This eBook will teach you:
– What is the next generation of marketing mix
– How you can quickly adjust your marketing mix in an ever-changing environment
– What to look for in a marketing mix technology partner
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Mastering Measurement: The CMO’s Guide to Building High-Performing Marketing Teams in 2024
This eBook will teach you:
– What is the next generation of marketing mix
– How you can quickly adjust your marketing mix in an ever-changing environment
– What to look for in a marketing mix technology partner
DTC Marketing Mix Optimization: A Guide
Introduction to DTC Marketing
As the digital age continues to evolve, businesses are persistently seeking innovative ways to reach their customers. Direct to consumer (DTC) marketing stands at the forefront of these strategies, eliminating more traditional middlemen and creating a more intimate interaction between brands and their consumers. For brands navigating this terrain, understanding the fundamentals of direct to consumer marketing can be a game-changer. It’s an approach that allows a profound sense of connection and personalization, and as a direct to consumer brand, leveraging these advantages will undoubtedly create positive outcomes.
In the bustling digital era, where DTC brands are aggressively competing for consumer attention, understanding and implementing an optimized marketing mix can be a game changer. Marketing mix optimization helps brands to maximize effectiveness and efficiency in reaching and engaging your target audience. Let’s dive into how DTC brands can enhance their visibility and drive sales by fine-tuning these crucial elements.
Evolution of DTC Marketing Strategies
DTC marketing strategies have seen a monumental shift over the years. From the initial stages, where companies relied heavily on traditional advertising methods and direct mail, these strategies have evolved, incorporating the use of cutting-edge technology to achieve an unprecedented level of personalized, timely, and effective communications. This progression has served to redefine the purchasing experience for consumers, providing them with more choice, control, and convenience than ever before. Brands that operate on a DTC model are at the very heart of these transformations. This narrative explores the sequential evolution of DTC marketing strategies, to provide actionable insights that businesses can use to fortify their marketing game plan in this highly competitive sector. From the inception to the current age of digital marketing and eCommerce, it brings into focus the dynamic journey of DTC strategies and highlights the key trends shaping the future.
Importance of Cross-Channel Optimization for DTC Brands
Cross channel optimization is of utmost importance for DTC brands. With the proliferation of various marketing channels such as social media, email, websites, and mobile apps, it is crucial for brands to have a seamless and consistent brand experience across all platforms. By optimizing the messaging, timing, and targeting across different channels, DTC brands can ensure that their customers receive a cohesive and personalized experience. This not only enhances customer satisfaction but also increases brand loyalty and generates higher conversion rates. Cross channel optimization allows brands to reach customers at different touchpoints, maximizing their exposure and ultimately driving business success.
Role of Marketing Mix Modeling (MMM) in DTC Success
Marketing mix modeling plays a crucial role in the success of DTC brands. It enables companies to analyze the impact of various marketing elements, such as product, price, promotion, and distribution, on key performance indicators like sales and customer acquisition. By quantifying and understanding the influence of each element, DTC brands can optimize their marketing strategies to increase effectiveness and efficiency. Marketing mix modeling provides valuable insights and data-driven decision-making, allowing brands to allocate resources wisely, identify underperforming areas, and capitalize on successful tactics. Ultimately, it helps DTC brands achieve their marketing goals, generate revenue, and gain a competitive edge in the ever-evolving consumer market.
Keen's Approach to Holistic Measurement and Optimization
Due to the increase of new on and offline channels appearing on a regular basis, a DTC marketing mix optimization needs to take a holistic measurement approach. Keen’s SaaS based marketing mix platform provides historical performance measurement, as well as predictive and prescriptive plans to optimize ongoing marketing spend decisions—across all channels including retail media and ecommerce. Those investment decisions are then connected to financial outcomes.
Our Bayesian modeling approach combines multiple sources into a unified model. Our models are sourced with the following data:
| Historical Measurement | Keen's Knowledge Estate (Marketing Elasticity Engine) | Prior Brand Studies |
|---|---|---|
| Includes your weekly revenue, activity by channel and platform, marketing investments and external factors such as relative price and distribution. | Includes 40 years of academic models. | Includes tactic coefficients from prior MMX studies, internal analyses and panel data, household penetration data and lift studies. |
| Calculates base revenue and marketing influenced revenue, then quantifies impact of each marketing dollar. | Includes 10 years of client metadata and data from recent marketplace dynamics. Data includes industry and category, size of business and lifecycle and margin, geographic location and region and distribution channels (online, offline and both) and many more. | |
| Measures the equity effect of current revenue (long-term ROIs). | Can act as custom priors for your brand which can be influenced through the regression model when your data is loaded in. Data can include clicks, time series spend, impressions, COGS, etc. |
From these three types of data brands receive a holistic measurement model they can use to accurately plan future investments.
The Impact of MMM on Short-term and Long-Term Marketing Goals
Marketing mix modeling is a powerful analytical technique that helps businesses understand the impact of their marketing efforts on short-term and long-term marketing goals. By examining the various elements of the marketing mix , this modeling approach provides valuable insights into the effectiveness of each element and their collective contribution to achieving marketing objectives.
