Marketing Mix Model Masochist

I’ll be honest — I’ve gone back and forth over the years on the value of marketing mix models, all the time seeking to understand where, when, and how they add the most value to marketing managers looking for insight into more effective and efficient marketing.

I think I’ve seen all the warts:

• Models that just skim the surface of tactical optimization by looking only at media and ignore the category dynamics and uncontrollable factors, thereby overstating the impact of marketing in very suspicious ways.
• Models that look backwards perfectly but are of little value if one is making decisions about what to do next.
• Models that regularly seem to reward short-term demand-generation tactics because they can “read” those more cleanly than longer-term brand equity value.
• Models with high “base” compositions which explain only a small portion of the change in volume or profit from one period to the next.
• Models that understate the value of marketing by failing to account for the interaction effects, particularly those in the new digital and social media realm.

I’ve also heard some sophisticated marketers who have long used these tools question their predictive value, particularly in complex competitive ecosystems with lots of channel influences and/or short innovation cycles. I’ve heard many voices I respect in both business and academia say that MMM is “mature” (as in “aged”, “long in the tooth”, or “declining in value or relevance”).

So you’d think that I’d have given up by now and moved on to something more innovative that might address some of these issues… artificial intelligence; agent-based modeling; systems dynamics, etc. Nope. Call me a MMMM (Marketing Mix Model Masochist) if you will, but all this criticism has actually led me down the path of embracing them more than ever. Principally for one simple reason… they are effective ways of helping managers understanding what has happened and what might happen looking forward.

For whatever reason, MMM is a concept that most marketing and finance managers can actually grasp. It is neither too simplistic to adequately explain their understanding of the universe they operate in, nor too complex to be embraced and acted upon. They’re sort of the Goldilocks solution… just right.

Sure, there may be other techniques that could answer any specific question more comprehensively, but at what cost to transparency and credibility? Managers (at least the human ones) need to 1. understand and 2. believe the analysis they get in order to operationalize it. The core mathematical simplicity of MMM gives it an advantage in both those respects.

But I’m pretty sure that MMM is “mature” only in the sense that it is a settled science which keeps getting better with age. In fact, using lifecycle terms, I’d categorize MMM as more in an “adolescent” stage. New methods and techniques have emerged to help better decompose the base effects, isolate long-term brand impacts, explain the direct and indirect effects of various elements of the tactical spectrum, and improve the forward-looking capability of the models.

When combined with some appropriate adoption training and alignment within the management team, today’s marketing mix models actually:

• Provide more operational guidance, aligning increases or decreases in marketing spending with channel management and supply chain considerations;
• Link to tradeoff analyses on a market segment or brand equity level; and
• Help establish spending strategies as market conditions change.

Improved automated functionality is also allowing marketers to react more quickly to results based on their needs by, refreshing the models frequently and putting broad “what if” simulation at the hands of the marketing planner.

Ever the skeptic though, I still see some need for improvement. Specifically, MMM cannot be effective unless the modelers:

• Ensure that the organization as a whole understands the assumptions and limitations of the marketing mix model;
• Realize that laying the acceptance groundwork around those assumptions is as important and challenging as building the algorithms or collecting the data;
• Remain aware of changes in the competitive environment and how they affect business results; and
• Understand that the model will, inevitably, fail; expect it and plan for it.

Finally, I think it’s critically important that marketers NOT stop at marketing mix models. Risk is magnified by over-reliance on a single tool. Today’s marketing measurement toolkit needs to be much broader. Deep understanding of brand drivers, customer behavior and value require input from tools and techniques outside the mix model, as well as in.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

The Rock in the Pond

Given the power and potential of social media as a marketing tool, there is considerable interest in understanding how it interacts with traditional media as part of a broader mix.

There is a considerable amount of work going on in this area across a broad spectrum of social miners and digital pathway attribution seekers. But sometimes you can be too close to something to see it clearly. If you’re looking for the social media interaction from within the realm of the digital world, you may see “patterns” in the data that seem to establish relationships, but are in reality collinear with other larger forces taking place both within the beyond the total marketing mix (not to mention exhibiting dangerously “drunk thinking”).

