Marketing Mix Optimization
Key Elements:
Shows how to allocate your marketing budget for maximum sales and profit
Uses response estimates from mix models to forecast sales
Systematically varies plan until sales and profit are maximized
Uses advanced optimization techniques (nonlinear programming)
A little history ...
Optimization has been widely used since 1947 when George Dantzig developed the "simplex" method for solving linear optimizations. A familiar application is airline yield management, which prices seats by fare class in order to maximize expected revenue.
While advertising optimization has been used since the 1960s, only in the last few years has it been practical to optimize the end goal of advertising (sales and profit) instead of intermediate media measures like efficiency or reach.
Optimization – reducing a business problem to a set of mathematical equations
Optimization takes model-based measures of marketing response, marketing costs, and product margins and finds the weekly advertising, promotion, and pricing levels that maximizes revenue, margin, or a combination of the two. Once we know the equations, we can systematically vary the inputs until the objective is optimized.
Large-scale optimizations for some of the world’s leading marketers and retailers...
Our analytic engine has handled very large-scale problems, optimizing over 100,000 decisions in minutes using an "interior point" algorithm. We also have a staff of in-house experts (nearly all with airline industry experience) who work directly with clients on budget optimization exercises. For one client, we found $1 billion in additional revenue and several hundred million in additional profit.
Balance short-term profit against longer-term volume goals... while maintaining price image
System can incorporate range of client-specified business rules
Set bounds on changes to specific marketing activity levels vs prior years
Helps make results credible & actionable to business executives