Assortment, the Missing P from Marketing Mix Modeling

Assortment_HeaderFor those of us with a formal marketing education in the last century, the idea of the 4Ps was the first thing drilled into our lexicon. Thanks to E. Jerome McCarthy, whose textbook many of us had for Introduction to Marketing, we all can cite the 4Ps: Product, Price, Promotion and Place. About the same time that I was sitting in "Introduction to Marketing" in 1987, the availability of weekly scanner data to integrate advertising measurement started an analytics revolution named Marketing Mix Modeling (MMM).

MMM put return on investment at the forefront of marketing decisions. Although the outcome was not always a pure financial analysis, marketers could evaluate the trade-offs between supporting different products with unique marketing levers in various geographies and time periods. Sometimes the levers were Price, and other times they were distribution that McCarthy called Place. However, more often than not they were Promotion, the broad classification for advertising, promotions, publicity, and other communication elements of the brand plan like sponsorship. Since the MMM analysis typically addressed a single brand or item, the Product component of the 4Ps was assumed to be a function of "Base Sales.”   Unfortunately, Base Sales is sort of the catch-all for everything that MMM doesn’t explicitly measure, also known as Incremental Sales.

Regardless, McCarthy made a point to designate Product the first of the 4Ps. In that 1987 textbook, he explains Product as "the specifications of the actual goods and services as determined by the needs and wants of consumers.” The first position is obvious, as this is the most important part of the marketing mix. Unfortunately, it also means that at the very least, the name for MMM is misleading if Product is a component of Base Sales as opposed to the key driver. In an earlier blog, I describe a very different approach to modeling, which Len Lodish, Samuel R. Harrell Professor Emeritus at the Wharton School and noted Middlegame hero called the "Mind-of-the-Consumer Model (MOC).” The MOC leverages a multinomial-logit formulation to explain weekly market share for each SKU in the category based on product attributes, pricing, merchandising and other promotion(s?), and distribution.

As explained in this same blog, the Competitive Interaction Analysis (CIA)® platform is our commercialization of MOC. Therefore, when Middlegame talks about assortment as one of the key aspects of our shopper response analytics, we are really explaining that all of the McCarthy 4Ps are represented in our interpretation of "marketing mix modeling." In the same scenario-planning exercise, marketing managers can evaluate product-development projects as competing for resources with promotion and other current marketing tactics. Product is definitely embedded in the model.

Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.

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