Stop Flawed Marketing Mix Models From Stunting Growth

David Hoo and Michael von Gonten
Effective Marketing Management

'Remember that all models are wrong; the practical question is how wrong do they have to be to NOT be useful"

George Edward Pelham Box

We argue that Marketing Mix Models are wrong enough to NOT be useful. Specifically, we argue that the mix models currently in use, either the original format or the newer, VAR style, systematically understate the true effects of advertising, leading CPG marketers to undervalue the real effects of advertising and to reduce their advertising spending, reallocating those funds to price promotion. This stunts sustainable growth and erodes the brand equity built by advertising.

ROI Equation

At the heart of the issue lies the ROI equation seen below. This is the equation that marketers use to evaluate the financial contribution of marketing activities, including both advertising and promotion.