Considering Econometrics (aka Market Mix Modelling or MMM) to measure your marketing? But not sure what type of agency to use or whether to in-house? Read on to find out the pros & cons of each option.
Market Mix Modelling (MMM) is a useful tool when measuring and allocating marketing budgets. But should you work in-house or with a specialist partner in econometrics?
And what type of MMM partner is best for your business?
Option 1. Run Econometrics / MMM through an Existing Partner
Most media agencies and some digital agencies will have econometric units or sister companies specialising in MMM. If you receive your data through a supplier like Nielsen or IRI then they too offer econometrics .
Using an existing partner has three benefits: cost, speed and security. As you’re already their valued client, you should be able to negotiate a discount, less time will be needed on the initial legal and procurement aspects and, as the agency will have some of your marketing data already, it will save time in data collection. Moreover, your agency should already recognise your brand’s internal jargon & acronyms and will be familiar with your key challenges and strategy, all of which will save time in the long run.
If there are any issues on the project, you’ll have a relationship with your client services team to flag and resolve those issues. Finally, it’s likely that you’ve already got robust processes in place for sharing data with your existing agency securely.
That’s three good reasons for choosing your media agency to run your econometrics. And for some brands this is the best option for them.
But there are risks with this approach.
The most common criticism of using an existing marketing agency for your econometrics is that they might be considered to be ‘marking their own homework’. The argument goes that an agency has a conflict of interest; they have to say a campaign was profitable to secure more money for future campaigns.
Despite this, I’ve found that most econometricians take pride in their analysis and would not consciously massage numbers to benefit their agency. Yet, being part of a media agency will bring some bias to the analysis, in particular to the focus of the results presentation. For example, a planning & buying agency will focus on how to improve the channel mix and flighting across the year. Whereas a digital agency may talk about within-channel execution, where they really know their stuff.
Each might draw less attention to a factor outside their agency’s remit than perhaps they should.
One further risk with using an existing partner: if you’re not their largest client and they have a small MMM team, then your project may be less of a priority than with a specialist MMM agency or an in-house team.
In general, using your existing agency can be a cost-effective way to get going with econometrics / MMM. But if your econometrics brief goes beyond marketing then an independent agency might be a better choice.
Option 2. Use an Independent Econometrics / MMM Agency
Independent Econometrics Agencies come in all shapes and sizes. There are boutique agencies right through to large global consultancies. But there are some common pros and cons.
- The independents avoid the conflict of interest that come with existing agencies running the econometric modelling.
- They are more likely to treat each question on your brief equally, thoroughly analysing every possible factor rather than just focusing on the media channels they know.
- Especially for the smaller agencies, an independent has more freedom to tailor their analysis to your needs, rather than offering you an off-the-shelf ‘product’ .
There are some potential downsides to using an independent agency. Costs vary, but independents (especially the big names) tend to be more expensive than using an existing partner. An independent agency also runs the risk of being too far removed from your other agencies and internal teams.
Independent econometrics agencies can provide impartial analysis tailored to your specific questions. But you need to make sure they collaborate with all your internal teams and external agencies to maximise the benefits from econometrics.
If you are worried about not turning the analysis into actions, then you might want to setup an in-house team to fully embed econometrics to benefit your brand.
Option 3. Setup an In-house Econometrics (MMM) Team
Done well, an in-house econometrics team can give you rapid insights on-tap. They can be more flexible than an agency, who will need an agreed-scope at the start of the project.
An in-house econometrician will understand your organisation’s values. He or she will recognise all the internal jargon and acronyms. They will know who in the organisation to speak to resolve problems and make sure the analysis has the maximum impact on key decisions.
But it is an expensive option. You are committing to the salary for at least one econometrician. At the time of writing in the UK, you are looking at least at £50,000 for a mid-level econometrician, potentially over £100,000 for a top-notch senior econometrician. Add in the costs of their pensions, benefits, the software they’ll need and potential data licences – it quickly adds up. More so than the other options, it is important to get in-house MMM right.
You might consider transferring existing employees who are data scientists or analysts to your fledgling MMM team. But they might struggle to build sensible, realistic models unless they have actually run a market mix modelling project before. In such cases, an existing MMM econometrician or agency could setup the internal team and get the models up and running, before taking a step back.
In-house MMM is a great end goal to have. But it requires you to commit time and money. You can dip your toe in first with an MMM project from outside agency. Once you’ve got some modelling setup, then in-housing is worth exploring.
Final Thoughts
Whichever option you go for, there are some general points to consider.
When someone is pitching MMM to you, check if they will actually be working on your account? Some statisticians are great people-people and you’ll likely see these folk in the pitch process. But when it comes to the actual project, will they pass their work on to their colleagues who might be technically strong, but weaker communicators. You might be fine with that, but check that the MMM team you’ll be getting suit your company culture and needs.
Secondly beware of generalists – whether part of an agency or as someone to employ in your in-house team. You may encounter marketing data folk who list econometrics and MMM as just another skill in their arsenal, but their experience and practical knowledge is weak. It’s likely that any market mix models they create will be naïve, possibly contradict common sense and generate unfeasible recommendations.
Over the years I’ve worked with some great econometricians who have transferred over from other disciplines like working with qualitative data or digital analytics. But in those cases MMM was their second and only other area they had specialised in. It takes years of regular practical experience to become a good econometrician: to ensure your models make sense and to be able to translate them into valuable recommendations.
Finally, don’t worry about getting everything perfect to begin with, especially if you start out modestly. It’s corny but true, Marketing Effectiveness is a journey. I hope some of these thoughts help you get going.
Steve Cookson has worked as an econometrician for around 20 years in-house, as part of a media-agency, and within a consultancy.