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Perceived Risk in Marketing

By September 19, 2013Creativity, SEO, Social Media, Web Marketing

If you’ve ever done any investing, you’ve undoubtedly been asked about risk. Do you want more guaranteed investments (like bonds or other government backed securities)? Or do you prefer an investment style that is more risky. Say, startups or technology companies?

Most portfolio managers begin any interview by asking those questions. The idea is that, ultimately, more risk brings more reward (hopefully).  But, of course, with more risk also comes more risk. There is always the chance that you could lose some or all of what you’ve invested.

The exact same is true in the marketing space. Now more than ever, there are more ways to engage with customers. In the old days you had billboards, print, radio, and TV and the choice was a fairly simple numbers game. TV was the most expensive and often gave you the greatest ROI, but if you were a small business, billboards, print, and radio were great secondary options.

Today, we’ve kept all these “old” mediums and added dozens of new ways to engage. Each one comes with its own sliding scale of risk and reward. How is a small business marketer to know where to start?

Even “the internet” doesn’t refer to a single medium, but dozens of channels and broadcasts intertwined. Social media alone can be broken down into a dozen different networks that each require their own unique blend of personality and content.

Deciding which channel to use and when is, among other things, a game of balancing the risks, whether the effort expended will return satisfactory results.

Assessing Risk

So let’s start with a couple assumptions about marketing and perceived risk. Now understand that in this article we’re talking almost exclusively about perceived risk. There are way too many variables to talk about actual risk.

After all, one company might spend $4,500 to make a video that gets millions of views while another company spends ten times that amount and gets 5,000 views. Marketing is inherently unpredictable, so analyzing real risk accurately is far beyond the scope of this post. That said, perceived risk is much easier to understand. To do this, you just need to understand the point of view of your client, manager, or customer. So perceived risk is what we’ll be working with for the rest of this post.

How Risky Do You Want to Be?

So let’s boil it down a little bit. We are going to make two assumptions with regards to perceived risk:


The harder it is to track the exact ROI of a marketing effort in the short run, the riskier it is perceived to be.

The more expensive a marketing effort is, the riskier it is perceived to be.


Let’s look at a couple examples. For instance, say that you work for a national company that sells car tires. You go and spend $1 million on a TV campaign and sales across the nation rise by about 3% over the previous month. A million dollars is a lot of money, and it’s difficult to tie that increase directly to that campaign. How do you know that sales increase did not come from the radio ads or print ads you’ve published? How do you know that people are not just getting their ties on their cars changed before winter? This marketing can very easily be perceived as risky. Say that $1 million was around ⅓ of your total marketing budget. That’s a lot of money! Because this campaign is both difficult to track and rather expensive, it is perceived as high-risk.

With this in mind, before you start proposing marketing strategies and designing campaigns, it is important to understand the willingness to take risks of the organization you’re working with. Are you working with a bunch of risk averse business folks? Do they much prefer the predictability of PPC to the less predictable content marketing? Are they all about maximizing trackable ROI and minimizing the costs? If so, you’ll want to find a methodology that caters to their wants.

On the other hand, do you have a company that is willing to take risks? Even if they don’t have huge, Budweiser-sized budgets, are they willing to think outside the box and create content that may win big (or totally flop)? If they are, then by all means, do that!

Ironically, many companies are highly averse to taking risks online, but are more than willing to burn through thousands (or hundreds of thousands) of dollars on traditional advertisements. They will pay for full page ads in industry publications (where they can’t track any direct ROI), but do not want to spend a dime online unless they know exactly how much they are getting back.

And part of this is our fault. We’ve promised things that we can’t always deliver. In the early days of the internet (before social media) when display ads were the go-to type of marketing online, we promised businesses lots of metrics. “Track everything!” is what we screamed from the rooftops. And yet, in an age of social media and content, we are now forced to begin thinking long-term again. These types of marketing defy easy tracking – despite our best efforts.

So it’s helpful to think of your marketing mix as you would a portfolio. If you have a young company that is able (or needs to) take some drastic risks, then do something brave. Be bold. Turn heads with your content. If the company is much more conservative, they may prefer to simply sit on their PPC ads to generate additional sales leads. But it’s helpful to understand their mindset upfront, before you come up with a grand strategy that is at the opposite risk spectrum that they should be operating in.

