MarkeL Mlx Modelllng

LsLlmaLe Lhe effecLlveness of

lnvesLmenL ln medla
genda
W 8uslness appllcaLlon of MarkeLlng Mlx
modelllng
W case sLudy
W SLrengLhs and weaknesses
W 8rlef lnLroducLlon Lo more advanced
approaches pooled regresslons and sLrucLural
equaLlons
Maklng 8's medla dollars work harder
W Mlndshare helped 8 Lo make Lhe mosL of Lhelr medla
lnvesLmenLs across Lhe many sLaLes of Lhe uS#
W 8 engaged Mlndshare Lo develop enhanced medla
lnvesLmenL sLraLegles Lo maxlmlse sales and boosL revenue
performance#
W "Dr|vers of performance were quant|f|ed %eg medla
promoLlons dlsLrlbuLlon compeLlLor effecLs) ln seven uS
sLaLes over Lhree years#
W "keturn on |nvestment f|gures were calculaLed boLh shorL
and long Lerm for 40 campalgns#
MarkeLlng Mlx modelllng
W SLaLlsLlcal meLhods applled Lo measure Lhe lmpacL of
medla lnvesLmenLs promoLlonal acLlvlLles and prlce
LacLlcs on sa|es or brand awareness
W used Lo asslsL and lmplemenL a markeLlng sLraLegy by
measurlng
Lffect|veness conLrlbuLlon of markeLlng acLlvlLles Lo sales
Lff|c|ency shorL Lerm and long Lerm 8eLurnCn
lnvesLmenL of markeLlng spend
r|ce e|ast|c|ty
Impact of compet|tors
MMM Pow does lL work?
W sLaLlsLlcal model ls esLlmaLed on hlsLorlcal daLa wlLh sales as
a dependenL varlable and llsL of explanaLory varlables as
markeLlng acLlvlLles prlce seasonallLy and macro facLors
W 1he slmplesL and broadly used model ls llnear regresslon
W 1he ouLpuL of Lhe model ls Lhen used Lo carry ouL furLher
analysls llke medla effecLlveness 8Cl and prlce elasLlclLy and
Lo slmulaLe whaLlf scenarlos
t t t t
Sales 1 . . - L L ... 2 var 1 var
2 1
acLors LhaL could drlve sales
Advert|s|ng
1V
kad|o
r|nt
Cutdoor
Internet
romot|ons
Sponsorsh|ps
Lvents
r|ce
Adv qua||ty
D|str|but|on
Merchand|s|ng
Compet|t|on
Seasona||ty
Weather
Lconom|c
Demograph|c
Industry data
Sa|es
t t t t
Sales 1 . . - L L ... var var
2
2
1
1
MMM pro[ecL process
Set out ob[ect|ves
ueflne scope
ulscuss daLa
avallablllLy
ueslgn daLawarehouse
Data preparat|on
WollecL daLa
WvalldaLe harmonlze
and consolldaLe daLa
WresenL exploraLory
analysls Lo cllenL
Mode| deve|opment
WLsLlmaLlon
WulagnosLlcs
WalculaLe 8Cls rlce
elasLlclLy and response
curves
resentat|on
WlnLerpreLaLlon of
resulLs
WLearnlng and
recommendaLlons
ase sLudy
W n energy company Setro| wanLs Lo evaluaLe Lhe adverLlslng
lnvesLmenLs of lLs reLall buslness ln Lhe uS from 2001 unLll
2004
W llenL's quesLlons
W Pow much have we made Lhrough adverLlslng?
W WhaL ls Lhe reLurn on lnvesLmenLs of our medla acLlvlLles?
W Whlch markeLlng drlvers have had Lhe greaLesL effecL?
W WhaL's Lhe lnfluence of prlce on our sales?
W re we opLlmally allocaLlng our budgeL across producLs ?
1argeL varlable
dverLlslng daLa
W 1he performance of 1v and radlo adverLlslng ls expressed ln
Lerms of Cross 8aLlng olnLs %C8s) raLlng polnL ls a
percenLage of Lhe poLenLlal audlence and C8s measure Lhe
LoLal of all raLlng polnLs durlng and adverLlslng campalgn
C8s %) 8each * requency
Lxample LeL's assume a commerclal ls broadcasLed Lwo
Llmes on 1v
1
st
t|me on a|r
23 of LargeL
Lelevlslons are Luned ln
2
st
t|me on a|r
32 of LargeL
Lelevlslons are Luned ln
Gks
37
dverLlslng daLa
W Spetro| has deployed 3 1v campalgns over Lhe
sample wlLh a LoLal expendlLure of 300 mllllon $
W Lach campalgn lasLed from 4 Lo 8 weeks
W Is there any re|at|onsh|p between sa|es and 1V
advert|s|ng?
arry over effecL of 1v
arry over effecL of 1v
W 1he exposure Lo 1v adverLlslng bullds awareness
resulLlng ln sales
W uSLock allows Lhe lncluslon of lagged and non
llnear effecLs
W lpha ls esLlmaLed lLeraLlvely uslng leasL squares
1he esLlmaLe ls Lhen valldaLed by medla planners
1 0
) (
1

