Marketing Mix Modeling

[email protected] | 646 583 0001

 Executive Summary
World is shifting into digital
platforms…
Most consumer and business purchases happen
after multiple touchpoints with various factors
affecting the decision. Marketing data can be
mined to reveal the decision making patterns
through marketing mix modeling.

MMM can help you answer the

following questions
What impact do each of my campaigns have?
What is the cost per conversion and ROI? What
should I do to maximize my revenue and profits?
Read More…
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 Strategic Importance
Why do you need MMM?

Calculates ROI on Marketing

Reflects upon past marketing decisions by
calculating ROI
Explains Performance Change
Diagnoses the reasons for the change in
business performance by considering the
impact of different internal (Advertising, Media
selection, Trade promotion, etc.) and external
factors (Pricing, Seasonality, Trends, etc.)

Read More…
2
 Understanding MMM
MMM is the use of statistical and analytical tools to
quantify the impact of past marketing decisions and
predict future sales impact for different marketing
spend scenarios. It quantifies the impact of individual
marketing activities on revenues, volume and price
perception.

How does it work?

MMM is basically a combination of Attribution
modeling & optimization, put together.
MMMs can be built using Linear/Non-linear Regression
methods, Influence maximization approach, Agent
based approach or Empirical methods.
Read More…
3
 Attribution Modeling
Attribution models attribute past sales/conversions to
different marketing channels, campaigns and resources
used. These models range from single factor models to
advanced models with varying levels of complexity.

Read More…
Optimization
Optimization models then use the results from Attribution
modeling to find: The optimum marketing budget needed
to attain a given amount of sales (or) The optimum
marketing mix for a given marketing budget

Types of MMM
Regression techniques are the oldest to have been used for
MMM. We can construct a regression equation that
considers proportion of investments in different marketing
channels and develop an algorithm to maximize revenues.

Read More…
4
 Key Success Factors
For Implementation of Market Mix Modeling

Availability of Data
Success of MMM efforts depends largely on
availability of sufficient and accurate data.
Internal Alignment
Model’s data architecture should be compatible with
organization’s IT architecture and aligned with
company’s internal processes.

Read More…
5
Perceptive Analytics is a Data Analytics Company
recognized as a Top 10 Emerging Analytics Company and
as a ’20 Most Promising Data Analytics Solution Provider’
company.

The clients we served include Morgan Stanley, Amex, Wells

Fargo, PepsiCo to name a few. We work with clients as their
analytics department or alongside internal teams to deliver
long-term competitive advantage.

▪ Marketing Analytics
▪ Customer Analytics
▪ Marketing Mix Modeling
▪ Churn Modeling
▪ Up-sell Cross-sell analytics

To know how we can help you, you can set up a free call.

Chaitanya Sagar, CEO

Schedule Free Consulting Call [email protected]
646.583.0001

Top 10 Emerging Analytics 20 Most Promising Data

Companies to watch for Analytics Solution Providers
Optimizing Marketing Spend with
Marketing Mix Model [Expanded Version]

Marketing Analytics | Tableau Consulting | Excel Apps

New York • Dallas • San Francisco • Hyderabad
Perceptive-Analytics.com
(646) 583 0001 [email protected]
 Marketing Mix Modeling

Optimizing Marketing Spend with

Marketing Mix Model
Executive Summary
Companies face the challenge of allocating their fixed marketing budget
among various marketing channels. Marketing Mix Modeling (MMM) can
measure the impact of your marketing investments on sales and optimize
your marketing spend.

Most purchases are affected by online and offline factors. Digital platforms
like Google, YouTube, Instagram, Twitter, Facebook, Internet display ads,
brand’s website etc. can not only deliver targeted content to the right
consumers, but also rapidly measure their response and give us detailed
data to the last level of customer interaction. This data can be mined to
understand how each key word/campaign/media contributes to your sales
and unravel purchase behavior. Some questions MMM can help you
answer are:

• What impact do my campaigns have on revenue and profitability?

