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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