Sunday, February 5, 2023

How Marketers Should Navigate Economic Uncertainty in 2023

Source:  Analytic Partners

Analytic Partners, a provider of marketing optimization solutions, recently published an ebook that offers marketers five recommendations for addressing the economic uncertainty that's likely to exist for much of 2023.

The Marketer's Guide to Survive (even thrive) in 2023 is based on insights derived from the firm's proprietary ROI Genome dataset, which contains millions of marketing and measurement metrics from 1,000+ brands in 50 countries. 

Analytic Partners contends that economic uncertainty will be a prominent feature of the business landscape in 2023. The risk of a recession in the U.S. has risen as the Federal Reserve has increased interest rates and taken other steps to tighten financial conditions in an effort to combat inflation.

Even if a recession doesn't occur, fears of an economic downturn and the continuing effects of inflation may lead both consumers and business organizations to tighten their purse strings and put prospective purchases under greater scrutiny.

Here are Analytic Partners' five recommendations:

  1. "Hold your nerve:  don't cut marketing spending"
  2. "Focusing only on performance messaging misses opportunities"
  3. "Exploit the power of brand marketing"
  4. "Measure everything (because everything counts)"
  5. "Use scenario planning to understand the total customer journey"  
While all of these recommendations are valuable, the first three are particularly important when economic conditions turn sour. Let's take a closer look at those three.
Don't Cut Marketing Spending
The research by Analytic Partners found that 63% of brands that increased their investment in marketing after the "great financial crisis" of 2008 generated a positive ROI, and those that increased their media investments realized a 17% growth in incremental sales.
The idea that companies should maintain their marketing spending during an economic downturn isn't new. Numerous studies dating back to the early years of the last century have consistently shown that companies that maintain their spending on marketing during a slowdown outperform those that slash their marketing and advertising budgets.
One of the more recent studies was described in a March 2010 article in the Harvard Business Review. The objective of this research was to identify the strategies that can "help companies survive a recession, get ahead during a slow-growth recovery, and be ready to win when good times return."
The study examined the strategies and performance of 4,700 public companies before, during, and after three pre-2008 global recessions. The researchers found that an optimal combination of offensive and defensive strategies gave companies the best chance of outperforming their peers (in terms of both sales and profit growth) after the recession. They summarized their core finding as follows:
"According to our research, companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession . . . These companies reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets."
Balance Brand and Performance Marketing
The second and third recommendations made by Analytic Partners relate to the importance of maintaining the right balance of brand and performance marketing even when economic conditions are difficult.
During an economic slowdown, business and marketing leaders tend to focus on activities that will produce quick wins. Because of this tendency, they will often shift marketing spending from upper funnel brand building programs to lower funnel performance marketing programs.
Analytic Partners argues that this is the wrong strategy to follow. Their ROI Genome data shows that brand messaging outperforms performance messaging 80% of the time. The data also shows that, overall, upper funnel brand marketing tactics are 60% more effective over the long term than lower funnel performance marketing tactics, and only 25% less effective in the short term.
The conclusion reached by Analytic Partners is stated in clear terms:  "The evidence shows that channeling budget away from brand marketing to performance marketing is the wrong lever to pull. It will negatively impact both the short and long-term success of your business."
Given this view, Analytic Partners recommends that marketers, ". . . cap performance marketing spend at no more than 50% [of total marketing spend], so that at least half goes on brand and other upper funnel marketing activities."
The view advocated by Analytic Partners has been supported by other (relatively) recent research. In 2019, The B2B Institute (a think tank funded by LinkedIn) published a research report dealing with B2B growth. The 5 Principles of Growth in B2B Marketing described the findings of research conducted by Les Binet and Peter Field, two highly-regarded experts on advertising effectiveness.
This report was based on an analysis of data contained in the IPA (Institute of Practitioners in Advertising) Databank. The IPA is a trade organization representing the UK advertising industry, and the Databank contains extensive data submitted for the IPA effectiveness awards competition.
Binet and Field argued that B2B companies should balance their spending on brand building activities and what they called sales activation activities. They defined sales activation as any marketing activity designed to produce an immediate response from a potential customer. So, sales activation is essentially equivalent to what Analytic Partners calls performance marketing.
Sales activation programs usually produce results relatively quickly, and their short-term ROI can be high. But the effects of sales activation programs don't last very long, so they don't foster long-term growth. Brand building programs, on the other hand, excel at driving long-term growth because their effects last longer.
Binet and Field found that the effectiveness of B2B marketing is maximized when a company allocates about 46% of its marketing budget to brand building and about 54% to short-term sales activation.

