Part of a series of articles on Improving marketing strategy for professional services firms.
It’s impossible to achieve any business gain without taking on some sort of risk.
Marketing and business development is no different and can be likened to making a bet. There are those who trust in a gut instinct or go for the (popular) bookies choice. Others look in more detail at form and history, trainers and managers, new runners and riders. They are taking a more scientific approach.
Both need to factor in their comfort at the risk involved versus the rewards – after all it’s their money on the line.
In the world of marketing and bd, your risk is more personal and is wrapped up tightly with your reputation. We may have all the evidence pointing to a particular strategy, campaign or tactic that makes logical sense given the data we have. Our confidence in the outcome is bolstered by experience. Decisions are made although the outcome is rarely guaranteed.
But what affects the odds and why?
At any level of experience a marketer has to rely on a skill that is rarely highlighted or discussed – the ability to assess risk.
In practical terms, when we encounter a higher risk, we have a tendency to hedge our bets – the strategy and tactics we choose are risk managed by focusing on the ‘tried and tested’ approaches, the ‘low hanging fruit’ first and the best experts our budget can stretch to. We also have different attitudes to risk and so do the organisations we operate in.
Playing the safe game is all well and good when you are starting out or when the market is buoyant and your product or service is in high demand. What happens when the economy is tight, budgets are scrutinised and all of your marketing activity has to show a positive ROI?
Why should I get more comfortable with risk?
Mastering marketing risk management means optimising the risk-reward ratio within the bounds of the attitude to risk within your business at any one time.
If you’ve assessed the strength of the branch vs your weight, the height from the ground, the sweetness of the fruit you think you’ll have a go at shimmying along that branch. You may even have factored in a trampoline underneath and a speed dial to your mum or having someone on hand to administer first aid/call 999. Or you’re persuading your mate to do it for you while you shout encouragement and catch the fruit. You’ve factored in the what if scenarios and have plans in place if they occur. Timing is crucial too – you may well revise the risk of that branch scramble in the wake of a storm.
Many marketing managers, newly promoted or experiencing the first cresting waves of more uncertain times, simply aren’t equipped to know the right move and feel out of their depth. Their temptation may be to row back from uncertainty, play it safe, stick to the tried and tested. However, this can quickly turn from managing risk sensibly to becoming left behind by firms with more agile and experienced marketers: the dangers are that they become blinkered by a narrow mindset and paralysis due to inexperience of assessing short and long term risks and rewards.
Mapping out the uncertainties can help clarify where the problems might lie – and even experienced marketers should seek advice if they foresee a problem they haven’t encountered themselves. There are many different experts who can advise.
The more experienced marketer has their risk management antenna finely tuned to the early signals of triumph or disaster. They know when to trim the sails, when to sail into the wind and when to seek safe harbour. Those risk management antenna help them steer and pivot quickly: a steady hand at the tiller in turbulent times.
Recognising risks
Business risks are many and varied - over 70 different types according to some sources. The more complex your organisation, the likely higher number of risks it can be subject to. That’s a lot for any business owner to worry about and larger businesses have risk management functions to help manage risk.
There are a number which are directly relevant to marketers and others that may impact on marketing activities. Your firm's attitude to and tolerance of a particular risk will affect how it impacts marketing and BD.
Business risks can be classified into broad risk categories: Economic, Financial, Market, Operational, Technology, Project and Strategic.
Economic risks include the risk of recession, high interest rates or tight credit conditions.
Financial risks include the possibility of unexpectedly low revenue or high costs.
Market risks are related to competition, customers, prices and access to markets. Operational risks are related to value creation processes.
Technology risks may be systems outages, client-impacting issues and cybersecurity incidents.
Project risks include projects running overbudget or failing to deliver planned business benefits.
Strategic risks may include technological disruption or social change that threatens your business model.
Managing risk and risk-adjusting your marketing strategy and processes
Well run and effective marketing functions have risk management built into their operational processes as well as their strategic planning.
Risk management best practice is to grade a risk on the likelihood of occurrence and the impact.
It’s important we know how to assess risks, so that
Risks are identified and understood
Sensible preventative measures are put in place
Risks are actively managed with mitigations
We factor them into risk-informed decision making
We use them as smart ways to identify opportunities for differentiation.
Controls are means by which we either prevent or mitigate a risk. Prevention controls seek to minimise the likelihood of a risk materialising whereas a mitigation focuses on reducing the impact of the risk when it occurs.
A pelican crossing, speed limits and ABS are all controls relating to the risk of injury to a pedestrian. Whether we wait for the green man before we start to cross the road, or whether we jaywalk is where our attitude to risk meets the controls we have in place manage it.
We might not always refer to them as controls when we talk about them in relation to marketing but we proactively use them to minimise or mitigate risk. Having a due diligence process for working with new agencies might mean that we always ask a marketing agency we are considering working with to put us in touch with a client for a reference, for example. This is a mitigation control as a reduces some of the risk of working with a new supplier.
Risk attitudes – a guide to the four types
It can be helpful in assessing risk attitude to compare to the four types of risk attitudes (as outlined helpfully in this article in the Harvard Business Review. )
These are:
Pragmatists – believe the world is uncertain and unpredictable
Conservators – believe the world is perilous and high risk
Maximisers – believe the world is low-risk and self-correcting
Managers – believe the world is moderately but not too risky for firms that are guided properly.
When an individual encounters a different world to the one they are prepared for are, they are surprised and will shift their approach and risks they will take. But we don't all shift in the same way. Perceptive and adaptable people can adjust to the right belief. However less perceptive and adaptable may adopt an incorrect belief. The result can be a shift to another type of sub-optimal performance.
