Your marketing budget as an investment portfolio

stocks.pngI made a presentation at a marketing seminar organized by Äripäev, Estonia’s business daily. My topic was treating marketing budgets like investment portfolios, a simple idea that stuck with me years ago.
A financial investments portfolio usually includes some assets that preserve capital (such as cash or government bonds) and some that grow it such as stock funds. An aggressive investment portfolio would also include a risk fund, a small share which can finance riskier but at the same time potentially more profitable investments. If it works out sour, the loss is capped at only being a tiny bit of your portfolio. And if it works, the tiny bit of your portfolio can quickly grow to be a large bit. Simply there is more to win than there is to lose.
What does this mean for marketers
In marketing it’s exactly the same. Some of the things we do are very basic, like using point-of-sale materials when selling fizzy drinks or placing an ad on a classifieds paper when selling real estate. These involve very little risk, but they don’t guarantee a successful result.


Then there are things like having a snappy product name or a great media campaign. These involve a little more risk, and they’re also more likely to generate returns. The unfortunate thing is that competition is very likely to do the same things, so you’d need to be slightly cleverer to do better than them.
Which neatly brings me to the third kind of possible investments into marketing. The risky but potentially very rewarding kind. A different niche as target audience, a completely different media strategy or messaging that stands out like a Bruce Lee in a sea of Steven Segals. And I’m not saying marketing should go all wacky. Not at all, it’s just that there should be a small “risk fund” in every marketing budget that can finance novel trying out new things. Think iPint or the Mynthon outdoor ad that also served as a samples dispenser.
Time is money
The size of your risk fund can vary based on your marketing goals, size of your budget, conservativeness of your business (or boss) etc. I reckon 10 per cent is minimum. The good people at McKinsey go further:
marketers must push to ensure that they spend 75 to 80 percent of their money on proven messages that are placed in proven media vehicles and supported by proven dollar levels. The remaining 20 to 25 percent of spending should finance well-structured experiments.(Thanks, Robin, for pinging me this)
The mistake I’ve sometimes done there is not allocating enough time for experimenting. Having a creative idea is the easiest thing on the planet. Selling it internally, executing, measuring, analyzing effectiveness and reporting it back to people involved is a different story. I say the rule of thumb is that 10% of experiential budget needs 20% of time to handle it properly. YMMV.
This sounds good but how to measure it?
Touché! Measuring usually proves to be the difficult bit, especially in non-internet channels. But unless your budget or risk fund of that budget is gigantic I wouldn’t go anal with measuring. Paying attention and any reasonably-easy-to-set-up measures are enough. If it works brilliantly, you’ll know. The outlets in the proximity of your outdoor ad/dispenser will be sold out, competition will start to copy it or there will be a divine thumbs-up from between the clouds. And if it’s a complete waste of money, you’ll know too, and probably in a not-so-pleasant way.
Grass is greener online
Measuring becomes much less of an issue online, provided you have taken the time to dig deep into numbers. Also, experimenting is usually much cheaper money wise but not time wise. Carling knows exactly how many people have downloaded the iPint. At Skype we often create several versions of the same email or web page because that’s the best way to know whether something is working or not. Duplicating the “buy” button at the top of the page and at the bottom of the page may result in twice as many people buying from that page. Starting an email with a photo rather than an illustration may get you more people clicking through. Talking about a discount as 50% off may work better than half price – at least with Skype users. With users of other types of software, of financial institutions or of porn it may be a different story. Experiment, and you’ll know.

One comment

  1. Robin Gurney

    I would have liked to be there Andrus.
    Good points and I agree for the most part.
    I/we/altex have long been banging-on about “It’s time to experiment (in a structured and measurable way)” but we are actually modifying that now.
    In the current economic climate, with what seems to be a full blown recession just around the corner, it’s essential to measure the ROI of everything we do.
    Organisations must get familiar with Google Analytics, Omniture or whatever and learn how to customise those tools for their business needs and then to interpret the data they output. And find time to act on it of course.
    Just installing basic Google Analytics and checking a few stats now and then is not enough.
    In Estonia (and Latvia too actually) we have run integrated online campaigns involving blogs, banners, email, seeded text links and other more innovative actions and measured the results of them all.
    From those measurements we can say for sure that the channels that work best in Estonia are not the same as Latvia and in turn that’s completely different to what works in UK.
    Measurement is key.
    So we revise our statement and say: It’s time to measure effectively what you are already doing and find out what works and what doesn’t.
    What doesn’t work needs to be cut out and THAT will generate a budget for some experimentation :)
    Ok its not as cute as “its time to experiment” but it’s the new reality for us. More and more clients are interested in measurement.
    And before marketing people continue sinking declining budgets into “often ineffective” banner advertising without measuring lets consider the wise words from Nike’s Trevor Edwards (from http://www.nytimes.com/2007/10/14/business/media/14ad.html?_r=1&oref=slogin ):
    “We’re not in the business of keeping the media companies alive, we’re in the business of connecting with consumers.”
    Let’s do it !

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