Limitations of conventional market-mix modelling

Conventional marketing-mix econometric models are inadequate for measuring the true return on marketing investment (ROMI) because they only show incremental or short-term sales effects, and ignore the long-term effects of brand-building from successful media campaigns and the eroding effects of excessive discounting.

Limitations of conventional market-mix modelling

Peter Cain

The ultimate objective of all marketing-mix models is to quantify the sales contribution of marketing activities, to calculate return on marketing investment (ROMI). To accomplish this, the models employ econometric techniques to decompose product sales into base and incremental volume. Base sales represent the long-run or trend component of the time series, indicating underlying consumer preferences. Incremental volume, by contrast, is short-run in nature, capturing sales variations driven by temporary selling price, multi-buy promotions and above-the-line advertising. Incremental volumes are converted into incremental revenues or profits, and benchmarked against costs to calculate short...

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