In terms of short-term goals, marketing mix modeling helps businesses make data-driven decisions to optimize their marketing campaigns. By analyzing the impact of different marketing activities on sales, customer acquisition, and brand awareness, companies can allocate their resources more effectively and target their efforts towards the most impactful channels and strategies. This enables businesses to generate immediate results, improve their return on investment (ROI), and drive short-term revenue growth.
On the other hand, marketing mix modeling also plays a crucial role in shaping long-term marketing strategies. By understanding the long-term effects of different marketing activities, companies can make informed decisions regarding product development, pricing strategies, and brand building. By identifying the drivers of long-term success, businesses can focus on creating sustainable competitive advantages, building brand equity, and fostering customer loyalty. This approach helps companies plan for the future and ensure long-term profitability and success.
MMM is an invaluable tool for businesses looking to achieve both short-term and long-term marketing goals. It enables data-driven decision-making, optimization of marketing campaigns, and the development of effective long-term strategies. By leveraging these insights, companies can achieve sustainable growth and stay ahead in a competitive market.
Expanding Beyond Performance Marketing (Digital Media) with Keen
Over the past decade, Performance Marketing has become the norm in the marketing landscape, focusing on metrics like Return on Ad Spend (ROAS). However, blind reliance on ROAS can hinder the growth of performance marketers. To overcome these limitations, a shift towards Incremental Return on Ad Spend (iROAS) is needed. iROAS considers a broader range of factors, including non-impression-based media and macro conditions that may impact sales. It emphasizes incremental returns, providing a clearer picture of marketing’s impact. Marketers must reevaluate their key performance indicators and adopt a more nuanced approach. Tools like Keen can help measure the long-term effects of marketing tactics, enabling informed decision-making and bottom-line impact.
Data-Driven Decision Making with the Keen Platform
The Keen Platform is designed to become part of the planning process at every stage.
It allows you to see the effect of marketing spend across all channels, and how they impact each other. You have the ability to evaluate channel and timing options, and quickly account for how your marketing decisions contribute to or distract from your targeted financial outcomes. Our models adapt and evolve over time, ensuring relevance and accuracy providing DTC brands with data they need to make their next investment decision.
Personalizing the DTC Customer Experience Through Data Analytics
Personalizing the direct-to-customer experience through data analytics is a game-changer for businesses. By leveraging customer data, such as purchase history, browsing behavior, and preferences, companies can create tailored and relevant experiences. Data analytics allows businesses to understand individual customers on a deeper level, enabling targeted marketing campaigns and personalized product recommendations. Through personalization, businesses can enhance customer satisfaction, increase engagement, and drive repeat purchases. By utilizing data analytics, companies can unlock valuable insights to deliver a personalized experience that delights customers and builds long-lasting relationships.
Implementing Effective DTC Marketing Tactics with Keen
The Keen Platform enables marketers to see the potential ROI on investments in new channels before you start testing and presents the optimal plan to hitting your revenue goals.
Additionally, the platform will optimize the interaction effects between on and offline channels and timing impact to drive the most profitable result for your brand.
Maximizing DTC Marketing Mix Efficiency with Keen
Maximizing efficiency in your DTC marketing mix is not just about leveraging the right tools and technologies but also about making informed decisions based on accurate, predictive insights. The Keen Platform is a powerful solution that empowers marketers to navigate the complex landscape of DTC strategies with confidence and precision. By integrating data-driven insights into every facet of your marketing strategy, businesses can identify the most effective channels, optimize their spending, and achieve a higher ROI. The roadmap to a successful DTC marketing strategy is intricate and ever-evolving, yet with Keen, marketers can unlock unparalleled efficiencies and drive sustained growth.
Want to learn how Keen can help you embrace the power of data and analytics to transform your DTC marketing efforts? Take a tour of the platform today!
The Hidden Pitfalls of ROAS: How it’s Killing Performance Marketers
Evolution of Performance Marketing
Over the past decade, the marketing landscape has witnessed a shift with the rise of Performance Marketing. The focus on low-funnel attribution and deterministic metrics, such as Return on Ad Spend (ROAS), has become the norm. However, the blind reliance on these metrics may be detrimental to the growth and success of performance marketers. Let’s explore the limitations of ROAS and advocate for a more nuanced approach – Incremental Return on Ad Spend (iROAS) – as the true North Star for measuring marketing performance analysis.
Limitations of Deterministic Attribution in ROAS
ROAS relies heavily on deterministic attribution, connecting ad impressions to conversions using identifiers like IP addresses, cookies, or click IDs. While this method seems straightforward, it has several inherent limitations.
Not All Media Transactions are Impression-Based
Media channels like email, SMS, or outbound call centers operate outside the impression-based model. ROAS fails to capture the effectiveness of these channels, limiting the scope of performance measurement.
Challenges of Log Level Data in Performance Marketing
The reliance on log level data, a comprehensive spreadsheet detailing impression attributes, is another constraint. Not all platforms or walled gardens share this data, creating blind spots in the performance measurement process.
