MMM Model & Promotion Effectiveness Model Accuracy
November 24, 2022 | Juha Nuutinen, Carmen Bozga
We want to show you a comparison that highlights the dependencies and differences between marketing spend and promotions/markdowns in MMM Accuracy and Promotion Effectiveness Accuracy so that you can understand the impacts that the two models could have on your business & ROI.
MMM MODEL ACCURACY:
Can you measure marketing spend effectiveness properly without considering the effect of promotions and markdowns on sales?
In this case our answer is: No because if you omit promotions and markdowns from the model, there is an unexplained effect on sales that is as large or larger than marketing spend, so omitting the effect of promotions and markdowns would make MMM unreliable.
Therefore, promotions and markdowns need to be taken into account and are taken into account in fashion retailer’s MMM in order to measure the marketing effectiveness properly. Therefore MMM is typically onboarded for the customer at the same time or immediately following the onboarding of Promotion Effectiveness solution.
PROMOTION EFFECTIVENESS MODEL ACCURACY:
Can you measure promotion and markdown effectiveness properly without considering the effect of marketing spend in sales?
Here we would argue that the answer is: Yes because the marketing spend’s effect is typically distributed among a large number of product categories and items. Therefore, even when marketing spend does have an effect during a promotion, the effect is distributed among so many items that it does not shift the results of a promotion considerably. It would be different if promoted items would be heavily advertised in media (think about grocery retail and electronics retail), but since retailers do not typically do item-level promotion, the promotion effectiveness results can be analyzed reliably without including the effect of media in the same model.
Sellforte can help you optimize your marketing spend & promotions/markdowns with a tool that analyzes the effects of both in a single model. Try it out here!
For more information we recommend you this article: What is Marketing Mix Modeling?
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