An Actuarial Approach to Optimising the Trade-off Between Media and Price Promotions Adam Driussi and Caroline Stevenson
The challenge Agenda Traditional solutions Media modelling an actuarial approach Media optimisation Incorporating price and value Conclusions
Increased call for accountability Need to justify large marketing budgets Need to integrate expenditure in 4Ps Particular problems arise where price and promotional planning is not integrated
Importance of considering price Personal loans example Wide range of the quality of risks Marketing interested in generating more applications, regardless of quality Pricing interested in profitability of converted risks Overall business outcome?
One answer: Source code analysis Many advertisers reliant on traditional measures Unique phone numbers, names or reference codes These measures can offer some insights into what is working But take little account of the multi-media, cumulative effects of exposure
Another answer? - Basic econometrics Helps identify what factors influence results Determines the broad return on spend equation
But Small number of factors considered Rarely sufficiently granular to identify regional differences and price effects Almost always fails to accurately identify isolated channel effects Usually does not sufficiently take into account exposure, rather than spend
Econometric models often built on very limited amounts of data 120 115 Sales Uplift 110 105 100 95 90 0 50 100 150 200 250 300 350 400 Exposure
120 but what if we had more historical data? 115 Sales Uplift 110 105 100 95 90 0 50 100 150 200 250 300 350 400 Exposure
We isolate the pure effect of each variable on sales 120 Sales Uplift by Number of Metro TARPs in Last 7 Days 115 Sales Uplift 110 105 100 No uplift in sales below 50 TARPs No additional sales after 300 TARPs 95 90 0 50 100 150 200 250 300 350 400 Number of Metro TARPs in Last 7 Days
We generate this data by modelling at a micro level Postcode, CCD or Household level 2061 2062 Press TV DM Press TV DM Press TV DM Press TV DM 2063 2064
utilising different media footprints.. Metro TV Metro Press Sydney Morning Herald Community Newspapers Parramatta Advertiser Cross-Sales DM Campaign
..and controlling for various other regional variations.. Existing product penetration (e.g. Bank) Branch footprint (e.g. Bank) Serviceability (e.g. Telco) Socio-demographics
to determine each pure effect Radio National Press Ads per person last 7 days Impressions per person last 4 weeks Product X Penetration Competitor TV Relative leads Relative leads Relative leads Relative leads % of customers with Product X TARPs in last 2 weeks
Modelling delivers valuable insights Isolates the individual channel impact Uncovers the range of exposure levels that will drive response Quantifies the lift in response achievable by each channel These rules can immediately be incorporated into the planning process
but needs to contribute to dynamic planning processes The true trade-off is between media options Is my specific budget better spent on TV and press or TV and radio? How expensive can press become before we start to replace it with radio?
Efficiency versus effectiveness Relative Lift in Response 160 150 140 130 120 110 100 But, at the same level of spend, press is more efficient Exposure TV Press TV has greater potential to drive results
Turning exposure into spend Additional Responses (000) 12 10 8 6 4 2 0 0 100 200 300 400 500 600 700 800 Spend ($000) TV Press
Scenario testing and optimisation Import Proposed Media Schedules & Other Parameters Media Planning System Optimal Media Scenario Schedule A Media gschedule AUGUST SEPTEMBER Media Media Schedule w/c Sunday 3 10 17 24 31 7 14 21 28 AUGUST SEPTEMBER g TELEVISION w/c Sunday 3 10 17 24 31 7 14 21 28 7 & 9 Networks, 30:15secs ads AUGUST SEPTEMBER g Cairns, Maroochydore, TELEVISION Townsville w/c Sunday 3 10 17 24 31 7 14 21 28 AUGUST SEPTEMBER 7 & 9 Networks, 30:15secs ads TELEVISION w/c Sunday 3 10 17 24 31 7 14 21 28 7 & 9 Networks, Cairns, 30:15secs Maroochydore, ads Townsville METRO - Syd, Melb, Bris, Adel 7 & 9 Networks, 30:15secs ads METRO - Perth 7 & 9 Networks, Cairns, 30:15secs Maroochydore, TELEVISION