Author : Debaraj Sarkar
Market Mix Modeling is the application of analytical and statistical methods to identify the volume and profit contribution of each individual marketing activity and external factor. Companies spend billions of dollars on media every year in hope that it will promote sales of a product and also create brand equity. Market Mix modeling approach provides not just knowledge of the sales returns (ROI) from each marketing activity, but also allows advice on how these activities can be improved to generate more sales.
Brand plans built on this basis confidently meet objectives whether these are profitability, value share, or volume. The explanation of past brand performance uses all available past experience to provide an understanding of the overall dynamics of brand and market. Key competitors are identified through sales gains and losses and insight is gained into how consumers purchase the product category.
This includes identifying the segmentation underlying the consumers’ purchase decision process. The range of marketing activities that measurably adds to brand sales and can be individually evaluated includes:
· Media (TV, press, outdoor etc.)
· Intense marketing (TV + door drops)
· Promotions – price, value added etc.
· Point of sale display
· Direct response
· In-store demos
ROI is defined as the ratio of Incremental dollar sales from marketing investment and spend on marketing Investment. Separating out the effect of campaign on your sales from the effect of other factors like Pricing of product, competitors pricing , Competitor’s campaign, seasonality, advertisement decay effect, Regulatory factors is indeed difficult. Market mix model also helps in understanding the optimum level of investment in all form of campaign that maximizes returns.