A Marketing Mix Model is a tool that helps you understand and optimise your marketing budget. Numerically, a Marketing Mix Model will represent your sales, by value or by units, as a sum of different marketing activities and factors.

What is a Marketing Mix Model and other 7 key questions

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A Marketing Mix Model is a tool that helps you understand and optimise your marketing budget.

Numerically, a Marketing Mix Model will represent your sales, by value or by units, as a sum of different marketing activities and factors.

How does it work? 

It’s a mathematical model which relates sales to marketing activities.

This is done through regression analysis where the output is usually represented by the sales and the input all the marketing activities (Facebook, Google Display, YouTube…) plus other structural variables

  • Price
  • Distribution
  • Seasonality

Why is the Marketing Mix Model so important? 

There are two key benefits:

  • A better understanding of which marketing activity worked and which didn’t
  • It forces the marketing department to have a better data driven approach, which usually is not the case

What is the output of a Marketing Mix Model?

The output of the Marketing Mix Model is the representation of sales as the sum of all the contributing factors. 

If for example € 100M is the value of your sales, 40M will be from base sales, 30M from price, 20M from distribution and 10M from marketing activities. 

How is it possible to determine the sales contribution? 

Through statistical analysis that are conducted on all the factors contributing to the company sales.

Where to start if you want to build a Marketing Mix Model? 

There are at least 4 free resources and tools. 

Several big tech companies in the last years released new open-source tools

  • Facebook with Robyn, it works with R language and is the most updated and user friendly tool. It is based on Ridge regression which has some strong implications from a technical perspective.
  • Lightweight MMM unofficially product by Google, It is not very user friendly and is very hard to extract the sales figures decomposed by the different factors. 
  • Orbit developed by Uber, I never tried, but it is on my agenda! 
  • Spreadsheets, you can build an econometric model in excel/google sheets/other and test the statistical significance for all the coefficients.
If Meta, Google and Uber developed an internal tool for marketing mix modelling, maybe it is also useful for your company.

What are the difficulties of a Marketing Mix Model?

Building a Marketing Mix model can be hard and time consuming especially the first time. 

Below a list of struggles you can face:

  1. Gathering all the data. Rarely is an easy task, often it seems to be. Most of the time data is very fragmented in different formats and places. Some of them like sales units and weighted distribution can also be quite expensive to get from a data provider like Nielsen or IRI.
  2. You need both a strong statistical knowledge and commercial acumen. Without the first one you will accept by faith everything coming out from the models without evaluating the statistical significance of your numbers, without the second one you will accept what makes sense statistically but not commercially. 
  3. Coding skills. All the established open-source libraries require an advanced programming knowledge with languages like Python or R

How much time does it take to build a Marketing Mix Model?

A ballpark number is one month, but it depends on several factors.

Here a list of factors that affects the timings of a Marketing Mix Model

  1. How many SKUs are you modelling?
  2. How many countries and regions are you modelling?
  3. Are all the data available and are all the data correct? It is not usual to discover in the modelling phase wrong or missing data.  As a consequence you have to start the process again. 

That’s All. 

Thank you for your interest in the Marketing Mix Model

If you need additional help to understand the impact of your marketing activities and optimise your marketing budget, please book a free appointment below.

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