Louise Cook, of Holmes & Cook, is an expert in evaluating marketing effectiveness. She has written this brilliant document on how to write an econometrics appendix. Click here to view.
Activity that doesn’t add to the bottom line is increasingly difficult to justify. In this climate, spending on communications can seem like a luxury. So wouldn’t it be easier if there were a way to measure the payback from your marketing communications?
There is – it’s called econometrics. With the right data, econometrics can measure the impact your communications have on sales and profit. It can even forecast the effects of future campaigns.
Econometrics is not new. UK marketers have been using it for over 25 years, and the methodology behind it goes back much further. Yet even after all this time, econometrics is not as widely used as it could and perhaps should be.
One possible reason for this is a lack of understanding. Most people in marketing have probably heard the term ‘econometrics’, and most probably have a vague idea that it’s something to do with building models and measuring things. But that’s as far as it goes. To most people, econometrics is an obscure and intimidating art, practised by ivory-tower boffins, with little relevance to the day-to-day practice of marketing.
We at the IPA believe that this lack of understanding is preventing UK clients and their agencies from exploiting the full potential of econometrics. Hence this guide. Written by two of the UK’s foremost practitioners, it aims to introduce the basic concepts of econometrics in a straightforward and user-friendly way.
If you are interested in measuring the effects of marketing communications, and would like to know how econometrics can help, then this guide is for you. It will tell you what econometrics is, how it works, and how to get the best out of it. No previous knowledge of econometrics is assumed, and very little maths is needed. What this guide will not tell you is how to actually do econometrics. Econometrics is a specialised skill, and requires trained experts. But, armed with this guide, you should at least be able to commission and judge econometrics with some degree of confidence.
Please download the PDF - Econometrics Explained for a detailed explanation of what it is and how you should consider it.
Section 1 explains in broad terms what econometrics is and what it is used for. Section 2 then focuses in on how it is applied to communications. For those of you who are curious, Section 3 explains in very simple terms how econometrics actually works. Those of a more practical bent may wish to skip to Section 4, which tells you how to commission an econometric project. Having commissioned an econometric model, Section 5 tells you how to judge whether or not it is any good. Finally, assuming you now have a robust econometric model, Section 6 then tells you how to use it.
Les Binet
IPA Value of Advertising Committee