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“ Half the money I spend on advertising is wasted; the trouble is I don't know which half.
”John Wanamaker
Applying maths to marketing
Drivers Performance
Marketing activity Sales
Competitor activity Brand perception
Pricing
Weather Customer acquisition
Market share
Calculating revenue return on investment
8
Cost of marketing activity
= RROI
xCustomers acquired Monetary value for each customer
Reaching the point of diminishing returns
Advertising spend
ROI
0
As spend increases so does
ROI
Spend can still be delivering sales but at
lower ROI than the optimal point
Spend is no longer delivering
sales
Spend has reached optimal levels for ROI
Example:Optimal ROI range
Adserving Data(MV)
Rich Media Data (MV)
Site Served Data(MV)
Site Side Analytics (Proximity)
French Data
Video pre-roll
Search(BING)
ComScore
Social (Radian 6)
Nielsen FD+ data
Econometric Modelling: What’s changing?
Econometric Modelling: Implications
• Opportunity to move to Agent Based Modeling and Targeting
• Greater level of granularity of data and attribution
• Purchase path mapping / correlations• Real time transactional considerations• More frequently updated modeling possibilities
Econometric Modelling: Implications to planning
• How much to spend on marketing?
• What is the optimal mix of marketing activities?
• What is the overall impact of an increase or reduction of the marketing budget?
• What is a change in business performance due-to?
• How to improve the timing and execution of marketing?
• How does the impact of marketing vary across customer segments and store types?
• How much to spend on marketing?
Sales Gross Margin$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$4.00
$1.12
Sales Gross Margin$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $8.19
$2.21
Contribution of first $1 spent on advertising
Contribution of the next $1 spent on advertising
Econometric Modelling: Implications to planning
• What is the optimal mix of marketing activities?
Spot TV Radio Network TV ROP Inserts Out of Home Promos
$0
$1
$2
$3
$4
$5
$6
$7
$6.17
$3.59
$3.11
$2.34
$2.01
$1.34
$0.98
Econometric Modelling: Implications to planning
• What is the overall impact of an increase or reduction of the marketing budget?
Base 85.0%
TV6.8%
Radio
3.7Inserts
1.0Promos
2.0OOH
1.0
Other* 0.6%
Chart TitleBase 82.1%
TV6.9%
Radio 4.6%
Inserts1.5%
Promos2.4%
OOH 1.7%
Other* 0.8%
Chart Title
Contributions% of Sales Driven by Marketing
Volume +5.2%
Last Year This Year
Econometric Modelling: Implications to planning
• What is a change in business performance due-to?
Marketing Impacts Non-Marketing Impacts
Last
Yea
r
Cabl
e TV
Broa
dcas
t TV
Face
book
Bann
er/S
earc
h
Prin
t
Spor
t TV
Spon
sors
hips
OO
H
Pric
ing
Stor
e M
gr T
enur
e
Seas
onal
ity
Com
petiti
ve A
dver
tisin
g
Indu
stry
Tre
nd
Cons
umer
Con
fiden
ce
This
Year
1,400
1,420
1,440
1,460
1,480
1,500
1,520
1,540
1,560
1,580
1,600
1514
1472
+22+12
+9 +8 +4 +2 +15+12 +1-8
-11
-5 -22
-81
Total change due to base
Total change due to marketing
Econometric Modelling: Implications to planning
• How to improve the timing and execution of marketing?
1/1/
2005
1/15
/200
5
1/29
/200
5
2/12
/200
5
2/26
/200
5
3/12
/200
5
3/26
/200
5
4/9/
2005
4/23
/200
5
5/7/
2005
5/21
/200
5
6/4/
2005
6/18
/200
5
7/2/
2005
7/16
/200
5
7/30
/200
5
8/13
/200
5
8/27
/200
5
9/10
/200
5
9/24
/200
5
10/8
/200
5
10/2
2/20
05
11/5
/200
5
11/1
9/20
05
12/3
/200
5
12/1
7/20
05
0
100
200
300
400
500
600
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,0002005 Net Sales2005 - Executed
Econometric Modelling: Implications to planning
• How does the impact of marketing vary across customer segments and store types?
Econometric Modelling: Implications to planning