Marketing Econometrics Intro_BLA GLOBAL

The Measurement and Growth in

the ROI of

Marketing

Agenda for today

1. Brief introduction of media effectiveness measurement.

2. Quick case studies on effectiveness measurement.

3. Questions and Issues

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The long & winding road of marketing

Some questions prompting need for effectiveness measurement What are the most effective marketing channels – TV, Radio, Outdoor, Print or Digital?

What has been the ROI of paid search and display ads?

How important are holiday promotions?

What is the impact on sales if we increased product distribution?

What is the impact on sales if we increased prices by x%?

What is the best way to allocate my marketing budget?

Which marketing messages are most effective in driving sales per investment?

Are there any synergistic effects from executing integrated marketing campaigns?

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The ideal situation

Spend X on Activity Y

Sales increase by Z

The problem: Too many channels, fragmentation and confusion

Sales

…simply eye-balling historic media and sales data does not provide answers

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…econometrics can help A statistical technique used to identify and quantify the incremental contribution made by marketing

investments on sales*

Sales

Macro-Economic

Factors

Distribution

Price

Seasonality (Temp & Periodic effects)

Promos/ Direct

Marketjng

Design & Packaging

Paid Digital Media (PPC,

Display)

Mass Media: TV,

Radio, Print, OOH

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…simple econometric sales equation

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Once we have determined the B weightings for each media variable, we can fit historic sales data to a very high

degree.

Sales = base + B1TV + B2Radio +

B3Digital + B4Outdoor

Estimate for sales generated from non-marketing activity Weighting for TV Weighting for Radio

Weighting for Digital Weighting for Outdoor

Key Deliverables from Econometrics Projects

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Un

its

Sold

Variance

Modelled Sales

Actual SalesForecast

R2 = 97.6% - This indicates a very high level of accuracy to the actual sales data. Holdout R2 = 89.9% - This indicates fit for the forecast (holdout) test. MAPE = 4.2% The average % variance between actual sales and fitted/predicted.

Step 1: Develop a highly predictive sales model Develop a predictive model by mapping historic media activity against sales. We deliberately holdout 10-15% of the dataset to test for predictive accuracy. The premise and validity of our models depends on validating predictive capabilities

Step 2: Overall media contribution to sales

Decomposition of sales provides a snap shot of the overall importance of media and marketing in driving total sales. In this case, 33% of total sales revenues are “due to” marketing expenditures.

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The first step in improving marketing productivity is to determine precise financial returns to marketing spending by campaign/activity.

Step 3: Returns by channel (ROI per $1 spent)

Least efficient channels

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Step 4: Response Curves & Diminishing Returns

Current Spend

Press Saturation Press Paid Search

Optimal Spend/Allocation

Increase Spend

Increase Revenue

Reduce Spend

Decrease Revenue

We can provide guidance on which channels may be getting saturated and where the opportunity may exist to increase sales.

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Step 5: Optimal spend solution across all channels

Mathematical optimization of your marketing spend shows you how to generate between 2-8%

higher revenues without increasing total marketing investment.

$15.5m $15.5m

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Play out marketing What-if scenarios

An interactive dashboard allows you to simulate different marketing mix/spend

scenarios and assess the resultant impact on sales and profitability.

1. Set marketing budgets.

2. Set your spend levels across media channels

3. Assess the resultant impact on sales & profit

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Providing Answers to Business Questions

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Issue 1: What if I increase the number of SKUs in stores?

Distribution Index % Impact on sales

55 1.8%

57 2.1%

60 2.5%

We can model the effects of retail distribution on sales of the brand In this case the response of sales distribution is highly nonlinear and continuing to increase distribution would increase sales by less and less.

0200400600800

100012001400

% In

cre

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in S

ale

s

Weighted SKUs

Distribution Increases - % Impact on Sales*

1010

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Issue 2: Measuring the Halo Effect of Media

Our approach allows us to assess and quantify the Halo or Spill-over effect from one brands

media to another. For example what is the impact of Coca-Cola brand media on Diet Coke>

Parent brand

Sub brand

Sub brand

Parent brand

Issue 3: How does Competitor advertising affect my sales?

% Effect

Competitor A -3.7%

Competitor B -1.2%

Competitor C -2.0%

Here we show that not only do the activities of competitors have a negative impact on sales of the brand measured. But also that some competitors have a greater impact than others

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Issue 4: How responsive are my customers to changes in price?

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Household Cleaning Products Price Elasticity

We can measure the responsiveness of changes in product pricing to changes in sales. This allows

us to guide on pricing that will be profitable.

2013 Elasticity

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Issue 5: We can explore the effect of price promotions In this situation when clients are price discounting to the same level of the competition there is a slight marginal benefit.

