8 min read
Published On: 2023-09-06
Most mid-sized businesses use Multi-channel Attribution (MTA) to optimize cross-channel marketing initiatives. However, as companies scale to more than three channels and combine offline and online platforms, tracking the effectiveness of marketing efforts with MTA alone becomes challenging.
This is where the Marketing Mix Modeling (MMM) concept comes into play. The idea of MMM has been in existence since the 1960's. However, with time and the evolution of digital browsers and ad platforms, the MMM has become an aspiration for large enterprises.
There is a notion that only Fortune 500 companies can afford to deploy Marketing Mix Models as they cost over $500K and take as long as six months to show results. Nevertheless, companies like Lifesight introduced the concept of automated MMM a few years ago.
Automated Marketing Mix Models can shorten the processing time from six months to 10 minutes! While Marketing Attribution still helps, large enterprises in the scaling phase should use Marketing Mix Models as an ad to optimize their cross-channel strategy.
In this article, we will discuss what marketing mix modeling is and why it is becoming a growing need for bigger brands.
The Marketing Mix, or the Four P's of marketing, is about having the right balance between your product, place, price, and promotion.
Balancing these factors can be difficult when you don't have reliable data to make an informed decision. That's why understanding the Marketing Mix Modeling definition is critical.
Mix Modeling is a statistical analysis method that relies on multi-linear regression, time series, and budget optimization to analyze marketing data across different marketing channels and quantify the impact of various marketing initiatives on your overall sales and marketing performance.
The MM Model helps you answer some fundamental marketing questions:
While the core concept of MMM remains the same, the channels and sources of data collection have changed in the last decade.
MM Models rely on gross sales, ad spend, product, and customer datasets to provide a holistic overview of marketing efforts. Let's deep-dive into each of them.
Short-term temporal effects like time-sensitive discounts push customers to make purchases faster. On the contrary, prolonged campaigns often delay consumer's decision-making processes.
For example, when launching a new product, ecommerce stores often offer discounts like “Buy 1 Get 1 Free within 24 hours of purchase” or “50% off for repeat customers”. Temporal effects like offers create urgency in the buyers' minds and can push them to make a purchase instantly.
Every marketer knows that marketing activities are interrelated. The success or failure of one initiative can directly affect another's performance.
For example, successful online ecommerce brands create a perfect marketing synergy by combining SMS and email marketing. SMSes often have a higher open rate than emails (SMS - 98% vs. Emails - 20%).
Case in point: Whenever a new sale is live, brands notify the customers with an SMS and send specific coupon codes through emails to make it more effective.
Beauty brand Sephora often does this:
Marketers need to clearly understand the relationship between ad spending and performance and a Saturation Curve helps them understand the optimal level of ad spending to maximize ad performance.
A Marketing Mix Modeling software considers the saturation curves to identify this point and helps brands avoid spending additional budgets on the same campaigns.
A saturation curve looks like:
It typically plots the order values of a product against marketing investments. After a specific time, it reaches a point where order value or sales remain the same despite increased ad spend. That's the point of saturation.
Cost data is the overall investment information that businesses make on various marketing initiatives. To calculate profit, brands must subtract the cost data from sales revenue.
A Response Curve dictates the relationship between various marketing initiatives and relevant business performance. Marketing teams use them to create media plans and plan campaign budgets more efficiently.
In a response curve, you should plot sales against marketing efforts. If it's a linear response curve, it means that returns have been consistent for different marketing efforts. This shape varies from brand to brand.
Marketing Mix Modeling software aims to analyze response curves to identify the effectiveness of different marketing campaigns.
Once you develop a Marketing Mix Model, the next step is validating metrics such as R-squared and mean absolute percentage error to help you determine the accuracy of Marketing-Mix. Model validation compares the Mix Model with the real-life environment to measure its effectiveness.
MM Modeling offers a refined multi-channel overview of different marketing initiatives to marketers. Some of its benefits include:
A Marketing Mix Model analyzes different marketing efforts from the core to identify which initiatives worked and which didn't, giving a clear picture of the marketing strategies to focus on in the next quarter.
The outputs acquired from a Mix Model allow you to explore the month-on-month impact of marketing campaigns on the overall growth of the business. In turn, it helps predict to what extent the marketing budget needs to be adjusted to reach the optimal point of maximum return at minimum ad spending.
After receiving the first version of the outputs, you can delve deeper and add several filters like locations, campaign types, and channels to create an actionable roadmap of future steps.
Earn trust and confidence from stakeholders
Marketing Mix Modeling attribution becomes a great way to win the trust of your C-suite executives and build marketing awareness across the organization.
Going a step further, granular MM reports provide a real-time overview of business segments and their contributions to overall ROI.
Avoid access to confidential data
Marketing Mix Modeling attribution doesn't use users' private data, which is why it is an ethical approach to privacy threats. It focuses on aggregate datasets like ad spending and sales to conduct an in-depth statistical analysis of the effectiveness of your marketing initiatives.
In a privacy-first era for the modern marketer, even though privacy regulations change frequently, Mix Models will continue to be the flexible approach that marketers can trust.
That being said, you should integrate Lifesight's AI-enabled, automated MMM solution that simplifies budgeting, forecasting, and campaign optimization to eliminate guesswork.
Some reasons why customers implement Lifesight's privacy-centric automated MMM solution are:
Focus on short-term impact
Marketing Mix Modeling is the calculation of sales and ad spend data. Where this approach falls short is in providing in-depth details on the ability of various marketing channels to acquire new customers.
Requires a large amount of data
MM Models require a large volume of data to provide accurate results. This can be a challenge for small marketing teams with limited data or for newer organizations that do not have data collection processes and systems in place.
Absence of measurement standards
Marketing Mix Models handle extensive marketing and sales data volumes. If your marketing team does not have measurement standards, they will not be able to understand how these models work and the accuracy of outcomes will be impacted.
Not sufficient insights on “why”
While MMM provides insights on the impact of different marketing initiatives, it doesn't explain the “why”. In other words, you cannot rely completely on this approach to get granular insights into which channel generated the highest ROI.
However, Lifestight's automated MM Model offers channel-level visibility into different campaigns and relative spending. Based on the results, it is easier to analyze why a certain campaign performed well for subsequent budget allocation.
In summary, marketing mix modeling algorithms are powerful for optimizing resources, making data-driven decisions for budget allocation, and predicting KPIs and future performance. Going forward, operationalizing MMM within your brand will be an important modern marketing skill - Book a demo with our experts now!