Econometric modelling is a statistical technique that isolates and quantifies the effect of business drivers on a given key performance indicator (KPI), for example sales. The output allows you to identify by how much your brand's sales respond to a x% increase in marketing and advertising inputs - both individually and combined (TV and TV & Promotions for example). When the model is robust, this allows you to compare the likely effect of different plans going forward (what if I analysis).

It is quite difficult to argue that to be effective a modelling project has to cost a given price. The key drivers of reliability are more likely to be 1) data availability, 2) data quality, 3) the modelling team's experience and 4) the integration of the modelling within your business and marketing planning process.

As far as project costs go, this can vary a fair bit depending on the project specifications. Analysing the behaviour of a brand's total sales aggregated at national level only requires one model, but if you need to understand the behaviour of a brand's sales by type of products (say three types), you will need three models. And if you need to analyse sales of the same three products groups broken down by four retailer groups, you could need up to twelve models, which require more work and more time. If your business model is relatively simple, you could reap huge benefits from an investment well under £50K and it is definitely good practice to dedicate a small percentage of your budget to evaluation.

The key benefit of investing in econometric modelling is that you can identify what really works to drive your sales and, as a result, focus your marketing investment on those factors. Small reallocations of investment can have a substantial impact on business performance and it is possible to achieve more sales with the same budget. If you achieve incremental value sales higher than the cost of the project, then it is easy to justify the benefit of installing one. We reckon that modelling should help improve your sales volume performance by at least 5%.

If you would like to find out more about this, call me on 020 7470 5485.

Bruno Martin, OMD Metrics