How would it be if we were to tell you with near certainty how much money to invest in every marketing action? This, in turn, will assist businesses determine the optimal degree of investment in every marketing channel.
What is every CMO’s dream? They would want to have an unlimited budget for marketing. But if wishes were horses, well…..
If we talk real, every CMO has a limited budget, which they must use strategically across their chosen marketing channels.
In CPG industry, for example, only about 10 per cent of revenue is utilized for marketing.
A limited budget should not limit the knowledge of how best to allocate this money. Calculated planning through Marketing Mix Modeling (MMM) enables marketers to optimize their budgets by identifying the most effective combination of marketing variables, ensuring maximum return on investment (ROI).
In this article, we’ll discover how MMM can help you maximize your marketing spend’s return on investment (ROI), enabling you to make data-informed decisions that boost your bottom line.
Why CPGs Should Use Marketing Mix Modeling (MMM)?
Marketing Mix Modeling (MMM) has been a staple for CPG organizations, while Marketing Attribution has gained traction alongside the rise of digital marketing, especially in industries where the customer journey is entirely online. Historically, the decision between MMM and attribution was largely dictated by the specific needs of the industry.
However, recent changes in privacy laws, corporate policies, and external factors are prompting companies to adopt Marketing Mix Modeling (MMM) for its privacy-friendly approach. Unlike attribution models, MMM is unaffected by regulations like GDPR, the phase-out of cookies, or Apple’s iOS restrictions on IFDA. Automated MMM stands out by incorporating both internal and external influences, enabling businesses to optimize their marketing spend more effectively. For CMOs, this approach is particularly valuable as it provides a comprehensive 360º view of how both marketing and non-marketing factors drive sales performance.
What are some MMM Techniques to look at
Regression Analysis: The is one fo the most common technique which determines how numerous marketing inputs (e.g., digital ads, promotions) impact sales or other outcomes.
Time Series Analysis: Embeds the temporal dimension, tracking the impact of marketing actions over time and accounting for trends, seasonality, and carryover effects.
Bayesian Models: Employ prior beliefs or knowledge to improve predictions, which is useful when data is scattered, or you want to employ uncertainty into the model.
Hierarchical Models: Captures variations across different regions or customer segments, allowing for more granular insights and better optimization of marketing efforts.
Machine Learning Models: Advanced methods like decision trees, random forests, and neural networks help capture complex, non-linear relationships between marketing variables and outcomes.
How MMM Maximizes the ROI
Now that we’re aware of the components of Marketing Mix Modeling, let’s look at how this framework assist businesses improve their ROI:
1. Attribution of Sales to Marketing Activities
MMM allows businesses to break down sales into different contributing factors. For instance, by utilizing MMM, organizations can determine that 30% of its sales came from digital marketing, 50% from product promotions, and 20% from Ads. This attribution helps marketers understand which marketing channels drive the most value, enabling them to allocate resources more efficiently.
2. Optimization of Marketing Budgets
MMM highlights which activities and channels provides the highest ROI. For example, if the model shows that digital advertising offers a better return than traditional media, marketers can allocate more of their budget toward digital platforms. This optimization can significantly impact marketing efficiency, reducing wasted spending and increasing profitability.
3. Scenario Analysis and Forecasting
One of the significant advantages of MMM is its capability to forecast future outcomes based on disparate scenarios. Marketers can use it to answer questions like:
- What happens if we decrease TV spending by 10% and increase digital spending by 15%?
- How will a 5% increase in product price impact sales during the holiday season?
By running through these simulations, businesses can actively adjust their strategies to meet their ROI goals and stay ahead of peers.
4. Understanding Diminishing Returns
Marketing channels tend to show diminishing returns after a certain point. For instance, accelerating the budget may yield lower gains after reaching at a specific level of Ad spend. MMM assists in identifying when shrinking returns set for each marketing channel, providing businesses to avoid over-investing in a channel that has reached its saturation point.
5. Short-term vs. Long-term Impact
MMM assists in distinguishing between the short and long-term effects of marketing efforts. Some marketing activities, such as – digital ads and promotions, often drive short-term hikes in sales, while others, like branding campaigns and Television ads, may take longer than usual to show results. By taking into consideration the immediate and delayed impacts, MMM offers a more detailed view of how marketing efforts contribute to growth over time.
Highlighting Some Major Benefits of Marketing Mix Modeling (MMM)
Here are some of the top advantages of MMM:
Justify the ROI of marketing initiatives – Collating the numerous data insights back to the factors in every successful marketing campaign can assist brands grasp the complete impact of their efforts.
Collate insights – In-house MMM helps gather essential insights from the various business initiatives, which can aid in allocating budgets within marketing or sales departments.
Accurately forecast sales – MMM can effectively predict the future revenue that could be generated based on the past impact of marketing or sales efforts.
Grasping historical data & trends – Traditional models often ignore this valuable data from past campaigns.
Grasp the negative impacts – Brands must take apt actions and learn from the detrimental effects of their marketing efforts to stay pertinent.
Plan marketing budgets & campaigns in a better way – Businesses can get a better grasp of which marketing channels are the best fit for their brands and spend to obtain maximum returns. Knowing the relevant markets for the campaigns is also significant to avoid saturation.
Let’s Explore Some Examples and See How Marketing Mix Modeling Solutions Can Help
#1 Consumer goods
FMCG giant Kellogg’s frequently utilizes MMM to evaluate the influence of marketing endeavors like advertising, promotions, and pricing on sales. Via historical data analysis, organizations perceive which marketing strategies and channels yield the best ROI, allowing strategic resource allocation.
#2 Retail
Retailers use MMM to refine their promotional strategies, pricing decisions, and product assortment. Retailers can improve revenue and profitability by optimizing their marketing mix by knowing how marketing tactics affect store traffic, basket size, and sales conversion.
Challenges Associated With MMM
Data Granularity: High-quality, granular data is required for accurate modeling. Marketers often need help gathering clean, consistent data across different channels and regions.
Attribution Across Channels: In today’s omnichannel environment, it takes time to pinpoint the precise contribution of each channel to the outcome, especially with fragmented media consumption.
External Factors: Economic conditions, competitor actions, or weather may also affect sales, making it difficult to attribute changes solely to marketing efforts.
Adapting to Digital: Traditional MMM was built for offline channels, and adapting to the fast-evolving digital ecosystem with quick changes in user behavior can be challenging.
Bias from Historical Data: Historical marketing data may contain biases (e.g., always spending more on TV) that skew the model’s understanding of what truly works.
Final Thoughts
n a nutshell, MMM offers a strategic edge for marketers. If you want to optimize your marketing expenses, make data-driven decisions, and justify your spending internally, MMM is right for you! At Polestar Solutions, we specialize in delivering Marketing Mix Modeling solutions that help businesses gain actionable insights and achieve maximum ROI.
If you want to understand what Marketing Mix Modeling solutions can bring to your business, let’s discuss this!
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