3. way which gives you
MMO is the
the whole world of your business
with understanding of its natural laws,
evaluation of observed effects
and direct implications to your
every day business decisions in
Marketing and its components’
Mix aiming towards sensible
Optimization and efficiency
3
4. Milestones of Marketing Mix Optimization
1953 by Neil Borden in his American Marketing
The term “marketing mix” was firstly used in
Association presidential address*.
1960 by E. Jerome McCarthy.
Marketing mix components, famous 4Ps, were introduced in
late 1980’s and early 1990’s
Marketing mix optimization projects started in the
in the FMCG/retail industry.
relatively later due to its
First efforts in other industries – finance, telco, etc. – emerged
significantly more complicated nature.
source: Wikipedia
*
4
5. Understanding what drives sales / market share
MMO is a process that results in ATL
BTL
tangible outputs for marketing
Sales support: incentives
management, optimization and
Sales support: personnel
planning. Incremental
Price promo, subsidies sales
Pricing (w.r.t. competition)
MMO is a data-driven business Sales
Product innovation, extension
research aiming towards discovering,
Product performance, functionality
interpreting, and the development of
sales mechanism.
Competition, its commercial activities
External factors, e.g. GDP, income
Simply, MMO explains and measures
Baseline
Seasonality
market response to sales drivers. sales
Distribution, sales coverage
Brand equity, customer retention
5
6. Contribution of marketing elements to overall performance
Sales
14%
Promo
10%
Place
MMO assesses the impact of each 20%
Price
Sales
of the marketing mix components
Product
on incremental sales
16%
external factors,
25%
Baseline represents expected sales including competition
when no short-term marketing activity
brand equity, customer retention,
is present distribution 15%
Σ=100%
6
7. ROI analysis
Return on investment (ROI) is
an example of direct application
260,4
of MMO market understanding. 16,3 Investment
Incremental sales
ROI
We compare costs (investment)
to incremental sales generated 9,3
133,8
by each mix component to 7,9
assess ROI 5,1
64,4
47,8 0,2
33,1
9,3
8,2 6,9 4,6 0,7
50% discount i-net ad spend sales incentives price discount outdoor spend
7
8. Marketing Mix Optimization
mil. CZK
100
Econometric model behind the
real example of budget allocation
*
MMO research enables “what-if”
80
interactive analysis playing with
budget allocation. 60
Imagine, that your current 40
budget could be either
slightly reallocated into or 20
even increased by 12 mil. and
0
reallocated into .
50% discount TV ad spend DM spend Sales Radio ad spend Incremental
incentives sales
Incremental profit from the reallocation is about 35 mil. or 92 mil.,
which means incremental net profit of 35 mil. or 92-12=80 mil.*
8
9. Typical project workflow
Business and Data Audit
Each client is unique and MMO is a business research, so detailed understanding of client’s needs
is critical. Since MMO is a data-driven modeling, data audit of all relevant sources is necessary.
If data sources are not available or sufficiently structured, we design new data pipelines.
Econometrical Modeling
Since MMO is not a boxed commodity ready to be shipped, each project has to be assembled and
tuned accurately. However, there exists general attitude, process, which we employ together with
our experience (for instance, we usually suggest to starting with a single product; once we all are
convinced that the model makes sense from both statistical and business point of view, we go on
to build models for all remaining products).
Marketing Mix Optimization
In addition to detailed results, figures, and simulators,... we want to deliver more – understanding
and knowledge which puts the client forward. We work together with the client on implementation
of the MMO process into its business. MMO is a powerful frame of reference for past evaluation and
future inference. 9
10. A few things to be aware of...
1. MMO is based on sales data and marketing activities. Although the data are essential, we
experience that alleged lack of data is not a barrier – in that case, let us collect the data first.
2. MMO is a long-term project requiring commitment and open cooperation
0,6 FTE for internal project manager with varying levels of utilization for entire project duration
•
1-2 weeks for data owners, sector heads
•
3. Mind & Process changes – successful realization of the added value brought by MMO requires
often a refreshed mind-set and a re-design of the internal business process. The client has to be
ready for such a change.
4. Budget – MMO projects usually require larger budgets, with a significant variance given by the
scope of the project.
5. Scope – we recommend to start off on a smaller scale with a pilot project which will test both the
client and the vendor as to their ability to realize the project and utilize the results (e.g. select few
important products, etc.). In later stages the project scope can be broadened.
10
11. References
The Core Group is a business research and consultancy department of TNS AISA. TNS has extensive
experience with MMO projects in various fields – from FMCG to telco and finance. The Core Group has
been developing MMO methodology in the Czech market for past 3 years.
This extensive knowledge base ensures reliable, in-time delivery and continuous support and access to
up-to-date methods.
The Core Group:
• Large MMO project in 2007-2008 for a prominent retail bank
• 2 product lines modeled
• Modeling of acquisition and profit
TNS Norway
• Several MMO projects in telecommunication sector (sales and churn modeled)
TNS US
Vast experience with MMO projects in various fields – FMCG, finance
•
11
12. Business intelligence in practice
skills, technologies, applications and
Business intelligence refers to
practices used to help a business acquire a better understanding
of its commercial context.
provide historical, current, and
Business intelligence applications
predictive views of business operations aiming to support better
business decision-making. [Wikipedia]
MMO is about.
That's what
12
13. Case study – finance sector Czech Republic
The Core Group has executed an extensive MMO project in a prominent Czech retail bank in 2007-2008
The project included:
Modeling of 2 product lines
•
Modeling of acquisitions and profits
•
Optimization of marketing budget to yield higher ROI
•
Delivery of Optimization tool
•
Outcomes:
Reliability of models around 90%
•
Identified opportunity for cost saving in excess of 30m CZK
•
Identified opportunity for profitability growth in excess of 140m CZK
•
Initiation of changes in media mix, campaign timing optimization, changes in distribution channels
•
13
14. Marketing Mix Optimization tool
Marketing Mix Optimizer is an
application which provides interface
for MMO econometrical model.
The application offers, except of
historical overviews and summary
statistics, interactive environment for
simulations and scenario evaluation.
Moreover, built-in mathematical
functions suggest optimal budget
allocation.
14
15. Various business assignments
Business assignments for MMO could
be basically divided into two groups:
1. Interactive simulations where you
can manually adjust marketing mix
and immediately see estimated
1
result on sales.
2. Marketing mix optimization via
automated allocation given either 2
total budget or target to achieve.
15
17. Example of Marketing Mix Optimization tool – cont.
Relevant business factors
included in the MMO model.
17
18. Example of Marketing Mix Optimization tool – cont.
Values of input factors which
could be interactively changed
by the user.
18
19. Example of Marketing Mix Optimization tool – cont.
Estimated profit change
decomposed into factors.
19
20. Example of budget reallocation
Given current total marketing
budget, just reallocate 2 mil. CZK
from TV to Internet.
This means 5% decrease
of TV spends and 37% increase
of Internet spends.
Expected incremental net profit
equals 4.9 mil. CZK.
20
