How to master Marketing Mix Modeling in fashion retail?
May 11, 2023 | Mari Leväjärvi, Otto Trapp, Carmen Bozga
Fashion retail is a vibrant and ever-evolving industry that's all about making people feel good and look their best. It's a fiercely competitive world out there, and fashion retailers face a range of challenges, from keeping up with ever-changing consumer trends to staying ahead of the curve in the age of online shopping and social media.
To succeed in this exciting but challenging environment, fashion retailers need to understand what their customers want and how to effectively market their products to them. This is where Marketing Mix Modeling (MMM) comes in. MMM is a powerful tool that helps retailers understand the impact of their marketing strategies on sales and revenue.
Why is it important to master MMM in fashion retail retail?
Using MMM, fashion retailers can analyze a range of marketing variables, including advertising and promotions to gain insights into how each of these elements affects sales performance. Armed with these insights, retailers can make data-driven decisions about how to optimize their marketing mix and allocate their budgets to achieve maximum impact.
But MMM isn't just about numbers and data. At its core, it's about understanding what makes your customers tick and giving them what they want. By tailoring their marketing mix to the specific needs and preferences of their customers, fashion retailers can build strong relationships with their customers and create a shopping experience that's both fun and memorable.
If you're in the fashion retail industry, mastering Marketing Mix Modeling (MMM) is crucial to your success. Here's why:
- MMM helps you get the most bang for your buck by optimizing your marketing budget. By analyzing the effectiveness of your marketing campaigns, you can adjust your budget to focus on the elements that work best for you. This means you can reach more people and increase sales without breaking the bank.
- Another reason why mastering MMM is crucial for you is because MMM helps you understand your customers better by providing you with insights into sales performance of various product categories.
- Also, staying ahead of the competition is key in fashion retail. With MMM, you can identify trends early and adjust your marketing strategies accordingly. This helps you stay relevant and appeal to your customers' changing tastes and preferences.
- Lastly, enhancing your customers' experience is crucial for building loyalty and driving sales. MMM can help retailers better understand the role of different categories and seasons and allocate their budgets accordingly. This could offer an additional insight element for retailers who are looking to improve the customers’ experience and increase sales at the same time.
How to Master MMM in fashion retail?
To successfully implement MMM in the fashion retail industry, retailers need to gather and analyze data from a variety of sources. This data includes variables such as consumer behavior, pricing, promotions, and advertising spend.
Once this data is collected, fashion retailers need to identify the key variables that drive sales performance. This requires a deep understanding of consumer preferences and trends, as well as external factors such as seasonality. By selecting the most important variables, retailers can build an accurate MMM model that provides valuable insights into the effectiveness of their marketing strategies.
The accuracy and comprehensiveness of the data set directly impact the accuracy and insights provided by the resulting MMM model. Therefore, if the data is highly accurate and qualitative, then the model will be as well.
The modeled data is split to different combinations of product groups, customer segments and store chains:
- Daily sales of Women Accessories product group to Member Customers in e-commerce
- Daily sales of Men Accessories product group to Member Customers in e-commerce
- Daily sales of Women shoes product group to non-member Customers in physical stores
- Daily sales of Kids Clothing product group to non-member Customers in physical stores
E.g. 15 Product groups * 3 Customer segments * 2 Sales Channels = 90 modelled time series.
Essentially, all product groups, customer segments, and sales channels that a fashion retailer uses can be included in the modelling.
In the fashion retail industry, an accurate MMM model is not a "set it and forget it" kind of deal. To keep up with the constantly changing trends and behaviors of consumers, fashion retailers need to monitor and refine their MMM model on an ongoing basis. This means regularly reviewing and updating the model to ensure it remains accurate and effective.
By keeping a finger on the pulse of the industry and adapting their MMM model as necessary, fashion retailers can stay ahead of the curve and adjust their marketing mix to achieve optimal sales performance. This approach helps fashion retailers remain competitive in a rapidly evolving industry and ensures they're meeting the changing needs and preferences of their customers.
In other words, it's not enough to create an MMM model and leave it untouched. Fashion retailers need to stay agile and make adjustments as needed to stay relevant and successful in the dynamic world of fashion retail.
Here are the main benefits of using MMM for fashion retailers:
- Optimize marketing spend: MMM helps fashion retailers optimize their marketing budgets by analyzing the effectiveness of each marketing campaign. This allows retailers to allocate their resources more effectively and maximize their return on investment.
- Stay ahead of the competition: With MMM, fashion retailers can identify trends early and adjust their marketing strategies accordingly. This helps retailers stay ahead of the competition and remain relevant to their target audience.
- Measure campaign effectiveness: MMM provides fashion retailers with a clear understanding of how their marketing campaigns are performing. By analyzing the impact of each campaign on sales performance, retailers can make data-driven decisions about how to optimize their marketing mix for maximum impact.
