Business Challenge & Objectives
We were approached by a company in the Consumer Packaged Goods sector to determine the optimal marketing strategy for short and long-term sales growth.
Historically, our client had implemented an integrated traditional and digital marketing campaign aimed at maximizing the growth potential of their flagship brand, together with frequent promotional and price-cut activities to increase store footfall. However, sales revenue had recently started to experience weaker growth. To support their strategic marketing planning process, our project objectives comprised:
- A complete evaluation of the historical sales impact and Return on Investment (ROI) of the client’s promotion and advertising strategy together with the impact of competitor marketing activities.
- Recommendation of the correct mix of marketing investments to maximize revenue and profits over the short and long-term.
- Provision of sales forecasts to aid the supply chain planning process.
To answer these questions, we constructed a dynamic marketing mix model, combining regression analysis with the power of time series econometrics.
Traditional approaches to marketing analytics use classical regression techniques. However, this assumes fixed or pre- determined long-term brand loyalty. By introducing a modern time series structure, our innovative approach provides a full decomposition of brand sales data into evolving trend, cyclical, seasonal and marketing components. The trend component captures any systematic evolution in long-term brand loyalty. The marketing component quantifies the short-term sales contribution of each element of the integrated marketing and promotional strategy.
Our decomposition of brand sales allows us to calculate marketing ROI and advise on allocation of the marketing budget to maximize short and long-term revenue growth. The model structure can then be used to generate sales forecasts, facilitating our client’s strategic planning process.
Outcome & Results
- Our analysis showed a healthy overall short-term marketing contribution to sales, with ROI varying significantly across individual marketing activities. We demonstrated that by shifting resources from print and outdoor media to TV, online paid search and in-store promotions, our client could make significant short-term revenue and profit gains.
- A long-term view, however, told a different story. Analysis of the evolving trend component indicated small positive impacts of TV and print media on brand perceptions that were heavily outweighed by strong negative effects of heavy promotional investment. Consequently, underlying baseline sales were stagnating, which was the source of poor recent sales performance.
- By rebalancing investments to account for these effects, and opting for a level of promotional investment below the short-term optimum, our client was able to maximize long- term growth whilst still meeting short-term revenue targets.
- Finally, sales forecasts generated from the full model structure simulated the impact of alternative levels of media and promotional investments. This allowed our client to optimally manage product inventory, facilitating the supply chain planning process.