adapt to sudden market changes
The past two years have been incredibly difficult for people and businesses around 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 affect customer behavior.
When huge changes take place, a thorough analysis of the marketing mix is necessary for two reasons. First, ensure that any increases or decreases in sales are properly tracked so that there is no misunderstanding as to whether they are the result of marketing investments or external factors. And second, getting the most out of budgets and business spend.
Today’s technologies provide companies with the ability to build MMM strategies that can take into account current economic conditions and sudden changes, 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 must evolve to capture the impact of near real-time events. However, by updating the models to allow them to continuously process granular information, these challenges can be overcome. The key is to ensure that any model is built with the ability to easily adapt to today’s market demands.
An MMM strategy is essential for organizations that want to optimize spend, increase market share, do more with existing or shrinking budgets, or test hypothetical investments in a safe environment. But that can’t be an afterthought: rather, companies need to spend time developing the best capability for their needs. Whether it’s creating a dedicated in-house team or outsourcing the task to a specialized external company, the investment is worth it. The insights gained will enable marketing teams, revenue managers, sales departments, analytics teams and more to deliver more efficiently, which ultimately will increase ROI.