Technique 2 minutes, 31 second read Matthew Teale, Data Analyst, Metrix Data Science
In an era of economic uncertainty marketers must utilise all of the tools at their disposal to make budgets stretch further.
Econometrics is the solution. It is the language of attribution, the statistical underpinning of marketing mix modelling. It is also the most scientific and reliable way to discover which levers of the marketing machine can be pulled to achieve a desired outcome.
Done right, econometrics gives marketers the answers to crucial questions:
- Which channels are driving sales?
- Which are virtuously impacting each other?
- Where does diminishing returns set in for each media channel?
- How does brand marketing affect sales?
- What is the optimal mix of channels to use and when should they be deployed?
With marketing resources becoming scarcer there is a greater incentive to make every pound count.
Navigating uncertain terrain
Applying winning data science techniques in the shape of econometrics is business’s best bet for navigating uncertain terrain and ensuring that budgets are optimally allocated to give the best returns.
Good marketing econometrics starts from the assumption that the omnichannel consumer is constantly being subjected to advertising. They will sometimes see and hear hundreds of messages before committing to a purchasing decision.
The answer is to build a model with the complexity to recognise this multi-dimension marketing environment yet simple enough to produce intelligible and actionable results.
Here’s how it worked for The Salvation Army (TSA):
The key reason long-standing client TSA came to us for attribution analysis was the charity’s shifting marketing focus. Due to the new regulatory framework of GDPR, TSA had decided to drop cold mail as a marketing channel. It wanted an impartial view of the best media allocation available to compensate for the loss of a key channel.
The novelty of our approach started with data collection. Since TSA only runs campaigns around Christmas, data availability is limited to three months in the year.
We therefore collected data going back three years to maximise the number of data points. This would not only enhance the robustness of estimation, but also facilitate a longer-term view of media performance; a vital element of the project, since previous marketing analysis was based on short-term ROI.
Econometric models for each channel
To understand a multi-faceted environment we built a suite of econometric models, paying specific attention to model specification for each. Our analysts produced models to predict the response for each marketing channel. This approach ensured the complex relationship between media spend and channel response was factored in.
We incorporated the insights gleaned from the modelling into a tool that enabled TSA to predict the outcome of different media budget allocations in terms of donation income, response volume and ROI. The tool was complemented by a plethora of recommendations to optimise the potency of TSA’s media allocation strategy. Results included:
- Increased donation income by £680k for lower spend
- ROI increased from 1.04 to 1.24
- Increased average donation value by 7%.
Econometrics, the scientific approach to attribution, is the answer brands need.
To read the Metrix Data Science white paper on econometrics click here