Causality vs. Correlation
ROAS struggles to differentiate between causality and correlation. Did an ad truly influence a conversion, or would the action have occurred regardless? This distinction is crucial for accurate a marketing performance analysis.
Introducing Incremental Return on Ad Spend (iROAS)
To overcome these limitations, the marketing industry needs to shift its focus from ROAS to Incremental Return on Ad Spend (iROAS). This approach considers a broader set of factors, acknowledging the complexity of marketing ecosystems.
Inclusive of Non-Impression-Based Media
iROAS accommodates channels beyond impressions, providing a holistic view of marketing performance. Email campaigns, SMS, and outbound call centers are given due consideration in this more comprehensive measurement model.
Factors in Macro Conditions
Beyond deterministic attribution, iROAS considers macro conditions that may impact sales. Events like Cyber Week or Prime Day can artificially inflate ROAS without necessarily reflecting the effectiveness of marketing efforts.
Emphasizes Incremental Returns
Unlike ROAS, which may mask declining sales with seemingly positive returns, iROAS focuses on incremental returns. This metric provides a clearer picture of the true impact of marketing efforts on the bottom line.
The Need for a Paradigm Shift: From ROAS to iROAS
It’s time for marketers to reevaluate their key performance indicators. Shifting from ROAS to iROAS requires a recalibration of measurement tools and strategies. Advertisers must embrace a more nuanced approach to performance marketing, acknowledging the interconnectedness of various channels and external factors.
In platform vs. Unified ROAS Tools
Each platform reports on ROAS in it’s own silo, with no regard to the overlap between channels. In fact, they’re incentivized to do so, since most of their earnings are ad-driven, and more effective ads (per their reporting) leads to more ad dollars. Thus there’s been an emergence of holistic attribution reporting. In other words, platforms that answer the question, “What’s my ROAS across everything, considering the overlap between the channels I run media on?” While unified ROAS tools solve the in-platform ROAS and interaction effects issue, they still fall into the deterministic traps mentioned above. For instance they’ll report higher unified ROAS during Black Friday for e-commerce brands, the implication being that their marketing is working better during this time, when the reality is that much of the revenue going into that ROAS calculation comes from sales that would have happened anyway simply because it’s Black Friday and people are shopping online, not because of any specific marketing effort.s. True success lies in adopting a model that encompasses a broader spectrum of variables, ultimately guiding marketers towards impactful decision-making.
That is where Keen comes in. The Keen Platform uncovers key insights that help marketers tie both short-term transaction driving tactics and long-term brand building investments directly to the financial outcomes of the business, empowering them to make data-driven future decisions. This is done by:
- Aligning sales and marketing data over time
- Accounting for prior brand knowledge and external factors that impact marketing
- Isolating incremental vs. base volume, and quantifying the incremental for each tactic
- Compare incremental revenue driven by each tactic to the the investment in that tactic to determine profitability
- Leveraging this knowledge to inform scenario building for future decisions
In the graphs below, you can see how the Keen Platform accounts for the long-term value of marketing, for channels that are brand-building and transaction-driving.
Additionally, the graphic below shows a holistic view of marketing on all quarters. As you will see, for this brand, marketing from 2020, 2021, and 2022 continued to pay dividends in 2023 – representing the way marketing layers like rock. This view allows marketers to evaluate marketing’s sustained impact on business growth, across all channels.
Although ROAS was once hailed as the holy grail of performance metrics, it is proving to be a double-edged sword for marketers. To thrive in an ever-evolving landscape, performance marketers must embrace Incremental Return on Ad Spend as the new North Star and a tool like Keen can help marketers measure the long term impacts of these kinds of tactics. By doing so, marketers can unlock a more accurate and holistic understanding of their marketing efforts, enabling them to make informed decisions that truly impact the bottom line.
Want to see for yourself how Keen can create a marketing performance analysis for your business? Take a tour of the platform today!
Why your SME is not too “Small” for Marketing Mix Modeling
Introduction to Marketing Mix Modeling for SMEs
Marketing mix modeling (MMM) is a contemporary statistical tool that empowers marketers to quantify the impact of several marketing inputs on sales or market share. With MMM, a brand can streamline its marketing efforts and direct them towards the right audience, at the right time and investment level.
MMM is an accessible, predictive marketing analytics tool for companies of all sizes. MMM has historically been viewed as a tool used by large enterprise companies due to its high cost and large team size needed for implementation. In this guide we will discuss why Keen’s MMM tool is accessible for small and medium-sized enterprises (SMEs) and how it is revolutionizing marketing teams within these companies.
Automation of Data Collection
In our dynamic marketing environment, the automation of data collection has become a cornerstone for efficient data management and insightful analysis. It’s a critical component of marketing mix modeling that helps to understand and manipulate multiple marketing variables.
Reduces Workload
Automation significantly lightens the workload and reduces time spent on manual data collection, minimizing the need for extensive team involvement. It also decreases the potential for human error. This efficient system ensures that businesses can focus on key aspects that demand strategic attention, like cross-channel marketing optimization, rather than data gathering. This marketing efficiency improvement results in both time and cost savings.
