MARKETING PRODUCTIVITY ANALYSIS

2

“Half the money I spend on advertising is

wasted; the trouble is I don't know which half.”

3

John Wanamaker (1838-1922):“Half the money I spend

on advertising is wasted; the trouble is I don't know which half.”

4

“Corporate marketing is the last bastion of

unaccountable spending in corporate America.”

5

Eric Schmidt (2006):“Corporate marketing is

the last bastion of unaccountable spending in corporate America.”

6

Marketing Productivity Analysis“The use of productivity measurement in relation to the marketing function is relatively new. The central role of marketing can be expressed as the management of consumer demand and the translation of this demand into sales and profits. Marketing productivity analysis is an important tool in evaluating the performance of the marketing department in carrying out this role. It measures the efficiency with which marketing inputs are used to generate target levels of marketing outputs.”

7

Marketing Productivity Analysis“The use of productivity measurement in relation to the marketing function is relatively new. The central role of marketing can be expressed as the management of consumer demand and the translation of this demand into sales and profits. Marketing productivity analysis is an important tool in evaluating the performance of the marketing department in carrying out this role. It measures the efficiency with which marketing inputs are used to generate target levels of marketing outputs.”

Thomas, Michael J. (1984) “The Meaning of Marketing Productivity Analysis”

8

Effective vs. Efficient: The Difference?

9

Effective vs. Efficient: The Difference?Effective (adj.): Adequate to accomplish a purpose; producing the intended or expected result.

Efficient (adj.): Performing or functioning in the best possible manner with the least waste of time and effort.

10

“Measuring Marketing Productivity”

Rust et al. (2004)

11

“Metrics for Making Marketing Matter”

Lehmann (2004)

12

Framework for Marketing Performance Measurement

Adapted from Lehmann and Reibstein (2006)

What marketers and competitors do • Advertising• Price• Promotions• Distribution

What customers think & feel

Awareness Consideration

Liking

What customers do

Brand purchases

Direct Effect Feedback Effect

13

Advertising Campaign Testing

Adapted from Lehmann and Reibstein (2006)

What marketers and competitors do • Advertising• Price• Promotions• Distribution

What customers think & feel

Awareness Consideration

Liking

What customers do

Brand purchases

Direct Effect Feedback Effect

14

Brand Health Tracking

Adapted from Lehmann and Reibstein (2006)

What marketers and competitors do • Advertising• Price• Promotions• Distribution

What customers think & feel

Awareness Consideration

Liking

What customers do

Brand purchases

Direct Effect Feedback Effect

15

Marketing Mix Modeling

Adapted from Lehmann and Reibstein (2006)

What marketers and competitors do • Advertising• Price• Promotions• Distribution

What customers think & feel

Awareness Consideration

Liking

What customers do

Brand purchases

Direct Effect Feedback Effect

16

M5: Mindset Metrics and Marketing Mix Modeling

Adapted from Lehmann and Reibstein (2006)

What marketers and competitors do • Advertising• Price• Promotions• Distribution

What customers think & feel

Awareness Consideration

Liking

What customers do

Brand purchases

Direct Effect Feedback Effect

Return on Marketing Investment: Rearview Mirror

Marketing ROI

Marketing Expenditure

Marketing Support

IncrementalContribution

IncrementalVolume

Costs Margins

Model

Return on Marketing Investment: Front Dash

Marginal Marketing ROI

Marginal Expenditure

Marketing Support

MarginalContribution

IncrementalVolume

Costs Margins

Model

A BRIEF HISTORY OF MARKETING MIX MODELING

It all began with…

What do these three things have in common? (first

drink is on me if you can guess!)

The Answer:

SIR FRANCIS GALTONanthropologist, eugenicist, tropical

explorer, geographer, inventor, meteorologist, proto-geneticist, psychometrician and statistician

1875: Is This Really Marketing Mix?

2 4 6 8 10 12 14 16 182468

1012141618

Galton’s work on inherited characteristics of sweet peas led to the initial conceptualization of linear regression

The First 100 Years

1875

Regression

conceptualized

The Birth of Data

1875

Regression

conceptualized

1923

A.C. Nielsen

Company Founded

25

The Nielsen FactorPioneer in Data Collection

• Inaugurated a National Radio Index for broadcasters and advertisers in 1942• Followed by a television ratings

service in 1950• Once TV ratings were available,

people starting experimenting

Advertising, Goodwill and Demand

1875

Regression

conceptualized

1923

A.C. Nielsen

Company Founded

1957 1962

Vidale/Wolfe observe

relationship between sales

and advertising

Arrow/Nerlove

Formalize Adstock

Dorfman/

Steiner

Theroem

First Marketing Mix Model

1875

Regression

conceptualized

1923

A.C. Nielsen

Company Founded

1957 1962

Arrow/Nerlove

Formalize Adstock

1975

Little/Lodish Media

Planning Calculus

MDS Founded (1969)

Little BRAND

AID Marketing Mix Model

Dorfman/

Steiner

Theroem

Vidale/Wolfe observe

relationship between sales

and advertising

Advertising has a Carryover Effect

1875

Regression

conceptualized

1923

A.C. Nielsen

Company Founded

1957 1962 1975 1979

Little BRAND

AID Marketing Mix Model

Broadbent

Popularizes

Adtsock

Arrow/Nerlove

Formalize Adstock

Little/Lodish Media

Planning Calculus

MDS Founded (1969)

Dorfman/

Steiner

Theroem

Vidale/Wolfe observe

relationship between sales

and advertising

29

Two Dimensions of Adstock

Advertising Lag (Decayed Effect)

Advertising Saturation (Diminishing Returns Effect)

30

Ten Years After

1980

IRI Founded

Nielsen Launches

Home Video Index

Guadagni/Little Logit Mix Model

1983 1985 1986 1987 1989

IRI Acquir

es MDS

Duke’s Marketin

g Workben

ch

IRI’s Infosca

n Introduced

MMA Found

ed

Blattberg/Wisniewski

How Promotions

Work

31

Marketing Mix Models – Before the Internet

TV x Print Radio

Trade

Sales

32

The Next 10 Years

1990 1999

10 Marketing Mix Modeling firms

founded; numerous consultants and ad agencies start ROMI

practices

So what happened next?

33

The World Changed…

34

MMM in a Digital World

Business ImpactDirect

Business Performance

Sales & Trade Promotions

Business Impact

Marketing

Paid SearchImpressions

Online Display

Paid SearchClicks

Social MediaSearch VolumeSearch Volume

Indirect

Business ImpactSales