To really understand how social and traditional media work together, I’ve been examining many econometric models from across multiple industries where there was a substantial investment in traditional media (e.g. TV, print, direct mail, etc.). Some of these models studied brands or companies where there was no material social media activity. Others had added a substantial social media element to the mix of variables. In all cases, a broad spectrum of “uncontrollable” variables (e.g. macro and micro economic factors, competitive marketing activities, category consumption trends, distribution changes, etc.) were added to the models to further refine the understanding of the impact of the marketing tactics alone and in concert. A few observations seem to be arising:

1. Traditional media can often be the “rock in the pond of social media”. When the message delivered by traditional media is either very good or unfortunately very bad, the media message reverberates throughout the social spectrum like shock waves through a still pond hit by a rock.
2. This “ripple effect” can add substantially to the overall impact of the traditional media and boost the financial payback significantly.
3. Modelers regularly miss this insight if their methods are set to read the impact of the social media alone, or are looking only at the online tactical elements.
4. Missing this causes many marketers to UNDER-ESTIMATE THE REAL VALUE OF THE TRADITIONAL MEDIA and over-estimate the digital elements. In some cases by as much as 20% to 40%.

The simple fact is that if there was NO stimulus from the traditional media (or if the impact was beneath some observable threshold), there would be no material reverberation in the social media space. Not that you couldn’t cause some social buzz without traditional media, but doing so usually requires some combination of A) catching creative lightning in a bottle and going viral; B) discounting to abnormally heavy levels; C) “borrowing interest” in forms like celebrity endorsement, customer loyalty programs, etc.; or D) experiencing something unfortunately negative which everyone seems to take notice of. In any case, those social-only strategies tend to be either unexpectedly expensive or very rare (one in a million perhaps?).

Using traditional media is still the most RELIABLE way to get a message out quickly and uniformly. And by investing in effective copy engineering processes (at the proven intersection of customer insights and relevant creative disruption), you can toss your rock confidently into the pond of social media and expect to see waves of profitable opportunity arrive on your shore.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

Where Are You on the Digital Ladder of Insight?

I’ve been working on updating the “Ladder of Insight” I published several years ago to reflect some observations on levels of measurement sophistication with respect to digital/social attribution. From what I see in the marketplace, companies seem to be at one of four levels in their pursuit of better insights…

Level 1 – Monitoring chat boards; counting Tweets and followers; measuring owned-media activity (site visits, sourcing pages, etc.); using last-click attribution. Seeing a very limited view of digital activity and hoping to correlate outcomes with observed behaviors.

Level 2 – Above plus tracking sentiment for self and competitors; monitoring Google query volume for a few dozen key terms; using syndicated research to dissect online information searching and buying pathways; “allocated attribution” methods based on views/touches across digital exposures based on samples of cookie and clickstream data.

Level 3 – Above plus integrated view of digital and traditional tactics in a common analytical attribution model that establishes direct and indirect effects of digital, and social (both online and offline WOM) within the context of ALL marketing/selling tactics.

Level 4 – Above plus comprehensive online pathway monitoring based on full digital data sets from own site, referring sites, and ad placement servers. Accurate digital attribution derived when sampling is no longer required.

As you move up in levels, you gain more accurate perspective and find more ways to improve the effectiveness of marketing spend - which is increasingly measured in terms of both dollars and man-hours. But more importantly, you gain competitive advantages to exploit your insights and you get refreshed insights faster.

But before concluding that this is the path to marketing excellence, it’s worth remembering a few decades-old ground rules of marketing that seem to be even more important in the digital era:

• Innovation brings buying attention to your product/service offering. Manufacturing or borrowing interest (celebrities, discounting, etc.) are expensive and short-lived ways of drawing attention to yourself. If there’s nothing substantive for people to talk about, all the social media effort in the world won’t amount to much more than a digitally collective yawn.
• Online chatter about your category/brand is usually just a fraction of total chatter. Don’t underestimate the impact of offline WOM, particularly for lower-interest categories where consumers aren’t likely to want to tweet or blog.
• Given the increasingly fragmented battle for consumer attention, sound segmentation is more than ever the key to getting relevant value propositions in front of the right customers. Just because you produced a “killer” online video doesn’t mean millions will want to view it.

If you have thoughts or ideas on how to improve on this ladder, please share…

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

Drunk Thinking

A policeman finds a drunk crawling around on the street one night, frantically searching for something at the base of a lamp post. He approaches cautiously and inquires as to the man’s strange behavior.

“I lost my watch”, says the drunk.

“Here, under this streetlight?” asks the policeman.

“No, over by that building 50 yards that way” he points.

“So why are you looking over here?” the policeman asks quizzically.

“Because this is where the light is. I can’t see anything in the dark over there.”

Drunk logic.

