The ROI of Marketing
Let’s be real. Measuring your Return on Investment (ROI) can sometimes be a scary thing. It takes away all the “glitz and glamour” from your marketing campaigns and presents you with cold hard facts. By the way, I’m not just talking about knowing that radio is a good channel for your company because of a spike in sales you had last year in response to a radio ad. I’m talking about knowing at what point you had diminishing returns on your radio ad? Did you spend too much? Answering these types of questions can be sobering but they’re the best thing for the long-term health of your marketing.
On this edition of the MRX Minute, we discuss how Media Mix Modeling works.
Media-mix modeling, aka Return on Marketing Investment (ROMI) Analysis, is a statistical procedure designed to estimate the impact of various marketing investments. The result of this exercise, a media-mix model, is then used to forecast future return on marketing investment.
If you’re not fluent in statistical language (nerd speak), an S-Curve shows the natural progression of a variable in terms of another variable. For example, as you begin to spend dollars on radio advertising you may begin to see a spike in sales. As you continue to increase your spend in radio advertising, you’ll eventually reach a point of diminishing return (the amount spent on advertising impacts sales less and less). This is HUGE! Think about all the marketing dollars wasted that could have been used elsewhere.
This is exactly why it’s not enough to just know that radio advertising is increasing sales. You need to understand at what point you’ll get the highest return on your marketing dollars.
We’ve recently compared optimizing your marketing mix to baking a chocolate cake. Why the analogy is fun, it is a reminder that great marketing is about using the right mix of ingredients. Media mix modeling is so powerful because not only does it identify the right levels of each ingredient you need but it enables you to predict expected return from future spend. For those of you who deal with budgeting who are losing your mind reading this article, I promise you’re not dreaming. These Media Mix Modeling tools do exist; it’s just a matter of picking the right tool and whether you have the structure in place to conduct the analysis.