Econometric analysis and digital marketing: how to measure the effectiveness of an ad

Over the past 18 years online advertising has grown to a $70 billion industry worldwide annually. Despite this impressive growth, online advertising faces many (and some would say traditional) challenges including how to measure the efficiency or the potential loss of sales caused by the inefficient use of advertising dollars. Consequently, it is vital to measure, maximize, and benchmark the efficiency of advertising media expenditures. This tutorial introduces the field of econometrics as a means of measuring the effectiveness of digital marketing. Econometrics is a field that extends and applies statistical methods to the analysis of economic phenomena. In that vein, econometrics goes beyond traditional statistics and explicitly recognizes the complexities of human behavior. Consider for example the impact of deep discounts on survival of restaurants. Struggling businesses are more likely to offer these deep discounts and eventually fail. A naïve application of statistical techniques will overestimate the impact of deep discounts on business survival. In this case, the discounts are an endogenous variable as compared to an exogenous variable. This type of specification error highlights why we need a deeper look at the variables that go into statistical models. Econometrics addresses these and other issues in a formal and rigorous manner.