In order to build out your portfolio, it’s helpful to think of marketing in terms of four quadrants. Let’s illustrate:

Costs

In this quadrangle we are tracking two primary metrics. The first is cost. How much does it actually cost you to do your marketing? And don’t just look at literal and direct costs. For example, people who haven’t really had to do social media marketing generally think, “Social media is free! Why not just use that?” In a sense they are right, the tool is free to use. Nobody is going to charge you to use Twitter. But there are additional costs associated with using Twitter. Do you use any tracking tools? Do you pay for a subscription to Hootsuite or Buffer?

In addition to the tools, the real cost of social comes from the time it takes to do it well. You need to invest in strategy. You need to create graphics. You need to update (or pay someone to update) your feed and respond to users. These should all be included in your costs.

Ability to Track ROI

The challenge with many marketing efforts is the ability to track a solid return on investment. We discussed this pretty in depth a couple weeks ago. There are also a bunch of other great posts across the web so start searching!

Marketers (as well as CEOs, CMOs, and especially CFOs) really, really like to know if their investments are getting a good ROI. And really it’s only sensible for them ask. After all, there are many companies spending lots of money on marketing, and they want to make sure it’s worth it.

Communicating Perceived Risk

So that a neat little graph, but how does it help us?

It’s a communication tool. Clients (or your bosses) want to know what they are paying for. They want to know (dollar-for-dollar) what they are getting from the investment they are making. This is a very fair request, but if they need to know this exactly, you’ll generally only end up investing heavily in the efforts on the right side of the graph.

SEO, PPC, and email marketing are by far the easiest metrics to track. Using Google Analytics (or some similar platform) you can build an entire campaign and report the return of virtually every single dollar that you invest. CFOs and marketers love this.

The problem with these forms of marketing (generally) is that you get a diminishing return on your investment. Eventually you get to the point where more investment does not equal more sales.

Furthermore, most of these efforts (with perhaps the notable exception of email marketing) do not help you develop a long-term relationship with your customer. Your relationship (if you can even call it that) is purely transactional. As soon as something new or shiny pops up, they’ve left you for someone else.

The most uncomfortable quadrant for most marketers is the top left. This category is dominated by things that cost a lot of money, but don’t have a very easily measurable ROI.

Funnily enough, this is also primarily where traditional marketing resides. TV ads are the pinnacle of this quadrant. Think of all the money Budweiser and Pepsi spend on Superbowl (or am I supposed to say “The Big Game”?) ads. They pay millions of dollars just to air the ad. That’s not even considering the costs of pre and post production. It’s a lot of money!

Understand Your Client’s (or Customer’s) Willingness to Take Risks With Marketing

We created the above illustration to serve as a guide to help marketers engage with their clients in meaningful discussion before strategies are developed. Each unique channel brings it’s own risks and costs, so finding the right marketing mix will be important for your brand.

Sit down with your client and talk to them about the risks that they are willing to take. What does their budget look like? Just as importantly, are they willing to live with some vagueness in their marketing efforts – at least in the short term? If you can’t give them a 100% accurate dollar-for-dollar report, are they going to be frustrated?

If they want exact figures, it might be helpful to point out how they are (likely) not getting such reports on their other marketing efforts either. Do they know exactly the ROI of the latest full page ad they put in the big industry publication? Probably not. At best they are just making educated guesses. The new era of internet marketing relies heavily on this educated guessing.

You may also want to point out the longevity of great content. A full page ad in an industry publication is done in a month. A great piece of online content about a relevant topic may last for months or even years.

So, next time you bring on a new client, talk to them about their marketing risks. How much budget do they want in each category – understanding that with great risk comes the opportunity for even greater reward. Get on the same page, then build out their strategy based upon their risks. If your primary focus is on content marketing, but they only want low risk and exact reports on ROI, maybe you’d better pass them off to your display ads team. It’s probably going to be a better fit.

Don’t Get Lazy

What I’m certainly not advocating is that we give up trying to track ROI on our social media and online efforts. We should always be doing what we can to gauge our ROI, but sometimes this is difficult at best. And clients need to understand this. So we recommend that you discuss risk with them. Some companies will be perfectly fine living in their little, happy PPC world. But brand building involves perceived risk. Are they willing to take those risks?

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