marketing mix models in a changing environment
DESCRIPTION
Marketing Mix Models have been used successfully for years at consumer package goods (CPG) companies to increase their marketing effectiveness and efficiency. The four Ps (Product, Placement, Price, and Promotion) were as far as the models needed to go. Broad–based media was and is very expensive, which kept competition to a minimum. However, the marketing environment has changed in many ways and must be considered when looking to these models to improve marketing performance.TRANSCRIPT
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Marketing Mix Models in a Changing Environment
This webinar will address what needs to be different in Marketing Mix Models to continue to improve marketing performance including:
•Lower cost media to encourage product trials and repeat purchases•Non-CPG companies developing Marketing Mix Models even though their business environment is far different to CPG•Competitive and external factors can change and affect the guidance that results from a model when the model was built using historical data
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Marketing Mix Models in a Changing EnvironmentInstructor: Don HoltzPhoenix Marketing International
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Don has over 30 years experience providing clients with analytics-based solutions to complex business problems. Former Executive Vice President and Chief Technology Officer for Yankelovich Partners, Don Holtz was responsible for the creation and implementation of systems and supporting mathematics necessary for client companies to understand and implement “Customer Driven, Information Based” marketing strategies and applications.
Don is a frequent guest lecturer at a number of universities and teaches AMA classes on marketing ROI and Marketing ANALYTICS. Don earned his BSE in Industrial Engineering and his MBA from the University of Michigan.
Resume
Defense Systems Laboratory
Management Science/Operations Research, Automotive
Director Marketing Systems, Pharmaceuticals
Salesman to Sr VP General Manager, Computer Timesharing
Venture Capital-backed Firms
Portable Computing Technology
Electronic Funds Transfer
Integrated Database Marketing
Founded AIM Marketing in 1995
Sold to Yankelovich Partners in 1998
Founded Benchmarketing Analytics in 2001
Founded Interlocking Analytics in 2008
Group President – Phoenix Marketing
Industries
Cable
CPG
Financial Services
Hospitality
Manufacturing
Online
Pharmaceutical
Publishing
Real Estate
Retail
Services
Technology
Telecommunications
Trucking
Utilities
Don Holtz
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Current and Past Clients and Partners
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Marketing Analytics Introduction
Level 1
Level 2
Level 3
Val
ue D
eriv
ed
Are my current programs working?What adjustments do I make to improve?
Am I targeting the right customers with the right messages and offers?How can I plan with greater certainty? What are the drivers that leads to success?How van I increase marketing channel effectiveness?
How can I reduce the costs of over-funded markets?What are the opportunities by channel, industry and vendor to develop a set of sustainable, profitable strategies?
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Determine how to optimally spend current marketing budgets by vehicle – TV, radio, newspaper, sponsorships, etc. singularly & in combination
Understand impact of controlled, influences and external factors.
Understand how a change in the marketing budget will affect future sales.
Determine how much should be spent on brand versus buy advertising
Balances media spend by market
Uses media to target a higher value customer
Marketing mix modeling is a statistical analysis on available data to estimate the impact of various promotional tactics on sales and then forecast the
future sets of promotional tactics.