The biggest challenge at a personal level happens when faced with a new world scenario that we haven't encountered before. Be under no illusion – we are currently in an uncertain world, where there may be pockets of stability but much that is expected to change. Marketing teams benefit from both a diversity of risk attitude and a head of marketing that understands the importance of being able to, and can flex into a different type.
Your firm’s risk attitude
Many firms approach risk from a compliance or risk-aversion mindset. This has many advantages but can lead into underinvestment into long term projects where the immediate benefits are hard to quantify.
Sometimes the risk-reward balance can become lopsided – a relentless focus on cost control for example could lead to a more risk averse mindset which could stifle innovation or creative marketing solutions. Risk avoidance becomes the business risk! Being aware of this is important for business leaders to recognise and know when to step in and rebalance.
If a firm is surprised by a change which takes them out of their normal working world, then it may decide to change leaders – with the new leader facing the problem of moving the prevailing risk attitude of the firm. A partnership complicates this somewhat as individual partners will have a risk appetite that will likely vary from one to another. Decision-making can be slowed down if all-partner support is needed.
Focusing too much on just one risk can mask the unintended consequences which means another, less-tolerated risk goes up. Perhaps an overenthusiastic central risk management team has a lower tolerance for procurement risk than makes sense for the business owners: if they refuse to accept anything higher than zero risk the consequence might be a delay which causes a capacity or process risk.
What is framing and why does it affect attitudes to risk?
Research studies have demonstrated that people respond inconsistently to decision-making if outcomes are framed differently. Highlighting positive outcomes has a tendency for people to choose certain (often safe or tested) outcomes. When loss outcomes are highlighted, people tend to choose a riskier course of action. Studies suggest that losses loom larger than corresponding gains and small risk probabilities are overweighted and large probabilities are underweighted – heightening the risk aversion and risk seeking behaviours. Extremeness aversion can also play a part in assessing risk as very high or very low probability levels are seen as less attractive than an intermediate option.
How to integrate marketing risk management best practice
From a marketers perspective, balancing risk and reward will come down to data, experience, your risk attitude, the firm’s risk attitude, influential partners and the size/scale of the risk/reward.
Risk management should be an important part of your marketing planning.
Key steps to assess risk throughout your marketing planning process are:
conduct a marketing risk assessment to identify potential risks to activities and campaigns
brainstorm issues that might arise due to competitor activity based on historic info
analyse the likelihood of events : base on historic frequency, any probability data
planning: adjust plans based on the risks. Include alternative plans so it is easy for the team to adjust from a to b. Common examples for events might be inclement weather for an function outside, speaker delayed/unavailable, venue suddenly becoming unavailable.
monitoring: continually monitor for risk throughout planning and execution
It can be smart to designate a single person to assess risk throughout your planning process.
For bigger campaigns and projects, putting together a business case will help in the process of assessing not only the benefits but the risks involved. Make sure you look at the impact through the 3R lenses of reputation, relationships and revenues. Include the impact of of moving forward with the proposal, taking an alternative route or doing nothing.
Tips for mastering marketing risk in an uncertain world
Adjusting changing risk in an uncertain world means adapting marketing strategy and putting pragmatic marketing adjustments in place.
A top tip (taking a leaf from strategic planning best practice at McKinsey) is to take an ‘investor’ mindset which includes the following:
1) Propel growth by applying a rigorous filter on marketing expenditure (out CFO the CFO and take responsibility for the P&L impact of marketing and BD)
Get as detailed as possible and identify the ‘unprofitable revenue’ areas which you can cut – spending that drives bad revenue is inefficient. Then reallocate to areas which tie back to winning profitable customers. Challenge automatic renewals of expenditure or rollover activity. ‘Because we always have’ isn't good enough.
Move low value-add activities to lower cost providers, consolidate agencies and insource if you have in-house expertise.
2) Make more of what you have got.
Embrace speed & agility. Make change and learn from mistakes quickly. Set up a ‘win-room’ that meets regularly learns about customers, takes decisions and adjusts rapidly and run it on agile principles.
Champion a client experience over client service culture in your team.
Get smarter about tech. Take an end-to-end view of the investment. Focus on the marketing, implementation and adoption, usage and impact. Leverage and share value cases (not just use cases). Understand AI and leverage.
3) Invest in future growth drivers by sprinkling some Maximiser thinking with your Pragmatist mindset. A winning gambit often involves higher risk which others will be more cautious about. Being bold in great times simply keeps you alongside your competitors - being bold consistently builds momentum – which can be a big differentiator. Smart marketers know there is an opportunity to win market share when competitors are cutting back.
Recalibrate to full funnel marketing. Make sure that all levels are operating effectively.
Switch some budget from paid to earned media: adverts are short term, earned media pays longer term reputation gains
Invest in content. The benefits are long term.
Adopt a value added tone. Help your clients overcome challenges and you build long-term loyalty.
Identify opportunity. As marketing departments are being asked to cut back, opportunities can appear and costs on expensive channels will decrease. Consider this a unique window to close a gap or broaden it, to own or acquire a bigger stake in the landscape and pay less doing so.
4) Regularly evaluate and communicate results.
Highlight early successes. These will help demonstrate value and can help shift others risk attitudes to better align with business growth.
Understanding your, your team’s and your firms risk attitude and how you can best adapt to it can make the critical difference between an average or an outstanding marketing department. And it will transform your firm's success.
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This article is part of a series on improving marketing and business development in professional services.
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