• What impact do my digital campaigns have, combined with other
media campaigns?

In this case study, we focus on Non-linear regression models and Relative

Importance methods to quantify media effectiveness and optimize your
marketing spend across digital and other media.

1
 Marketing Mix Modeling

What is Marketing Mix Modeling?

MMM is the use of statistical and analytical tools to quantify the impact
of past marketing decisions and predict future sales impact for different
marketing spend scenarios. MMM quantifies the impact of individual
marketing activities on revenues, volume and price perception.

Strategic Importance of Market Mix Modeling

• Reflects upon past marketing decisions by calculating ROMI
• Quantifies impact of marketing variables on base & incremental
revenue
• Distinguishes the reasons for the change in business performance
by considering the impact of different internal (Advertising, Media
selection, Trade promotion, etc.) and external factors (Pricing,
Seasonality, Trends, etc.)
• Enables ‘What-If’ analysis to apprise you on the possible results of
marketing budget reallocation scenarios
• Optimizes marketing spend by maximizing ROMI
• Helps understand the short term Vs. long term impact of marketing
activities

Attribution Modeling & Optimization

MMM is basically a combination of Attribution modeling & optimization,
put together.

• Attribution models attribute past sales / conversions to different

marketing channels, campaigns and resources used. These models
range from single factor models to advanced models with varying
levels of complexity.
• Optimization models then use the results from Attribution modeling
to find:
o the optimum marketing budget needed to attain a given
amount of sales (or)
o the optimum marketing mix for a given marketing budget

2
 Marketing Mix Modeling

Types of Market Mix Modeling

MMMs can be built using Linear/Non-linear Regression methods,
Influence maximization approach, Agent based approach or Empirical
methods.

Regression techniques are the oldest to have been used for MMM. We
can construct a regression equation that considers proportion of
investments in different marketing channels and develop an algorithm to
maximize revenues. Here, we focus particularly on Non-linear regression
models for MMM.

Non-linear regression models can manage increased complexity of

marketing variables by fitting a flexible spline to data, instead of a straight
line. This gives more flexibility to incorporate as well as capture complex
aspects like interactions/synergies within and between media groups,
carryover effects of advertising, diminishing returns of media (described
by an S-shaped curve), etc.

Non-linear Regression Models for Attribution &

Optimization
Let’s consider the following: Google (G) and Facebook (F) in Digital media
(DM) group; TV (T) in Offline media group. Eqn.1 calculates the impact of
each individual media inside the digital group (Google & Facebook) and
the synergy within digital media group. Eqn.2 calculates the impact of
each media group (Digital and Offline) and synergy between media
groups (aka higher order interactions). Together, these two equations
form the hierarchical model.

𝐷𝑀𝑡 = 𝛽𝑜 + 𝛽1 ∗ 𝐺𝑡 + 𝛽2 ∗ 𝐹𝑡 + 𝛽3 ∗ 𝐺𝑡 ∗ 𝐹𝑡
(Eqn.1)
𝑆𝑎𝑙𝑒𝑠 (𝐺𝑡 , 𝐹𝑡 , 𝑇𝑡 ) = 𝛼0 + 𝛼1 ∗ 𝐷𝑀𝑡 + 𝛼2 ∗ 𝑇𝑡 + 𝛼3 ∗ 𝐷𝑀𝑡 ∗ 𝑇𝑡 + 𝜖𝑡
(Eqn.2)

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 Marketing Mix Modeling

Where, DMt is the digital media factor,

3 captures the synergy within digital media (Google and Facebook),
3 captures the synergy between digital and offline media.

If MMM shows synergies within or between media groups, then managers

can benefit by increasing the total media budget and allocating more than
fair share to the less effective medium, because it helps increase the
effectiveness of the another more effective medium!

