An Actuarial Approach to Optimising the Trade-off Between Media and Price Promotions
Adam Driussi and Caroline Stevenson Agenda • The challenge • Traditional solutions • Media modelling – an actuarial approach • Media optimisation • Incorporating price and value • Conclusions Increased call for accountability
• Need to justify large marketing budgets • Need to integrate expenditure in 4Ps • Particular problems arise where price and promotional planning is not integrated Importance of considering price
• Personal loans example – Wide range of the quality of risks • Marketing interested in generating more applications, regardless of quality • Pricing interested in profitability of converted risks • Overall business outcome? One answer: Source code analysis
• Many advertisers reliant on traditional measures • Unique phone numbers, names or reference codes • These measures can offer some insights into what is working – But take little account of the multi-media, cumulative effects of exposure Another answer? - Basic econometrics • Helps identify what factors influence results • Determines the broad return on spend equation But… • Small number of factors considered • Rarely sufficiently ‘granular’ to identify regional differences and price effects • Almost always fails to accurately identify isolated channel effects • Usually does not sufficiently take into account exposure, rather than spend Econometric models often built on very limited amounts of data… 120
115
110
105
Sales Uplift 100
95
90 0 50 100 150 200 250 300 350 400 Exposure …but what if we had more historical data? 120
115
110
105
Sales Uplift 100
95
90 0 50 100 150 200 250 300 350 400 Exposure We isolate the “pure effect” of each variable on sales…
Sales Uplift by Number of Metro TARPs in Last 7 Days 120
115 No uplift in sales 110 below 50 TARPs No additional sales after 105 300 TARPs
Sales Uplift 100
95
90 0 50 100 150 200 250 300 350 400
Number of Metro TARPs in Last 7 Days We generate this data by modelling at a micro level… • Postcode, CCD or Household level
2061 2062 TV TV DM DM Press Press
2063 2064 TV DM TV DM Press Press …utilising different media footprints.. Metro Press Metro TV – Sydney Morning Herald
Community Newspapers – Parramatta Advertiser Cross-Sales DM Campaign ..and controlling for various other regional variations.. • Existing product penetration (e.g. Bank) • Branch footprint (e.g. Bank) • Serviceability (e.g. Telco) • Socio-demographics …to determine each pure effect
Radio National Press Relative leads Relative leads Ads per person last 7 days Impressions per person last 4 weeks
Product X Penetration Competitor TV Relative leads Relative leads
% of customers with Product X TARPs in last 2 weeks Modelling delivers valuable insights… • Isolates the individual channel impact • Uncovers the range of exposure levels that will drive response • Quantifies the lift in response achievable by each channel • These rules can immediately be incorporated into the planning process …but needs to contribute to dynamic planning processes • The true trade-off is between media options – Is my specific budget better spent on TV and press or TV and radio? – How expensive can press become before we start to replace it with radio? Efficiency versus effectiveness
160 TV has greater 150 potential to drive results 140 But, at the same level of spend, 130 press is more efficient 120
110 Relative Lift in Response 100
Exposure TV Press Turning exposure into spend
12
10
8
6
4
2
Additional Responses (000) Additional Responses 0 0 100 200 300 400 500 600 700 800 Spend ($000) TV Press Scenario testing and optimisation
Import Proposed Media Planning Optimal Media Media Schedules & System Scenario Other Parameters
