Media mix models 101: how to get the maximum of your ad campaigns

Media mix models 101: how to get the maximum of your ad campaigns

What does media mix modeling (MMM) mean?

The media mix models determine the effectiveness of each marketing element in terms of its contribution to sales. The results of such analysis are used for the correction of the marketing tactics and strategy, optimization of the marketing plan, and also for sales forecasting when modeling different scenarios. In this article, we will consider the analytical part of this model.

What elements does the media mix modeling consist of?

Basic model

It consists of 4 main elements: Product, Price, Place, and Promotion.

4P of marketing mix illustration

Each of these elements answers a specific question:

Product: “What does the market or target audience need?”

Price: “What should be the cost of selling the product?”

Place of Sale: “How to build the right model of distribution (or delivery to the end consumer)? 

Promotion: “How will information about the company’s product be distributed in the market?

Modern model

Since the basic 4P model was first introduced in 1960 by Edmund Jerome McCarthy, marketers have complemented it with the current market. 

Of all the attempts, the extension of the list by a fifth element – People – as well as additional elements – Process and Physical evidence / material components for services can be considered more or less successful.

Let’s walk a little bit through the improved models of mediamix:

Model 5P: 4P + People – staff, sellers and those who work for your business. Answers the question: “How should your employees be perceived by customers?”.

Model 7P: 5P + Process + Environment (Physical). The Process element answers the question: “How can you optimize the process of creating and delivering a product to your customer? The Environment element answers the question: “How can the appearance of your store, for example, affect the decision of the customer?”.

7P of Marketing Mix Illustration

The process of defining a mediamix

The process of choosing the channels of company’s product promotion consists of three consecutive stages: determination of all opportunities for communication, selection of mandatory and secondary channels of promotion, selection of communication channels in terms of media placement strategy.

The first stage: full list of channels

The first step is to evaluate the full range of media channels with which you can tell the target audience about the product. To identify all possible communication channels, knowledge about the behavior and pastime of the target audience.

Media channels can be either conventional (live TV, radio, press, internet, outdoor advertising) or non-standard (video games, special events, any institutions – schools and universities for schoolchildren and students).

It is important to find a media channel that will maximize coverage of only the target audience and make the target contact, will have a high level of involvement and willingness of the target audience to perceive the message of the brand and the optimal value (ie, payback investment – the contact should generate sales of the company).

How to determine the channels with which the target audience is in contact?

Carry out a survey (survey, interview, etc.) in which the target audience of the brand will have to talk about: how they spend their standard day (from morning till evening). It is possible to separate the description of the pastime on weekdays and weekends.

The second stage: mandatory and secondary media.

Once a list of all possible ways to communicate with the target audience has been compiled, it is necessary to identify mandatory and possible media channels. How to do this?

Each communication channel is designed for different purposes. All media channels can be divided into 3 large groups: channels of wide coverage or mass media, channels of direct response (i.e., involving quick contact feedback) and media at the point of sale. The choice of the list of possible media channels will depend on the campaign objectives:

  1. To create brand awareness, you should concentrate on mass media: TV, radio, press.
  2. To create brand loyalty, focus on direct contact media: online ads, mobile apps.
  3. And to convert target audience into buyers, think of samples and discounts.

When choosing media channels, one should rely on historical experience – which media channels worked more effectively in the past, the competitive landscape – which media channels are characteristic of categories. At this stage, you should also predict the cost of creating creative materials for each type of media. It may turn out that the cost of creating creative materials to use the channel will be too high for the company.

The third stage: the final mediamix

At this stage, it is necessary to make a final list of communication channels used in product promotion. For this task, it is necessary to determine the type of media mix strategy: media concentration approach (using a narrow number of media channels) or media differentiation approach (using the widest possible number of media channels).

Media concentration approach

The media concentration approach means that the company uses one or as few media channels as possible to promote the product. This approach is used when the advertising budget is relatively low and can provide an acceptable share of voice in only one or more channels of communication; when it is necessary to achieve a high frequency of contact, the regularity of contact and audience coverage (for impulse demand products); if a limited number of promotion channels can reach almost 100% of the audience. 

