What you need to know:

• While the media supply chain is scrambling to build cross-media metrics, two top blue chip marketers say hard-nosed boards and investors “don’t care”. They just want to know what returns marketing investment will deliver.
• Hence both Optus Head of Consumer Marketing Cameron Luby and Colonial First State Chief Customer Officer Josh Grace flipping hard to market mix modelling, or MMM. Among other tools, they use Mutinex’s MMM platform, outlining the key reasons alongside the software firm’s co-founder and CEO Henry Innis last week at the Future of TV Advertising.
• Grace used the platform at Samsung, where he was previously CMO, to flip channel investment after the numbers proved it was over-indexing on digital, as well as push more money into media after getting a sharper read on the proportion of its $200m budget being eaten up by sales incentives to telcos.
• Now he’s using it to show Colonial First State’s management – and PE shareholders – what media investment will deliver. Meanwhile, he’s attempting to build a new model, along with Mutinex, that shows the value of paid media investment on retention versus things like owned channels, CRM and CX.
• Optus’ Luby, who spent a decade with Google in San Francisco prior to joining the telco, has already used MMM to flip its paid-owned strategy after finding paid media did more to retain customers than acquire them. He’s also mapped brand tracking, a proxy for investment, to sales with a 78 per cent correlation.
• Now he’s aiming to take MMM’s ability to influence decision-making beyond marketing and into sales and product. “Is it a crystal ball? I think it is getting reasonably close,” per Luby.

New model army

Amid accelerated fracturing of media and audiences, two top blue chip marketers say they are going much deeper than audience measurement to determine how they allocate budgets by channel. Josh Grace, Chief Customer Officer at Colonial First State – owned by private equity titan KKR and Commbank – and Optus Head of Consumer Marketing Cameron Luby, say they are elevating market mix modelling above media metrics to determine channel mix based on direct visibility of business impact – and the approach is changing how they invest, potentially beyond marketing.

After spending $400m on a “fundamental business transformation”, Grace said Colonial First State is now pulling the growth lever. Talking audience metrics to the people holding the purse strings, he said, won’t cut it.

“I'm in a business of investment analysts. Talking media metrics means nothing to them – return on investment is what matters. You've got private equity shareholders who are counting the value of every dollar they spend – is it going to deliver a cost benefit to the business, or is it going to deliver a return on investment in terms of growth?“

Hence Grace’s increasing reliance on MMM to provide those forecasts.

“It’s so powerful for me, because in a business that was historically B2B [focused], I can sit down and say ‘this is the actual dollar impact of what marketing will do to drive growth to your B2B channel, but more importantly, your B2C channel as well’. And so it's the metric that matters to me, around the board table and to the shareholders.”

Shifting spend

Grace, who was previously CMO at Samsung, said he had used MMM at the consumer electronics giant to dramatically alter its broader investment mix.

“At Samsung, we had a budget approaching $200 million. We were the fifth biggest brand in the world [but] with literally no share of voice. The reason was most of our budget was going into sales incentives for mobile phones – for Telstra and Optus,” Grace told the Future of TV Advertising conference.

“The challenge was to prove to very sceptical [management] that investing in media was as impactful or more impactful than what the sales incentives were [delivering]. And so what this model enabled us to do was really shift a large proportion of investment back into key channels like TV in particular, because we knew that was so much more impactful. And then over time, [if] we managed to maintain that, we actually could grow market share.”

Samsung’s use of MMM also provided the evidence to make major channel allocation shifts.

“When I joined Samsung, 92 per cent of the media investment for selling [smart] TVs was in search and digital channels. Why wouldn’t you advertise TVs to people actually watching TV? Thankfully the econometric model showed [the validity of altering the mix] and we shifted it back to 60 per cent of the investment.”

Grace said MMM also enabled him to defend against budget cuts – because he could show the P&L impact of marketing spend reductions.  A “compelling argument”, per Mutinex CEO Henry Innis. “Nobody in the business wants to cut revenue. No one wants to cut profitability.”

