Media Mix Modeling, the Next Frontier

By now, most marketers understand the benefits of a multi-channel view of their marketing efforts. It provides a much needed strategic picture of where and how efficiently their media dollars are being spent (read more about it here and here).

But what does a marketer do with the wealth of information in front of him? How does he monetize this new found knowledge? The easy answer here is to use this acquired data to optimize.

At this strategic level, the marketer is not optimizing intra-channel efficiency (the profitability of an individual channel), but rather the mix of media dollars across all channels.  Media Mix Modeling can be a very useful tool, helping the marketer make decisions which are backed up by historical performance and statistical significance. It can be used to create a strategic, media dollar, potential efficiency curve.

The curve is created by stacking the individual efficiency potentials of each channel together and plotting them on the same graph. This provides a comprehensive view of the relative profitability of each channel at any particular budget. It’s easy to see at what level of media spend the diminishing returns set in for each individual channel and the entire media mix as whole.

For instance, SEO and paid search brand channels are extremely efficient at very low levels of spend. However, these channels quickly become maxed out and lose their efficiency. Using a chart like this, the marketer can quickly see each channel’s potential and distribute the media dollars accordingly.

In order to take full advantage of these optimization techniques, the marketer must have control of budget making decisions at the strategic level. The usefulness of Media Mix Modeling quickly dissipates if each, or even a significant minority of channels, is “siloed” into preset budget regales of their relative inter-channel efficiencies (read more here).

The historical performance of aggregate marketing efforts can be seen by plotting several Media Mix Modeling curves on the same graph. Assuming that overall media efforts are improving, the curves will move up and to the right, showing the increased efficiency and scalability of all inter-channel media.

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