- Improved ROI: Fashion retailers can improve their return on investment (ROI) and maximize profits by optimizing their marketing spend across different store concepts, campaign types, channels, and product categories.
- Better understanding of seasonality: MMM can also provide a better understanding of seasonality and how different media channels can increase sales for different product categories and target groups.
Using product category level modeling
When it comes to mastering marketing mix modeling (MMM), product category level modeling is particularly important for fashion retailers. While MMM can provide valuable insights into the overall effectiveness of marketing and promotional efforts, breaking down the analysis by individual product categories can help retailers to identify which products are driving sales and which are not. This, in turn, can help them to adjust their marketing strategies accordingly, by focusing more heavily on the products that are performing well and allocating marketing resources accordingly.
Even when there is no data available on which promotions have featured in which media, we still recommend product group level modeling because:
1. Granted discounts
In the fashion industry, granted discounts are simply discounts offered by retailers to their customers on certain products or product groups. You've probably seen these discounts advertised through emails, flyers, or in-store signage. Basically, the retailer decides on the discount rate, which is the percentage by which the regular price is reduced.
The main reason why retailers offer these discounts is to increase sales of certain products or product groups. This is really helpful in meeting sales targets, clearing out inventory, or even building customer loyalty. These discounts can be offered on a regular basis, like weekly or monthly promotions, or on a seasonal basis, like holiday sales.
It's pretty cool to know that discounts and promotions can be just as effective in driving sales as media. This is where things can get a little tricky for fashion retailers. You see, customers in the fashion industry can be pretty picky with their purchases. So, by accurately allocating discounts and promotions, retailers can get a better understanding of which products are driving sales and allocate their marketing resources accordingly. This can really help improve sales performance and optimize their marketing strategies.
When it comes to discounts, retailers can allocate them to any dimension that exists in the sales data. That includes different sales channels or geographic areas. However, the main value of accurate MMM data is gained through product group-based modeling. This modeling approach helps retailers identify significant variance over time in granted discounts and media features. It's pretty helpful in finding the right level of promotion price elasticity per category. This can lead to a better understanding of what's driving sales and optimizing marketing strategies.
2. Product Category Uplifts
Take a moment to think about it: How much of a product category's uplift can be attributed to the discount itself, and how much comes from the exposure gained through media coverage? This knowledge allows you to make smarter decisions about where to allocate your resources and how to maximize the performance of your product categories.
MMM is a powerful tool for understanding the impact of discounts and media coverage on a product category's uplift. By using MMM, you can measure the incremental increase in sales resulting from specific discount levels. This helps you assess how changes in pricing directly influence sales performance and quantify the effectiveness of your discounts.
MMM also provides insights into the role of media coverage in driving the uplift of a product category. By analyzing variables like advertising spend, reach, and frequency, you can gauge the level of exposure generated through media channels. This allows you to understand how media coverage impacts sales performance and make informed decisions about your media strategies.
Depending on the time of the year, demand for certain products can vary. This is called seasonality, and it's an important factor to consider when planning your marketing strategies. Different product categories can have their own seasonal patterns based on holidays, weather conditions, and cultural events.
For example, during the summer, customers might be more interested in buying items like swimwear, sunglasses, and sandals, while during the winter, they might be more interested in buying coats, boots, and scarves. Special occasions like Christmas or Valentine's Day can also create a spike in demand for specific products like party dresses, jewelry, or gifts.
Analyzing seasonality by product category in marketing mix modeling (MMM) can be a game-changer for fashion retailers. It helps to understand seasonal patterns better, and with more accurate sales estimates, you can optimize your forecasting and decision-making. As a result, you can create more effective promotions, increase sales, and better manage your inventory. Understanding how seasonality affects consumer demand can also help you plan your product launches to coincide with peak demand periods. Don't forget to take seasonality into account when planning your marketing strategies and analyze it by product category to ensure you're making data-driven decisions.
4. External Variables
External variables can have a significant impact on sales trends in the fashion retail industry. These factors are outside the control of the company, such as weather, economic conditions, or public health crises like COVID-19.
For instance, weather conditions can affect consumer behavior in different ways, such as the types of products they prefer to buy. During hot weather, customers tend to purchase summer-related items like swimwear, sandals, and shorts. Conversely, in cold weather, they are more interested in buying coats, boots, and scarves.
Economic conditions can also impact consumer behavior and purchasing patterns. During a recession or economic downturn, consumers tend to become more price-conscious and may cut back on non-essential purchases. On the other hand, during a period of economic growth, consumers may be more willing to spend money on luxury items or high-end fashion.
Furthermore, public health crises like COVID-19 can have a profound effect on the retail industry. The pandemic has caused many consumers to change their shopping behavior, with more people shopping online and avoiding physical stores. This has led to supply chain disruptions, increased costs for retailers, and changes in consumer demand.
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