MMM’s Scenario Planning vs Budget Optimization – How They are Different
In Marketing Mix Modeling (MMM), two terms often get used interchangeably:
▪️Scenario Planning
▪️Budget Optimization
They are related. They use the same underlying model. But they operate at very different levels of decision making.
I view Scenario Planning to be more of a “Tactical Adjustment” where as Budget Optimization is more of “Strategy Change”.
📌 Scenario Planning = Tactics
The simplest heuristic to remember scenario planning is, It asks the question – “What happens if I do X ?”
Now this ‘X’ could be any change in spends to your marketing / media variables. I am saying Marketing also because for CPG brands we often simulate increase or decrease in distribution.
Just to illustrate this better, consider this example.
Current spend:
TV: $4M
Meta: $2M
Google Search: $2M
YouTube: $1M
TikTok: $1M
Total: $10M
The client then asks:
“What happens if we shift $1M from TV and put into Meta (500k) and TikTok (500k) this month?”.
The Scenario planner is run and we get the new plan:
TV: $3M
Meta: $2.5M
TikTok: $1.5M
MMM will simulate:
– Change in sales
– Contribution shifts
– Marginal returns at new spend levels.
Now one crucial thing to notice here is that: Scenario planning is always forward or future looking.
The client wants to know what the future sales would be for next month, having made this small tactical changes this month.
📌 Budget Optimization = Strategy
I look at Budget Optimization as a full Strategy change or Strategy Realignment.
Budget Optimization thus is about allocation at a system level.
Instead of testing one move, one defines:
– Total budget
– Business constraints
And the model searches for the best strategic allocation.
An Illustration:
Client : We have +$10M next year. How should we allocate across channels?”
Constraints:
TV ≥ $2M
Branded paid Search ≥ $1.5M
TikTok ≤ $2M
Constraints setting is very important. Will write another post on it.
Overall, a tactic can change many times but strategy should not.
📌 So How Can Brands Leverage both Scenario planning and Budget Optimization
▪️ Scenario Planning
Use it to:
✅ Evaluate channel-level changes
✅ Test short-term adjustments
✅ Understand marginal returns
✅ Understand the impact on your KPI in the near future.
▪️ Budget Optimization
Use it to:
✅ Allocate budgets across channels
✅ Translate MMM into planning decisions
✅ Balance brand vs performance channels
Last week I wrote that the long term short term debate about MMM is not worth it.
If you look at what scenario planning does, it affects the short term. Whereas Budget Optimization affects the long term.
So the question is – Are we using it only to test tactics or also to shape strategy?
I think the beauty of MMM is , it lets you play both the games.
If you want to operationalize MMM, feel free to get in touch with us.
Aryma Nebula https://lnkd.in/gWCB3Bgz
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