Download Econometric Modelling: Implications to planning

Digital Academy
Aegis Media & Microsoft Advertising
28th June 2011
Econometrics
Sasha Grujicic &
Lynne Clarke
“
Half the money I spend on advertising is
wasted; the trouble is I don't know which
half.
”
John Wanamaker
The Approach
Factors affecting a single purchase
Applying maths to marketing
Marketing
activity
Sales
Pricing
Market share
Drivers
Performance
Customer
acquisition
Weather
Competitor
activity
Brand
perception
Calculating revenue return on investment
Customers acquired
x
Monetary value for
each customer
= RROI
Cost of marketing activity
8
Reaching the point of diminishing returns
Spend has reached
optimal levels for ROI
ROI
As spend
increases so does
ROI
Spend can still be
delivering sales but at
lower ROI than the
optimal point
0
Advertising spend
Example:
Optimal ROI range
Spend is no
longer delivering
sales
Throw enough mud at the
wall, some of it will stick
Econometric Modelling: What’s changing?
Adserving
Data
(MV)
Nielsen
FD+ data
Rich Media
Data (MV)
Social
(Radian 6)
Site Served
Data
(MV)
ComScore
Site Side
Analytics
(Proximity)
Search
(BING)
French
Data
Video preroll
Econometric Modelling: Implications
• Opportunity to move to Agent Based Modeling
and Targeting
• Greater level of granularity of data and
attribution
• Purchase path mapping / correlations
• Real time transactional considerations
• More frequently updated modeling possibilities
Econometric Modelling: Implications
It is OUR job to help our clients
understand the difference between
the IMMEDIATE and the IMPORTANT
Econometric Modelling: Implications to
planning
• How much to spend on marketing?
• What is the optimal mix of marketing activities?
• What is the overall impact of an increase or reduction of
the marketing budget?
• What is a change in business performance due-to?
• How to improve the timing and execution of marketing?
• How does the impact of marketing vary across customer
segments and store types?
Econometric Modelling: Implications to
planning
• How much to spend on marketing?
$9
$8
$7
$6
$5
$4
$3
$2
$1
$0
$8.19
$2.21
Sales
Gross Margin
Contribution of first
$1 spent on
advertising
$9
$8
$7
$6
$5
$4
$3
$2
$1
$0
$4.00
$1.12
Sales
Gross Margin
Contribution of the
next $1 spent on
advertising
Econometric Modelling: Implications to
planning
• What is the optimal mix of marketing activities?
$7
$6.17
$6
$5
$4
$3.59
$3.11
$3
$2.34
$2.01
$2
$1.34
$0.98
$1
$0
Spot TV
Radio
Network TV
ROP
Inserts
Out of Home
Promos
Econometric Modelling: Implications to
planning
• What is the overall impact of an increase or reduction of the
marketing budget?
Contributions
% of Sales Driven by Marketing
Volume +5.2%
Base
82.1%
Base
85.0%
TV
6.8%
Radio
TV
6.9%
Radio
4.6%
Inserts
1.5%
3.7
Inserts
Promos
2.4%
1.0
Promos
OOH
1.7%
2.0
OOH
Last Year
Other*
0.6%
1.0
Other*
0.8%
This Year
Econometric Modelling: Implications to
planning
• What is a change in business performance due-to?
1,600
1,580
+9
1,560
+8
+4
+2
-8
-11
+15
+12
+1
-5
-22
-81
+12
+22
1,540
1,520
1,500
1,480
1,514
1,472
1,460
Total change due
to marketing
1,440
1,420
Total change
due to base
Marketing Impacts
Non-Marketing Impacts
This Year
Consumer Confidence
Industry Trend
Competitive Advertising
Seasonality
Store Mgr Tenure
Pricing
OOH
Sponsorships
Sport TV
Print
Banner/Search
Facebook
Broadcast TV
Cable TV
Last Year
1,400
Econometric Modelling: Implications to
planning
• How to improve the timing and execution of marketing?
2005 Net Sales
2005 - Executed
600
500
$600
$500
400
$400
300
$300
200
$200
100
$100
12/3/2005
11/5/2005
10/8/2005
9/10/2005
8/13/2005
7/16/2005
6/18/2005
5/21/2005
4/23/2005
3/26/2005
2/26/2005
1/29/2005
$0
1/1/2005
0
Econometric Modelling: Implications to
planning
• How does the impact of marketing vary
across customer segments and store types?
Recommendations:
$
TV
Radio
Digital
OOH
Print
Promo