How Marketing Mix Modeling Can Help Marketers Achieve Great Results

How Marketing Mix Modeling Can Help Marketers Achieve Great Results

The main goal of all marketing strategies is to optimize the ROI for the production, selling, and delivery of a specific product or service. Successful marketing can, therefore, be described as getting the right product at the right time at the right place and at the right price. The idea of a marketing mix method was first introduced by marketing specialist Edmund Jerome McCarthy in 1960.

The value of designing a marketing mix lies in the fact that the success or failure of a product or service on the market can often be traced back to the quality and efficiency of the marketing mix. Here’s a complete guide to everything your company needs to know about the value of developing a marketing mix and how to create a winning marketing mix strategy for your product in 2020.

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Table of Contents:

What is Marketing Mix Modeling?

What marketing mix modeling can do
What marketing mix modeling can do

Market Mix Modeling (MMM) is a methodology that aims to measure the effect of multiple marketing inputs on revenue or market share. The goal of using MMM is to understand how much each marketing input contributes to sales and how much to spend on each marketing input. MMM helps to assess the efficacy of marketing inputs in terms of the Return on Investment. In other words, a higher return on investment (ROI) marketing input is more successful as a tool than a lower ROI marketing input.

How does a Marketing Mix Model work?

Marketing Mix Modeling breaks down metrics to distinguish between marketing and promotional inputs (incremental drivers) and other (base) drivers. These factors which affect the marketing strategy can be described as:

  • Incremental drivers: Incremental outcomes are business results that are created by marketing activities such as TV and print ads, digital spending, price cuts, promotions, social outreach, etc.
  • Base drivers: Base outcomes are attained without any advertisements. It’s due to brand value that has been established over the years. Specific results are usually fixed unless there are any economic or environmental adjustments.
  • Other drivers: These are a sub-component of the basic factors and are calculated as the value of the brand accrued over a certain period of time due to the long-term effect of the marketing activities.

Importance of Marketing Mix Modeling

Marketing Mix Modeling provides valuable insights
Marketing Mix Modeling provides valuable insights

Marketing Mix modeling brings about several significant benefits for marketers:

  • Allows for better allocation of marketing budgets:

This method can be used to determine the most suitable marketing platforms (for example, TV, internet, print, radio, etc.) to achieve marketing goals and gain maximum returns.

  • Helps achieve better execution of ad campaigns:

Via MMM, marketers can know an acceptable level of spending in highly effective marketing channels to prevent saturation.

  • Enables marketers to test business scenarios:

Marketing mix modeling can be used to predict business metrics based on expected marketing activities and then model various business scenarios such as a 10% increase in expenditure, the amount of expenditure needed to achieve a 10% increase in business metrics, etc.

What variables that a marketing mix model contains?

Marketing mix modeling variables
Marketing mix modeling variables

Marketing mix components are classified into three variables: 1) incremental, 2) base, and 3) other. Such three groups are further subdivided into a variety of factors that may affect the market success of a product or service. Knowing each of these factors is essential for advertisers to make reliable forecasts of the results of promotional campaigns and the distribution of products.

Base variables

Pricing is an important marketing mix modelling variable
Pricing is an important marketing mix modelling variable

The baseline is any effect obtained independently of the variables of the marketing mix. These are affected by multiple factors such as brand value, seasonality, and other non-marketing variables such as GDP, growth rate, consumer sentiment, etc. The assessment of baseline results is crucial to recognize the effect of marketing practices on the output of the product and on the delivery of the product. Some base variables are:

Price:

Price is a very important factor in deciding the other elements of the marketing mix strategy. Price determines the target group of customers as well as the plan for advertisement, promotion, and distribution. The pricing model is one of the main factors influencing the marketing mix, as pricing communicates the value of the commodity to consumers and can have a direct effect on business results.

Distribution:

When it comes to marketing Mix Modeling, distribution means the number of locations or stores where the product is available. The number of storage units (assortment) and shelf life (rate). The distribution strategy is informed by the market environment, the goals of the organization, its resources, and, of course, its overall marketing strategy.

