Are you spending your marketing dollars wisely?
Dell Inc. realized it sometimes wasn’t, after using a technique called media mix optimization it created with database marketing firm Merkle Inc. in 2005.
This technique optimizes spending across all media to generate the best return on investment where the total budget is not fixed. Companies can increase overall marketing ROI, highlight areas of over- or under-investment and quantify how different media affect incremental sales. Better budget allocations improve sales and response rates, according to Merkle, Lanham, MD.
Media mix optimization has been used regularly in industries such as consumer packaged goods, financial services and pharmaceuticals but is growing more mainstream, said Ron Park, senior director, commercial markets group at Merkle.
“As database marketers, who are familiar with the analytic ideas or approaches used in media mix optimization, evolve within organizations as marketing in general becomes more quantitative, they bring these ideas up to the large marketing organizations in their companies,” he said.
With its direct business model, Dell, Austin, TX, sells more systems globally than any computer company, placing it No. 25 on the Fortune 500. Revenue for the past four quarters was $56.7 billion.
“In the past, we challenged each one of the independent vehicles we use — such as mass media, online advertising or direct marketing — to optimize within their chosen vehicle using the metrics that made the most sense for them,” said Kristen Nolte, senior marketing planning and analytics manager for Dell’s home and small business group.
But when online joined the fold, “we had a vast number of metrics available to us — more than we knew what to do with — and as a result, the investment in online marketing had grown substantially,” she said. “We knew that we had to understand and measure the metrics across the vehicles in a common format.”
Dell built a tool that combined all of Dell’s media plans, online and offline, Ms. Nolte said. Media mix optimization helps companies track the transference between two marketing vehicles, she said.
“A lot of companies look at their traditional advertising and traditional direct marketing and attribute actual response to those vehicles, and they attribute online response to the online vehicle,” she said. “They don’t look at the transference between the two vehicles, such as when people that see advertising or get direct mail materials are actually going online to get more materials and then purchase those materials. And the same goes for people who view online advertising and receive e-mail marketing but use a call center to make an order.”
Ms. Nolte said that “we have changed our media mix in regard to allocation. Since online advertising is so trackable, we were maybe allocating online with more than we should have, without taking into account the unattributable factor of offline.”
Dell has shifted some print advertising to direct mail as a result of tracking its media mix, she said.
“While print was generating a lot of calls and response, it wasn’t generating a lot of conversion,” she said, “so we reinvested a lot of those dollars into direct marketing vehicles where we can do more targeting.”
Dell also learned that by suppressing its freestanding inserts for one month of the year, it saved 25 percent of its FSI budget with a very small response drop-off.
Media mix optimization also lets companies track how specific customers use specific vehicles. Dell segments customers to track what advertising vehicles they use.
Ms. Nolte stressed the importance of testing.
“The best way to optimize your media mix is to test, test and test some more,” she said.
Successes and Pitfalls
Beyond Dell’s results, Merkle said other companies and industries have seen results in media mix optimization:
- A pharmaceutical company learned that a change in media mix would raise sales 2 percent without raising media costs.
- A financial services firm used a media mix model to divert spending from TV to online, increasing incremental sales 25 percent
- A CPG company learned that TV ads for one product increased sales for another product.
But Merkle warned of pitfalls around media mix optimization, such as:
- Assessing media mix only once a year.
- Having the same partner that implements your media programs also measure and build optimization schemes.
- No testing.
- Lack of commitment from stakeholders.
- No clearly defined objective.