The Benefits of Bayesian Modeling
Keen’s utilizes Bayesian marketing mix modeling techniques. These methods leverage prior estimates of tactic elasticity and continuously learns from new data. This approach results in a model that adapts and evolves over time, ensuring relevance and accuracy.
Some additional benefits of Bayesian modeling for small to medium enterprise companies include:
Incorporates Prior Knowledge: Bayesian modeling allows marketers to incorporate prior knowledge or beliefs into the analysis. Prior knowledge can include ROIs from previous campaigns, results of brand studies or any other data you think is relevant to help understand your business. This is especially useful when there is existing information about the effectiveness of certain marketing channels or when there are strong assumptions based on industry expertise.
Handles Small Sample Sizes: MMM may face challenges when dealing with limited data. Bayesian methods can handle small sample sizes more effectively by incorporating prior distributions, helping to provide more stable estimates even with limited data.
Accounts for Uncertainty: Bayesian models naturally provide a framework for expressing and quantifying uncertainty. This is particularly important in MMM, where there can be various sources of uncertainty, such as seasonality, market dynamics, and external factors. Bayesian models provide credible intervals that give a range of likely values for the model parameters, providing a more nuanced understanding of the results.
Flexibility in Model Complexity: Bayesian modeling allows for the incorporation of complex relationships between variables. This flexibility is beneficial when dealing with a diverse set of marketing channels and intricate interactions between them. The model can be adjusted to capture nonlinearities and interactions more accurately.
Dynamic Updating: Bayesian models can be easily updated as new data becomes available. This is crucial in marketing, where the effectiveness of channels and campaigns can change over time. Bayesian methods allow for adaptive learning and continuous improvement of the model as new information is gathered.
Probabilistic Outputs: Bayesian modeling provides probabilistic outputs, allowing marketers to make decisions based on the likelihood of various scenarios. This can be valuable for risk assessment and decision-making in marketing strategies.
Ideal for teams with limited resources
These efficiencies make it an excellent fit for marketing teams with limited resources. Marketers can extract maximum insights from their existing data, fostering smarter, data-driven marketing strategies and decision-making without the need for extensive data collections or complex infrastructures.
In addition to this technique, we also bring our patent-pending Marketing Elasticity Engine as our knowledge estate. This acts as our custom priors for your brand, which can be influenced through the regression model when we load in your knowledge estate (time series spend, clicks, impressions, COGS, etc).
Scalability and Adaptability of MMM
Scaling your brand to new heights requires a flexible marketing technique – one that transforms as your business objectives grow. Marketing mix modeling is scalable and dynamic in nature. It proves to be immensely beneficial for businesses focused on escalating their market presence.
Adapts as your team and budget grows
It flexibly adapts to your budget and team’s capacity. Whether you have a big marketing budget or you’re operating with less, marketing mix modeling:
– Customizes your marketing strategies based on budget constraints
– Efficiently executes these strategies with a fluctuating team size
– Optimizes your marketing efforts, ensuring maximum ROI
Gaining a Competitive Edge through MMM
The true value of effective marketing mix modeling can be realized in achieving a significant competitive advantage. By understanding the varying components and the interplay among them, a brand can make its marketing activities more effective.
Marketing Efforts More Targeted and Effective
Comprehending the interactions among different components of the marketing mix enables a targeted approach. For example, to better allocate your budget, a model will identify where and when money should be spent for maximum impact. Or, if you are looking to predict future outcomes, the model will provide an understanding of the impact of different variables can help in anticipating future market behavior.
Leads to Higher Returns That Justify Initial Investment
Keen’s marketing mix models lead to increased efficiency, improved return on investment, potentially contributing to substantial growth – all of which justify the initial investment required.
Cost Effectiveness of MMM for SMEs
Cost effectiveness is the focus of companies, regardless of size. Marketing technology for SMEs must be cost-effective because it is imperative that an investment in a marketing mix modeling solution will show a return in efficiency and effectiveness.
Keen’s affordable pricing structure is designed to provide SMEs with a cost-effective marketing analytics tool with a variety of purchasing options to meet their needs.
The Accessibility of MMM for All Business Sizes
In conclusion, marketing mix modeling (MMM) is a data-driven tool that is now available for companies of all sizes, including SMEs.
| Benefits of Keen's MMM solution | |
|---|---|
| Platform feature | Benefit to SMEs |
| Automated data collection | Less internal resources required |
| Uses Bayesian methodologies | Provides accurate results with limited data |
| Scalable | Adjusts to the team's size, budget and aligns with growth objectives |
| Makes marketing more targetable and effective | Allows you to gain a competitive advantage |
| Cost-effective solution | Affordable and allows teams to work more efficiently and effectively |
Start your model today!
Guide to Decision Making with Unified Marketing Measurement
You can’t measure your way to a decision. If you’re building a house, you have to start cutting and hammering, at some point, even if after measuring twice. And so it is with making decisions, you might measure twice, but at some point you’re going to make a decision, develop and deploy the marketing budget.