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Marketing Mix – Input Factors
Controlled Influenced External
National TV
Internet
Sales Force
Direct Mail
Outdoor
Other
Sales force
Price gaps
Ad quality
Distribution
Merchandising
Customer service
Competition
Economics
Innovation
Weather
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Input Rules
RulesNeed units not $Need data that has correct timingNeed sell through dataNeed weekly dataNeed two years of dataMay need many data points at the same point in timeMarketing mix models predict sales based on
mathematical correlations to historical marketing drivers and market conditionsProvides an outstanding method for strategic planning
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Source for Base Model Input Dimensions
9
Household Coverage
Household Coverage
EconometricsEconometrics
Direct Mail Activity
Direct Mail Activity
Spend by Channel
Spend by Channel
Email Solicitations
Email Solicitations
E-newslettersE-newsletters
9
Inbound Telemarketing
Inbound Telemarketing
Outbound Telemarketing
Outbound Telemarketing
Direct SalesDirect Sales
Sales MartSales Mart
Competitive PromotionsCompetitive Promotions
Competitive Pricing
Competitive Pricing
Competitive Spend
Competitive Spend
Online/Paid Search
Online/Paid Search
Web Site Activity
Web Site Activity
Newspaper AdvertisingNewspaper Advertising
Radio Advertising
Radio Advertising TV AdvertisingTV Advertising
Cross-channel Media
Cross-channel Media
Hispanic Media
Hispanic Media
DRTVDRTVPRPR
Retail ActivityRetail Activity
Consumer SatisfactionConsumer
Satisfaction
Consumer Tracking
Consumer Tracking
Lost Cust Study
Lost Cust Study
Share Tracking
Share Tracking
Nielsen Wireline Market Share
Nielsen Wireline Market Share
Trans-based Cust Satisfaction
Trans-based Cust Satisfaction
Brand Imaging Tracking
Brand Imaging Tracking
Brand Awareness
Brand Awareness
APUAPU
Customer CareCustomer Care
Customer Activity
Customer Activity
Strategic SegmentsStrategic Segments Units & MixUnits & Mix
marketing media
Customer activitycompetitive activity
mar
ket
rese
arch
Research
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Base Model Methodology
Dependent Variable Independent
Variables
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Base Marketing Mix Model
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Statistically Reliable Results
- 50,000
0
50,000
100,000
150,000
200,000
250,000
0
50,000
100,000
150,000
200,000
250,000
300,000
09-Ju
-06
30-Jul-06
20-Aug-06
10-Sep-06
01-Oct-06
22-Oct-06
12-Nov-06
03-Dec-06
24-Dec-06
14-Jan-07
04-Feb-07
25-Feb-07
18-M
ar-07
08-Apr-07
29-Apr-07
20-M
ay-07
10-Jun-07
01-Jul-07
22-Jul-07
12-Aug-07
02-Sep-07
23-Sep-07
14-Oct-07
04-Nov-07
25-Nov-07
16-Dec-07
06-Jan-08
27-Jan-08
17-Feb-08
09-M
ar-08
30-M
ar-08
20-Apr-08
11-M
ay-08
01-Jun-08
22-Jun-08
Week Ending
Error Actual Volume Estimated Volume %Error
Mean Average Percentage Error (MAPE) = 6.0%
Are projections accurate and what does that mean
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Drivers of Growth
Sources of Volume Change Year 1 versus Year 2
0.1%
0.2%
0.5%
4.6%
8.7%
10.1%
20.8%
-2.9%Competition
Sponsorship
TV GRPs
TV Effectiveness
Trade Promotion
2 New SKUs
Total
Year 2Year 1
Volumes (‘000 units) 339 406
Avg Number of Items in distribution 12.9 14.4
Number of Circulars 4 9
Average Discount 11.28% 13.75%
TV Effectiveness 276 551(Units per 100 GRP)
National TV GRPs 4,500 5,120
Print (‘000 Readership) 21,510 22,560
Sponsorship Sponsored Show
Competition Line extension by Brand Y
Marketplace Performance
What factors drove volume growth?
New SKU launches combined with trade support accounted for 90% of the growth
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ROI Diagnosis
Revenue per $ SpendSpend on Marketing Activities ($000s)
Year 1 Year 2
$60 $61
$12,850 $6,300
$290 $400
$7,683 $3,883
$198 $134
-- $454
$275 $760
-- $72
Comparative ROI Across Elements - Brand 'A'
$0.0
$0.7
$0.0
$1.5
$1.2
$1.4
$1.3
$5.8
$0.6
$0.2
$1.0
$1.5
$0.9
$1.0
$1.4
$3.4
Online
Consumer Promotion
Sponsorship
PR
Television
Trade Promotion
Interactive
Year 1 Year 2
Trade ROI increased vs. 1 yr. ago, while TV ROI decreased driven by less effective copy.
