POINT OF VIEW

Marketing Mix Modeling On Trial

Patrick Moriarty, Ph.D. Profile Joy Joseph Profile Executive, IRI Analytics Principal, IRI Analytics July 1, 2013 POINT OF VIEW Mix Modeling On Trial

Introduction As marketing expenditures among CPG manufacturers and

retailers in the United States grow exponentially, accountability has become

a C-level imperative; marketing spend grosses more than $1 trillion (equaling about 10 percent of GDP). CMOs and financial stakeholders require a more precise accounting of marketing budgets and their impact on top-line and bottom-line performance. Marketing Mix Modeling (MMM) an AdAge article noted that the In some respects, they have a has arguably become the Council for Research Excellence valid point. While MMM has a de facto measurement approach for marketing performance. will soon produce a report role in evaluating the on the pros and cons of MMM. effectiveness of In spite of this seemingly critical The report will “form the basis” campaigns, it is not a panacea role, MMM plays as the “go-to” of an Advertising Research for measuring all benefits evaluation Federation (ARF) inquiry into of these campaigns. approach, and several prominent the quality of MMM results,

voices have criticized the to be headed by CBS Chief approach and gained a lot Research Officer and ARF Marketing Mix Modeling of airtime recently. As far back Chairman David Poltrack.3 Issues as 2011, AdWeek quoted Laura Lack of Long-Term Focus: Desmond, CEO of media Financial stakeholders welcome the transparency and MMM, as it is most commonly company Starcom MediaVest, accountability that MMM offers, measured has an Achilles heel; as saying, “To be provocative, it only accounts for the I believe it (MMM) will become but advocates are not so thrilled, justifying their short-term lift due obsolete.”1 Another more recent opposition to MMM with the to marketing. There criticism appeared in a Forbes is a longer-term effect article that claimed “Marketing claim that MMM ignores the consumer perception and longer of marketing that includes long mix models are fundamentally term equity building effects term sales and an increase flawed and detrimentally in . biased.”2 More recently, of advertising.

1 AdWeek, June 6, 2011, “Laura Desmond Wants Her Industry to Deep-Six Its Market Mix” http://www.adweek.com/internet-week-blog/laura-desmond-wants-her-industry-deep-six-its-market-mix-132255

2 Forbes, Nov 28, 2012, “The Downside Of Marketing Mix Models Is There's No Upside For CMOs,” http://www.forbes.com/sites/onmarketing/2012/11/28/the-downside-of-marketing-mix-models-is-theres-no-upside-for-cmos/

3 AdAge, April 24, 2013, “Marketing Mix Models Get Pushback as Media Landscape Changes,” http://adage.com/article/cmo-strategy/marketing-mix-models-pushback-changing-media-world/240976/?qwr=FullSite

2 POINT OF VIEW Marketing Mix Modeling On Trial

Over Emphasis on Promotions: There is a perception that MMM

favors promotional tactics over advertising. This may be the case, but not due to an inherent bias within the model, but because pricing and value is one of the strongest motivators of purchase, especially within the CPG and retail sectors. At the point of purchase, in-store elements like promotions and displays have the advantage of immediacy. Anybody that has actually looked at CPG sales trends will have noticed the massive spikes in-store

promotions create. As academics Reinventing Marketing Mix Four broad areas that require Len Lodish and Carl Mela point Modeling improved evaluation include: out in a Harvard Business Review article, “promotions yield There is clearly a need • Align marketing mix an incontrovertible boost to “modernize” the MMM measurement objectives in sales.”4 The article, however, discipline. To gain a more to the marketing planning also points out that in the long accurate and holistic view and strategy process term, promotions can indeed of marketing performance, • Don’t drive marketing be detrimental to brand marketers must consider MMM strategy on ROI alone; profitability, as it tends to train as just one solution in an arsenal include consumer metrics consumers to wait for deals, of measurement disciplines.5 including equity and which invariably lowers profit The ARF inquiry into MMM, led perception margins and increases price by David Poltrack, should act sensitivity. a springboard to evaluate and • Augment marketing redefine the role of MMM mix-driven macro strategies Underestimation of Online as it applies to measuring with consumer segment and Advertising Impact: marketing efforts. Other buyer behavior driven micro Yet another criticism is that disciplines should measure the strategies MMM fails to give appropriate impact on longer-term sales, credit to the interplay between • Weigh quantitative mix the consumer experience and online advertising and traditional results with qualitative other areas where MMM fails advertising platforms, such rationale and business sense to provide an accurate as print, television and radio, quantitative assessment. thereby, underestimating the true return of online.

4 Harvard Business Review, July-August 2007 (Lodish & Mela), “If Are Built Over Years, Why Are They Managed Over Quarters” http://hbr.org/2007/07/if-brands-are-built-over-years-why-are-they-managed-over-quarters/ar/1

5 2013 IRI Summit Conference, “Moving Beyond Marketing Mix Modeling: New Strategies to Maximize Long-Term Results” http://www.iriworldwide.com/Insights/Publications/MovingBeyondMarketingMixModeling.aspx

3 POINT OF VIEW Marketing Mix Modeling On Trial

Two other analyses that address of media and consumption short-term sales lift from the weaknesses of MMM and that channels to customize content advertising campaigns, will go a long way to provide and leverage information it’s necessary today both the quantitative perspective to better fulfill their purchase to complement its capabilities financial stakeholders demand needs. This approach quantifies with newer solutions that and the holistic view that brand the impact of household level address today’s measurement managers require are: marketing exposure on purchase challenges. decisions and further Drivers: Savvy marketers, eager distinguishes those impacts This approach extends the to address the concerns by consumer segments short-term view of MMM of financial stakeholders and (attitudinal, demographic by including representative brand managers, will consider or psychographic) as well constructs of brand equity multiple measurement as transaction segments (trial collected from longitudinal disciplines to gain that critical vs. repeat, pantry-stocking brand-tracking surveys. There holistic perspective. vs. quick shopping trip). are two underlying models, Aggressively pursuing this The results from this analysis one measuring the relationship approach will both provide a can help target key segments of marketing activities better picture of what’s actually for growth. on individual brand equity happening in the marketplace, metrics and the other measuring as well as give these marketers the impact of brand equity a competitive differentiator over Don’t Throw the Baby Out on brand sales. The results can slower moving marketing teams. With the Bath Water! be utilized to understand what components of consumer brand MMM has served a valuable perceptions impact sales and purpose in the 30-plus years what marketing tactics influence marketers have employed those perceptions. it. As with many solutions, over the years, marketers have

applied it to situations for whic