Media differentiation approach

The media differentiation approach means that the company uses a wide range of media channels when promoting its products. Such strategy of product promotion is used if using a narrow number of channels, a low percentage of audience coverage is achieved (the target audience is too heavily differentiated by media channels); if using a narrow set of media channels does not ensure the achievement of promotion goals; using several media channels allows to optimize the promotion budget.

How to use the marketing mix modeling to analyze the marketing results

Now let us move on to the analytical part promised at the beginning of the article. 

The marketing mix modeling is also an analytical approach that uses historical sales data and internal company data to determine the impact of various marketing activities on sales.

The strategy of working with the mediamix model consists of three stages:

1) Preliminary planning stage. 

Includes an analysis of historical data such as sales, spending on all past advertising campaigns and ROI. With OWOX BI Pipeline, you can automatically collect online data, campaign, spending and revenue data, and CRM data from one place for this step.

2) The planning stage.

Concludes in forecasting and evaluating the effectiveness of marketing. In this phase, the marketing mix model helps you predict sales and conversion rates for your campaigns and allows you to correctly allocate your budget to optimize your ROI.

3) The results tracking stage.

Includes tracking the effectiveness of all marketing variables, modeling cost scenarios, and revising marketing activities as needed.

Remember: Since marketing mix modeling uses historical data to assess the effectiveness of marketing, it is not an effective tool to analyze new products. This is due to the fact that a relatively short history of new products makes the results of the marketing mix unstable. 

The marketing mix modeling uses the method of regression – the method of the research of influence of one or several independent variables on the dependent variable. Independent variables are otherwise called regressors or predictors, and dependent variables are called criterion variables. And the analysis performed with the help of this model is further used to extract key information/ideas.

Now we will consider several types of regression in a little more detail.

So, in the calculation of the dependent variable can be Sell or Market Share. The most commonly used independent variables are Price, TV Costs, Outdoor Costs, Advertising Costs, Website Visitors, etc.

The equation is formed between dependent variables and predictors. The betas generated from regression analysis help quantify the impact of each resource. In fact, betas show that increasing the input value by one unit will increase the sales/profit per beta unit, keeping other marketing resources constant.

Once the variables are created, several iterations are performed to create a model that clearly explains the volume/value trends. Further checks are performed either by using the test data or by using the latest business results.

In the media mix models, sales are divided into 2 components:

Basic sales are when the product is not advertised and sales are still driven by the brand created over the years. Basic sales are usually fixed unless there are some changes in economic or environmental factors.

Progressive sales – sales generated by marketing activities such as television advertising, print advertising, digital expenses, promotions, etc. The total number of progressive sales will be divided into sales for each resource to calculate the contribution of marketing to total sales.

Remember: The relationship between marketing and sales can be radically different during start-up and stable periods. For example, Coke Zero’s initial sales were very bad and reports showed ineffective advertising. Despite this, the Coca-Cola company increased its media spending and thus increased its advertising effectiveness several times since the launch. Typical media mix models would recommend reducing media costs and instead of increasing the price of the product. So you need to consider all the factors of your current situation.

How to apply the analysis results

Budget Optimization

Also, the results of the marketing mix model can be used to simulate marketing scenarios of the so-called “what if” analysis. Marketing managers can redistribute their marketing budget in different proportions and see a direct impact on sales/value. They can optimize their budget by allocating costs to activities that provide maximum ROI.

Advertising efficiency improvement

The Marketing Mix model can be used to analyze the impact of marketing elements on various aspects. The contribution of each element to the overall graph will be a good indicator of how the effectiveness of the various elements changes over the years. 

If you are using ads on TV or promotions, you need to do more sophisticated analysis. It will show you the increase in sales that can be achieved by increasing the corresponding marketing element by one unit (as described with the beta units just above). If detailed cost information is available for each activity, you can calculate the ROI and use it to identify the most and least effective marketing activities.

Conclusion

The media mix models will help you understand how your marketing affects the generation of additional sales. Plus, you’ll identify the most effective channels of advertising, get forecasts of the results of your current marketing decisions and eventually be able to optimize your marketing budget. 

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