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Performance simulation

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By Donald R. Ryan

Most marketers traditionally rely on standard market research and direct response tracking to analyze the results of their marketing activities. At the best-run companies, these practices are methodical, statistically robust and, inevitably, time consuming, usually taking months to complete. Unfortunately, as senior management demands greater business performance and accountability, and marketing efficiency becomes increasingly critical, this simply will not suffice anymore.

One way to address the new time pressures is to use econometrically based performance simulators to understand the effects that different media, messaging and other marketing and nonmarketing factors have on business results. The advantage of this approach is that performance simulators, which use time-series regression modeling, are able to look both backward and forward in time, acting as part microscope and part telescope. As microscope, a simulator can examine past marketing investments retrospectively, explaining as much as the data will allow why certain business outcomes happened. Turned around, as telescope, a simulator can be used prospectively to predict what is likely to occur given planned marketing spending and other assumptions about the future.

For example, an office supply company can use a performance simulator to analyze how productive different media have been in recent advertising and promotional campaigns in inducing assorted business segments to purchase high-margin equipment or supplies. The simulator could also be used to forecast how future campaigns will perform under alternative media mixes, communication themes or vehicle placements.

An obvious benefit is that performance simulators enable the marketer to consider alternative marketing actions before spending any money. Moreover, they can be used to adjust existing campaigns midcourse, if they are not producing the desired results.

Performance simulators can also be used to assess the risks associated with alternative scenarios that the marketer might be considering.

The reality, of course, is that making marketing decisions in a complex and rapidly changing environment will always depend upon a mixture of prior experience, expert advice and gut instinct, as well as rigorous quantitative intelligence. With performance simulators, however, the marketer can act more quickly and feel more secure that his decisions have been well thought out and are analytically supportable.

Donald R. Ryan is senior partner and director, consulting services, at iKnowtion, Burlington, Mass. He can be reached at dryan@iknowtion.com.

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