Business magazines and websites are abuzz with news about the value of marketing mix modeling as a way to help companies maximize returns on their marketing investments (ROMI). Despite the currency of this topic in the media, the concepts and tools of marketing mix modeling date back at least 30 to 40 years. The topic is of growing interest partly because of the corporate world’s interest in growing topline revenue. The last couple of decades have witnessed unparalleled cost cutting and staff reductions among the Fortune 500 in the U.S. The opportunities for further cost reductions are diminishing in number and scale, so the pressure for long-term financial performance from public markets can only be met by renewed emphasis on new products and revenue growth.
A second reason for the growing interest in marketing mix modeling is the proliferation of new media (i.e., new ways to spend the marketing budget), including the Internet, online communities, search engines, event marketing, sports marketing, viral marketing, cell phones, and text messaging, etc. No one knows how to accurately measure the potential value of these many new ways to spend one’s marketing dollars. To grow revenue and profits, corporate executives need to understand the types of marketing investments that are most likely to produce viable, long-term revenue growth. That is, what combination of marketing and advertising investments will generate the greatest sales growth and/or maximize profits? Eureka! Marketing mix modeling might provide some answers to these challenging problems.
What exactly is marketing mix modeling? The term is widely used and applied indiscriminately to a broad range of marketing models used to evaluate different components of marketing plans, such as advertising, promotion, packaging, media weight levels, sales force numbers, etc. These models can be of many types, but multiple regression is the workhorse of most marketing mix