Predicting P&L impact

Both Optus and Colonial First State use Mutinex’s econometric modelling platform. Optus’ Luby now aims to use the platform to go beyond marketing. In the meantime it’s enabling sharper decision-making hard metrics that land with top management.

“If we had to choose between media metrics and MMM – if we could only look at one of them – I would choose MMM hands down. I wouldn’t look at any of the media metrics. Media metrics tell us that we're executing well in a channel, but they don’t tell us marketing's overall contribution to the business,” said Luby.

Talking in tangible terms, he said, “gives marketers a seat at the table … talking purely talking about reach numbers or brand studies … that's just not where business is today”.

Plus, as consumer belt-tightening has similarly tightened the grip of those holding marketing purse strings, CFOs want a sharper prediction of what any additional investment will deliver.

“I'm finding more and more that it's not, ‘tell us about what happened’. It's ‘tell us what you're going to get’” said Luby. “So the investment is dependent on the outcomes that you're able to lay out – and that is solidly coming through.”

Modelling beyond marketing

Luby thinks MMM can help define those outcomes across the business – influencing decisions beyond marketing.

“I don't want to use this purely as a tool for marketers to inform channel assumptions, but as a tool for us to look at how the entire business works: What are the channel choices that we're making? What are the sales promotions incentives that we have at any given time? Should we be weighting those up and down? Should we be moving money back and forth in order to try and get a stronger EBIT outcome for the company overall?” he said.

“If it opens the door to an open and transparent conversation with our sales teams, our product teams, with the finance team, about how we structure ourselves overall and where we want to make our bets … I think that's a really powerful thing. So that's certainly the ambition for us. Is it a crystal ball? I think it is getting reasonably close.”

By way of example, he cites Optus’ broader work to tie together its brand tracking and sales modelling.

“We've been able to correlate our brand tracking to our sales, and it correlates at 78 per cent – and the delta there [the remaining percentage] is what we are doing with all of our different sales promotions at any given time,” said Luby. “So that kind of metric is incredibly powerful.”

Acquisition-retention flip

MMM is also flipping the way both Optus and Colonial First State think about acquisition versus retention – and their paid and owned strategies as a result.

Before using MMM, Optus’ Luby said a “simplistic” explanation of the telco’s approach was to assume existing customers were covered by owned channels like EDMs, SMS and the Optus app, while paid media was the primary acquisition engine.

“But what we've seen through previous modelling work is the paid media actually serves a more significant role in helping us renew and maintain a healthy base than it does in actually bringing in new customers,” said Luby.

Colonial First State’s Grace is now trying to tackle a similar problem. He said the firm, which manages upwards of $140bn in assets, typically sees $25bn of money coming into those assets – super and the like – each year. Econometric modelling “typically looks at acquisition and new wins” so can help map back marketing investment to those “inflows.”

But if Colonial First State also sees $25bn of annual outflows – i.e. money moving out – it is challenged to see whether its media investment has any bearing on retention, especially as it currently uses ‘net flow’ as its metric.

At the moment, said Grace, he can show the CFO and shareholders the impact of media investment on acquisition and its ROI. But if can also map its impact on reducing out flows, i.e. retention, the ROI could potentially double. “And that is a much stronger conversation for me to have with CFO and say ‘give me more money’, because I am saving money [that would otherwise be leaving the business] on one side and bringing it in on the other – and the two things will feed each other,” said Grace.

Cracking the correlation between paid media as a retention strategy versus CX investment would ask interesting questions of the current prevailing narrative – and Grace thinks it could have market-wide implications, if Mutinex and Colonial First State can nail it.

“It’s not an easy thing to build – and Henry [Innis] and I are in conversation about how to do it,” said Grace. “But if we can find a way to measure that, I think it is going to unlock a lot of purse strings.”