L

-
- -
t t t
ADStock GRP ADStock
dverLlslng daLa
300 M
1V Spend
164 M
kad|o
160 M
Cutdoor
8elow Lhe llne promoLlons
W lL may lnclude
sponsorshlp
producL placemenL
sales promoLlon
merchandlslng
Lrade shows
W usually represenLed by dummles %varlables
equal Lo 1 when a promoLlon Lakes place and
0 oLherwlse)
8elow Lhe llne promoLlons
Sponsorsh|p
World 8ally
hamplonshlp
S a | e p r o m o t | o n
Sa|e promot|on
S D|scountt
rlce
SeasonallLy
S a | e p r o m o t | o n
S D | s c o u n t t
August seasona| dummy
eaks every year
|n August
LxploraLory analysls
0
4
8
12
16
20
24
28
32
130000 140000 150000 160000 170000 180000
Series: SALES
Sample 1 209
Observations 209
Mean 154403.1
Median 153960.2
Maximum 183102.5
Minimum 125997.0
Std. Dev. 9476.290
Skewness 0.053546
Kurtosis 3.456209
Jarque-Bera 1.912312
Probability 0.384368
orrelaLlon maLrlx
PlsLogram and desc sLaLs
ScaLLer ploL unlL rooL LesL
Model developmenL
Sa|est 167412 +
168* AdStock(Gks1Vt07S) +
161* AdStock(Gkskad|ot03S) +
166* AdStock(Cutdoort01S) +
S80* romot|onDummyt +
6S07* Seasona||tyt +
12631* r|cet + Lrrort
LsLlmaLed equaLlon
Model dlagnosLlcs
W Model
SlgnlflcanL sLaL and hlgh 8squared
W varlables
SlgnlflcanL 1sLaLs
oefflclenLs musL make sense
varlance lnflaLlon facLor low
W 8eslduals
normallLy %arque8era)
bsence of serlal correlaLlon % uurbln WaLson
correlogram)
8eslduals dlagnosLlcs
0
2
4
6
8
10
12
14
16
-10000 -5000 0 5000
Series: RESD
Sample 1 209
Observations 209
Mean -2.31e-11
Median -66.11295
Maximum 8049.987
Minimum -11378.69
Std. Dev. 3612.711
Skewness -0.158326
Kurtosis 2.624286
Jarque-Bera 2.102443
Probability 0.349511
Durb|n Watson 169
DW2 pos|t|ve autocorre|at|on
DW2 negat|ve autocorre|at|on


1
LsLlmaLed facLors conLrlbuLlon Lo sales
|tted Sa|est est|mated Intercept 167412
an be lnLerpreLed as 8rand LqulLy
Wvolume generaLed ln absence of any markeLlng
acLlvlLy
WlndlcaLor of Lhe sLrengLh of Lhe brand and users'
loyalLy
LsLlmaLed facLors conLrlbuLlon Lo sales
|tted Sa|est 167412 + 168* 1Vt + 161*kad|ot +
166* CCnt + S80* romot|ont
1v onLrlbuLlonL%000' Callons)
coefflclenL *dsLock%1v)L
LsLlmaLed facLors conLrlbuLlon Lo sales
Lqu|ty est|mated Intercept 167412
Can be |nterpreted as 8rand Lqu|ty
|tted Sa|est 167412 + 168* 1Vt + 161*kad|ot +
166* CCnt + S80* romot|ont + 6S07* Seasona|||tyt
e a c k s e v e r y y e a r
| n A u g u s t
eaks every year
|n August
LsLlmaLed facLors conLrlbuLlon Lo sales
-egat|ve pr|ce
effect
|tted Sa|est 167412 + 168* 1Vt +
161*kad|ot +
166* CCnt + S80* romot|ont + 6S07*
Seasona|||tyt 12631* r|cet
MarkeLlng mlx %sample ouLpuL)
LsLlmaLed facLors conLrlbuLlon Lo sales
LsLlmaLed facLors conLrlbuLlon Lo sales

actor coeff ntr-:ton TotSalesCo

1
LsLlmaLed facLors conLrlbuLlon Lo
revenue

ce actor coeff -:ton ven:eContr Tot !r Re

1
L L

8Cl
TOTCost
-:ton ven:eContr TOT
ROI
Re

uoes lL really make sense?

