Business Case: Value Assessment for Marketing Mix Modeling
December 21, 2022 | Carmen Bozga, Juha Nuutinen
Marketing Mix Modelling (MMM) is a powerful tool for assessing the impact of marketing campaigns and optimizing the budget allocation between different activities. But how to assess the impact and ROI for MMM?
Measuring the potential business impact for a MMM solution can be tricky since there are several units of value a solution can provide. These units of value delivery include financial benefits, such as cost savings and revenue growth, increased ROI, but also non-financial ones like, increased employee productivity and improved operational efficiency….to name a few.
At the same time MMM isn’t a plug-and-play type of solution, which makes it more difficult to evaluate what the final outcome would be.
This article gives you a value assessment of the potential gains and losses that could occur if you decide to include MMM (or to exclude it) from your marketing strategy during 2023. Moreover, we will provide a qualification list along the way in order to help you assess whether your company could benefit from MMM in the future.
Media Investment per Month
Essentially, the more you invest in media, the more value you can potentially get out of MMM. The goal of MMM is to measure the Return on Marketing Investment for each activity, and the bigger monthly spend you have the more you can scale the marketing-driven sales with it by applying MMM.
Now, we do realize that "more" does not offer a legit threshold. Therefore we would suggest a minimum budget of 25k€/month as a starting point, as this media investment level typically starts to generate substantial optimization results when the MMM results are utilized in future campaign planning.
"Therefore we would suggest a minimum budget of 25k€/month as a starting point, as this media investment level typically starts to generate substantial optimization results when the MMM results are utilized in future campaign planning."
To achieve a true marketing mix, it is necessary to invest in different media channels. A combination of different media channels is essential to reach an ideal marketing mix, which in turn will give you more reliable insights into which marketing channels should be adjusted or further invested in. That being said, 25k€/month should be the minimum to get a valid prediction from an MMM solution.
MMM is valuable for you only if you have a mix in your marketing strategy. What is the mix? This can be defined as the number of variables present in your marketing strategy. The mix may include the use of traditional marketing channels such as print, radio, and television but also digital channels such as online marketing, mobile marketing, content marketing, influencer and social media campaigns, email campaigns and more. Some concrete examples are:
- Media Channels such as: Google Ads, Facebook Ads, Amazon Ads, Bing Ads, Twitter Ads, LinkedIn Ads, Apple Search Ads, TikTok Ads, Pinterest Ads, Newsletter, SMS, TV, Radio, Magazine, Print, OOH, Cinema
- Countries you operate in such as US, UK, Germany, France, Canada, Italy, China. Each main country should represent at least >1% of your global media investments
- The number of Campaigns you run at the same time such as: E.g., Brand/Image, AlwaysOn Performance, Awareness, Purchase, Category, Product, Best-Sellers, Seasonal, Product Launch, Sale, Offer, Black Friday, Singles' Day, Back to School, Xmas, Summer, Partners
Simply put, you can only gain value from MMM if you have multiple media channels, or you operate in multiple countries, or you run multiple campaign types at the same time.
Well, unless there is a mix of these variables, there is nothing to optimize or model for the MMM. For example, if you use only one media channel in one country to help you run one campaign type, there's zero optimization potential as there's no alternative option.
Therefore, the more there is in the mix, the more value you can get out of MMM. There is an exponential value increase based on the number of channels/countries/campaigns.
You might ask yourself how does this work? Where does the value come from?! We have you covered.
The maximum potential
MMM can help you achieve your marketing goals by helping you optimize your budget allocation so that you can reach (or tend towards) the maximum potential of each variable. However, what is the maximum potential of MMM? Theoretically, you can define the maximum potential as the "golden spot" that you reach if you shift your marketing mix in order to only invest in the best channel/country/media. Specifically, you get the best ROI by putting all your money in the best-performing channel/country/media.
This is unfortunately possible only possible in theory. At some point you're hit with a diminishing return curve since the maximum potential cannot be maintained for too long. The theoretical maximum is based on the assumption that the best channel is infinitely scalable, but this is never the case because there are always diminishing returns. In conclusion, the maximum potential is only achievable in theory due to its reliance on infinite scalability, something that is impossible in reality.
A fun comparison would be a racehorse. If you always bet all your money on the fastest horse, then you might win in the beginning, however, the horse will age or a better one will come along. That is why you must assess the performance of all the horses and bet accordingly.
If you only have one channel, then it is easy for you to determine which is the best one, obviously. However, if you have 2 or 3 channels, then it’s rather difficult to see which one brings home the best Return on Investment (ROI). Comparing the ROI of multiple channels can be a challenging task.
