What do marketing mix models show advertisers?
Marketing mix models help companies determine how well their advertising is working. These models consider all the different ways a company advertises, such as TV commercials, online ads, billboards, and coupons. They also consider how much the company sells and how much money it makes.
The goal is to understand which types of advertising lead to more sales and profits. This helps the company decide where to spend its advertising dollars in the future to get the best results.
How marketing mix models work
A company must collect much data to create a marketing mix model. This includes:
- How much they spent on each type of advertising over time
- How many products they sold each week or month
- The prices of their products
- Any coupons or discounts they offered
- Events like holidays that might have affected sales
The company then uses statistics and computer programs to analyze all this data. The models try to find patterns and connections. For example, they might discover that sales always go up in the weeks after an extensive TV ad campaign. Or that online ads are better at driving sales than billboards.
What marketing mix models show
Marketing mix models can reveal many useful and sometimes surprising things to advertisers. The exact insights will be different for each company. But here are some of the standard stuff these models often show:
Which ad channels are most effective
One of the most essential things marketing mix models can tell a company is which types of advertising give the most significant boost to sales. This is known as “return on investment” or ROI.
For example, the model might show that for every $1 spent on online search ads, the company gets $10 in sales. But for every $1 spent on billboards, they only get $2 in sales.
This helps the company realize that search ads are a better investment than billboards. They get more bang for their buck. So, in the future, they would want to spend more of their advertising budget on search and less on billboards.
The best timing for ad campaigns
Models can also provide insights into when ads are most effective. For example, a clothing company might learn that TV commercials significantly impact sales in early fall, as people shop for colder weather. But ads in the middle of summer don’t do as much.
Armed with this knowledge, the company would want to concentrate their TV advertising in the fall and spend less in summer. The model helps them advertise when customers are most likely to buy.
How different ad channels work together
Another essential thing marketing mix models can show is how different types of advertising interact and support each other. This is sometimes called the “synergy” between ad channels.
For instance, maybe the model shows that when the company runs Facebook ads and TV commercials simultaneously, it gets more sales than expected. The bump in sales is more significant than you’d predict based on how Facebook ads and TV commercials perform individually.
This tells the company that Facebook and TV have a positive synergy. The ads on each channel are making the other one more effective. They are stronger together than apart. So rather than just investing in whichever channel performs best, they may want to run Facebook and TV campaigns simultaneously to take advantage of that synergy effect.
Diminishing returns
Conversely, marketing mix models can also show when extra advertising stops being worthwhile. This is called “diminishing returns.”
Let’s say a company spends $100,000 weekly on Instagram influencer posts. The model shows that the first $50,000 drives a lot of sales, but the impact of the next $50,000 is much smaller.
In other words, they’ve saturated the channel. Additional Instagram spending won’t do much. The smart move is to reallocate that extra budget somewhere else that can have a more significant impact rather than overspending on Instagram.
The benefits of using marketing mix models
As you can see, marketing mix models give advertisers valuable information. Some of the key benefits include:
Spend advertising dollars more efficiently
By revealing which channels, campaigns, and timings yield the best ROI, models help companies maximize their ad budgets. They can cut spending on underperforming areas and reinvest that money where it will drive more sales.
Justify spending to leadership.
These models also give marketers complex data to take to their bosses or clients. They can point to the numbers to show that their campaigns work and deliver real value for the company.
React quickly to changes.
Running marketing mix models regularly helps advertisers spot trends and adapt quickly. For example, suppose they notice that online video ads have a more significant impact than they used to. In that case, they can immediately jump on that opportunity and make online video a bigger priority next quarter.
Limitations of marketing mix models
As helpful as they are, marketing mix models aren’t perfect. Some of their limitations include:
They require a lot of historical data
For the models to work well, companies need detailed data going back at least a year or two. Newer companies or those that haven’t collected good data may be unable to use these techniques effectively.
They can’t predict sudden changes.
Models are based on patterns from the past. The models may not account for a significant, unexpected change – like a new competitor entering the market or a major news event. The predictions could be off until the models have new data that reflects the new reality.
They don’t give insight into individual customers.
Marketing mix models look at the big picture – broad trends across the whole business. They can’t tell much about how a specific customer responds to an ad. Other techniques are needed for that kind of granular insight.