Understanding Modeling Mix Modeling & How It Works
Marketing Mix Modeling is a multi-step process that contains a series of unique steps that are driven by the marketing effects being analyzed. It serves as a bridge between parameters such as marketing spend and sales achieved, eventually improving the return on investment across marketing activities.
Marketing mix modeling works by segregating business metrics into parts to better analyze the marketing channels. It helps in distinguishing marketing and promotional activities i.e., incremental drivers from base and other drivers.
With an ideal MMM solution, you can measure the impact of individual marketing activities on revenues, volumes, and prices of products sold in the market.
Strategic Impact of Marketing Mix Modelling (MMM)
CMOs use marketing mix modeling to make data-based budget allocation decisions. The insights provided by the model allow them to divide limited resources efficiently and create a tangible impact on marketing channels that assures the highest return on investment (ROI).
1. Performs What-if-Analysis
Marketing Mix modeling allows CMOs to predict the potential revenue effects of the specified marketing actions and provides insights on which decisions are based. What-if analysis is all about providing businesses with insights into the potential consequences of implementing specific changes or strategies before actually executing them. By conducting these simulations, marketers can make more informed decisions and mitigate risks associated with untested initiatives.
2. Identifies Performance Drivers
Marketing mix modeling empowers businesses to identify what were the factors that made the particular campaign or channel successful. It can also be used to unravel the discrepancies and hurdles that may be hampering a particular campaign or channel. By analyzing historical data, marketers can pinpoint the marketing elements that have the greatest impact on sales and business outcomes. For example, a clothing retailer might discover that social media advertising and personalized email campaigns have a substantial influence on customer engagement and conversion rates, allowing them to focus their efforts on these high-performing channels.
3. Uncovering Synergies and Trade-offs
Marketing mix modeling reveals the interplay and trade-offs between different marketing variables. It helps businesses understand how changes in one aspect of the marketing mix might impact others. For example, increasing advertising expenditure may lead to higher sales, but at the expense of profit margins. This understanding of synergies and trade-offs allows businesses to make informed choices and strike a balance between short-term gains and long-term sustainability.
4. Quantifies Impact of Marketing Variables
Marketing mix modeling decomposes total revenue into base revenue and incremental revenue. It then identifies the factors affecting incremental revenue and quantifies their individual impact. It also compares the ROI for different channels in the marketing budget. Through statistical analysis techniques, marketing mix modeling measures the relationship between marketing variables and revenue. The model allows marketers to determine the extent to which each marketing element contributes to revenue growth.
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