We often encounter this common question, especially within CMO circles, where the challenge lies in assessing marketing campaign effectiveness and creating data-driven go-to-market strategies. The choice between employing market simulation or marketing mix modeling (or perhaps a combination of both) hinges on several key considerations.
What is the objective?
For retrospective analysis, marketing mix modeling proves valuable. This statistical method derives insights solely from historical data. On the other hand, if your aim is to forecast future scenarios, market simulation offers a more suitable path. This approach empowers you to experiment with various strategies and assess their impact on forthcoming outcomes.
What level of granularity do you need?
Opt for Marketing Mix Modeling when focusing on broader channels for optimal outcomes. For more intricate insights (such as examining specific TV stations, time-of-day, campaigns, and encompassing factors beyond paid media and promotions like word-of-mouth, product design, distribution, creative execution, and messaging), market simulation emerges as the essential choice.
How far do you want to forecast?
When adjusting your strategy for the next quarter, Marketing Mix Modeling serves as a reliable tool. It excels in revealing short-term effects and remains efficient unless significant alterations occur. For extended forecasting spanning 5-10 years, especially important for industries with long decision cycles (e.g., automotive, insurance) or where brand equity carries substantial weight (e.g., luxury goods, telecom), Market Simulation becomes indispensable for predicting market evolution.
What metrics are you interested in?
If you need to evaluate your ROI in terms of sales, MMM may help, as that is the metric it reports. However, if your focus is on consumer perceptions, likelihood to recommend, consideration, alongside sales, market simulation is your preferred avenue. Similarly, while MMM is apt for aggregate market results, simulation becomes essential for dissecting outcomes among diverse consumer groups and segments.
What data do you have available?
To do MMM you will need marketing spend by channel and sales over time to determine each channel’s contributions to sales. Meanwhile, simulation delves deeper by incorporating granular data such as consumer segments, competitors, and product attributes. Additionally, simulation factors in various data sources like reach, ratings, consumer surveys, creative aspects, product investment, and social tracking, which aren’t utilized in MMM.
What is your business question?
While MMM retrospectively assesses marketing effectiveness, market simulations explore what-if scenarios. MMM mainly addresses the question of each channel’s impact on sales. On the other hand, simulations offer comprehensive answers to an array of queries:
What if consumer preferences change in the market?
What if there is a viral event or a public relations disruption in the market?
What if we launch a new product?
What if a new competing product comes on the market?
What if we change our messaging?
What if we switch our focus to a different consumer segment?
Market Simulation or Marketing Mix Modeling? Marketing Mix Modeling serves as a retrospective tool for decision-makers to discern past successes and failures. Market Simulation, on the other hand, serves as a platform for testing future-oriented ideas. Both methodologies have merits and drawbacks, and occasionally, a hybrid approach is the key to shaping a robust go-to-market strategy.”