ads Townsville REGIONAL - METRO NSW, VIC, - Syd, QLD Melb, (Marooch, Bris, Adel 7 Cairns, & 9 Networks, Towns) 30:15secs ads Regional non METRO standard - Perth mkts 7 (Mildura, & 9 Networks, TAS) Cairns, 30:15secs Maroochydore, ads Townsville REGIONAL - NSW, METRO VIC, - Syd, QLD Melb, (Marooch, Bris, Adel Cairns, Towns) RADIO Regional non METRO standard - mkts Perth 7 (Mildura, & 9 Networks, TAS) 30:15secs ads METRO - Syd, Melb, Bris, Adel 30 second ads REGIONAL - NSW, VIC, QLD (Marooch, Cairns, Towns) METRO - Perth Sydney - 2Day RADIO, 2MMM, Nova, Regional 2WS & non Mix standard mkts (Mildura, TAS) REGIONAL - NSW, VIC, QLD (Marooch, Cairns, Towns) Adelaide - SAFM, 30 second 5MMM, ads Mix 102.3, 5AA Regional non standard mkts (Mildura, TAS) Gold Coast - Sea Sydney FM - 2Day RADIO, 2MMM, Nova, 2WS & Mix Sunshine Coast Adelaide - SeaFM - SAFM, 30 second 5MMM, ads Mix 102.3, 5AA Port Pirie - 5CS Gold Coast - Sea Sydney FM - 2Day RADIO, 2MMM, Nova, 2WS & Mix Whyalla - 5AU Sunshine Coast Adelaide - SeaFM - SAFM, 30 second 5MMM, ads Mix 102.3, 5AA Port Pirie - 5CS Gold Coast - Sea Sydney FM - 2Day, 2MMM, Nova, 2WS & Mix NEWSPAPERS Whyalla - 5AU Sunshine Coast Adelaide - SeaFM - SAFM, 5MMM, Mix 102.3, 5AA Sat- Real Estate sections - Port colour Pirie strips - 5CS Gold Coast - Sea FM Whyalla - 5AUSunshine Coast - SeaFM Syd - Cumberland NEWSPAPERS Group + Wentworth Courier + Sutherland Shire Leader Port Pirie - 5CS Melb - LeaderSat- Real Estate sections - colour strips NEWSPAPERS Whyalla - 5AU Brisbane - Realtor Syd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Sunshine Coast Melb - Weekender - LeaderSat- Real Estate sections - colour strips Brisbane - Realtor Syd - Cumberland NEWSPAPERS Group + Wentworth Courier + Sutherland Shire Leader MAGAZINES Sunshine Coast Melb - Weekender - LeaderSat- Real Estate sections - colour strips Brisbane - Realtor Syd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Full Page Colour MAGAZINES Sunshine Coast Melb - Weekender - Leader Your Mortgage Full Page Colour Brisbane - Realtor Your Mortgage Home Buyer Guide (Bi-annual) Your Mortgage MAGAZINES Sunshine Coast - Weekender Womens Money Your Mortgage Full Home Page Buyer Colour Guide (Bi-annual) Womens Money Your Mortgage MAGAZINES ONLINE Your Mortgage Full Home Page Buyer Colour Domain Guide (Bi-annual) ONLINE Womens Money Your Mortgage NineMSN Domain Your Mortgage Home Buyer Guide (Bi-annual) Realestate.com.au NineMSN ONLINE Womens Money Realestate.com.au Domain NineMSN ONLINE OUTDOOR Realestate.com.au Domain OUTDOOR NineMSN Bus-sides - Syd, Newctle, Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Realestate.com.au Bus-rears - Hobart Open for Inspection Bus-sides Scooters - Syd, OUTDOOR - Newctle, Syd, Melb Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for Inspection Bus-sides Scooters - Syd, OUTDOOR - Newctle, Syd, MelbWoll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for Inspection Bus-sides Scooters - Syd, - Newctle, Syd, Melb Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for Inspection Scooters - Syd, Melb Interrogate results Create, edit and refine schedules Predict sales AUGUST SEPTEMBER w/c Sunday 3 10 17 24 31 7 14 21 28 TELEVISION 7 & 9 Networks, 30:15secs ads Cairns, Maroochydore, Townsville 7 & 9 Networks, 30:15secs ads METRO - Syd, Melb, Bris, Adel METRO - Perth REGIONAL - NSW, VIC, QLD (Marooch, Cairns, Towns) Regional non standard mkts (Mildura, TAS) RADIO 30 second ads Sydney - 2Day, 2MMM, Nova, 2WS & Mix Adelaide - SAFM, 5MMM, Mix 102.3, 5AA Gold Coast - Sea FM Sunshine Coast - SeaFM Port Pirie - 5CS Whyalla - 5AU NEWSPAPERS Sat- Real Estate sections - colour strips Syd - Cumberland Group + Wentworth Courier + Sutherland Shire Leader Melb - Leader Brisbane - Realtor Sunshine Coast - Weekender MAGAZINES Full Page Colour Your Mortgage Your Mortgage Home Buyer Guide (Bi-annual) Womens Money ONLINE Domain NineMSN Realestate.com.au OUTDOOR Schedule g Bus-sides - Syd, Newctle, Woll, Melb, Geelong, Ballarat, Bris, Marooch, Perth, Canberra, Adel Bus-rears - Hobart Open for Inspection Scooters - Syd, Melb
High level proposed scenario
Metropolitan press schedule
Each with their own footprint..
