An Emerging Marketing Construct: "Risk vs. Reward"

Traditionally, at most corporations the role of marketing was considered a vital and fundamentally “safe” investment -- because marketing played a crucial function in promoting brand and company growth.  This perspective became ingrained during the long postwar period of expanding consumer markets which fueled widespread growth.

But, that seems to have changed…

Today, marketing activity, media placements, corporate messaging and positioning instead seem to be fraught with risk.  Recall the recent news article quoting Lou Paskalis, Senior Vice President at Bank of America (BOA), which encapsulates the new risk concerns in c-suite offices: 

“I get a text from my chief financial officer every time there is news about a brand safety issue,” Paskalis said, according to ad industry news site The Drum. “I know why he is sending them to me … at some point he is going to say, ‘gee is marketing safe to invest in?’ and we don’t want that…”

 Importantly, Paskalis said this during a discussion when he was announcing that BOA was creating a new executive role: the “Chief Brand Safety Officer.”  It’s pretty clear that marketing and brand risk is becoming the concern of c-suite executives who normally have minimal input into these decisions.  This new risk paradigm being introduced is better understood in the context of “investing” which suggests that among these executives, the “Risk vs. Reward” construct is being newly applied to marketing.

As marketing spending migrates to an “investment” concept – one interpretation is that investments, per se, come with options -- and these options usually present different “risk profiles.”  Is “marketing” moving towards this viewpoint?

Marketing De-Prioritized

Beginning in the early 2000s and reaching an apex during the great recession, the traditional view of marketing as an ultimate growth driver seems to have changed.  As economies stalled and corporate revenue growth stagnated, corporations could no longer blindly rely on the notion that consumers would spend if enthusiastically inspired by marketing magic.  The investment in marketing began to show declining return.  And without the empirical construct to present marketing’s contribution to revenue and business growth in financially certain terms, the funding invested in these functions could potentially be better deployed elsewhere.  As the pressure to satisfy shareholder demands for improved returns ratcheted up, the option to allocate funding resources away from marketing appears to have led to a cycle of de-prioritization:

  1. CEO’s and CFOs could redirect investment funding away from the marketing                    department.
  2. Since brands are “assets,” often with deep value, reinvestment in these assets can be        moderated while still retaining corporate performance.
  3. Newly-available funding could then be re-deployed towards shareholder friendly and      predictably effective actions: buybacks, dividend increases, etc. 
  4. Rinse, repeat…

 Risk Enters the Room

 In the context of finance, risk is an inherent characteristic of nearly all investment activity, and this is increasingly true for marketing investments.   As the marketing function was de-prioritized, and its budgeted resources steered towards alternative options, firms became more efficient, but evidently less resilient and more exposed to an environment of increased marketing and brand risk.

This risk to marketing, the risk to brands, comes from a series of inter-related emerging disruption factors:

  • A rise in socio-economic exposures: a fragmented culture, a bifurcated media landscape, and divided consumers make effective company action and marketing outreach extremely difficult, and potentially perilous;
  • The emerging era of “populism” means more “activism” – often targeting corporations and brands. Social media use has grown to be ubiquitous and now everyone has a voice; anti-company flare-ups can happen instantly.
  • The increased dependence on digital media channels for marketing and communications: these channels are inexpensive and have extraordinary reach but come with programmatic risk—the potential for a brand to be placed in an unsavory, and potentially damaging, context.

As noted above by Bank of America, it’s now become a new priority for financial managers to better understand, manage and prepare for potential marketing risk.    

Has an increasing focus on financialized management practices encouraged the view that previously accepted marketing “spending” and budgeting be viewed more as “investments”, and therefore subject to an investment review process?  Including the introduction of a “risk vs. reward” construct? 

We think so.

Viewing the marketing landscape through the prism of risk, we believe that companies and their managements can successfully mitigate exposures, and also uncover opportunities for enhancing stakeholder value.

MSA co-authored this article with market researcher James Harn, PhD.