D|m|n|sh|ng
returns
1he more I |nvest |n
med|a the more I se||
8esponse curves
)) exp( 1 ( GRPs - a egExp L L
)))) ( ( exp( 1 /( 1 ( GRPs mean GRPs - a S L L
1ak|ng |nto account
d|m|n|sh|ng returns
rlce elasLlclLy
W ssumpLlon consLanL elasLlclLy across Lhe sample whlch
lmplles a llnear relaLlon beLween volume and prlce
W 8y uslng Lhe coefflclenL of Lhe regresslon lL ls posslble Lo
derlve an esLlmaLe for prlce elasLlclLy
rlce coefflclenL 12631
verage prlce 131 $
verage volume sales 134000 Callons
12 . 0 *
!r
coeff
AvgSales
ce Avg
Elastct
A 10 drop |n pr|ce
|ncreases sa|es by 12
Dyncmic price e|c:IiciIy
E|c:IiciIy chcnge: wiIh price
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
9
1
0
1
1
1
2
1
3
1
4
1
3
1
6
1
7
1
8
1
9
2
0

0
2
1
2
2
2
3
2
4
2
3
2
6
2
7
2
8
2
9
3
0
Vo|ume (9L Cases)
r|ce (7S0 m|)
Week|y Vo|ume and 5 Sa|es v|sv|s pr|ce of 17SL
volume
LlasLlc %1) uemand ls senslLlve Lo prlce changes
lnelasLlc %1) uemand ls noL senslLlve Lo prlce changes
Lst|mated through non
||near regress|ons
llenL's quesLlons
Pow much have we made Lhrough adverLlslng?
W 1 bllllon $ drlven by 1v
W 300 mllllon $ due Lo radlo
W 200 mllllon $ generaLed by CuLdoor and
promoLlonal acLlvlLles
Investments |n med|a generated 17
b||||on 5 |n revenue
llenL's quesLlons
WhaL ls Lhe reLurn on lnvesLmenLs of our medla
acLlvlLles?
or each do||ar |nvested |n 1V you get 3S do||ars
back
llenL's quesLlons
WhaL's Lhe lnfluence of prlce on our sales?
A 10 drop |n pr|ce
|ncreases sa|es by 12
re we opLlmally allocaLlng our
budgeL across producLs ?
Cver Cpt|ma| Gks Cver Cpt|ma| Gks
Cpt|ma|
Gks
Cpt|ma|
Gks
Sub Cpt|ma| Gks
Maxlmum
Marglnal
8eLurn
Maxlmum
verage 8eLurn
olnL of
SaLuraLlon
Invest more |n kad|o
and |ess |n CCn
Morket|ng M|x - Somp|e Output
romo 1v SaLuraLlon
vg Weekly C8s
W
e
e
k
l
y

S
a
l
e
s
CpLlmal urrenL
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 20 40 60 80 100 120 140 160 180
v
o
l
u
m
e
1lme
0
3
10
13
20
23
30
33
40
43
Week1 Week2 Week3 Week4 Week3
W
e
e
k
l
y

