Is Marketing Mix Modeling (MMM) an Econometric Model or a Statistical Model?

The demarcation is important to understand both the potential and limitations of MMM

So what is MMM? is it a Econometric Model or a Statistical Model?

Short answer : It is a statistical model developed by econometricians with a lot of statistical guardrails.

Why the demarcation?

Well of late MMM is facing attacks for being an Econometric model. Some of the shortcomings of econometric models are being attributed to MMM as well.

How true are these criticisms ?

Not much. The fundamental premise of attacking MMM seems to be that econometric models have not done a good job capturing economic realities. The core criticism seems to be that econometric models have failed to capture dynamics of market participants' behavior.

Firstly people seems to be confused with economics and financial markets. Though related, they are different kettle of fish altogether.

Econometric models can't model financial markets accurately. Financial markets follow somewhat a stochastic process governed more by fat tail properties and not only would econometricians would fail at it, any STEM person would fail at it. 
 
Econometrics in a way is antithetical to core statistical principle of parsimony.

Econometricians do indeed believe that they could model any behavior if they throw enough variables. Also some of the dependent variables econometricians deal with are estimated rather than being realized with certainty. For e.g. GDP, Household incomes are estimated.

How is MMM different from typical Econometric models.

MMM has one stark difference in comparison to typical econometric model. The dependent variable in case of MMM (e.g. sales) are realized with certainty.

Secondly, MMM has a lot of guard rails like having more data for each variables being estimated (p>n problem).

Over and above this MMM has added a lot of checks and balances to ensure that the models are accurate.

Lets show some love for econometrics too.

So given all these bashings of econometrics, let me also point out why marketing effectiveness vendors should be thankful to econometrics as a field.

Causality - Causality is not an invention of econometrics but MMM and Econometrics face the problem of not being able to do controlled experiments to prove causality.

The reasons vary from being unethical to impractical. One can't just segregate people into groups in a famine/war region and decide only 1 group gets certain welfare scheme and the other does not.

So controlled experiments are not possible. Similarly in MMM one can't RCT because of sheer impracticality

So how does one prove casualty then?
Ans: Quasi Experiments.

Econometrics have leveraged techniques like DID, RDD and IV, to solve the causality problem. MMM of late have taken a leaf out of econometric way of proving causality (at least we have - see our DID paper).

In summary:

MMM does have a lot of reasons where it could go wrong but if done with care and vigil, it is an excellent tool for efficient marketing decision making.

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Thanks for reading.

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