Media mix modeling – A Monte Carlo simulation study

Abstract

An algorithm to model both time and revenue response to spend for media mix modeling is proposed in this article. A Monte Carlo simulation study is conducted to investigate the possibility of extracting time and revenue response simultaneously from both revenue- and channel-spend data. The quality and reliability of the underlying model parameter reconstruction from various sizes of data are also inspected. The outcome of re-allocating channel spend optimally based on extracted revenue response is evaluated. Simulation results show that nearly a 60 per cent increase in revenue can be achieved by channel-spend optimization, relative to arbitrary channel-spend assignment. The algorithm presented here is very general and can be applied to any budget allocation optimization at various levels.

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