What Is A Media Mix Model?

Written in collaboration with Roumen Vesselinov

?      Companies employ different media, different campaigns, and different ads to market their products and services.

?      Media Mix Modeling (MMM) provides a holistic view of how all the marketing activities work together and what the unique contribution of each one of them is to sales.

?      To accomplish this, MMM is built using complex econometric techniques.

?      A MMM may look something like this:

What econometrics methods are used to create MMM?

?      Pre-whitening of the time series – autocorrelation (ACF) and cross-correlation (PACF) functions, outliers, seasonality, holiday effect, structural change (one-time effect, e.g. new legislation, etc.)

?      Testing – lag evaluation, unit roots, integration and co-integration, periodicity

?      Model estimation –ARIMA, VAR, VEC, GARCH models (type determined after testing)

?      Post Estimation evaluation of the model – AIC, BIC and other Information criteria, residual analysis (QQ plot, ACF/PACF, GARCH, etc.)

?      Model Interpretation: Evaluates the clean individual effect of factor X while controlling for lagged values of Y (outcome) and controlling for all other factors included in the model.

An example:

?      Outcome: Web Revenue

?      Multivariate ARIMA(1,1,0) model

             Yt, Yt-1 – Web revenue for current day t, and with lag 1 day

             Xt, Xt-1 – Google branded search impressions, current and lag 1 day

Control Block – all other relevant variables: holiday effect, emails, other search engines impressions, promotions, discounts, all advertising channels, etc.

Results:

?      Multivariate ARIMA(1,1,0) model for Google branded search

Effect: Increase of 1000 Google branded impressions corresponds to increase in web revenue by $180, controlling for all other factors.

Efficacy: Investment of $60 (cost per 1000 impressions) in Google branded impressions corresponds to $180 increase in web revenue.

Impact Factor: Effect/Cost = 180/60= 3.0.

             One dollar investment brings about 3 dollars in web revenue.  

I hope this explains it all. And if not, you can always ping me and ask for more.

Why do you need MMM? click here

What skills are needed to build MMM? click here