Making Decisions with Unified Marketing Measurement
Developing marketing budgets is difficult. Marketing and finance professionals are constantly challenged to find the right mix and level of investment to drive topline revenue growth and maximize profits. Budgeting is a constant negotiation that exists in every organization. Even when there’s an explicit annual planning cycle, there are invariably those critical moments when the situation changes for better or worse and marketing budgets along with revenue forecasts need to be revised.
Unified marketing measurement holds the promise of providing a structured approach to tackle these challenges, providing a framework that helps with making trade-offs between revenue targets and investment, across multiple marketing tactics. However, realizing that promise is challenging and far from guaranteed.
In this article, we will explore the factors that make marketing investment decisions difficult, how marketing mix models can help or hinder the process, and some tips for avoiding common pitfalls.
Navigating the Three C’s: Complexity, Conflict and Cost
Why is this so difficult?
At the heart of the challenges lie Three C’s – Complexity, Conflict, and Cost – each representing a hurdle that marketers must overcome to make marketing investment decisions that achieve results.
| Complexity | Conflict | Cost |
|---|---|---|
| Multiple products Multiple investment alternatives Multiple marketing tactics Multiple target/geos Non-linear effects Present vs future Uncertainty Ambiguity | Different people Different objectives Different theories/frames Different information Competition for resources Personal objectives Organizational misalignment | Data acquisition Knowledge management Access and retrieval Modeling and analysis Opportunity identification Storage/retention Misinformation |
Complexity means analytical and logical complexity. With a marketing mix it’s like untangling a big hairy ball. Think about the sheer breadth of variables in play – multiple distribution channels, diverse product segments, varying geographic markets, and a plethora of marketing tactics. And then you layer on the fact that there are diminishing marginal returns to investment, so that the incremental returns, while positive, decline when investment amounts increase. And there are different effects over time: short-term vs long-term.
All this complexity in marketing means that there are a lot of different ways to conceptualize this problem, logically and analytically. Marketers and analysts alike are immediately confronted with lots of ambiguity that stems from the multitude of ways to conceptualize and quantify the effect of marketing. Further, most marketing mix models are trying to quantify all this using historical data, which is imperfect. Imperfect data yield potentially biased and uncertain results.
Conflict often surfaces within the organizational structure itself. Marketing teams, armed with varying perspectives and vested interests, may have differing views on the optimal path forward. This conflict extends to strategic objectives, priorities, and the allocation of resources. Balancing these conflicting viewpoints requires not only strategic acumen but also a keen understanding of interpersonal dynamics.
Put yourself in the seat of the manager responsible for the decision. They have multiple different people coming to them, each of them responsible for different tactics, products, etc., and each having a different logical understanding of the problem, and a different information set and analysis. And of course, each responsible person makes the case for investment in their tactic.
Now the decision maker must evaluate all of that, and as they do, they also invariably are not just making trade-offs between tactics and investments, but also making trade-offs on information quality, and between the people themselves. This leads to a lot of conflict.
Costs are driven by the resources expended in analyzing data and modeling scenarios, underscoring the need for judicious and focused analytical efforts. Both Complexity and Conflict push managers and analysts to an endless pursuit of certainty out of fear for making the wrong decision. Decision-makers and analysts incorrectly assume that certainty exists, if only they had the right data. This means that managers and analysts can run up the tab analyzing the data and trying to find the right model to put it all together.
Together, these Three C’s challenge marketers to devise strategies that are analytically sound, organizationally aligned, and financially prudent.
The Role of Marketing Mix Models
Marketing mix models can play an important role in wrangling the Three C’s. To do so, marketers and analysts alike need to understand the role that the model plays in the decision process. The entire decision process can be imagined like a decision-maker sitting on a stool. The decision maker sits on the stool with furrowed brow and makes their decision. The stool is the model. It supports the decision-maker through the process.
When the model is properly built it supports the decision even under the weight of the heaviest of decisions. However, if not properly built the model crumbles and leaves the decision-maker to their own devices. And so, building the model well is fundamentally important.
To support the decision, the model must be built with the decision-maker in mind. In the end, the model should be an extension of the decision-maker’s considerations, objectives, values, alternatives and information.
Understanding the Frame in Marketing Decisions
It all starts with what we, at Keen, call the Frame. The Frame captures the presuppositions. It’s the ground on which the stool sits. We like to think about this in terms of what is in play. What tactics should be considered for the decision, and what factors are necessary to account for in the analysis.
In the end, we want to be able to think about the model as a representation of the drivers of sales. To achieve this goal, it is fundamentally important that the model account for the most important known causal factors in sales including but not limited to seasonality, holidays, price, distribution and supply, product changes, competition, economy, and of course marketing investment. At Keen, users in the Keen Platform start the process by naming all these factors and tag them as either Decision Factors or Environmental Factors.
A good Frame ensures that when it comes time to decide, all the factors that need to be expressed as drivers, outcomes, and alternatives are included in the decision. The Frame is the ground floor underneath the model.
