Econometrics is broadly defined as the application of statistical and mathematical models to test and quantify economic theory. Marketing econometrics specifically aims to quantify the role of marketing in driving consumer purchase behaviour and is often called Marketing Mix Modelling (MMM). All marketing mix models are essentially price demand curves augmented to include a wide range of media and economic variables and routinely offered by consultancies and media agencies to assist clients in three main areas:
1. Price elasticity, marketing performance and ROI
2. Optimal allocation of marketing resources
3. Forecasting consumer demand to aid supply chain planning
The economic foundations of marketing mix models are typically approximated with simple single-equation regression models of product demand. However, these approaches are ill-equipped to solve many client business issues. In this article, we look at how marketing analytics has evolved to provide more accurate representations of consumer demand.