The Unignorable Role of Risk in Marketing

In the world of marketing, there are two words that are often conflated: fee and investment.

People use one when they mean the other, and it’s typically “investment” that’s used when “fee” is meant.

“Investment” is sometimes an easier word to use with clients, since it’s a word that supposedly softens the financial blow for a buyer, as if this slight change in verbiage will magically assuage someone’s price sensitivity. 

But conflating these two words does everyone a disservice, because they’re not synonymous. A fee and an investment are two completely different financial concepts, and using one when you mean the other ignores the risk that’s ever-present in an investment.

(I suppose one could argue that there’s risk in paying a fee for something, in so much as you may not like the thing you paid the fee for and lose your money, but let’s set that aside for the moment.) 

In the world of finance, when you make an investment into a fund, regardless of whether it’s a mutual fund, an exchange-traded fund (ETF), an index fund, or a hedge fund, you know that you’re assuming some risk, and that there’s a chance you may lose some, or all, of your money. 

You can increase certainty by decreasing risk (leading to a potentially smaller gain), or you can increase risk, which will decrease certainty (leading to a potentially larger gain.) But you can’t increase risk and increase certainty.

In that sense, they’re mutually opposable goals. 

This is just as true for a marketing investment as it is for a financial investment. And it’s worth remembering that there can be a reward for taking risk, and that reward can be great, but there’s also, well, risk. 

There’s simply no getting around it.  

Fee or investment?  

When it comes to the dollars traded for marketing work, I think the right financial concept to use is “investment.”   

In his book, How to Buy a Gorilla, David Meikle illustrates this concept beautifully. 

Meikle defines risk in a marketing context as the “unpredictability of return, or the variability of the performance of any component in a marketing campaign.” He goes on to write that risk can be found in a variety of places—“the innovative nature of the proposition, the creative expression of it, the choices of media channel and so on.” 

But a key point he makes is the connection between innovation and risk. 

“Implicit in the innovation is newness,” he writes, “and with newness there must be some degree of risk, i.e., an amount of wisely judged unpredictability of how the innovation ultimately will be received, the truth of which can never be known with certainty before the innovation is exposed to its intended audience. You’ll never know until you try.”  

In our marketing engagements with clients, I’m often asked, “Will it work?” My answer, which is almost always unsatisfying to them, is, “Maybe.” 

The truth is that no one knows how creative will perform, or how the strategy will play out—especially if it’s truly innovative creative or strategy—until we deploy the assets out into the world and they meet their intended audience. That’s the risk inherent in marketing, the uncertainty we all have to live with.  

But the perceived effectiveness of a campaign also depends on the goal of the campaign.

For companies that sell products or services that have cyclical buying cycles, like insurance, or for companies looking to defend their share of the market in the face of new competitors, “always-on” marketing is a useful tool. 

However, always-on marketing is not devoid of risk either. There’s the potential that even when using marketing tactics that rely on recency and conspicuousness over a long period of time, a new competitor and product will enter the market and erode the market share you’ve managed to obtain.

But as with all investment portfolios, we can plan for this. 

Indexing too heavily on one strategy at the expense of the other can put you in a dangerous position and leave you far too exposed to losing your share of market or share of voice.

The way to combat this is to ensure that your marketing investment portfolio—just like your financial investment portfolio— is diverse.

A mix between high risk/low certainty and low risk/high certainty strategies and tactics are the right way to find your sweet spot, that overlapping part of the Venn diagram that allows you to benefit from both strategies at once. 

“When we consider risk in the context of business problems or brand objectives,” Meikle writes, “in growth markets, innovation is an essential ingredient to attract new customers, stimulate loyal ones, or make lapsed customers reappraise and potentially return to the brand.”

So pay a fee or make an investment in your marketing, but be sure you understand which is which. 

Then mitigate—or raise—your risk accordingly.