Which channel is better?
Before you start MMM you do not know which channel is better in terms of ROI. MMM calculates that for you so that you can see the ROI distribution alongside the different channels you use. Imagine something like an S curve line. The middle represents your average ROI, while the top represents your best-performing channels, and the bottom curve represents your lower-performers. Regardless of how many channels you add to the mix, the MMM will redistribute them for you. This comparison allows you to understand which channels/countries/campaigns are driving your ROI & adjust your investment accordingly, while also observing the potential diminishing returns and then adjusting again. If there are no diminishing returns yet, or no new channels that impact the average, then your ROI stays constant. In other words, MMM allows marketers to compare different channels, countries, and campaigns to understand which are having the most significant impact on their ROI. Underneath you have a screenshot of the Sellforte solution and an illustrative S function to represent the ROI distribution that the MMM generates based on your budget allocation & marketing data.
So which channel is the best? MMM will determine that for you. There's no need to create your Sigmoid function from scratch and waste time on the math.
However, what do you have to gain from these insights? You can eliminate the lowest performing channels (or campaigns, or other variables that you use) and invest in the highest performing channels. This way, your ROI distribution will change, and your average ROI will increase. You can also change your marketing strategy and attempt to increase the ROI of the lowest performing channels, which will also result in an average ROI increase.
In the chapter above, we focused on channels rather than campaigns or countries. The reason behind it is that we have noticed, together with our clients, that the highest gross margin return comes from the MMM optimization of the media channels. The second most profitable are the campaigns, followed by the counties.
What do you have to lose if you don’t use MMM?
- Obviously money. Potentially, you could be wasting your marketing budget by delivering mediocre results with your investments. MMM can calculate & optimize your gross margin per month, delivering results that can lead to up to a 19x return on margin. All of this is done just by optimizing your marketing investments to deliver results as close as possible to their maximum potential. If you're looking to get the most out of your marketing efforts, then MMM can provide an invaluable service.
- More money. You might be underinvesting in marketing. We know that it is easy to say that marketing is a cost, not an investment. However, if your budget were properly allocated and the performance of your investments accurately tracked, you might observe that a small increase in your marketing budget could lead to an exponential increase in your gross margin just by using MMM optimization. To make the point clearer, we optimized a 2MEUR/year budget with the Sellforte MMM which resulted in 9,94MEUR in incremental sales (picture below). Please keep in mind the word "optimize." This means that we did not just randomly allocate the budget but actually optimize it to get the most out of every EUR. Then, we optimized a 2.5MEUR/year budget, which resulted in 12.14MEUR incremental sales. This is what we mean by underinvesting in marketing. Sometimes, going that extra mile pays off... especially if the budget allocation is done with an MMM solution that uses actual data and zero gut feelings.
The charts above are an example, they do not use any confidential data.
- Time. Most likely, you could say "money" again since time is money. MMM gives you real time access to your results. There is no waiting. Once your data is onboarded in the SaaS solution, you can see the changes on a daily, weekly, monthly, yearly, etc. basis. It is immediate. Meaning, you do not need to wait to implement your findings, and you save yourself from investing in a media mix that might not work for you.
Other things to consider
When choosing an MMM solution, you should consider your business model in terms of sales channels as well. Namely, do you use exclusively digital (e-commerce) sales channels or also physical ones? Why? Well, mainly due to data availability. E-commerce sell-out data is readily available in most cases and easy to integrate into the MMM. Therefore, your MMM project could have a different timeline depending on your sales channels. Moreover, MMM will also need your Retunr on Ad Spend (ROAS) benchmark preferably based on last-click attribution. If not available, then secondarily based on ad network reported numbers (e.g. from Facebook Ads, Google Ads).
How much does MMM cost?
In order to have a proper business value assessment, one must weigh the cost of using the MMM solution vs. not using it. We have established above that there are substantial sums of money and time to lose if you are not considering MMM for your business. However, what do you have to pay? The cost of using the MMM solution depends largely on the size of the organization and its needs
There are two costs to consider:
- the implementation fee. This is a one time fee that includes your onboarding and training.
- the subscription fee. This is a recurring monthly or yearly fee.
Soon we will have a Sellforte MMM price calculator available for you. Please check back in with us in a couple of weeks.
Sellforte's MMM solution is a powerful tool to help make informed strategical decisions for your future marketing tactics. If you are curious about Sellforte, you can try out our MMM here!
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