Thursday, January 18, 2007

Reducing Risk

Most of us marketers embrace risk. We love to say that most companies are too risk averse, are too careful in trying out exciting ideas, new channels, or just any kind of different communication. We love to advocate that only risk takers succeed long-term, that every brand needs to evolve in bold moves to new (naturally higher) ground, and that the discipline of marketing is too void of risk-loving personalities. Let me proclaim just the opposite (at least for one day): we marketers are not focused enough on reducing risk; we should be the best risk managers of any corporate function.

Why? A deep data-centric understanding of the consumer and its behavior is the most repeatable and scalable way of reducing risks. We marketers own this, not the CFO! There are three significant factors for risk mitigation through data-centric understanding of the consumer:
  • Sales for a particular company is nothing else than the sum of individual purchase decisions of many consumers. The more one can understand the behavior underlying consumer purchase (or attrition) decisions, the more one can predict future sales. M&A modelers follow the right track when they model out Revenue/Sales numbers based on historical data, and external forwardgoing factors, all scored with a particular risk pattern. They are just missing the consumer dimension in most modeling aspects. The combination of marketing intelligence and financial modeling would provide a significant improvement in how we can deal with risks
  • Marketing Investments can function as a buffer against risk. If a holistic and smartly designed brand communication ensures the steady flow of awareness, leads, and sales, then marketing provides a risk mitigation factor. We just have to better understand how our marketing efforts contribute to truly incremental sales and revenue beyond the baseline of non-marketing driven activities
  • Our marketing activities and plans should include much more a risk and probability score. If we set marketing goals and recommended a plan to achieve these goals, then we should be able to project these two strategically important metrics. If not, we have just written the marketing goals and plans in an intuitive and hasty manner but definitely without the necessary input that is required for such an exercise.

Most marketers just love to focus too much on the image of the risk-taking and rule-breaking warrior. But there are moments in a business day or in a life of a brand, where we have to behave more like reliable risk mitigators, deeply rooted in the understanding of consumer behavior. This is not a call for a research dictatorship but for a scientific approach to manage risk for the brands that we are involved in.


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