The model itself must, therefore, translate all the factors into values that the decision-maker can compare and trade-off when comparing alternatives. A marketing mix model may provide sales forecasts, ROIs and forecasts of any other non-financial metrics like awareness. At Keen, we focus on the financial value of the marketing decisions because a dollar speaks like no other language. The model in the Keen Platform yields both a revenue forecast and contributions. Contributions are converted to cash flows from marketing investments and forecasted into the future. The marketing-driven cash flows are discounted based on how far into the future they occur and then totaled in a metric we call the Net Present Value of Marketing Investment (NPV). NPV captures both the short-term and long-term value of marketing in a single metric.
Last, but not least, it’s important to use the best information available and use the best methods for the available information. The operative word is available. As discussed above, in pursuit of certainty, too many analysts focus on using the “best” methods. Statistically speaking, the best method means a randomized controlled trial (RCT). Typically, large-scale RCTs are off limits due to the cost and operational requirements in their execution. The requirement to control the treatment, means that they are almost always limited to a single tactic, campaign and execution. This very restricted RCT is what people often call A/B testing.
Marketing mix models, because of their need to support the frame of the decision maker, need to be unified, meaning that they need to capture the range of the tactics influencing sales. This means that we need to have a common method that is appropriate for all the tactics under consideration in the decision.
In traditional approaches, the burden placed on the data to measure all the factors necessary to a unified decision is too high. The data are just not up for it. Even when the data are captured at the lowest levels of observation available, the burden to account for all the factors, measured and observed at different levels, and especially unobservable factors is too great. And so, we must abandon methods that focus only on the observational data.
Thankfully, organizations do conduct A/B tests, and they have direct observations from attribution studies, and they have a team of experienced professionals that include managers, agencies, and consultants. There is every reason for a decision-maker to rely on the information available from them. This is what we, at Keen, call the Information Estate.
To integrate the full Information Estate, users in the Keen Platform leverage a Bayesian estimation approach, which integrates the Information Estate with the observational data. This is effective in handling many of the problems that arise from observational data on marketing including sparsity, low variation and multiple correlation.
Nate Silver, in his book, The Signal and The Noise, does a great job of demonstrating the value of Bayesian methods for many different disciplines including applications to popular topics like politics and baseball. Every day you read your email your spam filter is using Bayesian methods to constantly revise its understanding of which emails go to your inbox versus junk. And Bayesian methods are guiding all sorts of autonomous things from vacuums to vehicles and drones to moon landers.
The Significance of Bayesian Estimation
The Bayesian approach, when done properly, also has the benefit of providing transparency to the information in the model so that all stakeholders understand and trust the inputs and outputs. At Keen, users in the Keen Platform, use Bayesian marketing mix modeling methods so that the model can learn from other sources of information about ROIs. Users can provide ranges of ROIs from multiple sources to be used in the model. ROIs are a user-friendly and transparent way of expressing information about marketing effectiveness in what may otherwise be a highly technical conversation about coefficients.
For the interested reader, credits to Howard Raiffa and Ronald Howard for their developments in the field of decision analysis. The framework used above is based on the Decision Quality framework used by practitioners of decision analysis.
Common Pitfalls in Marketing Mix Modeling
For all the benefits and promise, marketing mix models can crumble under the weight of the decision. When this happens, it causes the decision maker to resort back to using their own and less-informed mental model. It also leaves everyone involved in the process to wonder why they expended such effort, time and money to go through the process. We commonly see three reasons why marketing models fail: mismatched frame, improper use, and missed timelines.
Mismatched Frame occurs when the decision maker desires to make a decision about a tactic that is not in the model. This commonly occurs when there are new tactics under consideration. For example, imagine a manager who wants to invest in television for the first time after having previously invested in digital tactics such as paid search. It’s common for marketing mix analysts to restrict their model to only the historical data, rather than the frame for the future decision. In other words, the model is framed in service of the historical data rather than in service of the decision maker.
A closely related cause for mismatch is that the statistical analyst, desiring to follow statistical practices, will remove variables from the model that are not “statistically significant” according to the data. If there has not been any discussion with the decision maker about the frame, then removing this variable will limit the possible frame. In this case, the analyst relying on the data, is creating the decision frame rather than relying on the decision maker for the frame.
Further, it’s possible for estimates from the model to defy the logical expectations of the tactics. For example, it’s common for some marketing estimates to be negative when there are problems with multiple correlation or for other reasons for price to be estimated as positive. If left in the model, these results can oppose common knowledge and more importantly, oppose the prevailing mental model of the decision maker. If removed from the model, then this can lead to the frame mismatch problem.
Improper Use occurs when the model is used in a way that does not match the natural conclusions of the model. The most common cause of this is reliance on ROIs and Contributions as metrics to inform future decisions. It’s important to understand that Contributions from marketing mix models provide the decision maker with an estimate of the difference between investing at a given level and investing nothing. ROIs typically reflect a translation of Contributions and Investments into financial terms. Literally, ROIs provide an estimate of the value of investing at the simulated level versus investing nothing. This implies that the only two choices are investing at the simulated level and investment nothing, which does not express the idea that investments can be incrementally increased or decreased.
