Last week I sparked some interest in the discussion of market mix models not properly measuring the impact of advertising. So, let’s continue that discussion, and as always, I invite comments/critique. One way that ROI can be calculated is shown in the following financial equation:

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If a marketing mix model cannot properly measure advertising “Lift”, as I insinuated last week, then the model equation is always going to look for ways to drive advertising spending down, by way of cutting weeks, cutting unit length and cutting the highest priced inventory in the ad mix. These cuts are all to the benefit of things it that the models are better at measuring, - price and trade promotion. As ad budgets are cut, promotion budgets are gaining.

Think of it this way; I mentioned last week that the models are understating the impact of advertising on sales because advertising is being evaluated on total sales rather than penetration/trial. Therefore the cost-based adjustments the model suggests are self fulfilling.  Because the advertising “Lift” outcome is artificially low, advertising decisions become driven by cost efficiency.  Years ago CPG companies spent the majority of their marketing dollars on advertising and now, because of the bad advice given to them by a flawed modeling approach, the ratio is more like 2:1 in favor of price/trade promotion.

What’s a marketer to do? Buy tons of cheap cable and :15 units instead of Prime and higher rated shows. What we’ve seen from companies who have adopted this approach are years and years of low single digit sales growth driven by the math financial formula shown above.

On the other end of the spectrum, we’ve seen instances when CPG companies have had to reallocate Prime inventory originally secured for a new product launch—the rare times these brands ever get any premium priced TV time—because of a delay in the launch. The established brands, even with only a few airings of Prime, show penetration gains in those weeks by 75% or more.

Time and time again we see brands that have the richest mix of Prime in their TV mix have the highest incremental penetration—assuming their copy is good. We’ve seen penetration multiples of 3X vs. off air weeks. Going back to the formula above, if we can increase the lift we can improve the ROI - even if we spend the same amount of marketing money in marketing. Don’t get caught up in the race for efficiency at the expense of growth. Don’t measure your media against audience metrics/CPM. You can achieve remarkable growth if you stop listening to the marketing mix modelers.

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