Marketing Mix Modelling — Baseline and Incremental Volume

A frequently used approach to modelling the marketing mix involves decomposing sales into baseline sales and incremental sales gains above the baseline due to contemporaneous factors such as in-store promotions.

Sales Volume ≡ Baseline Volume + Incremental Volume

Baseline Sales or Base Volume is a function of manufacturers’ marketing actions such as:

• Regular price (base price)
• Advertising (advertising stock)
• Distribution
• Competitor activity

A variety of techniques ranging from smoothing functions to econometric methods are used for developing baselines such as the one depicted in Exhibit 25.3.

Incremental Volume specifically means contemporaneous, immediate gains (lifts) resulting from in-store causal factors such as:

• Temporary price reductions (discounts)
• Displays
• Features
• Distribution fluctuations (stockouts)
• Seasonal factors

Note however that this two-stage approach, as outlined in Exhibit 25.4, assumes no interaction effects between manufacturer-to-consumer initiatives driving the baseline and retailer-to-consumer (in-store) influences.