Impact 10% off promo 10% promo and

Feature and Display in 10% of stores

10% competitor promo

10% off Brand and competitor promo

Volume 22.6% 26.1% -7.8% 13.0%

Value 10.3% 13.5% -7.8% 1.7%

22.6%

26.1%

-7.8%

13.0%

10.3%

13.5%

-7.8%

1.7%

-10%

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0%

5%

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15%

20%

25%

30%

10% promotion + Featured and display in10% of stores

10% competitor promotions 10% with competition

Ch

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in s

ales

Volume Value

Providing Answers to Business Case Studies

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Case 1: Effectiveness for household cleaning product

Business Questions 1) To what extent has brand marketing driven sales and ROI?

2) Can we quantify the brand spill-over effect from parent brand (Y) spend on sub brand sales?

3) Does brand image attribute (Recommended by Doctors) impact upon brand sales?

Insight & Outcomes Overall marketing contributed to 32% of total sales

units

TV and digital media (network display and paid

search) were the largest contributors?

Doctors Recommendation drove 2% of sales.

Distribution was supported by additional in-store

features and display.

Spend optimization led to increased allocation for

digital display media and TV.

Modelling the impact of media and key brand image factor on sales

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Case 2: Media effectiveness for Gamma toys

Business Questions

1) Gamma Playsets supported by substantial ATL activity leading up to Christmas, can we assess the ROMI

for this?

2) In addition, new store partners will help to increase distribution by 17%. Insight & Outcomes

Demand was highly seasonal and concentrated

to October, November and December.

Q4 sales were largely driven by expanded retail

store distribution and TV execution.

Retail distribution and increased brand

awareness led to a sales uplift in Q1 the

following year.

Measuring ROI for Gamma playsets

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Case 3: Effectiveness and spend saturation for used car dealership

Business Questions

Increased spend in digital and offline channels without

media accountability?

Can we spend more to increase sales units?

Insight & Outcomes

Demand was seasonal and led by registration plate

changes.

Competitive advertising has greater cut through.

Upside potential to increase sales by spending more was

limited.

Significant synergies between Network Digital and Radio

pointed to growth opportunities.

Media contribution to sales units

Spend Saturation Analysis

Econometrics is especially important when

A new marketing campaign and sizeable investment New marketing director – new strategy and growth targets. Marketing spend up - flat sales A change in pricing or if retail distribution partners are calling for changes in pricing structure? A new product launch or change in package design Marketing allocated across a broader set of channels compared with past

Common Concerns

We only have 1 years worth of data? Econ requires 3 years worth of data, but if we can pool several markets together with 1 years worth of data, then we have a solution.

All our marketing and media is digital, so we can just measure it directly ourselves? Online marketing (display and paid search) does not build your brand equity. Your sales are most likely being driven by a multitude of external non-marketing factors such as distribution, pricing, competitor media, economic situation etc – if you measure ROI without taking these into account, you are very likely to misattribute and inflate the contribution from digital alone.

Econometrics (media effectiveness modelling) is too expensive…I mean what is the hard commercial value to our business? Expensive relative to what? As John Wannamaker said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half”. Many of today’s surveys of top marketing companies find that 40-50% of marketing budgets are wasted. We will identify the 30-50% of your marketing spend that is wasted/underperforming and we’ll direct you to those activities that are much more productive in driving sales. Following this, we will optimise your marketing budget across media channels to ensure it is allocated in such a way that is geared for sales growth.

Our annual total marketing/media budget is small This works for budgets as small as £500K.

It all seems too complicated for our non-technical teams Start by explaining and visualizing to them the concept of correlation, which is the basis of MMM. Also explain to them that our job is to explain to them the complex in their own language and they will understand, and we have been doing that for years.

Our market is extremely volatile -there is no recurring patterns in our sales data. We have NEVER found a situation that could not be managed. If we are permitted to evaluate data in advance and find it cannot be modelled, we will not charge anything.

Why does Econometrics take so long to do? Developing an econometric model that accurately maps your historic sales and predicts sales going forward involves a number of iterations. This can take weeks.

What if we don’t meet the sales targets projected by the Econometrics? Econometrics is a statistical analysis, not a crystal ball. Whilst models purport to be very accurate, they are still only a yardstick. However, if you follow the optimised course of action in terms of media weight/allocation you should see an uplift in sales…this is assuming no external adverse events in the economy/marketplace.

Common Concerns, ctd.

Masood Akhtar Managing Partner, Analytics (EMEA) Bottom Line Analytics Global E: [email protected] M: +44 7970 789 663 www.bottomlineanalytics.com

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Michael Wolfe CEO Bottom Line Analytics Global E: [email protected] M: +01 678.3143,8446 www.bottomlineanalytics.com