The Penny Falls: Marketing Mix Optimisation in a Digital World

Look around these days and it seems that many companies – even some of the world’s largest – are finding it hard to know exactly how much to spend on each type of communication. In most cases, however, we find the difficulties are rooted in not being able to “see the wood for the trees”.

Discussions about integrated campaigns, digital media, on-line marketing, multi-channel, multi-layered, multi-faceted, and multi-mixed campaigns get lost in the vast web of competing possibilities for perpetual interconnections.

What is needed is some rational simplicity.

Most people lead “busy” lives and whilst they are, in principle, accessible to every possible means of marketing communication – off-line, on-line, above-the-line, below-the-line, through-the-line and, no doubt, “down-the-line” – to develop the optimum media mix the marketing director must still think in terms of reach and frequency.

Put simply, the role of most communication budgets is to use media (of all kinds) to address three key questions “do they know my brand exists?”, “do they know its features and benefits?”, “do they consider it to be a viable solution for their needs?” If we can achieve ticks in these three boxes then we can move to the higher levels of gaining trial, conversion and loyalty.

The use of differing media, including digital, should be viewed in terms of how effective each will be in helping you achieve those initial 3 key communication objectives.

So the first step is to think about reach.

If all communication channels are worth the same in terms of the connection you could make with your target group then if you were to spend one pound on social media marketing what would be the probability that you would gain an additional buyer? How does that probability compare with having spent that same pound on radio advertising instead? And would the efficiency of both be heightened if you spent a second pound on pay-per-click?

Now add to this the value of repetition. Is one contact via social media worth three contacts via radio? If so, then that changes the cost ratio.

You may be thinking at this point, “but it will vary depending on the strength of the creative”. If you are then you need to take a step back for a moment. All we are comparing here is the relative effectiveness of the channels (singly or, where required, in combination) in delivering the same message. In other words, the equivalent of hearing the communication via the radio versus getting the same message from a friend.

We would picture all this as like using an old-fashioned penny falls machine on the pier in Brighton.  You can choose a number of slots into which you can place your coin – but you can’t be absolutely certain how it will bounce all around on its way to bottom. But what you can be sure of – because you can see it – is which slots are the most likely places to use to get the biggest return – the places where you are most likely to get a payment after inserting the fewest amounts of coins.

And that, in reality, is all you really need to know.

As a real life example, think for a moment about choosing how you might want to travel to the airport to catch your plane. You can drive yourself, go by taxi, by rail, by coach or get a friend or relative to drop you off and pick you up.

In this situation you probably wouldn’t go on-line to work out your personal mathematically-optimum solution as to which of these you would choose. But if you heard a radio ad that highlighted the benefits of driving yourself you might consider that option. And then you might go on-line to compare prices, canvass some opinions, and make a booking. Or you might just think the information provided in the radio ad was enough to convince you.

So in this situation the best marketing strategy is to first get the maximum number of people to consider the mode of transport we wish to advocate. That is likely to favour “display”-type advertising rather than “search”. Both will have an effect, but one is more efficient at it than the other.

Understanding these relative probabilities – and how they work singly and in combination across multiple streams – is at the heart of econometric analysis for marketing. The answers tell you how many coins you need to put into each slot at the top in order to maximise the pay-out you get at the bottom. How they bounce around on the way to the bottom will always be a bit of lottery. What econometrics does is stack the odds in your favour so you can be sure you will get the highest payback from the media budget in your pocket!