Allocating marketing budget using marketing attribution and marketing mix modeling (Part 1 of 2)
Today, more than ever, marketers can estimate ROI and use it for budget allocation. However, budget allocation is still a complex process because many marketing channels are not easily trackable.
The following two methodologies allow marketers to connect the dots between trackable channels like pay-per-click and not so trackable channels like TV Advertising:
- Multi-touch attribution
- Marketing mix modeling
In this and the next blog, we will look at each methodology in detail and discuss how they can be used together to come up with realistic marketing strategies.
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Multi-touch Attribution (MTA)
Assume a business operates completely online where only online marketing channels are used (example: an ecommerce business). There are visitors coming from various channels – like organic search, pay per click, social media ads, and even direct. Often, it takes several visits to the site before a visitor is converted to a customer.
In such a case, which channel gets the credit for a conversion? Is the first touch that was responsible for introducing the visitor to the site (even though there was no conversion) or the last touch, which finally converted the visitor to a paying customer? How about the touches in between that built up visitor’s interest?
Let us look at Google Analytics for various options. You can see these options in “Conversions > Attribution”.
- First click: All the credit goes to the channel that brought in the visitor. The channel is identified by a cookie that connects that interaction when the visitor finally signs in.
- Last click: All the credit goes to the channel touched just before the conversion / checkout
- Linear: All the touches get equal credit. (Marketers generally don’t like this approach because of its “peanut buttering” nature.)
- Position based: In this hybrid approach, the first touch gets 40%, the last touch gets 40%, 10% goes to the touch after first and finally 10% goes to the touch just prior to the last touch.
- Time decay: A linearly increasing attribution for the touches leading up to the checkout (based on time elapsed), with the last touch getting the biggest credit.
- Custom: Google provides full flexibility in customization in providing credits and for which actions
Suggested attribution approach
Ideally you will try different MTA approaches and see which one is the most suited for your business. That said, here are some ideas:
If you want to make the attribution methodology as simple as possible, Last Touch is a good compromise. It will lead to a conversion-oriented marketing strategy.
A much better option is using multi-touch approach. We recommend a custom attribution framework – with 40% credit for the first touch, 40% for the last touch, and 20% spread equally for all touches in between.
For a fully online business, MTA is a great methodology for marketing attribution. If your business is a hybrid using both online and offline (as most businesses do), we need to bring in the other methodology, Marketing mix modeling, into the picture. We will discuss that in the next blog.