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Revenue Increase OpportunityRevenue opportunity $MMRecommendation/Action
(Source money from CP)
(Source money from CP)
*Further opportunity – move Styling TV to Shampoo/Conditioner TV
0.19
0.83
0.41
0.70
1.01
0.59
1.14
0.28
5.16Total
Cut CP to Year1 level and put money to Trade
Up TV to Max ROI level
Cut to 2 Msgs/week
Move Efficient Allocation of GRPs
Increase % of 15s to 60s
Improve Copy quality by 15%
Increase Interactive to $300MM
Convert Styling Trade to Shampoo/Conditioner Trade
We estimate an incremental revenue
opportunity from Marketing Mix Modeling
of $ 5.1MM, keeping spending neutral.
Incremental Revenue Opportunity
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Marketing Mix – Sample Output
Promo TV Saturation
Avg. Weekly GRPs
Wee
kly
Sal
es
OptimalCurrent
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 20 40 60 80 100 120 140 160 180
Vo
lum
e
Time
0
5
10
15
20
25
30
35
40
45
Week1 Week2 Week3 Week4 Week5
Wee
kly
GR
Ps
Carry Over Effect
Base/Seasonal TV/Radio/Print Direct Marketing Rates/Promotions
Simultaneous Effect
Diminishing Returns
Diminishing Returns is the point were spending additional GRPs does not results in additional sales.
Carry Over Effect (Ad Stock) relates to the residual effect of an ad.
When all the components are layered on Base sales, it is clear what drivers contribute to sales and when and their Simultaneous Effect.
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Statistically Reliable Results
Over Optimal GRPsOver Optimal GRPs
Optimal GRPs
Optimal GRPs
Sub –Optimal GRPs
Maximum Marginal Return
Maximum Average Return
Point of Saturation
Incremental Gain for Incremental Expense - ROI
Cost
Gain
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Pricing OptimizationElasticity changes as competitors change their prices.
Price Elasticity: -0.6With 10%, 15% rise in price,
Volume: Down by 5.6%, 8.0%Value: Up by 3.7%, 6.1%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
9 10 11 12 13 14 15 16 17 18 1920
.0 21 22 23 24 25 26 27 28 29 30
$ SalesVolume (9L Cases)
Price (750 ml)
Weekly Volume and $ Sales vis-à-vis price of 1.75L
Volume Value
Elastic (>1): Demand is sensitive to price changes.Inelastic (<1): Demand is not sensitive to price changes
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Trade Allowance Effectiveness
-1000000.00
0.00
1000000.00
2000000.00
3000000.00
4000000.00
5000000.00
6000000.00
3-Jun-0
6
3-Jul-0
6
3-Aug-0
6
3-Sep-06
3-Oct-0
6
3-Nov-06
3-Dec-06
3-Jan-07
3-Feb-07
3-Mar-0
7
3-Apr-0
7
3-May-07
3-Jun-0
7
3-Jul-0
7
3-Aug-0
7
3-Sep-07
3-Oct-0
7
3-Nov-07
3-Dec-07
3-Jan-08
3-Feb-08
3-Mar-0
8
3-Apr-0
8
3-May-08
3-Jun-0
8
3-Jul-0
8
3-Aug-0
8
3-Sep-08
3-Oct-0
8
3-Nov-08
3-Dec-08
3-Jan-09
3-Feb-09
Base Consumer Promoti on Hol idaysTelevis ion Radio Macro economic VariablesChri smas Week Interactive In StoreDirect Mai ler Actual Volume
Retail 14.7%TV 11.8%Launches 9.2%In-Store 1.5%Holidays 11.0%Competition 5.4%Economic 2.5%
By channel and dimensions (Inside, Cover, Picture, etc.)
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Marketing Mix – Revenue Contribution Output
TV Ads Direct Mail Economy Actual RevenueBase Radio Ads Promotions Competitive Ads
Base, incremental, decremental and actual revenue
Rev
enue
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Marketing Mix Considerations
Is the correct output being predicted?
Have the effects to produce a baseline been removed?
Is the MAPE in line with your industry?
Have the Threshold, Point of Diminishing Return and the Saturation Point been identified?