The same sort of logic underlying the methods many are taking to understand the impact of their social and digital marketing efforts. Looking for answers where the data is. Sometimes because this is the ONLY data we think we may have (although in practice most companies have much broader access to reasonable data than they think they have). More often, the scope of analysis is restricted to just our own area of personal responsibility. The thinking seems to be that we should just analyze the things we are responsible for so as not to get stuck in the endless politics of the rest of the organization.

I realize that it is pretty difficult to do attribution analysis without data. And of course one of the many wonderful aspects of digital marketing tactics is, well, they produce tons of data. So why shouldn’t we look for answers in the digital arena? We can use test/learn experiments; pre-post analysis; and multivariate testing to optimize our digital impact. All of which can provide great insights.

But if the questions relate to the impact of the digital/social tactics on OVERALL results, then we need to analyze the digital elements in concert with the rest of the marketing mix. If we’re only looking at the digital data to understand digital marketing impact, we are ignoring the interplay between the digital and non-digital elements of the mix and drawing conclusions that are unlikely to represent reality. Worse, we may be drawing conclusions that will reinforce inefficiencies or bad habits. And in the process, we actually REINFORCE the political obstacles that exist between groups within the organization. We present OUR analysis; they present THEIRS; and the cycle of gridlock continues.

If you’re responsible for digital/social marketing within a broader marketing organization, you may stand to gain MORE resources when you analyze the digital contributions in the broader context of other offline tactics. The investment in time or money you make in gathering the offline tactical data and including it in your analysis framework may be repaid many times over in the form of more budget dollars, more influence, and more autonomy. On the flip side, NOT making the effort is likely to either limit the magnitude or impact of your analysis OR, worse yet, diminish your credibility in the eyes of the key decision-makers.

No one wants to be the drunk under the lamp post when the police come by.

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Pat LaPointe is Executive Vice President at MarketShare, and Managing Editor of MarketingNPV Journal, the most widely read journal of marketing measurement, available online FREE at www.MarketingNPV.com.

A Simple Formula for Success

A reporter recently asked me what I’d learned across several hundred marketing measurement projects in the past 10 years. Rather than spew out the usual rash of BS, I asked if I could call her back with a thoughtful answer. Here’s what I came up with:
For those of you not into algebra, the meaning is simple:

Success is the sum of all your experience finding insights, transforming them into action, and trying to create more value than the resources you consume in the process. And then all this is raised to the power of perception.

It’s not all too difficult to find new insights in the search for improved marketing effectiveness and efficiency. There is still quite a bit of wasteful spending going on, and the dynamic marketplace tends to ensure the continuation of that opportunity. The hard part though is translating those insight opportunities into actions that companies (read: people) can actually implement. Tricky.

And if that wasn’t difficult enough, we’re all often challenged to do it with toothpicks, a roll-on anti-perspirant, and a pack of bubble gum. Who am I, MacGyver? Seriously, you’re going to spend all that money on advertising and trade shows and then want to measure it for .000000000005% of total spend? Not gonna happen. But if we’re smart, we can demonstrate the potential returns associated with effective measurement, and build the data streams over time that break the cycle of insanity. Ironic though that companies building competitive advantage on deployment of strategic resources so often see performance measurement and continuous improvement as an expense. Fortunately, done well, the value of measurement always exceeds cost.

And finally, the power of perception. The quality of our measurement matters little compared to the perception of the quality. We can inspire an organization to action with bad measurement if we package it well enough. Obviously, that’s not our goal. But the inverse trips up more measurement projects than I can begin to remember – even GREAT measurement technique is worthless unless we get people bought into the process long BEFORE the numbers hit the charts. There is NO report pretty enough and there are NO facts compelling enough to move a seasoned executive off their experientially-derived position IF they don’t WANT to be moved. Our job in measurement is to lay the groundwork for them to be willing to move. Otherwise, we’re teaching pigs to sing - which just wastes our time and tends to annoy the pigs.

So taken together, this experience can be described in this simple formula. Plug in your numbers and see how well positioned you are to succeed.
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Pat LaPointe is Managing Editor at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Measuring Corporate Reputation Without Putting your Head on the Chopping Block

Like brand equity, corporate reputation is an intangible asset that has some very tangible ramifications. It has the power to affect every aspect of the business, including enhancing or destroying shareholder value. But when it comes to tracking and measuring the value of investments we make in enhancing reputation, it seems surveys of investor and analyst attitudes are all that makes it onto our Marketing Dashboard (since many have found promising their CEO that stock prices will rise in response to a proposed investment in corporate reputation to be a career-limiting move).

So how do you measure the payback on the next investment you might make in seeking to enhance that reputation? Start by developing clear ideas of who you’re trying to influence and what you’re specifically trying to accomplish before you begin.

