A statistical analysis used in order to determine the effect of marketing strategies on sales and also to forecast future sales and strategies is known as marketing mix modeling (MMM). MMM plays an important role in the analysis or calculating effectiveness of the Marketing strategy and its effect on the generation of the sales.
Multivariate regression on sales and marketing or time series data may be used in marketing mix modeling. This is an analytical approach which uses predetermined information which is the point of sale data, along with the internal data of the companies in order to quantify the effect of sales on different activities of marketing. Usually, this is done mathematics by establishing a simultaneous relation between sales and marketing activities.
The effectiveness of marketing elements is defined by MMM in terms of the contribution of the marketing strategy to the volume of sales and the effectiveness along with efficiency. The learnings that are obtained from this are then adopted for the upcoming marketing strategies in order to make the marketing plan more efficient and also to forecast the sales in a better way.
Sales volume are used as the dependent variable and independent variable in order to accomplish this. Marketing mix modeling and the creation of its variables and certification process and is a combination of art and science. Diwan going debate in mmm is the balance of automated modeling tools versus the artisans along with different agencies and consultants taking different positions. Multiple iterations may be carried out if the variables are created.
Components in Marketing Mix Modeling
1) Base Sales :
This is an uninfluenced, natural demand for the product which is driven by economic factors like long term trend for pricing seasonality and also the other factors like brand awareness and brand loyalty which are qualitative in nature.
2) Incremental Sales :
These are the additional sales return by promotional activities on marketing campaigns which can be further decomposed into different marketing components like radio or television, advertising, print advertising, direct mail, internet, coupons, display, promotions etc.
The analysis of the marketing mix is usually carried out by the use of linear regression modelling.
Elements measured in MMM
1) Base and Incremental Volume :
various insights are obtained when the breakup of sales volume is done in to be is incremental sales. Base sales are nothing but the series of volume that would be generated without any additional effort from marketing strategies and incremental sales is the volume that is generated by the use of marketing activities.
The Base volume increase or decrease during a long range of time, on the other hand, the activities which increase the sales volume that is incremental sales in the short-run impact the Base volume in the long run. When there is a variation in the Bass volume it indicates that the strength of the brand and their loyalty is on a better side.
2) Advertising and Media :
Marketing mix modeling can also be used to determine the impact of media on sales achievement. Different media such as television online display ads or magazines can be used to evaluate this measurement. In few cases impact of envision advertising campaigns can also be determined upon sales for example in digital advertising when an ad is displayed on a youtube video and if the customer clicks, he is directed to the landing page of the website where the promotional offer for the event is displayed and the customer can make the purchase.
It is a measurable factor that how many customers saw the ad and how many of them clicked on the ad, how many of them stayed on the website for how long and how many of them at the actual purchase.
All of these factors are quantifiable which gives a detailed and elaborate idea to the advertiser about the effectiveness of the ad. This determines the total effectiveness of the ad and its quality since everything is measurable. Thus, a measurable ad campaign can be done so that it is entirely efficient and effectiveness of that can be determined and presented in order to determine the ad efficiency.
3) Trade Promotions :
Every marketing plan has a trade promotion activity which is considered as a ki activity in the marketing strategy. The primary game of trade promotions is to get incremental sales in a short term by the use of promotion schemes which increase the Awareness of the customer towards the business and its products.
There is a much debate on the subject of trade promotions and response of customers towards it says it is not very straight forward. In order to stimulate the response of the customers towards trade promotions, non-linear models are used.
This is where mmm comes into the picture which helps to understand the overall impact of trade promotions and getting the incremental volumes of sales. An estimate of volume generated for promotion event is possible to obtain and different outlets which can help to identify the least and most effective channels of trade.
Comparison of return on investment can be made if details when information is available for the trade promotion including for activities like everyday low price or off-shelf display. We can also use this information in order to optimize the treat within by choosing the most effective trade channel so that the most effective promotion activity can be targeted.
4) Pricing :
Sales is negatively affected if the price of the product is increased. This effect is captured by modeling of the pricing in mmm. The model provides the elasticity of price and brand which helps to tell the percentage change in this is or even a small change percentage and price. This is the information that is used by the marketing manager in order to evaluate the effect of price on the market and if the decision of price change it be taken or not.
5) Distribution :
Distribution volume will determine the element of distribution and how the volume will change. The percentage change in the depth or width of the distribution can be determined. The distribution change can be identified for every channel individually and for every outlet. Moving to this insight the efforts in the distribution can be prioritized for every channel or store in order to get the maximum output from the same.
For example, recently it has been seen that although there are online stores of Apple products people still prefer to work in in the brick and mortar store of Apple to buy the products. The company even and digital world has opted to keep a brick and mortar store because of the same reason that it helps the customer to get a wow factor which is why the efforts of the organization to improve the distribution channels, in particular, the offline stores is more than retail on the online stores.
The offers which are presented in the offline store are more or less common with the online stores which again makes the customer move towards the offline store other than the online purchase specifically for the Apple products. On the other hand, few companies like Asus and Motorola have opted to be present only in online stores and not offline stores in most of the places. This makes them put increased efforts for creating online presence since that particular distribution channel gets the more return on investment and more sales.
6) Launches :
whenever a new product is launched by a company the promotions and publicity that is associated with the products result and higher volume generation than expected. This happens in the case of most of the products most of the times. The additional volume is captured by using existing variables in the model.
Special variables may be used more often than not in order to capture the incremental effect of the launches. The total contribution will be given where the marketing effort associated along with the combined contribution of these variables. In order to calculate the effectiveness of the launches, their effectiveness and ROI is compared with other launches.
7) Competition :
Competition variables are created in order to capture the impact of competition on the sales of the brand. These variables are based on the marketing activities of the competition like advertising and television trade promotions and product launches all of the factors of a competitor.
These results are used to identify the threat from the competition to the sales of own brand. Cross-promotional elasticity and cross-price elasticity are used in order to get an appropriate response from the competitive strategies.
Application of mmm can be used in the broadcast media in order to determine the success of the competitive campaign and this can be used as a valuable lesson for the upgradation in the marketing strategies of own brand. Many factors are taken into consideration like the time of program adding the presenter attributes and the content of the program that is why these will be considered as independent variables.
Limitations of Marketing Mix Modeling :
Marketing mix modeling provides extremely crucial information but there are few areas in which limitations have to be taken into consideration. They are:
- Long term brand building activities and equity building activities can be affected if the company focuses on short term sales.
- Time-specific media such as TV commercials have a bias when this is used with media mix Optimization. When broadly based media vs original your demographic easy targeted media is used even when the bias is bound to happen.