Marketing mix modeling: A marketer’s guide

Boards and the C-suite count on CMOs to paved the way to worthwhile progress in 2023 regardless of varied macroeconomic pressures manifesting into the “triple squeeze,” making every little thing costlier.

And though advertising budgets, as a share of income, rebounded final yr to greater than 9%, in response to the 2022 Gartner CMO Spend and Technique Survey, they’re nonetheless decrease than they have been in 2020, forcing CMOs to attain extra with much less. 

With growing strain to show the worth of promoting, good CMOs are turning to advertising combine modeling, or MMM, to enhance media efficiency and quantify their affect. 

What’s advertising combine modeling?

Entrepreneurs nonetheless battle to reply foundational questions concerning the affect of promoting on the enterprise, resembling “How efficient is my digital advertising at driving in-store gross sales?” or “How will a ten% change to upper-funnel media affect bookings?”

Advertising combine modeling (MMM) may also help reply them.

The purpose of MMM is to measure the affect of promoting and promotions throughout channels whereas controlling for exterior elements exterior of a model’s management, resembling inflation or shopper sentiment.  

The outputs from MMM are utilized in 3 ways:

1. As a scorekeeper, to indicate the general incremental affect advertising investments are having on the general enterprise.
2. As a forecaster, to foretell the result that elevating or decreasing advertising budgets could have on advertising’s contribution to the general finances.
3. As a coach, to counsel shifts to present advertising investments that enhance efficiency.

In its easiest kind: MMM helps advertising leaders plan future advertising spend and measure the efficiency of previous investments.

How affect is measured can differ; a deal with incremental income is frequent, however modeling a number of outcomes is a rising pattern, resembling retailer site visitors or new account sign-ups. The main points of the modeling strategy differ, however all varieties use combination (not user-level) knowledge. This permits MMM to properly sidestep person privateness and different digital monitoring issues, in addition to think about a variety of channels — each digital and conventional — and exterior influences.

Contemplate MMM in motion: A regional financial institution uncovers massive efficiency variations by channel and lowers general advertising spend by way of televisions cuts, whereas nonetheless growing top-line gross sales by investing in more practical journal and radio placements.

MMM is a way with a protracted historical past, and it continues to evolve. For those who checked out advertising combine a decade in the past and dismissed it resulting from “insights solely on the channel degree” or “outcomes solely up to date quarterly,” your advertising group might profit from revisiting the approach.

MMM measures the financials of brand name investments 

Inflation, coupled with shifting media consumption patterns amongst customers, is requiring entrepreneurs to prioritize sustained model funding now greater than ever. 

MMM may also help CMOs quantify certainly one of their trickiest investments to measure: upper-funnel actions that construct model sentiment and consideration, however usually are not targeted on driving speedy gross sales. With elevated supply cadences, MMM can present month-to-month updates on model metrics which are helpful for filling within the gaps of less-frequent brand-tracking surveys.

Think about a services or products with a six-month gross sales cycle. Gross sales are pushed by a wholesome advertising finances with investments throughout the advertising funnel to drive consciousness, consideration and, lastly, gross sales.

Because the common advertising combine mannequin seems at three years of historical past, which means the MMM would seize, quantify or measure the overwhelming majority of upper-funnel spend. MMM would seize a fair higher portion of midfunnel affect.  It’s frequent to see digital video, TV and Instagram get a lift from cuts to paid search. This results in a media combine that’s more practical general for a similar finances.

MMM is a core measurement functionality 

After all, whereas MMM affords important alternative to extend returns on media investments, the fashions require constant reevaluation to constantly ship the anticipated advantages. Organizations who’ve belief of their MMM additionally report greater progress in comparison with their business friends.

Moreover, as a result of MMM usually supplies probably the most holistic view of the ROI on advertising actions, it typically generates findings that problem standard knowledge. 

Envision a compelling e-mail which inspires a prospect to go looking a model’s web site the subsequent day resulting in an unfinished checkout that triggers re-targeting and an eventual sale.  Who will get credit score for the sale?  E mail, paid search or retargeting?  Measurement for every channel may triple depend credit score for the sale, whereas revealing no insights round relative channel contributions.   Advertising combine, because it seems holistically on the ecosystem, can partition credit score for the sale throughout the channels.

As a result of these situations typically result in false reservations concerning the mannequin itself, it’s essential to get finance on board early on within the course of and articulate the way it’s important to the corporate’s success amongst senior leaders.

So, the subsequent time your crew critiques your advertising combine mannequin, think about the next questions:

1. Have you ever prioritized the perception aims in your MMM? Is your advertising combine mannequin actionable — which means, do the outputs inform changes to advertising actions? This typically entails adjusting spending ranges, however may additionally embody shifts to advert frequency or channel combine.
2. Are you sufficiently assessing your advertising combine mannequin to make sure that the predictions are delivering true incremental enterprise efficiency and could be trusted by executives throughout the group?
3. Are you taking full benefit of the state of affairs planning, optimization and simulation alternatives that your MMM supplies to enhance future advertising efforts?

Throughout interviews with advertising leaders, we heard many discuss upcoming enhancements to their MMM program, resembling testing new knowledge sources to raised perceive an exterior issue.

Everybody we spoke to may reply, “What’s subsequent in your advertising combine efforts?” So no less than annually — ideally extra continuously — assemble key stakeholders concerned in gathering the enter knowledge, constructing the fashions and utilizing the outcomes to regulate media plans. Then, talk about and decide to no less than one enchancment that focuses on prioritization, validation or optimization of current efforts. 

It’s essential to acknowledge that bettering MMM is a journey — don’t cease at your first vacation spot.