Here’s an example…

Retail investments giant Company A invests $2 million in a public relations campaign in a mid-sized market centered around a donation to revitalize youth sports facilities, receiving in return naming rights on a prominent little league complex. Its rationale for making this gesture is to enhance the image of the company as a community minded, local organization, and to associate its brand with the youth and vitality of sports.

Company A measures the effectiveness of its investment in terms of the change in attitudes amongst the local customer, prospect, employee, agent, legislator, and vendor constituent groups. It develops elaborate surveys and measures the pre-post differential in the affected market versus nearby control markets where there are no such sponsorships. It also measures the number and nature of media “hits” received in the local press and calculates the value of that exposure if it were paid at rate card for each media.

So when all these indicators respond positively, Company A tells the CEO that “The campaign was a huge success! The attitudinal shifts are through the roof. And we generated over $2.5 million in free media exposure, giving us an ROI of 25% on the media value alone!”

Competitor Company B makes a similar investment in a different market, but does so against the stated goals of

• increasing the number of “power agents” (those doing more than $10 million annually in sales) from 38 to 54;
• improving employee retention in their local call centers from 70% to 85%; and
• getting a local ballot initiative on the legislative calendar to create greater flexibility for the introduction of new products.

Company B’s strategy is to achieve the objectives above by influencing the agents to carry more of its products, giving employees more reasons to feel pride in their association with the company, and providing legislators with a basis for supporting legislation that some may consider controversial.

Company B measures shifts in key brand attributes amongst the key audiences. And it measures the amount and nature of media coverage it receives in the local press. But the firm also measures the number of agent-to-power-agent migrations, employee retention rates, and the week-by-week progress of its target legislation. So when it comes time to report back to the Board on the campaign effectiveness, they can report that:

1. The firm increased the number of Power Agents to 57, which has a forecasted net present value of $1.4 million;
2. Employee retention fell slightly short of the 85% goal at 82%, but the expected savings in recruiting and re-training are still worth $1.8 million NPV based on employee tenure and productivity; and
3. The ballot initiative is in the right committee of the state assembly and a straw poll of legislators suggests a 65% likelihood of passage within the next six months, which would translate into a probability adjusted $4.2 million in incremental net profits from new-product sales.

Bottom line: the managers in Company B can report to shareholders that not only have they improved the attitudes among key audiences, but the investment they made in enhancing the company’s reputation has achieved short-term payback of $3.2 million, for an ROI of 60%, plus the prospect of a longer-term payback of an additional $4.2 million. And that’s before the value of any incremental media exposure is taken into account – which the sophisticated investors know is not really worth the rate-card value of the exposure, unless the company had intentionally planned to forego other advertising or communications expenses in achieving it.

So what did Company B do differently than Company A? It set expectations for the investment it was making in more financial, tangible terms, and then developed the framework for measurement in terms of the expected economic behaviors it intended to create. Sure, it included the attitudinal shift surveys to diagnose the effectiveness and consistency of its message. It just didn’t stop there.

The learnings: push past attitudes to measure the real value of corporate reputation in terms that CEOs can understand.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Why Does Marketing Have to be so Damn Hard?

Fact: Failure rates in marketing are astronomically high. Only a small fraction of new marketing initiatives succeed in achieving their intended objectives. If marketing were a baseball player, it would NEVER have made the major leagues. If marketing were a horse, you’d need 10:1 odds at least (and even then you’d be best served to box your bet across win, place, and show). If marketing were a bridge, you’d certainly not want to drive across it on a windy day.

Why? Why is it so damn hard to make marketing work consistently and reliably?

You might argue that the challenge lies in the very dynamic markets we operate in. Shifting sands are the rule, not the exception. No sooner do you get your feet under you than your knowledge is antiquated by the latest disruptive force.

Could be that marketers are in a constant state of experimentation, always in search of the magic combination of message and tactics that “move the needle”.

Or perhaps it’s the absence of good “raw materials”. Maybe we’re just reflecting the frequency with which we are given uninspired products with no news value and no clear differentiation.