0
50
100
150
200
250
300
350
400
450
TV
GR
Ps
/ E
ffec
tive
TV
GR
Ps
Saturation
Threshold
DiminishingReturn
Example of Overspend
Effective TV GRPs
TV GRPs
Weekly GRPs
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Marketing Mix Optimization
Historical
Optimized
GRP and Carry-over Effect Index
GRP and Carry-over Effect Index
Total Carry-Over Current
TV Brand
TV Promo
NP GRP
RD GRP0
50
100
150
200
250
300
Wee
k39
Wee
k40
Wee
k41
Wee
k42
Wee
k43
Wee
k44
Wee
k45
Wee
k46
Wee
k47
Wee
k48
Wee
k49
Wee
k50
Wee
k51
Wee
k52
Wee
k1
Wee
k2
Wee
k3
Wee
k4
Wee
k5
0
50
100
150
200
250
300
Wee
k39
Wee
k40
Wee
k41
Wee
k42
Wee
k43
Wee
k44
Wee
k45
Wee
k46
Wee
k47
Wee
k48
Wee
k49
Wee
k50
Wee
k51
Wee
k52
Wee
k1
Wee
k2
Wee
k3
Wee
k4
Wee
k5
Total Carry-Over Revised
TV Brand Revised
TV Promo Revised
NP GRP Revised
Same Budget
4.5% lift in Sales
Same Budget
4.5% lift in Sales
Results optimized with broadcast budget held constantIf flighting was done differently, how much less could be spent to get the same amount of sales?
Marketing Mix Optimization
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Marketing Mix Model Scenario Tool
Tool supports different types of planning
Run high level “What-If” scenarios to compare marketing options for specific tactics
Project sales activity within a specified time period based on inputs of marketing and other drivers
Marketing program planning with detailed weekly inputs on all dimensions and what-if scenarios
Assess and revise budget allocation with re-allocations across different marketing channels
Prepare a competitive response based on updated external factor inputs and performance goals
Use outputs of advanced ROI analytics to prioritize budget allocations based on opportunities, channel optimization, effectiveness improvements, and incremental ROI
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Increased Depth of Marketing Mix Analyses
Halo affects so that the product that is most profitable is in the market more frequently
Price/offer elasticity and its influence on sales
Ad copy effectiveness
TV ad length (30second versus 15 second ad effectiveness)
TV ad execution wear-out curves
Diminishing return curves
The marketing mix model can provide additional insights beyond changing the allocation of marketing resources. This insight is used to improve the marketing organization’s understanding of marketing performance and to guide more precise decisions beyond just allocating budget into marketing channels.
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0.580.75
0.410.52
0.990.75
0.70 0.41
0.017
0.007
0.0130.006
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Line A Brand Line B Line C
Eff
ec
tiv
en
es
s (
Vo
l /
10
0 G
RP
s)
Line A Line B Line C
Utilize Halo when planning GRP
distribution across copies; Prioritize TV on
Sub Line A as it has maximum impact
across the entire brand
Halo Recommendations
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Copy Length Analysis
GRP Aired
19,500
42,000
15 Sec 30 Sec
GRPs
Historically, stand-alone 15s had a 40% higher ROI than 30s.
Increase the proportion of 15s to 60% of overall mix
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Copy Scores are strong indicators of Copy Effectiveness; Copies with above normal score are
2.3 times as effective as normal copies. Air GRPs based on copy
scores
Copy Score Inputs
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Copy Wear Out
Air 1400 GRPs for average copy & more for more
effective copies.
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Tactical Adjustments
Response per Promotion
Effectiveness
(Response per Discount Point)
Swapping the three 750 ml promos for 400 ml promos would have generated incremental revenues of $1mn
400ml catalogs deliver 2X vol/discount pt compared to 750ml catalogs Focus on 400ml catalogs; Reduce 750ml catalogs to minimum
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New Product Introductions
91.1
6.5
84.5
Launch Volume
Cannibalized Volume
Net Gain
80.3
17.6
62.7
Launch Volume
Cannibalized Volume
Net Gain
27
12.2
14.8
Launch Volume
Cannibalized Volume
Net Gain
----------Launch1----------- ------Launch2------ -------Launch3------
Volume Driven by New Product Introductions
New product introductions have driven less volume over the last fiscal, with higher cannibalization rates.