Sunday, January 29, 2023

[Research Round-Up] The Continuing Importance of B2B Thought Leadership

Source:  Edelman and LinkedIn

(This month's Research Round-Up focuses exclusively on the latest B2B thought leadership impact study by Edelman and LinkedIn. This research is conducted annually, and it consistently provides useful insights about the importance and value of B2B thought leadership content.)

Edelman and LinkedIn recently published the findings of their latest B2B thought leadership impact study. The 2022 study involved an online survey of 3,449 global business executives (LinkedIn members) drawn from a wide range of industries and company sizes. The survey was conducted in November 2022 and included respondents from the United States, Canada, the United Kingdom, Singapore, Australia. and India.

The 2022 survey is the fifth edition of this research examining the impact of thought leadership content on the perceptions and behaviors of business decision makers.

Edelman and LinkedIn reported the survey results by type of survey respondent. The three respondent categories were:

  • Decision-makers - Executives who consume thought leadership and are involved in making purchase decisions for their company
  • C-suite executives - Company owners, partners or founders, and C-level executives having responsibility for a business function
  • Thought leadership producers - Respondents working for organizations that produce thought leadership content 
Survey Respondents Foresee Economic Troubles
The central theme of the 2022 study was the importance and value of compelling thought leadership content during an economic slowdown. Sixty-two percent of the surveyed C-suite executives said their company's planning assumes there will be an economic downturn in 2023.
This pessimistic outlook should not be surprising. For the past several months, stories about the rising risk of a recession have appeared daily in the business media.
Whether or not a recession actually occurs this year, the Edelman/LinkedIn survey indicates that market conditions will be challenging for many B2B sellers.
  • 64% of surveyed C-suite executives said their organization's procurement process has been made more rigorous because of the expected economic slowdown.
  • 47% of surveyed decision-makers said they will be less receptive to sales calls and marketing programs if an economic downturn occurs.
The Value of Thought Leadership in a Slow Economy
The good news for B2B marketers is that compelling thought leadership content can be an effective marketing tool even in an economic slowdown. Sixty-one percent of the decision-makers  in the Edelman/LinkedIn survey said that, during an economic downturn, an organization's thought leadership can be more effective than traditional product-oriented marketing content at showing the potential value of its products or services.
In addition, 50% of the surveyed C-suite executives reported that high-quality thought leadership content has more impact on their buying decisions during economic slowdowns than it does when economic conditions are good.
While thought leadership content can be effective during an economic downturn, the survey found that business buyers have specific expectations for thought leadership when economic conditions are difficult. Surveyed decision-makers identified four things that thought leadership content must accomplish to have an impact on their buying decisions.
  • "Identify new opportunities or industry trends stemming from the economic downturn" (48% of decision-makers)
  • "Explain how the organization can help our business do well despite the economic downturn (44%)
  • "Give me information and insights that will make me more effective/successful in my job (44%)
  • "Demonstrate an understanding of our organization's major pain points" (43%)
The Edelman/LinkedIn survey also found that thought leadership producers have significant expectations for how their thought leadership content will support their business during an economic slowdown.
  • 60% said they expect it to keep their brand and capabilities top of mind among customers and prospects.
  • 49% said they expect it to protect their current relationships with customers/clients.
However, most thought leadership producers don't have a very high opinion of their thought leadership content. Only 33% rate the overall quality of their thought leadership content as very good or excellent.
Unfortunately, the survey report doesn't include data for other quality ratings given by thought leadership producers. If, for example, an substantial plurality (or even a majority) of these respondents rated the quality of their content as "good" or "above average" or something similar, that would provide some important context on this issue.
If you're involved in developing your company's thought leadership strategy or in creating thought leadership content, I recommend that you review the full study report.

Sunday, January 22, 2023

[Book Review] A Must-Read Guide To Igniting Account-Based Growth

Source:  Kogan Page

The rapid adoption of account-based marketing (ABM) ranks as one of the most significant developments in B2B marketing of the past two decades. The popularity and use of ABM have been growing steadily since it was introduced by the Information Technology Services Marketing Association (ITSMA) in 2003.

Numerous studies have shown that ABM can deliver superior marketing results, and this track record of success has led a growing number of B2B companies to adopt an account-centered approach in other customer-facing business functions, such as business development, sales, and customer success/customer service.

It's easy to find ebooks, white papers, articles and blog posts that discuss this "account-based everything" model, but these materials aren't comprehensive. Therefore, they don't provide company leaders a sound road map for implementing an account-based everything strategy.

