Econometrics has new relevance right now for those wanting to make marketing more accountable, more effective and more profitable. This is according to industry experts who have set out a strong case for the statistical method in a new IPA publication, Econometrics and the C-suite – evidence-based decision-making for business, unveiled at the IPA’s flagship EffWorks Global 2023 Conference.
In an expansive introduction for the new IPA report, adam&eveDDB’s Global Head of Effectiveness Les Binet explains the value of econometrics and outlines the two core reasons for why its use matters now more than ever.
Ratcheting inflation rates
“The economy is no longer a gentle escalator – it’s a roller coaster. Ratcheting interest rates mean investors increasingly want profits not purpose and they want them now,” explains Binet.
Rising inflation means analysing the impact of price is firmly back on the marketing agenda. Econometrics is the perfect tool for this new environment, allowing you to measure set prices and fine tune marketing plans to maximise profit. No other research tool can do those jobs as effectively.
Growing disenchantment with digital evaluation techniques
Savvy marketers have long been suspicious of last-click attribution, outlines Binet, but there is a growing realisation that even sophisticated multi-touch attribution methods do not establish true causality.
“Increasingly, smart firms are adding econometrics and experiments into their modelling to provide a more balanced point of view. And, surprisingly, the Big Tech firms seem to be going with them. Insiders at both Google and Meta say that they are tilting away from simplistic digital attribution towards more sophisticated econometric analysis. And if the world’s most influential tech firms think econometrics is the way forward, it’s probably worth a look, isn’t it?”
Joining Binet in making the strong case for the use and value of econometrics, the IPA publication hears from an array of industry experts on the various ways the discipline can help businesses and how it can be executed, which include:
A good econometric model not only explains the past, but it can also predict a number of possible futures. By “wargaming” different scenarios, a business armed with econometrics can reduce risk and maximise opportunity.
- Colin Smith, Senior Director – Consulting Services for TransUnion looks at scenario planning.
Econometrics uses data to reveal how the outside world affects business outcomes, as well as the results of choices made by the business in the past.
- Dr Grace Kite, Founder of Magic Numbers sets out how econometrics can be useful in managing big-picture decisions; resolving competing demands across departments; responding when the outside world is changing; and knowing when to invest and when to be cautious.
When it comes to the C-suite, econometrics has regained its position as the gold standard for quantifying the incremental contribution of marketing and media activities, as well as gauging the magnitude of all other business drivers.
- Olga Zaitseva, Partner – Analytics and Insight at EssenceMediacom, provides a comprehensive overview of the application of econometric modelling to the media buy, and the vital role it plays in guiding both short-term and long-term investment decisions in the boardroom.
Econometrics has played an important role in building up the industry’s body of effectiveness knowledge.
- David Grainger, Media Strategist, Technical Judge for the 2022 IPA Effectiveness Awards and Report Editor, looks at post-campaign evaluation through the IPA Effectiveness Award case studies.
Could AI make econometric modelling quicker, easier and more accessible?
- Winnie Cheng, Senior Commercial Strategy Director Analytics at Kantar and Dom Boyd, Managing Director UK Insights and Marketing Effectiveness Practice peer into the potential future of econometrics.
The report also includes commentary from Harry Davison, Head of UK Marketing Science, Meta and Nitin Gulati, Interim Head of Measurement & Effectiveness, Google UK.
Says Laurence Green, Director of Effectiveness, IPA: “Econometrics is a proven discipline in advertising and communications, but its value as a predictive tool for developing cohesive business strategies across the wider business portfolio and marketing mix – from pricing to distribution, portfolio management to budgeting – is less well developed. This publication seeks to address this planning gap.”
Says Les Binet, “Marketing can have many different goals: to build awareness, to drive traffic, to recruit customers, to increase market share, and so on. But the ultimate goal, for commercial firms at least, is always the same: to generate incremental financial value. This is where the value of econometrics lies. It enables us to identify the effect each variable has on sales and profit, even when everything varies at once.”
There’s no doubt that Econometrics is a hot topic right now, and these five report chapters make fascinating reading.
Econometrics in the C-suite is written as a standalone publication, but it can be read as a companion to one of the most enduring and downloaded IPA publications Econometrics Explained 2 – essential reading for those new to the discipline who want to master marketing effectiveness.