Below the tip of the iceberg

by Steve Fajen Drexler/Fajen & Partners

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 

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

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.