C
8

s
arry Cver LffecL
8ase/Seasonal 1v/8adlo/rlnL ulrecL MarkeLlng 8aLes/romoLlons
SlmulLaneous LffecL
ulmlnlshlng 8eLurns
D|m|n|sh|ng keturns ls Lhe polnL were spendlng
addlLlonal C8s does noL resulLs ln addlLlonal
sales
Carry Cver Lffect %d SLock) relaLes Lo Lhe
resldual effecL of an ad
When all Lhe componenLs are layered on 8ase
sales lL ls clear whaL drlvers conLrlbuLe Lo sales
and when and Lhelr S|mu|taneous Lffect
MarkeLlng mlx %sample ouLpuL)
ros and cons
W Slmple and lnLulLlve
W 1he ouLcome ls backed by
quallLaLlve experLlse and ln
fleld research
W onsLrucLlve way of runnlng
dlfferenL scenarlos and
evaluaLlng pasL
performance
W 8eLLer wlLh granular daLa
W very successful meLhod
hlgh Lurnover
W orrelaLlon doesn'L lmply
causallLy
W 8lsk of spurlous regresslons
especlally when modelllng
ln levels
W Model hlghly depends on
varlables chosen
W oor ln forecasLlng
Spurlous sLaLlsLlcs
W hlgh correlaLlon
beLween sales and 1v
could mean
L|ther medla causes
sales
or sales causes medla
or a Lhlrd varlable causes
boLh sales and 1v
Sa|es
Med|a
Income
What |s the truth?
non sense correlaLlons
W Some spurlous
correlaLlons
deaLh raLe and
proporLlon of marrlages
Corr 09S
naLlonal lncome and
sunspoLs Corr 091
lnflaLlon raLe and
accumulaLlon of annual
ralnfall
W Cn Lhe oLher hand a
low correlaLlon doesn'L
rule ouL Lhe posslblllLy
of a sLrong relaLlon
Corr 00
WCorre|at|ons must support a theory
WCa|cu|ate corre|at|ons both |n |eve|s and d|fferences
WA|ways |ook at scatter p|ots
WhaL varlables should have been
lncluded?
new medla
W ulglLal MarkeLlng
ulsplay MarkeLlng
Search Lnglne MarkeLlng %SLC )
fflllaLe MarkeLlng
Moblle MarkeLlng
Soclal Medla
new medla
W uaLa avallablllLy
lmpresslons
llcks
osL evenL acLlvlLy
8espoke engagemenL meLrlcs
W Lxample of a Lracklng cenLre
uoublecllck
lLernaLlve meLhods
W Llnear regresslon
W LoglsLlc regresslon
W ulscrlmlnanL analysls
W acLor analysls
W lusLer analysls
W SLrucLural equaLlons modelllng
sa
ooled regresslons
allfornla allfornla uS allfornla
nevada uS nevada nevada
Cregon Cregon uS Cregon
+ + error
+ + error
+ + error
Sa|es -at med|a Loca| r|ce Loca| med|a
ooled regresslons example
1 Salesallfornla c11*1vallfornla +
c12*1vCregon+c13*8adloallfornla +c14*8adloCregon +
Lrrorollfornla
2 SalesCregon c21*1vallfornla +
c22*1vCregon+c23*8adloallfornla +c24*8adloCregon +
LrrorCregon

O
C
O
C
O
C
O
C
Rado
Rado
TJ
TJ
c c c c
c c c c
Sales
Sales
1
1
24 23 22 21
14 13 12 11
Med|a effect |s a|so tested across reg|ons
Pow adverLlslng effecLs consumers?
undersLandlng
Lhe process by whlch adverLlslng affecLs
consumers
Pow Lhe effecLs of adverLlslng are spread over
Llme
1he role of dlfferenL medla
1he role of compeLlLors
1he purchase funnel
W baslc process LhaL
leads Lo Lhe purchase of
a producL conslsLs ln
Awareness cosLumer ls
aware of Lhe exlsLence of
a producL
Cons|derat|on acLlvely
expresslng an lnLeresL ln
Lhe company
urchase
Awareness
Cons|derat|on
urchase
Worklng on survey daLa
W sample of Lhe LargeL
audlence ls lnLervlewed
abouL brand awareness
conslderaLlon and cholce
W 8esearch agencles provlde
awareness conslderaLlon
and purchase Llme serles ln
Lerms
le purchase of 10 means
LhaL 10 ouL of 100 lnLervlewed
people purchased Lhe producL
1esLlng Lhe purchase funnel
wareness onslderaLlon urchase
Med|a
dverLlslng flrsL exerclse lLs
lnfluence on awareness vla
awareness Lhere ls an effecL on
conslderaLlon whlch drlves Lhe
consumer Lo purchase
1esLlng Lhe purchase funnel
W warenessLc11+c12*1vL+c13*radloL+c14*CCPL+error1L
W onslderaLlonL b1*awarenessL + c21 + error2L
W urchaseL b3*onslderaLlonL + b2*wareness +c31 +
error3L

t
t
t
t
t
t
t
t
t
OOH
Rado
TJ
Const
c
c
c c c c
P:rch
Cons
Awar
- -
a -
a a
3
2
1
31
21
14 13 12 11
3 2
3 1
2 1
0 0 0
0 0 0
1
1
1
1
1
1
a1a2a3 must be |ns|gn|f|cant to conf|rm theory
genda
W 8uslness appllcaLlon of MarkeLlng Mlx
modelllng
W case sLudy
W SLrengLhs and weaknesses
W 8rlef lnLroducLlon Lo more advanced
approaches pooled regresslons and sLrucLural
equaLlons
8eferences