Econometrics uses mathematical models to measure the effectiveness of past marketing activities and account for various factors that influence sales, in order to improve future marketing plans and determine which parts of the marketing mix are most effective. Econometric models can forecast the sales and profitability of different marketing budgets and schedules, allowing marketers to optimize their media plans. Direct response measurement, econometrics, and marketing analytics together provide a full picture of a marketing campaign's return on investment.

1. Measure, forecast and improve the
effectiveness of your marketing mix
Why evaluate marketing?
1. Measuring the increases in sales that marketing activities have caused can
justify advertising’s position as an investment, rather than simply as a cost
2. Understanding which parts of the marketing mix are working hardest, allows
for building a more efficient and effective marketing plan in future
Econometrics measures and then improves the
effectiveness of advertising
Econometrics is the ‘gold standard’ method of evaluating marketing investments.
It is a technique that uses mathematical models to measure past marketing
activity, so that we can improve the effectiveness of marketing plans in the future.
Marketing measurement is difficult. Many different factors affect the sales of a
product and cutting through the different effects of price changes, promotions,
seasonal differences, competitor activity and more to find the number of sales
driven by a marketing campaign, takes much more than a simple year-on-year or
week-on-week view of sales.
Econometric models allow us to account for the many different factors that affect
sales, evaluate them and then remove them so that advertising’s effects can be
Leeds accurately measured.
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An econometric model breaks down sales, measuring the different
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activities that have caused them to change (1.1)
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7 Ely Place When we talk about econometrics, we usually mean sales modelling, but it
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doesn’t have to be. Whatever a campaign was designed to achieve – from
increased brand awareness to more searches for a website – the toolbox that
econometrics provides can help to measure its effectiveness.

2. Measure, forecast and improve the
effectiveness of your marketing mix
Econometric models sit alongside other measurement
Some advertising channels are easier to measure than others. Direct mail for
example can generate a simple response rate using coupon returns and we can
use different telephone numbers to track the impact of press or TV ads for
products that are sold via call centres. We call this type of measurement ‘direct
response’ because we can see an individual customer responding to a specific ad.
For other marketing channels, e.g. Posters, or TV spots that aim to build
awareness of a brand, measurement is much more difficult.
Web metrics have brought direct effectiveness measurement to a much wider
group of brands. Cost per click and cost per acquisition on the web are standard
effectiveness metrics, but like other direct response measures, they are not the
whole story and have the potential to be misleading.
1. Direct response measurement is unavailable for key marketing channels (e.g.
brand TV or posters.) If DR is the only measurement that we have, there’s a
real risk of favouring activities that we can measure, rather than those activities
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that are the most effective.
Marshalls Mill
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Edinburgh “Last click wins” is a phrase that comes from web advertising, but it applies equally
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well to any direct response measure. It means that the piece of marketing that
T 0131 555 1500 finally triggers a purchase is credited with a sale, ignoring everything else - from
Manchester TV campaigns to PR - that the customer saw before that single ad.
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Birmingham In general, direct response measurement will under-value both brand advertising
Innovation Centre and advertising channels that prompt consumers to respond in a way which can’t
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7 Ely Place Econometrics helps by fixing the ‘last click wins’ problem and by making all
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response mechanism.

3. Measure, forecast and improve the
effectiveness of your marketing mix
For example, Google search advertising is undoubtedly more effective for well-
known brands. These brands have more people searching for them by name and
also higher click-through rates. Econometric models let us measure the true value
of a brand focussed TV campaign, showing the sales uplift that it has driven and
also how it has made search spend work harder. We are able to prove that
customers would not be searching for the brand, were it not for the TV.
Econometric adjustments to cost per sale (1.2)
Directly measured cost per sale
True cost per sale (from econometrics)
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Edinburgh
6 Dock Place In chart 1.2, econometrics has allowed us to measure three marketing channels
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T 0131 555 1500 where measurement was previously unavailable, find that the true cost per
Manchester acquisition of web advertising is higher than previously thought and show that
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press is more effective than was measured by phone call tracking alone.
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Dublin
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4. Measure, forecast and improve the
effectiveness of your marketing mix
Three measures combine to give a full picture of marketing
return on investment
Econometric models measure effectiveness at a high level, showing the most
effective marketing channels and providing an overall ROI for advertising. Direct
response measures let us optimise within a marketing channel and pick the most
effective press titles, for example.
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Edinburgh
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1. Measurement of past advertising campaigns, split into the different
Manchester media channels that were used.
Commercial Street
Manchester, M15 4PZ - Proof that historic advertising added to sales and (hopefully!) was profitable.
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- Return on investment calculations showing the individual profitability of each
Birmingham marketing channel.
Innovation Centre
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T 0121 222 5522 2. Forecasting and improvement of future campaigns
Dublin - The really useful bit and why it’s worth investing in econometrics.
7 Ely Place
2 Dublin - We can use a model to forecast the effectiveness of different media
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schedules and then choose the one with the highest returns.

5. Measure, forecast and improve the
effectiveness of your marketing mix
Optimising the media plan with forecasting tools
Marketing analysis can generate a very large number of results. As well as a
return on investment measure for each part of past campaigns, we also measure
a response curve (diminishing returns curve), which allows us to forecast what
the ROI of a campaign would be, at alternate budget levels.
Optimisation tools, programmed with these results, handle forecasting the
effectiveness of a campaign and allow us to concentrate on outcomes and ask
‘what if’ questions about different marketing schedules.
Response curves forecast sales and profitability at different marketing budgets
Marketing Budget Optimiser
Run Optimisation
Spend Step (Accuracy) £10,000
Budget Scenarios
Scenario 1 £500,000
Scenario 2 £750,000
Scenario 3 £1,000,000
Scenario 4 £1,250,000
Scenario 5 £1,500,000
Scenario 6 £1,750,000
Scenario 7 £2,000,000
Scenario 8 £2,250,000
Scenario 9 £2,500,000
Scenario 10 £2,750,000
Leeds
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Contact Details
Manchester
Commercial Street Neil Charles
Manchester, M15 4PZ
T 0161 839 6600 E neil.charles@mediacom.com
Birmingham T +44 (0)113 394 0078
Innovation Centre
1 Devon Way
M +44 (0)7508 269965
Birmingham, B31 2TS
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Owen Buttolph
Dublin
7 Ely Place E owen.buttolph@mediacom.com
2 Dublin
T +44 (0)131 555 7822
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