Which sales would have happened without any marketing efforts? To what extent does our competition influence our revenue? How can we explain fluctuations in product sales?
Many advertisers ask themselves these and similar questions. Because the fact is: no matter how good and effective your advertising is, it is not solely responsible for all sales.
Consumers are subject to a multitude of different influences, which can have an effect on their buying decision. They often act out of habit. If they`ve had a good experience with a brand or a product before, they are very likely to revert to the same brand for their next purchase. Sometimes we shop simply because we feel like it or because the new iPhone that we've been waiting for so long is finally on the market. The influences and impressions that affect us every day are limitless.
To fully understand the incremental value of marketing, marketers must be able to measure and evaluate these influences. In summary, they form the baseline of a company and show which sales would have taken place even without any marketing efforts. In our blog posts, we have summarized all important aspects of baseline modeling.
BASELINE MODELING IN A NUTSHELL
The baseline is a model that captures external effects that cannot be attributed to marketing. In particular, this includes the following components:
Seasonal trends: Climate, holidays and other significant events. Some companies are more dependent on seasons than others. Nevertheless, it is important for advertisers to keep track of their customers' purchase trends throughout the year. For example, the travel industry generates the largest turnover at the beginning of the year, while the retail sector does at the end of the year. Although these calendar effects often correlate strongly with increased marketing, they are usually accompanied by an increase in marketing effectiveness.
Long-term trends/branding: Do sales show a long-term pattern that cannot be linked to marketing or other events? These can probably be explained by long-term brand effects. For example, does the company already have an extensive brand awareness? Do they have loyal existing customers that promote the company? Have competitors changed their marketing strategy in order to become more visible in the market?
Structural demand: The underlying foundation of the baseline is the structural demand. Structural demand summarizes all sales that would have happened anyway without any influences. Structural demand naturally varies in size depending on the product or industry.
The baseline is therefore the value of all conversions that take place outside of any measurable marketing campaign – or, simply put: baseline comprises all sales that would have happened anyway.
WHY IS THE BASELINE SO IMPORTANT?
For advertisers who want to measure and optimize their marketing campaigns in the long run, the baseline offers two basic advantages:
The increasing impact of marketing can be calculated accurately.
Advertisers who know how their baseline evolves over time can accurately determine the impact of their marketing efforts. For example, if sales increased by 25% in the last quarter, advertisers can use baseline modeling to more accurately measure this success. For example, while the baseline has increased, 15% of the increase in sales came from a new marketing campaign launched in this quarter.
Explain fluctuations in performance.
With an advanced baseline algorithm, advertisers can better classify fluctuations in performance. If, for example, sales decline despite a constant marketing budget, these fluctuations can be explained by external factors such as the weather or offers from competitors.
BRAND IMAGE AS AN IMPORTANT FACTOR IN THE BASELINE
Brand image reflects whether the brand is among first choices in the consumers’ minds. Is this a brand they instinctively gravitate towards when researching new purchases? Have they heard for this brand or would they buy from this brand are two different topics.
Advertisers invest a lot of time and effort in creating their brand. Brand image, or brand equity, is therefore one of the most time-consuming and cost-intensive marketing efforts. In return, in terms of investment strategy it’s the pricing mark-up a brand can afford because of brand strength compared to their competitors.
To become a relevant brand or even the first choice of a customer depends on the brand image on the one hand, but it’s also dependant on other factors, such as prices and promotions at the so called “moment of truth” (the second you decide to buy a product). So, if a different brand has a better offer at this moment, the customer can be convinced to buy elsewhere. Such switches depend strongly on the product life cycle and purchase involvement of the consumer. But in general, you can influence first choice short term with promotional activities, which makes them “cheaper” compared to brand image.
INTEGRATING BASELINE MODELING INTO YOUR MARKETING ATTRIBUTION
To development a baseline model is no easy task – but it is essential for a precise analysis of your marketing effectiveness. With an accurate baseline, you can discover interesting and relevant insights for each channel.
The data-driven attribution must be able to access the data from the baseline model in order to take into account all external factors such as current trends or seasonal influences. The attribution analyses become much more accurate and the actual value contribution of a channel or marketing campaign can be determined with complete and holistic data. Advertisers can use their marketing budgets more efficiently to ensure long-term success in marketing and for their business.