Getting Started With Adstock
A must know concept to get Marketing Mix Models (MMM) right
One of the chief reasons why a Marketing Mix Model becomes misspecified is because of having wrong adstock value for a media channel or having no adstock at all !!
I find that many new MMM analysts lack a deep understanding of what Adstocks are.
Just to explain a bit about Adstock (example TV Adstock):
TV Adstock has two components:
1)Â Carry over effect or Decay Effect:
The impact of past advertisement on present sales is known as Carry over effect.
A small component termed as lambda is multiplied with the past month GRP value.
This component is also known as Decay effect as the impact of previous months’ advertisement decays over time.
2) Diminishing Returns:
The underlying principle for TV advertisement is that the exposure to TV ads create awareness to a certain extent in the customers’ minds.
Beyond that, the impact of exposure to ads starts diminishing over time. Each incremental amount of GRP would have a lower effect on Sales or awareness.
So, the sales generated from incremental GRP start to diminish and become constant.
When I started my career in MMM more than a decade ago, I was told to read two seminal works with regards to Adstock.
1) One Way TV Advertisements Work by Simon Broadbent
2) Understanding Advertising Adstock Transformation by Joy Joseph
I would highly recommend the above two resources to anybody looking to get started with Adstock.
Understanding Adstocks are crucial to building accurate MMM models.
Thanks for reading.
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