But lately I’ve been thinking that it’s because of two key factors:

1. Marketing involves integrating the left and right brains – something that very few people are capable of. It requires an ability to think conceptually and unencumbered by the present realities, yet to evaluate critically in a rigorous way. Without the former, we fail to innovate; without the latter, we fail to focus. Moreover, it takes more than one person in an executive committee who can actually do this two-brain thing to notice and approve a good idea when one hits the table. Odds of there being a quorum of such people in any one boardroom are long indeed, given that executive committees normally include strong left-brainers from finance, IT, and manufacturing/operations. No judgment here, just an observation.
2. Marketers tend to be more right brain than left. They enjoy concepts and creativity and innovation and inspiration, but not the repetitive types of analysis that tend to extract true insights from the cacophony of marketplace response. Many don’t have the patience for disciplined experimentation and continuous improvement, preferring to “try new things” and make a name for themselves within their industry.

Fortunately, there are tools to help us overcome our fundamental limitations (personal or organizational) and learn from the collective experience of others. For example, in 2009 the Marketing Science Institute published a book edited by Professor Mike Hanssens of UCLA’s Anderson School called Empirical Generalizations about Marketing Impact which clearly lists 16 categories of collective learnings from hundreds of academic studies of marketing impact over the last few decades. For example, did you know that:

• Gains in market share do not often lead to gains in profitability in either short- or long-run.
• Changes in pricing have approximately 26 TIMES the impact on sales as changes in advertising spend levels.
• Changes in sales budgets have more than 3 TIMES the impact on sales compared to changes in ad spending.
• If advertising doesn’t work in the short term, it will NOT work in the long term with more exposure.

These are but a few of the gems you find in this book, which you can order at www.MSI.org. Or, if you prefer, check out Mike Hanssens’ recent webcast on this topic to be really astounded by all the things that you SHOULD have known about marketing but likely didn’t (or didn’t have the proof).

When we get marketing “right”, we make it really HARD for OTHERS to immitate. That’s why the big marketing victories are so transformative for companies (and careers). If we got just a little better at standing on the knowledge shoulders of our marketing forefathers (and mothers), we might actually get it “right” more often, and make it harder for THEM to catch up with us.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.

Predictions for Social Media Metrics: 2011

Never hesitant to jump on the New Year prognostication bandwagon, here are a few predictions for some significant new elements and important evolutions in social media metrics in 2011:

1. Rapid maturation. Social media measurement will mature rapidly now that there is real money being spent by marketers in the social realm. Professional measurement tools and techniques have gained critical mass in the space to help keep the focus on measuring the business value of social media in terms of either individual behavior shifts or community support. For a terrific overview, see Jim Sterne’s latest book entitled “Social Media Metrics” (or better yet, this webcast overview).
2. Government Drives Better Tracking. Social media tracking (e.g. seeing how and where messages spread) will improve significantly, mostly due to government regulation. Many of us work in industries that are regulated. These regulations require that our marketing messages come with appropriate disclosures about financial interests, side effects, performance guarantees, etc. The necessity of properly making and tracking disclosures has, till recently, held back many of our character-limited social media efforts. New companies like CMP.LY (www.CMP.LY) are taking the headache out of disclosure management and providing powerful tracking capabilities at the same time.
3. Online and offline will merge. By year-end, social media will no longer be equated with just online marketing tactics. TV, print, and outdoor campaigns will increasingly be measured in terms of their ability to get people engaged in behavioral interaction (e.g. talking to others about a brand), and more fully integrated with the online elements. Online behavior tracking will more fully merge with offline survey research techniques to better identify and measure the value of specific types of engagement. Offline budgets will continue to be much larger in most cases, but the “Old Spice” success story has penetrated the consciousness of marketers to the tipping point where the business and financial benefits of full integration are too big to be ignored.
4. Predictive value is emerging. The holy grail of social media is the “so what” – what will all the “buzz” do for sales and profits? Several big leaps have been made recently in terms of quantitatively tying social media engagement (giving AND receiving) to actual purchase behaviors and “norms” are beginning to emerge in key industries. In fact, the number and quality of such “norms” are increasing so rapidly that predictive validity is building. We can tell, in some industries, how early social media activity can predict overall campaign effectiveness, which in turn can predict customer/prospect buying behaviors. So if A=B and B=C, then we will increasingly learn to use A=C as a trusted metric for measuring the “so what”, and the pace of that learning will accelerate dramatically.

Generationally, it’s been difficult for many of the “over 40” set to wrap their brains around the implications of social media (possibly more from stress-induced eye strain than from lack of interest). But watching the college and teenage consumers of tomorrow NOT watch television (except sports and streaming movies) or read any printed periodicals, it’s clear that the media world HAS evolved. Only now is it becoming clear that the metrics are finally beginning to catch up.
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Pat LaPointe is Managing Partner at MarketingNPV – specialists in measuring the payback on marketing investments, and publishers of MarketingNPV Journal.