Schedule A Create, edit Media g Schedule Schedule AUGUST SEPTEMBER g g w/c Sunday 3Media 10 17 24 Schedule 31 7 14 21 28 AUGUST SEPTEMBER AUGUST SEPTEMBER g w/c Sunday 3 10 17 24 31 7 14 21 28 TELEVISIONw/c Sunday 3Media 10 17 24 Schedule 31 7 14 21 28 AUGUST SEPTEMBER 7 & 9 Networks, 30:15secs ads g TELEVISION TELEVISION w/c Sunday 3 101724317 142128 Cairns, Maroochydore, Townsville and refine 7 & 9 Networks, 30:15secs ads AUGUST SEPTEMBER 7 & 9 Networks, 30:15secs ads Cairns, Maroochydore, Townsville w/c Sunday 3 101724317 142128 7 & 9 Networks,Cairns, 30:15secs Maroochydore,TELEVISION ads Townsville 7 & 9 Networks, 30:15secs ads METRO - Syd, Melb, Bris, Adel 7 & 9 Networks, 30:15secs ads Cairns, Maroochydore,TELEVISION Townsville METRO - Perth7 & 9 Networks, 30:15secs ads METRO - Syd, Melb, Bris, Adel 7 & 9 Networks, 30:15secs ads REGIONAL - METRONSW, VIC, - Syd, QLD Melb, (Marooch, Bris, Adel Cairns, Towns) METRO - Perth 7 & 9 Networks,Cairns, 30:15secs Maroochydore, ads Townsville Regional nonMETRO standard - Perthmkts (Mildura, TAS) REGIONAL - NSW, VIC, QLD (Marooch, Cairns, Towns) REGI ONAL - NSW,METRO VIC, - Syd, QLD Melb, (Marooch, Bris, AdelCairns, Towns) schedules Regional non standard mkts (Mildura, TAS) RADIO Regional non METROstandard - mktsPerth7 (Mildura,& 9 Networks, TAS) 30:15secs ads REGIONAL - METRONSW, VIC, - Syd, QLD Melb, (Marooch, Bris, Adel Cairns, Towns) 30 second ads RADIO RADIO Regional nonMETRO standard - Perthmkts (Mildura, TAS) Sydney - 2Day , 2MMM , Nova, 2WS & Mix 30 second ads 30 second ads REGIONAL - NSW, VIC, QLD (Marooch, Cairns, Towns) Adelaide - SAFM, 5MMM, Mix 102.3, 5AA Sydney - 2Day , 2MMM , Nova, 2WS & Mix Sydney - 2DayRADIO , 2MMM , Nova,Regional 2WS &non Mi xstandard mkts (Mildura, TAS) Gold Coast - Sea FM Adelaide - SAFM, 5MMM, Mix 102.3, 5AA Adel ai de - SAFM,30 second 5MMM, ads Mi x 102.3, 5AA Sunshine Coast - SeaFM Gold Coast - Sea FM Gold Coast - SeaSydney FM - 2DayRADIO , 2MMM , Nova, 2WS & Mix Port Pirie - 5CS Sunshine Coast - SeaFM Sunshine CoastAdelaide - SeaFM - SAFM,30 second 5MMM, ads Mix 102.3, 5AA Whyalla - 5AU Port Pirie - 5CS Port Pirie - 5CSGold Coast - SeaSydney FM - 2Day , 2MMM , Nova, 2WS & Mix Whyalla - 5AU NEWSPAPERSWhyalla - 5AUSunshine CoastAdelaide - SeaFM - SAFM, 5MMM, Mix 102.3, 5AA Port Pirie - 5CSGold Coast - Sea FM Sat- Real Estate sections - colour strips NEWSPAPERS NEWSPAPERSWhyalla - 5AUSunshine Coast - SeaFM Syd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Sat- Real Estate sections - colour strips Sat- Real Estate sections -Port colour Pirie strips - 5CS Melb - Leader Syd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Syd - CumberlandNEWSPAPERS Group + WentworthWhyalla - 5AU Courier + Sutherland Shire Leader Brisbane - Realtor Melb - Leader Melb - Leader Sat- Real Estate sections - colour strips Sunshine Coast - Weekender Brisbane - Realtor Brisbane - RealtorSyd - CumberlandNEWSPAPERS Group + Wentworth Courier + Sutherland Shire Leader Sunshine Coast - Weekender MAGAZINESSunshine CoastMelb - Weekender - LeaderSat- Real Estate sections - colour strips Brisbane - RealtorSyd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Full Page Colour MAGAZINES MAGAZINES Sunshine CoastMelb - Weekender - Leader Your Mortgage Full Page Colour Full Page Colour Brisbane - Realtor Your Mortgage Home Buyer Guide (Bi-annual) Your Mortgage Your MortgageMAGAZINES Sunshine Coast - Weekender Womens Money Your Mortgage Home Buyer Guide (Bi-annual) Full Page Colour Interrogate Your Mortgage Home Buyer Guide (Bi-annual) Predict Womens Money MAGAZINES ONLINE Womens MoneyYour Mortgage Your MortgageFull Home Page Buyer Colour Guide (Bi-annual) Domain ONLINE ONLINE Womens MoneyYour Mortgage NineMSN Domain Domain Your Mortgage Home Buyer Guide (Bi-annual) Realestate.com.au NineMSN NineMSN ONLINE Womens Money Realestate.com.au Realestate.com.auDomain results sales ONLINE OUTDOOR NineMSN Realestate.com.auDomain OUTDOOR NineMSN Bus-sides - Syd,OUTDOOR Newctle, Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Realestate.com.au Bus-rears - Hobart Bus-sides - Syd, Newctle, Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-sides - Syd,OUTDOOR Newctle, Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Open for Inspection Scooters - Syd, Melb Bus-rears - Hobart Bus-rears - Hobart Open for Inspection Scooters - Syd, Melb Open for InspectionBus-sides Scooters - Syd,OUTDOOR - Newctle,Syd, Melb Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for InspectionBus-sides Scooters - Syd, - Newctle,Syd, Melb Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for Inspection Scooters - Syd, Melb High level proposed scenario Metropolitan press schedule Each with their own footprint.. Also need to specify price/offer
