Marketing mix modeling is an analytical approach that uses historic information, such as syndicated point-of-sale data and companies’ internal data, to quantify the sales impact of various marketing activities.
Mathematically, this is done by establishing a simultaneous relation of various marketing activities with the sales, in the form of a linear or a non-linear equation, through the statistical technique of regression. MMM defines the effectiveness of each of the marketing elements in terms of its contribution to sales-volume, effectiveness (volume generated by each unit of effort), efficiency (sales volume generated divided by cost) and ROI. These learnings are then adopted to adjust marketing tactics and strategies, optimize the marketing plan and also to forecast sales while simulating various scenarios.
When building a marketing program to fit the needs of his firm, the marketing manager has to weigh the behavioral forces and then juggle marketing elements in his mix with a keen eye on the resources with which he has to work.
The four P’s of marketing – price, promotion, product and place (distribution) – which constitute the most common variables used in constructing a marketing mix. According to McCarthy the marketers essentially have these four variables which they can use while crafting a marketing strategy and writing a marketing plan. In the long term, all four of the mix variables can be changed, but in the short term it is difficult to modify the product or the distribution channel.
Another set of marketing mix variables classified the marketing variables into two categories: the offering, and process variables. The “offering” consists of the product, service, packaging, brand, and price. The “process” or “method” variables included advertising, promotion, sales promotion, personal selling, publicity, distribution channels, marketing research, strategy formation, and new product development.
Advance MMM model consists of seven P’s.The variable added are “People” to the list of existing variables, in order to recognize the importance of the human element in all aspects of marketing.
The other variable added “process” to reflect the fact that services, unlike physical products, are experienced as a process at the time that they are purchased. Desktop modeling tools such as Micro TSP have made this kind of statistical analysis part of the mainstream now.
Most advertising agencies and strategy consulting firms offer MMM services to their clients.