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Marketing-Mix Modeling Illustrates Digital Media's Impact

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by Michael Wolfe
Senior Director of Marketing Science
BBDO

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Marketers often view their marketing mix in silos. Whether it’s TV advertising, direct marketing, online media, or other tactics, they are viewed as separate and independent activities, designed to drive incremental revenue and market share. But in the real world of customer behavior, nothing could be further from the truth.  On the contrary, it is through multiple and simultaneous marketing touch points that true revenue-generating marketing success often resides. In this article, you will see through a real case study how digital media plays a very important role in its ability to generate “marketing synergies” with various offline marketing efforts.

The corporate environment many marketers face today demands significantly more accountability regarding their marketing spending than ever before. CEOs and CFOs are even going so far as to require that full ROI analysis be conducted on their marketing-mix investments. One of the primary and most popular tools for providing more precise estimates of the financial returns to marketing is a capability called “marketing-mix” modeling. Marketing-mix modeling utilizes advanced econometrics and other cutting-edge analytical methods for causally linking each element of a company’s marketing mix to end-user sales over time. By linking the model outputs to expenditures and financial margins, a complete pro-forma ROI analysis can be conducted.

Our approach to marketing-mix modeling uses an advanced “neural network” method uniquely capable of developing a simulation tool that can measure the effects of each element of the marketing mix separately due to simultaneous activation. It is through this that we can test and measure the magnitude and impact of these multiple touch-point marketing synergies.

Our case study involves a client in the leisure and entertainment industry. With this client, digital media plays a significant role, driving about as much total revenue as does the client's total mass media and direct marketing efforts. With the approach  previously discussed, we were able to conduct simulations that compared the separate and independent effects of various online and offline marketing efforts and compare their total impacts with joint and simultaneous activations. In cases where the revenue from simultaneous activations exceeded the sum of the separate effects, we derived a measure of the “marketing synergies.”

These results are illustrated in the following chart, which shows the revenue impact from each element of the marketing mix separately, with the total impact when each of these activities is executed together or simultaneously. The key insight is that both offline and online media play an important role in jointly driving a greater overall impact or synergy.


The lesson here is clear: The marketing mix is not a series of separate and independent activities that operate in and affect customer behavior as if they were single touch points. Rather, the true definition of marketing success and revenue generation is due to a combination and partnership of different marketing activities as manifested through multiple marketplace touch points. In addition, digital media plays a large and important role, at least in this case. However, the interaction of digital media with other offline marketing activities truly represents the power of the marketing effort. Thus, marketers need to change their mindset away from a mentality of marketing in silos to one that is both holistic and understands the precise nature of marketing synergies through the lens of a more comprehensive integrated marketing strategy.

Source: http://www.cmo.com/articles/2010/10/5/marketing-mix-modeling-illustrates-digital-medias-impact.html