Digital AcademyAegis Media & Microsoft Advertising

28th June 2011

EconometricsSasha Grujicic &

Lynne Clarke

“ Half the money I spend on advertising is wasted; the trouble is I don't know which half.

”John Wanamaker

ROI Brand

The Approach

Factors affecting a single purchase

Applying maths to marketing

Drivers Performance

Marketing activity Sales

Competitor activity Brand perception

Pricing

Weather Customer acquisition

Market share

Calculating revenue return on investment

8

Cost of marketing activity

= RROI

xCustomers acquired Monetary value for each customer

Reaching the point of diminishing returns

Advertising spend

ROI

0

As spend increases so does

ROI

Spend can still be delivering sales but at

lower ROI than the optimal point

Spend is no longer delivering

sales

Spend has reached optimal levels for ROI

Example:Optimal ROI range

Throw enough mud at the wall, some of it will stick

Adserving Data(MV)

Rich Media Data (MV)

Site Served Data(MV)

Site Side Analytics (Proximity)

French Data

Video pre-roll

Search(BING)

ComScore

Social (Radian 6)

Nielsen FD+ data

Econometric Modelling: What’s changing?

Econometric Modelling: Implications

• Opportunity to move to Agent Based Modeling and Targeting

• Greater level of granularity of data and attribution

• Purchase path mapping / correlations• Real time transactional considerations• More frequently updated modeling possibilities

Econometric Modelling: Implications

It is OUR job to help our clients understand the difference between the IMMEDIATE and the IMPORTANT

Econometric Modelling: Implications to planning• How much to spend on marketing?

• What is the optimal mix of marketing activities?

• What is the overall impact of an increase or reduction of the marketing budget?

• What is a change in business performance due-to?

• How to improve the timing and execution of marketing?

• How does the impact of marketing vary across customer segments and store types?

• How much to spend on marketing?

Sales Gross Margin$0 $1 $2 $3 $4 $5 $6 $7 $8 $9

$4.00

$1.12

Sales Gross Margin$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $8.19

$2.21

Contribution of first $1 spent on advertising

Contribution of the next $1 spent on advertising

Econometric Modelling: Implications to planning

• What is the optimal mix of marketing activities?

Spot TV Radio Network TV ROP Inserts Out of Home Promos$0

$1

$2

$3

$4

$5

$6

$7

$6.17

$3.59

$3.11

$2.34 $2.01

$1.34

$0.98

Econometric Modelling: Implications to planning

• What is the overall impact of an increase or reduction of the marketing budget?

Base 85.0%

TV6.8%

Radio

3.7Inserts

1.0Promos

2.0OOH

1.0

Other* 0.6%

Chart TitleBase

82.1%

TV6.9%

Radio 4.6%

Inserts1.5%

Promos2.4%

OOH 1.7%

Other* 0.8%

Chart Title

Contributions% of Sales Driven by Marketing

Volume +5.2%

Last Year This Year

Econometric Modelling: Implications to planning

• What is a change in business performance due-to?

Marketing Impacts Non-Marketing Impacts

Last

Yea

r

Cabl

e TV

Broa

dcas

t TV

Face

book

Bann

er/S

earc

h

Prin

t

Spor

t TV

Spon

sors

hips

OO

H

Pric

ing

Stor

e M

gr T

enur

e

Seas

onal

ity

Com

petiti

ve A

dver

tisin

g

Indu

stry

Tre

nd

Cons

umer

Con

fiden

ce

This

Year

1,400

1,420

1,440

1,460

1,480

1,500

1,520

1,540

1,560

1,580

1,600

1514

1472

+22+12

+9 +8 +4 +2 +15+12 +1-8

-11-5 -22

-81

Total change due to base

Total change due to marketing

Econometric Modelling: Implications to planning

• How to improve the timing and execution of marketing?

1/1/

2005

1/15

/200

5

1/29

/200

5

2/12

/200

5

2/26

/200

5

3/12

/200

5

3/26

/200

5

4/9/

2005

4/23

/200

5

5/7/

2005

5/21

/200

5

6/4/

2005

6/18

/200

5

7/2/

2005

7/16

/200

5

7/30

/200

5

8/13

/200

5

8/27

/200

5

9/10

/200

5

9/24

/200

5

10/8

/200

5

10/2

2/20

05

11/5

/200

5

11/1

9/20

05

12/3

/200

5

12/1

7/20

05

0

100

200

300

400

500

600

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,0002005 Net Sales2005 - Executed

Econometric Modelling: Implications to planning

• How does the impact of marketing vary across customer segments and store types?

Econometric Modelling: Implications to planning

Recommendations:

$

TV Radio Digital OOH Print Promo