200 B 160 N H D E F I 120 K L
J A 80 C G M
40 Relative Connections Volume Connections Relative
0 0 102030405060708090100110 Week Compare alternative scenarios 8,000
7,000
6,000
5,000 Volume (000) 4,000
3,000 0 50 100 150 200 250 300 350 400
Media Spend ($000)
Scenario A Scenario B Scenario C Optimising media spend 8,000
7,000
6,000
5,000 Volume (000) 4,000
3,000 0 50 100 150 200 250 300 350 400
Media Spend ($000)
Efficient Frontier Scenario A Scenario B Scenario C Practicality and reality • In practice it may not be possible to purchase the optimal schedule for a variety of reasons – Availability of media – Commitments already in place Practicality and reality • Thus, as many real-life business constraints as possible should be built into the process – Fix or cap spend for a specific channel or market – Exclude certain channels Constraints will shift the frontier
8,000 Constraint A 7,000 moves the efficient frontier up 6,000 Constraint B
Volume 5,000 moves the efficient frontier down 4,000
3,000 0 50 100 150 200 250 300 350 400 Media Spend ($000) Efficient Frontier Constrained Frontier A Constrained Frontier B Optimising value versus response • Is the number of responses the right metric to be optimising? • Including value allows more specific targeting of media • This can vastly alter the optimal media mix, especially if conversion rates and value differ greatly by region Incorporating expected value
Conversion Rates by Postcode Profit Margin by Postcode
BaulkhamBaulkham HillsHills BaulkhamBaulkham HillsHills WarringahWarringah WarringahWarringah
Ku-ring-gaiKu-ring-gai Ku-ring-gaiKu-ring-gai
BlacktownBlacktown BlacktownBlacktown
RydeRyde WilloughbyWilloughby ManlyManly RydeRyde WWilloughbyilloughby ManlyManly
ParramattaParramatta ParramattaParramatta HolroydHolroyd MosmanMosman HolroydHolroyd Hunter'sHunter's HillHill MosmanMosman HolroydHolroyd Hunter'sHunter's HillHill MosmanMosman
CConcordConcordoncord ConcordConcord AuAuburnAu b b u u r r n n AuburnAuburn DrummoyneDrummoyne DrummoyneDrummoyne SydneySydney WoollahraWoollahra SydneySydney WoollahraWoollahra FairfieldFairfield FairfieldFairfield LeichhardtLeichhardt FairfieldFairfield LeichhardtLeichhardt StrathfieldStrathfield StrathfieldStrathfield WaverleyWaverley Waverley AshfieldAshfield AshfieldAshfield SthSth SydneySydney SthSth SydneySydney
MarrickvilleMMarrickvillearrickville MarrickvilleMarrickville CanterburyCanterbury BankstownBankstown CanterburyCanterbury BankstownBankstown CanterburyCanterbury
BotanyBotany BayBay BotanyBotany Bay LiverpoolLiverpool LiverpoolLiverpool RockdaleRockdale HurstvilleHurstville RockdaleRockdale HurstvilleHurstville RockdaleRockdale
KogarahKogarah KogarahKogarah
SutherlandSutherland CampbelltownCampbelltown CampbelltownCampbelltown SutherlandSutherland Producing an expected value frontier..
1,200
1,000
800
600
400 Value ($000)
200
0 0 150 300 450 600 750 900 1,050 1,200 Media Spend ($000) Efficient Frontier Use of the expected value frontier 250%
200% Any additional spend 150% not generating enough additional value 100%
50% A Return on Investment Return
0% 0 200 400 600 800 1,000 1,200 Media Spend ($000) Efficient Frontier Break Even Line Conclusions • Actuarial techniques can be used to generate real insights into media and price optimisation – Data – Modelling – Simulation – Optimisation – Incorporating Value