Also need to specify price/offer 200 Relative Connections Volume 160 120 80 40 A B C D E F G H I J K L M N 0 0 10 20 30 40 50 60 70 80 90 100 110 Week
Compare alternative scenarios 8,000 7,000 Volume (000) 6,000 5,000 4,000 3,000 0 50 100 150 200 250 300 350 400 Media Spend ($000) Scenario A Scenario B Scenario C
8,000 Optimising media spend 7,000 Volume (000) 6,000 5,000 4,000 3,000 0 50 100 150 200 250 300 350 400 Media Spend ($000) Efficient Frontier Scenario A Scenario B Scenario C
Practicality and reality In practice it may not be possible to purchase the optimal schedule for a variety of reasons Availability of media Commitments already in place
Practicality and reality Thus, as many real-life business constraints as possible should be built into the process Fix or cap spend for a specific channel or market Exclude certain channels
Constraints will shift the frontier Volume 8,000 7,000 6,000 5,000 4,000 Constraint A moves the efficient frontier up Constraint B moves the efficient frontier down 3,000 0 50 100 150 200 250 300 350 400 Media Spend ($000) Efficient Frontier Constrained Frontier A Constrained Frontier B
Optimising value versus response Is the number of responses the right metric to be optimising? Including value allows more specific targeting of media This can vastly alter the optimal media mix, especially if conversion rates and value differ greatly by region
Incorporating expected value Conversion Rates by Postcode Baulkham Baulkham Baulkham Hills Hills Hills Hills Baulkham Baulkham Baulkham Hills Profit Margin by Postcode Baulkham Baulkham Hills Hills Warringah Warringah Warringah Warringah Warringah Warringah Warringah Warringah Ku-ring-gai Ku-ring-gai Ku-ring-gai Ku-ring-gai Ku-ring-gai Ku-ring-gai Ku-ring-gai Ku-ring-gai Blacktown Blacktown Blacktown Blacktown Blacktown Blacktown Blacktown Blacktown Ryde Ryde Ryde Ryde Ryde Ryde Holroyd Holroyd Holroyd Holroyd Holroyd Holroyd Parramatta Parramatta Parramatta Parramatta Parramatta Parramatta Manly Manly Manly Manly Manly Manly Willoughby Willoughby Willoughby Willoughby Willoughby Willoughby Ryde Ryde Mosman Mosman Mosman Mosman Mosman Mosman Hunter's Hunter's Hunter's Hill Hill Hill Hill Hunter's Hunter's Hunter's Hill Holroyd Holroyd Parramatta Parramatta Auburn Auburn Auburn Auburn Auburn Auburn Auburn Auburn Drummoyne Drummoyne Drummoyne Drummoyne Drummoyne Drummoyne Fairfield Fairfield Fairfield Fairfield Fairfield Fairfield Sydney Sydney Sydney Sydney Sydney Sydney Woollahra Woollahra Woollahra Woollahra Woollahra Woollahra Drummoyne Drummoyne Ashfield Ashfield Sth Sth Sydney Sydney Sth Sth Sydney Sydney Sth Sth Sydney Sydney Marrickville Marrickville Marrickville Marrickville Marrickville Marrickville Bankstown Bankstown Bankstown Bankstown Bankstown Bankstown Bankstown Bankstown Botany Botany Botany Bay Bay Bay Bay Botany Botany Botany Bay Hurstville Hurstville Hurstville Hurstville Hurstville Hurstville Sutherland Sutherland Sutherland Sutherland Botany Bay Botany Bay Hurstville Hurstville Kogarah Kogarah Kogarah Kogarah Kogarah Kogarah Campbelltown Campbelltown Campbelltown Campbelltown Campbelltown Campbelltown Canterbury Canterbury Liverpool Liverpool Rockdale Rockdale Rockdale Rockdale Rockdale Rockdale Kogarah Kogarah Campbelltown Campbelltown Woollahra Woollahra Waverley Waverley Sth Sth Sydney Sydney Marrickville Marrickville Canterbury Canterbury Canterbury Canterbury Canterbury Canterbury Liverpool Liverpool Liverpool Liverpool Liverpool Liverpool Sydney Sydney Leichhardt Leichhardt Strathfield Strathfield Waverley Waverley Waverley Waverley Waverley Waverley Ashfield Ashfield Ashfield Ashfield Ashfield Ashfield Concord Concord Fairfield Fairfield Leichhardt Leichhardt Leichhardt Leichhardt Leichhardt Leichhardt Strathfield Strathfield Strathfield Strathfield Mosman Mosman Hunter's Hunter's Hill Hill Concord Concord Concord Concord Concord Manly Manly Willoughby Willoughby Sutherland Sutherland Rockdale Rockdale
Producing an expected value frontier.. 1,200 1,000 Value ($000) 800 600 400 200 0 0 150 300 450 600 750 900 1,050 1,200 Media Spend ($000) Efficient Frontier
Use of the expected value frontier 250% Return on Investment 200% 150% 100% 50% A Any additional spend not generating enough additional value 0% 0 200 400 600 800 1,000 1,200 Media Spend ($000) Efficient Frontier Break Even Line
Conclusions Actuarial techniques can be used to generate real insights into media and price optimisation Data Modelling Simulation Optimisation Incorporating Value