Product distribution is important since a strong product distribution chain combined with targeted marketing campaigns directly results in successful business outcomes, and a broad product selection allows customers to have several options for active research and purchase.

Seasonality:

Seasonality refers to changes that arise on a periodic basis. Seasonal opportunities are huge, and they are also the most economically important times of the year. Of example, the main share of electronics sales is during the holiday season.

Macro-economic variables:

GPR should be considered in marketing mix modelling
GPR should be considered in marketing mix modelling

Macro-economic factors have a huge effect on companies and also on their marketing strategies. Comprehension of macro-economic factors such as GDP, unemployment rate, buying power, growth rate, inflation, and consumer sentiment is very important, since these factors are not under the influence of, but have a direct effect on, companies.

Incremental variables:

Above-the-Line marketing:

Above-the-line advertising includes promotional practices that are generally non-target and have a broad scope. The primary goal of above-the-line activities is to help create brands and increase customer awareness and familiarity. Types of above-the-line promotional campaigns include television ads, radio advertisements, print advertisements (magazines and newspapers), and product placements (cinema and theatre).

Advantages of above-the-line marketing are tailored to reach a massive audience, great for creating awareness, and long-term brand building.

Below-the-Line marketing:

Below-the-line advertisement consists of very unique, noticeable and direct promotional campaigns directed at targeted groups of consumers. Sometimes referred to as direct marketing approaches, below-the-line approaches rely more on sales than on brand building.

Types of activities below-the-line include product promotions, coupons, social media ads, direct mail ads programs, in-store marketing, events, and conferences.

The advantages of below-the-line marketing are specifically targeting individual customers, driving immediate impact, and helping in measuring campaign effectiveness and conversions.

Through-the-Line marketing:

Through-the-Line advertising requires the use of both above-the-line and below-the-line marketing techniques. The latest customer trend in the market needs the incorporation of both above-the-line and below-the-line approaches for better performance. Examples of cross-line activities include 360 ° marketing – campaigns established with a dream of brand building as well as sales and digital marketing (internet advertising & videos).

Other variables

Competition in marketing mix modeling
Competition in marketing mix modeling

Competition

Retaining a close eye on rivalry is the key to maintaining the value of your brand. Competition on the market can be either direct or indirect.

  • Direct competitors: Direct rivals are firms with the same product offerings. For example, Apple iPhone is serving as a Samsung Galaxy Rivalry.
  • Indirect competitors: Indirect rivals are those who do not offer a similar product but satisfy the same need in an alternative way. For instance, Amazon Kindle and paperback books are indirect competition as alternatives.

Halo and Cannibalization Impact

How is the effect of the halo? Halo effect is a term for the consumer’s preference for a particular product because of the good experience they have had with other products of the same company. The Halo effect can be used as a test of brand power and brand loyalty. For example, consumers prefer Apple iPad tablets based on the positive experience they have had with Apple iPhones.

For Marketing Mix Models, the specific variables or incremental variables of certain products of the same brand are evaluated in order to recognize the halo or cannibalizing effect on the market result of the product under consideration.

New variables emerging

Trends are an important consideration in marketing mix modeling.
Trends are an important consideration in marketing mix modeling.

With evolving marketing environments, a number of new channels are emerging where brands communicate actively with consumers, particularly millennial customers. This also contributes to the introduction of new marketing blend variables. Some of these variables are:

Product/Market Trend: Market trend and product trend is crucial to determining the product’s baseline outcome and recognizing market appetite for the product. • Product Launches: Marketers are actively investing in placing the new product on the market and preparing marketing campaigns to help the new launch. • Events & Conferences: Brands need to look for ways to establish relationships with prospective customers and to market their brands through regular events and conferences. • Behavioral Metrics: Variables such as touchpoints, online behavior, and reorder rates give business deeper customers insights. • Social Metrics: Branding awareness on social platforms such as Twitter, Facebook, YouTube, blogs, and forums can be calculated by predictive indicators such as followers, page views, reviews, shares, subscriptions, and other social media details. Many data on social media, such as the types of discussions and developments taking place in your industry, can be obtained by social listening.