Expanding further, if the decision maker were to consider investments at lower or higher levels, they would be left without information from ROIs or Contributions alone. Unfortunately, many decisions are erroneously made assuming that the stated ROI holds up for any level of investment. If the ROI is low the tactic might be cut all together or, if high, seen as a blank-check endorsement for more investment at any level. Both are erroneous conclusions because they ignore the fact that marketing investments have continuous and diminishing marginal returns. ROI-based decision rules ignore the knowledge that returns increase by spending less and decrease by spending more, and that there exists a financially optimal investment for each tactic.
Missed timelines happen with marketing mix modeling projects when those involved in the effort fail to appreciate all the problems with Complexity, Conflict, Cost, and all the ways in which marketing mix models can fail. This leads to endless iteration and rework. Many marketing mix modeling projects are planned to be eight-week efforts only to turn out to be sixteen-week slogs.
One of the hidden costs to timelines, especially with those who focus on the statistical modeling aspects, is ambiguity. As a part of the upfront marketing data analysis and collection effort, there is typically a lot of ambiguity in the way that certain tactics are defined and monitored. For example, is Influencer a tactic unto itself or is it a social media tactic? What does it mean to invest in Influencer tactics? Just wrestling these questions to the ground can take a week by the time all the people are consulted. Further, these questions may not even be raised until after the first iteration of the model is completed.
How does traditional mix help?
| Complexity | Conflict | Cost |
|---|---|---|
Multiple marketing tactics Multiple target/geos Non-linear effects | Data acquisition Modeling and analysis |
Best Practices to Avoid Modeling Pitfalls
It’s clear that marketing mix modeling not only holds great promise as a unified approach, but also poses great challenges. The road marketers travel is littered with marketing mix models that have gone wrong. So, it’s important to understand some steps to take to avoid the pitfalls.
Start with establishing the frame. When establishing the frame, it’s important to embrace the frame of the decision maker. Identify the person or group in the organization that is responsible for making the marketing investment decisions and make sure the outcome measure, tactics to be decided, and all the other drivers of that outcome measure are included in the model. Ask the decision maker to think forward with you and play out some of the alternatives they might consider and ask questions to get behind the whys. As advocated by Judea Pearl in his book, The Book of Why, developing a causal graph with arrows pointing in the direction of the causal influence between the different factors expected to be in the model is helpful. This exercise will support a conversation about the frame and level-set the model early in the process.
Be a Bayesian. Embrace the Bayesian way of thinking about statistical analysis. These days most machine learning algorithms employ some kind of Bayesian estimation procedure, but there’s more to this than just the algorithm. Embrace the idea that the data are limited in their ability to fully inform the model. Spend time thinking about how the modeling process can leverage all the available information including previous studies, meta-analyses, and even the experience of the decision maker. A good marketing mix model will support a decision, rather than produce a metric. Decisions are ultimately made by people, and so it’s helpful to take the perspective of the decision maker and their organization when informing the model.
Use software. The Three C’s, the data, estimation processes, and pitfalls are just too intricate to leave this to a bespoke effort. Using software will help tame ambiguity and complexity. As discussed above, at Keen, users in the Keen Platform go through a process of enumerating and naming all the factors in their model. The Platform walks users through a process that provides definition and removes ambiguity. Further, users in the Keen Platform take a Bayesian approach. Where they have information in their knowledge estate, they can provide it as an explicit transparent input to the model. And finally, The Platform does the heavy lifting of estimating the model, calculating metrics, forecasting revenue, and calculating NPV. These are all complex calculations that involve simulation from the model, some calculus and financial math. All happens in seconds, keeping the user focused on the support decisions.
Keen Platform addresses pain points
| Complexity | Conflict | Cost |
|---|---|---|
| Multiple products (Portfolio) Multiple investment alternatives (Plans) Multiple marketing tactics (Factors) Multiple target/geos (Portfolio) Non-linear effects (Model) Present vs future (Long-term/NPV) Uncertainty (Risk/Monte Carlo) Ambiguity (Notes, Naming, System) | Different people (User roles) Different objectives (Plan optimization) Different theories/frames (Plans, Priors) Different information (ROIs-to-Priors) Competition for resources (Financial analysis) Personal objectives (UX) Organizational misalignment (ROIs-to-Priors, Plans, Roles, System) | Data acquisition (MEE, Connectors, Data Proc) Knowledge management (System) Access and retrieval (System) Modeling and analysis (Model, Plans, Reporting) Opportunity identification (Plans) Storage/retention (System) Misinformation (Forecast validation, Transparency) |
Conclusion
Unified Marketing Measurement stands at the forefront of revolutionizing marketing investment decisions, offering a beacon of clarity in the often-tumultuous sea of complexity, conflict, and cost. At Keen, the true power is unlocked not by merely estimating a model, but rather through a deep understanding of the strategic role the model plays in supporting the analytical decision-making process. By anchoring our models within a well-defined framework, embracing the richness offered by a Bayesian approach, and harnessing our advanced software tool, marketers can transcend the common pitfalls that beleaguer less informed strategies. In doing so, it becomes more than a model—it transforms into a compass that guides marketers toward making more informed and impactful decisions, thereby ensuring that every marketing dollar is an investment towards a more profitable and insightful future.
