Why Econometrics Brings Advertising Certainty

Amid the economic uncertainty wrought by the coronavirus pandemic marketers must use all available tools to make budgets stretch further. Failure to grasp the complex dynamics between ad spend and consumer response could spell trouble for any business.

Econometrics is the answer to this conundrum. It is the language of attribution, the statistical underpinning of marketing mix modeling. It is also the most scientific and reliable way to discover which levers of the marketing machine can be pulled to achieve a desired outcome.

Done right, econometrics gives marketers the answers to crucial questions:

• Which channels are driving sales?
• Which are virtuously impacting each other?
• Where does diminishing returns set in for each media channel?
• How does brand marketing affect sales?
• What is the optimal mix of channels to use and when should they be deployed?

How COVID-19 Is Changing Consumer Mindsets

Covid-19 has significantly accelerated an already burgeoning ecommerce channel. During lockdown, huge numbers of consumers flocked to online shopping, including those who had previously been reluctant to do so, such as the over-65s.

With consumers spending longer indoors and consuming more content, there are undoubtedly opportunities for brands, if they use the appropriate analytics. Procter & Gamble and Unilever, for example, have adopted a counter-intuitive approach by increasing marketing budgets to help them understand the changes Covid-19 has wrought.

With marketing resources becoming scarcer there is a greater incentive to make every pound count. Companies cannot afford to waste money on ineffective channels, nor can they spend beyond what is appropriate on fully functioning channels.

Applying winning data science techniques in the shape of econometrics is business’s best bet for navigating uncertain terrain and ensuring that budgets are optimally allocated to give the best returns.

The new lifestyle imposed on many people by the pandemic will invariably lead to digital having a bigger presence at the marketing attribution table. Measuring the correct impact of digital media, taking into account the activity of other channels as well as external market-related factors, requires the scientific tools of attribution.

What Good Econometrics Looks Like

Only by sifting through large amounts of data from different sources and applying the correct analytical techniques will econometrics be a worthy investment.

Good marketing econometrics starts from the assumption that the omni-channel consumer is constantly being subjected to advertising. They will sometimes see and hear hundreds of messages before committing to a purchasing decision.

The answer is to build a model with the complexity to recognize this multi-dimension marketing environment yet simple enough to produce intelligible and actionable results.

The features of this model and its specification are what separates the ‘good’ marketing econometrics from ‘bad’. Good marketing attribution models have:

Appropriate lag structure – ensuring the statistician is not restricted to contemporaneous time analysis. There is often a time lag between channel deployment and an impact on an individual’s behavior.

Brand analysis – marketing attribution is incomplete without considering how brand advertising is behaving in the mix. Analytical approaches evaluate the impact of marketing activity on key brand metrics and further investigate how this feeds into sales.

Diminishing returns – there is a limit to how much channel activity has a positive impact. It is important to use the appropriate methodologies to investigate the spend threshold that attains optimal response results.

Interactions – the interplay between channels needs to be measured because none works in complete isolation in an omni-channel world. For example, we have observed the virtuous relationship that exists between TV and door-drops play out for many brands. Accounting for this in the analysis is crucial, otherwise marketing channels are treated as “siloed” entities.

A Scientific Approach to Attribution

Without a scientific approach to marketing attribution, organizations will not have the strategic vision they need to combat the tricky economic times ahead or maximize opportunity during the next growth cycle.

Simply knowing the latest consumer trends isn’t enough. Businesses must understand what changes to shoppers’ behavior means for them. They require the tools to determine the correct media mix, to know how to engage prospects and when to deploy those channels.

Econometrics, the scientific approach to attribution, is the answer brands need.