General Methodology of marketing mix modeling

The methodology of marketing mix modeling
The methodology of marketing mix modeling

Use Multi-Linear Regression

Market Mix Modeling is based on the idea of multi-linear regression. Sales or market share may be the dependent variable. Independent variables commonly used are delivery, size, TV expenditure, outdoor campaign spending, newspaper and magazine advertising, promotional spending below the line, and details on customer promotions, etc. Nowadays, Digital channels are commonly used by some advertisers to increase brand awareness. Inputs such as digital spending, website visits, etc. can also be MMM inputs.

There is an equation between the dependent variables and the predictors. This equation could be linear or nonlinear, which is dependent on the relationship between the dependent variable and the different marketing inputs. There are certain factors, such as TV commercials, that have a non-linear relationship with sales. That means that the increase in TV ads is not directly proportional to the increase in sales.

Identify Impact of predictors

Some variables have a linear relationship with Revenue. It means that, as we increase these inputs, revenues will continue to grow. Yet variables like TV spending have no linear effect on revenue. The increase in TV spending would only boost revenues to a certain degree.

After the saturation point has been reached, any incremental unit of spending will have a lesser effect on revenue. Therefore, some transformations are performed on these non-linear variables to include them in linear models.

TV spending is known to be a non-linear variable since, according to advertisers, ads can only raise awareness among consumers to a certain degree. After a certain level, increased exposure to ads does not raise consumer awareness because they are already aware of the brand.

Understand Base Sales and Incremental Sales:

In Market Mix Modeling sales are categorized into two groups:

  • Base Sales: Base Revenue is what marketers can acquire if they don’t make any commercials. Sales are made on the basis of brand equity created over the years. Base revenues are typically stable unless there is a change in economic or environmental conditions.
  • Incremental Sales: Sales acquired by marketing activities such as TV advertising, print advertising, digital purchases, promotions, etc. Overall cumulative sales are split into sales from each input to determine the contribution to total sales.

Represent data with contribution charts:

Contribution charts are the best way to represent revenue on the basis of increasing marketing input. The contribution of each marketing input is the sum of its beta coefficient and input value. For example, Contribution from Newspaper = β* Newspaper Spends. To get the contribution percentage of each input, divide contribution due to each input by the total contribution.

Dive deeper into the data

The findings of MMM can be further used to conduct a deep dive study. Deep Dives may be used to determine the efficacy of each campaign by recognizing which campaigns or creatives perform better than the others. It can be used to conduct a copy analysis of the creatives by genre, language, platform, etc. Insights from deeper understanding of your data then can be used for budget optimization. Budget is shifted from poor performing channels to higher performing channels to increase overall sales or market share.

Optimize budget

Budget optimization is one of the key decisions to be made for planning purposes in every industry. MMM assists advertisers in predicting future investment and improving performance. Using the MMM method, you can decide which mediums perform better than the others. The budget allocation is then achieved by moving money from low ROI mediums to high ROI mediums, thereby increasing revenue while holding the budget stable.

Final Words

Marketing mix modeling can help businesses achieve the best possible results
Marketing mix modeling can help businesses achieve the best possible results

Marketing mix analysis techniques can mitigate much of the risk of new product releases or expansions. Developing a detailed marketing mix model can be the key to a company’s sustainable long-term growth.

This can become a core component of the strategic plan and will boost the effectiveness of the marketing campaigns of the organization. Although some businesses design models from their in-house marketing and analytics departments, others prefer to partner with an external firm to create the most effective business model.

Developers of marketing mix models need to possess a full understanding of the marketing landscape in which they work and of the new sophisticated market analysis techniques. Only by doing so would they be able to better appreciate the nature of the multiple marketing variables that need to be accounted for and measured in the marketing mix model.

Although numerical and statistical knowledge is undoubtedly critical, an analytical understanding of market research and business dynamics is equally important in creating a holistic and reliable marketing mix model. With these strategies, you will start developing a watertight marketing combination that can improve the efficiency and sales of a new product.

I hope that this article has given you valuable insights into the use of marketing mix modeling to achieve the best possible business results.

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