The optimal spending to maximize profit (consequently, ROMI) can be

derived to be:

𝐺 ∗ = 𝑚 ∗ (𝛼1 + 𝛼3 ∗ Ln(𝑇 ∗ )) ∗ (𝛽1 + 𝛽3 ∗ Ln(𝐹 ∗ ))

(Eqn.3)
𝐹 = 𝑚 ∗ (𝛼1 + 𝛼3 ∗ Ln(𝑇 ∗ )) ∗ (𝛽2 + 𝛽3 ∗ Ln(𝐺 ∗ ))
∗

(Eqn.4)
∗
𝑇 = 𝑚 ∗ (𝛼2 + 𝛼3 ∗ Ln(𝐷𝑀)) (Eqn.5)

Where, G*, F* & T* are the optimal spending for Google ads, Facebook & TV
respectively.

Using Relative Importance methods for attribution

Relative Importance methods calculate contribution of different medias to
sales by decomposing Regression R2. Here, R2 represents the portion of
variance in Sales that can be explained by a regression model with a subset
of predictors. There are two types of Relative Importance methods:

• Dominance Analysis (DA) evaluates contribution of different media

by comparing R2 of all nested sub-models composed of
independent predictors with the R2 of the full model. If R2 from
models involving one media is always higher than R2 from models
involving another media, then the former is completely dominant
over the latter.

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 Marketing Mix Modeling

The drawback of Dominant analysis is that when the number of media

increases, the computations grow exponentially as more number of sub
models must be built for analysis. But, it can handle more observations
easily.

• Relative Weight Analysis (RWA) creates a new set of orthogonal

variables (some linear combination of your spend in each media)
using eigen vectors, to eliminate the intercorrelations. Thereby, the
coefficients of regression of these orthogonal variables can be
directly interpreted as their contribution to sales. As these
orthogonal variables are a linear combination of your spend in
different media, their coefficients can be decomposed to get the
contribution of individual media to your sales.

Relative Weight Analysis can work better with more number of medias but
takes time when more observations are present. Both the methods give
very similar results. So, one can choose a method based on the size and
structure of data.

Key factors for successful implementation of

Market Mix Modeling
The data used in MMM can be ad spends, promotion details, pricing,
distribution, competing brand details, competitor ad spend, industry data
and economic data. Success of MMM efforts depends largely on
availability of sufficient and accurate data. Data must be granular both in
terms of classification and reporting frequency (weekly vs. monthly data).

Also, model’s data architecture should be compatible with organization’s

IT architecture and aligned with company’s internal processes. Other
factors include a cross functional team to ensure integrity of data,
flexibility to add new media channels as they emerge and the ability to
deliver key insights at the right time to the right people.
References
1. Measuring effectiveness of Online advertising, Study conducted by PwC
2. Revenue based attribution modeling for Online advertising
3. A Hierarchical Marketing Communication Model of Online and Offline Media Synergies

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 Marketing Mix Modeling

Conclusion
Using MMM, you can convert your data on impressions, clicks,
conversions, etc. into actionable recommendations: how much to spend
on marketing advertisements, how much to spend on which media, etc.
which you can use to support your marketing decisions and protecting
defending marketing budgets, getting the budget approved, doing the
right investments and maximizing return on marketing investments.

About Us
Perceptive Analytics is a Data Analytics Company recognized as a Top 10
Emerging Analytics Company and as a ’20 Most Promising Data Analytics
Solution Provider’ company.

The clients we served include Morgan Stanley, Amex, Wells Fargo, PepsiCo
to name a few. We work with clients as their analytics department or
alongside internal teams to deliver long-term competitive advantage.

▪ Marketing Analytics
▪ Customer Analytics
▪ Marketing Mix Modeling
▪ Churn Modeling
▪ Up-sell Cross-sell analytics

To know how we can help you, you can set up a free call.

Schedule
Free Consulting
Free Consulting Call

Contact
Chaitanya Sagar, CEO
[email protected]
646.583.0001