• by Joy Joseph , Patrick Moriarty , July 15, 2013

As marketing expenditures across the CPG industry have grown beyond $1 trillion annually, accountability has become a C-Level imperative.  Financial stakeholders require more precise accounting of marketing budgets and performance. To address this need, marketing mix modeling (MMX) has largely become the de facto measurement approach for marketing performance.

Despite MMX’s development as the standard for assessment, several prominent critiques have emerged recently. In 2011, Laura Desmond’s told Adweek: “To be provocative, I believe it (MMX) will become obsolete,” while a Forbes article claimed: “Marketing mix models are fundamentally flawed and detrimentally biased.”

It’s all culminating in the recent announcement of an ARF inquiry into the quality of MMX results, spearheaded by the venerable David Poltrack.   

Obsolete? Flawed? Inquiry? These are loaded terms for a solution that has delivered a great deal of insight and value over the years.  MMX just needs some evolution to get beyond some of its issues:

MMX Issues

Lack of Long-term Focus: MMX tends to account only for the short-term sales impact due to marketing, ignoring the downstream benefits of marketing, including consumer acquisition and brand equity.

Over-emphasis on Promotions:  There is a perception thatMMX favors promotional tactics over advertising and this is likely true for good reason.  Point-of-purchase elements like promotions “…. yield an incontrovertible boost in sales” in the short term. This comes at the expense of the long-term, which lowers profit margins and increases price sensitivity. “Reliance on promotions can be detrimental to brands it tends to train consumers to look for deals,” noted Harvard Business Review.

Underestimation of Online Advertising Impact:  Another criticism is MMX fails to give appropriate credit to the interactions between advertising platforms. We don’t believe there is systematic bias, but we do agree that current methods don’t adequately account for media integration and that likely affects digital more than other forms.

Reinventing Marketing Mix Modeling

Marketers should move beyond MMX as a model and start thinking in terms of a Marketing Productivity program. We hope the ARF inquiry is the springboard to guide firms toward programs that:  

• Align analysis objectives to the marketing planning and strategy process
• Don’t drive marketing strategy on ROI alone; quantify the value of consumer and brand equity metrics and consider them in the ROI calculation
• Go beyond just the first sale, quantify the impact of marketing on acquiring desired consumer segments and assess the lifetime value of reaching them
• Weigh quantitative mix results with qualitative rationale and business sense

Saving the Baby

MMX can still be a very valuable solution; traditional approaches are just a little nearsighted for the digital age. The explosion of digital advertising has added complexity that have stretched the limits for traditional MMX and more importantly changed the consumer experience.  Rather than throwing MMX out, build on its strong foundation of short-term accountability and extend with solutions that are more relevant to the opportunities brought by the modern world.  

Savvy marketers, will adopt a Marketing Productivity Program to gain a holistic and more prescriptive perspective.  Pursuing this approach will provide a better picture of what’s actually happening in the marketplace and ultimately provide them with a point of competitive differentiation.