To learn more about how Keen is helping teams make better decisions with our tool and how we can help support your next marketing decision, start your model today.
ROI and mROI: How to know what’s really driving your business’ growth
Decision Point: Do Your Marketing Metrics Indicate Business Growth?
When marketers hear it’s time to increase focus on financial metrics, thoughts quickly turn to ROI. Although understanding the concept of ROI is crucial for driving business growth, it is not at the center of marketing measurement. It is a performance measure that is commonly used to evaluate the efficacy of a certain investment or to compare several different investments. In essence, ROI attempts to directly measure the amount of return on a particular investment, relative to the cost of the investment.
Why Traditional ROI is Not a Strong Marketing Metric
When marketers throw out the term ROI, it usually refers to a historic, short-term ROI, one that takes spending on a program and divides it by total sales revenue generated, with success equal to an improvement over the previous, baseline ROI.
While it is more quantitative than awareness, and it is measured in dollars, as typically calculated, ROI measures the one thing we know for sure you can’t change: the past.
Further, ROIs project financial impact only over 12-16 weeks, which shortchanges most equity-building programs.
How Marginal ROI Points to the Future
While ROI provides an overview of the effectiveness of an investment, marginal ROI helps gauge the incremental value obtained from each additional unit of investment. Which is why marketers responsible for making multi million-dollar decisions rely on mROI since it is a more reliable predictor of future opportunity. In essence, ROI measures the total return, and mROI examines the additional return.
Marginal ROI is firmly future-focused. And the future, after all, is what you’re looking to impact. mROI calculates response curves for each week into the future to predict a marketing channel’s expected return. These response curves account for interactivity among marketing channels, as well as the impact of such external factors as competition and seasonal effects.
As a result, mROI allows you to optimize spending in a given channel on a week-by-week basis to maximize profit.
For example, mROI can highlight the rapid-response decay you should expect in a transactional channel like FSIs, contrasted with the longer life of traditional broadcast advertising.
But it also can be much more specific: Run the numbers and you can see how much to spend (or not) on a given channel in your specific marketing mix.
Marketers can use ROI and mROI to assess the success of different revenue-generating activities. By comparing the ROI and mROI of various projects, strategies, or investments, marketers can:
- Identify the most and least efficient strategies
- Make informed decisions about where to allocate resources in the future
- Determine how to best scale their efforts for growth
Benefits of ROI and mROI Analysis
Analyzing ROI and mROI meticulously provides several benefits. It offers clear insights into the profit-generating efficiency of investments, helps track financial performance, and lays the groundwork for informed strategic decisions. This analysis can:
- Highlight profitable and non-profitable investments
- Support decision-making in resource allocation
- Minimize the risk associated with future investments
- Aid in achieving long-term business growth
mROI’s Implications for the Here and Now
What does this look like in practice? Here’s an example. Take a typical CPG brand; we’ll call them CookoutCommander. The blue bars in the graph below show traditional ROI, which shows that over the past year, CookoutCommander delivered a positive ROI across all tactics except trade, with no investment in print.
If CookoutCommander made decisions based on this historical analysis, they’d probably decide to bump up their investment in paid search since it shows the strongest ROI of 3.22.
The Response Curve: Long and Short Tails
mROI solves for the optimal spend based on a given financial objective. That could include maximizing the impact of a fixed budget, hitting a specific revenue target, increasing long-term profit—whatever data point CookoutCommander’s CMO decides is most important.
The “optimized investment” graph shows CookoutCommander’s response curves, using the latest data and taking into account both internal and external factors. As you’d expect from a brand called CookoutCommander, there are big seasonal swings during the summer months with the largest marketing investments being made from July through September.
As the mROI (green bars) make clear, paid search doesn’t hold the future potential that past performance seems to suggest. In fact, it’s destined to fall toward the bottom of the pack with a 1.90 mROI followed only by trade with a .64 mROI.
The more profitable play for CookoutCommander is to reintroduce print (17.31 mROI) into the marketing mix, then boost TV advertising (7.93 mROI)—at the right time of the year.
As seen in this example, without examining mROI it’s tough to make informed decisions about the future with confidence.
The chart below summarizes the comparison between traditional and marginal ROIs.
| ROI | mROI |
|---|---|
| Backward-looking: Focuses on what you've done | Forward-focusing: Focuses on what you can do |
| No predictive capability | Accounts for long-term impact of marketing on financial performance |
| Gives undue weight to short-term tactics | Balances short and long-term plays in marketing mix |
| Encourages "if it ain't broke, don't fix it" mentality that stymies vigorous growth | Promotes opportunity-driven growth strategy |
By understanding and applying ROI and mROI analysis, marketers can make sound, informed decisions. The goal should always be to maximize ROI and mROI where feasible, leading to maximized business growth. Therefore, businesses should utilize these financial metrics to align their strategies with their financial performance, highlighting the importance of these ratios in steering businesses towards success and sustainability.
Download the ROI and mROI one sheet today.