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Typical Marketing Budget Increases
Item 2008 2009
Revenue 20,000,000 22,000,000
Incremental Growth 2,000,000
Gross Margin 30% 30%
Incremental Gross Margin 600,000
Marketing Spend
Increase Displays 200,000 220,000
Increase TV GRPs 500,000 550,000
Add 5 Sales Reps 500,000 550,000
Increase Direct Mail 100,000 110,000
Increase Promotions 200,000 220,000
Total Spend 1,500,000 1,650,000
Incremantal Spend 150,000
Incremental ROI = 300%
Many marketing budgets call for incremental gains equal to incremental expense.
Add 10% of expense and gain
10% incremental growth
Add 10% of expense and gain
10% incremental growth
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Analytics-driven Marketing Budget Increases
Displays – Diminishing Returns Curve
Expense
Incr
emen
tal S
ales
Last Year This Year
Vo
lum
e
Time Base/Seasonal Displays TV Sales Reps
Prior Year Sales 20,000,000
Expected Increase 2,000,000
% Incremental Contribution with
a 10% Increase Expected Range Low Expected High Expected ROI
Incremental
Increase Displays 20% 10% 3% 428,000 440,000 452,000 560%
Increase TV 20% 5% 1% 416,000 420,000 424,000 152%
Add 5 Sales Reps 30% 30% 4% 756,000 780,000 804,000 368%
Increase Direct Mail 5% 5% 1% 104,000 105,000 106,000 215%
Increase Promotions 25% 30% 4% 630,000 650,000 670,000 875%
Total 100% 2,334,000 2,395,000 2,456,000 379%
Identify the components that will have the biggest impact by incremental spent
Learning from a Marketing Mix Model
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MMM CPG
Marketing Mix Models have been used in Consumer Packaged Goods for a long time The 3 P’s (Product, Price, Promotion, Position) Goal is:
Trial (buy for the first time) Repeat Purchase (But it again; Family expectations) Habituation (buy every week, month, quarter, year) Dominant Position (Own the shelf) real estate Add on SKUs
Profitability stability (standardizes product volume) Well know formulas Move the mix increase share and profits pretty reliably
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MMM CPG ChangesTV and print dominate trial – Very Expensive
Slotting costs – Very Expensive
Targeting Economics Traditional cost per thousand to reach millions
Awareness Consideration Trial
Online and Mobile Targeted E-mails Social Networking Web Coupons
Can CPG companies drive sufficient trial with likely repeat purchasers to have a better ROI then traditional models
Retail partner profit issues
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MMM Non-CPG
Cost of Trial
Frequency of Purchase
Customer CLV Concentration
SKU Purchase Timing
Profitability
Cost of Broad Based vs Targeted Communication
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MMM Non-CPG
Product Sales Profile
0.00
1.00
2.00
3.00
4.00
5.00
6.00
AvgSalesIndex
Most Sales happen early in the life cycle
Christmas is a very heavy season
Inventory outages can be common
Generally a one time purchase
Examples: Gaming, Cable TV, Printers
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Competitive & External Factors
What happens when the competition innovates? iTunes Movie Rentals
What happens when a competitor invades a market?
What happens in different economic times?
Legal changes
Price wars
Will the model be valid after it is developed?
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Non-CPG Guidelines
Need to have many similar markets so that the resultant model is not expected to handle too wide a variety of situations and has a high degree of accuracy
The dependent (outcome) variable needs to be well thought through to meet the right goal. I.e. What is a sale?
Is a great result due to marketing or a non-marketing factor. I.e. Does a unique event drive sales (i.e., new bundle) or is it the volume of GRPs?
Has the recent success been with low value customers? If so, the model needs to be constructed to NOT maximize this outcome.
Has the competitive structure changed in a non-incremental manner. How does that effect efficiency and effectiveness in a new environment?
Does the company have a knowable customer base? If so, how does the change in the base affect marketing ROI and targeting
How does the “cost of trial” in an infrequent purchase process affect marketing efficiency and effectiveness
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Phoenix Marketing International
55 Walls Drive
Suite 205
Fairfield, CT 06824
Don Holtz
Group President
(203) 254-8311