It was reported that the iceberg that sank the Titanic a hundred years ago was between five and ten stories high and the width of a football field. However, icebergs typically have 90% of their volume unseen, beneath the sea. So that little ice cube could have been as big as the Empire State Building. Marketing Mix Models (MMMs) typically show at least 50% of many brand’s sales are due to the unseen phenomenon of brand equity or “Base.” Base is what concerns us because it is often unexplained or overlooked.
When MMMs were first introduced decades ago as a return on investment tool, little attention was paid to sales caused by brand equity or what caused brand equity to begin with. As recently as five years ago many major marketers were still using MMMs to measure their ROI in terms of immediate or short-term sales only. They regarded the long-term effects of marketplace drivers, like advertising, as being immeasurable. Things have changed in the past few years, but not everyone is aware of what’s available.
Measuring real value
Sophisticated models measure how a brand’s value is created. Among the contributing factors MMM’s calibrate are: brand image, product features, distribution and price. Within brand image, they measure the effects of advertising, PR, word of mouth and other factors. We are focused on advertising and specifically the effects and distribution of a media spend. MMMs are frequently used to determine how a marketer will spread their money across media by reporting their ROI. When the model is primarily focused on immediate, short-term sales and does not address how the media affect long-term sales the model is flawed. This has been a major point of controversy for a long time.
Short and long-term effects audited
Yesterday’s message can create today’s sales by fortifying brand equity. Great brands have extraordinary brand equity and that equity was built over time with the likes of strong media campaigns. The true value of a medium can only be understood when the model measures its contribution to short-term AND long-term sales.
One of the major objections to MMMs is that they overstate the importance of price and promotion, which create short-term sales. Major media like television certainly contribute to immediate sales, but when TV’s contribution to base is also considered, the medium’s value is usually much higher than promotion and price. So ignoring television’s effect on base devalues the medium and misguides the marketer.
Some modelers have built time series that measure media effects on long-term sales into their regression formulas. When we do a qualitative advertising audit and MMMs are involved, we make sure the effects of media on brand equity and therefore long-term sales (as well as short-term) are included in the model. The only way to fully understand the power of a medium is if the ROI on both immediate sales and base are measured and reported. Without that, you will only get half the story and a distorted set of indicators on where to place your marketing investment, which can waste millions of dollars.