Risky Business

Wyner, Gordon A.
September 2004
Marketing Management;Sep/Oct2004, Vol. 13 Issue 5, p8
This article highlights the need for risk assessment in improving the effectiveness of marketing decisions. Marketers are generally optimistic about the effectiveness of their efforts. They tend to emphasize things like growth in the market, expansion of customer relationships, capture of new customers, and retention of current customers. They are less comfortable with things like decline in markets, shrinking relationships, loss of share, or defection of customers. Yet in determining what works in marketing, both the upside and downside should be taken into account. The risk of the outcome should be part of the decision-making process. In many instances, the presumption is that marketing plans will work exactly as they are intended. Risk is inherently related to the variability in potential outcomes. An investment portfolio is considered riskier if its historical returns vary by plus or minus 15 percent compared to another portfolio of investments that vary by plus or minus 5 percent. From a marketing perspective, this suggests that it is better to have a portfolio of brands and customers that contribute stable, rather than highly variable, cash flows. For the same overall profit level, it seems better to have long-term customers who are consistent purchasers and brands that have high proportions of repeat purchases. Marketing actions that retain profitable customers and encourage steady purchase patterns increase predictability, which mitigates risk.


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