A new book by Bev Burgess and Tim Shercliff fills this critical need. Account-Based Growth:  Unlocking Sustainable Value Through Extraordinary Customer Focus (Kogan Page, 2022) provides a rigorous and comprehensive description of how to implement an account-centered growth strategy. Bev Burgess and Tim Shercliff are the co-founders of Inflexion Group, a UK-based consulting firm that helps clients implement account-based growth strategies.

Both authors have impressive professional credentials, but Bev Burgess can speak with particular authority on the topic of account-based strategies and programs. She served as a Senior Vice President of ITSMA and led its ABM practice for many years. In 2017, she co-authored A Practitioner's Guide to Account-Based Marketing, which was the first (and, in my view, the best) full-length book about ABM. 

What's In the Book

Account-Based Growth is structured in four parts.

Part One (Chapters 1-2)

In Chapter 1, Burgess and Shercliff state the business case for making account-based growth a key component of a company's overall growth strategy. That business case is largely reliant on the 80/20 rule, which holds that 80% of a company's revenue is generated by just 20% of its customers. The authors also explain that the 80/20 rule is fractal, which means that, in many cases, 3% or less of a company's customers will produce over half of its total revenue.

In Chapter 2, the authors describe how account-based growth programs are working in practice. This chapter is based primarily on a survey of 65 B2B organizations that Burgess and Shercliff conducted for the book.

Part Two (Chapters 3-6)

Part Two of Account Based Growth discusses four elements that are essential for an effective account-based growth strategy. These are:

  • Account prioritization and revenue allocation (Chapter 3)
  • Integrated account business planning (Chapter 4)
  • Managing data, technology and operations (Chapter 5)
  • Leadership, culture and change (Chapter 6)
Part Three (Chapters 7-10)
Part Three examines the roles that a company's customer-facing functions need to play in an effective account-based growth program. Chapter 7 discusses account management and sales, Chapter 8 covers account-based marketing, and Chapter 9 addresses customer success. In Chapter 10, Burgess and Shercliff discuss how a company's senior executives can more effective engage with their most important customers.
Part Four (Chapter 11)
Part Four contains an assessment tool that will enable readers to benchmark their company's position on the key criteria for a successful account-based growth strategy.
My Take
Account-Based Growth is an important book that should be required reading for any B2B business leader who has some responsibility for revenue growth. The book is well organized, and the authors include several interviews ("Viewpoints") and case studies that provide real-world insights about account-based growth in action. In addition, the authors' writing is clear, which makes the book easy to read, even thought it takes a rigorous approach to its subject.
Burgess and Shercliff contend that ". . . companies should take a more aligned view of how they manage, sell to, market to, provide customer success and deliver services to and leverage their executive relationships for their customers, particularly the three per cent or so that are driving half their profitable revenue." Then, the authors provide detained instructions for how companies can design and implement such an account-centered business strategy.
The essence of the strategy described in Account-Based Growth is to identify the "vital few" customers that produce most of your company's revenue and profit, and then design, fund and implement coordinated marketing, sales, customer success/customer service and executive engagement programs that are specifically tailored for these most valuable customers.
In a very real sense, therefore, the strategy advocated by Burgess and Shercliff is a customer experience management strategy that is focused on a company's most significant customers.
The adoption of this strategy will represent a major change for many B2B companies, and therefore it will present several significant challenges. For example, the first essential step in implementing the strategy is identifying which of your customers are contributing most of your company's revenue and profit.
In the survey conducted by Burgess and Shercliff, more than 90% of the respondents reported having a "top account" management program. When the survey participants were asked what criteria they use to select accounts for their program, 87% of the respondents said the future growth potential of the account, and 76% said the current revenue from the account. But only 45% of the respondents indicated that they track gross profit at the account level, and only 20% reported tracking net profit by account.
Having an accurate picture of customer profitability is critically important for an effective account-based growth strategy. As Burgess and Shercliff write, "Without this information, decisions about how much to invest in these top accounts and where to allocate resources are being made in the dark."
Getting an accurate picture of customer profitability is challenging for most companies because of flaws in the costing system that most companies use. It's possible to reduce the distortions created by these flaws, and because of the importance of this issue, I'll discuss the solution in a future post.
The challenges that come with the account-based growth strategy advanced by Bev Burgess and Tim Shercliff aren't insignificant. But that strategy can also be a powerful driver of profitable growth under the right conditions. If the 80/20 rule applies to your business, Account-Based Growth is a must read.

Sunday, January 15, 2023

The Yin and Yang of High-Performance Marketing

Marketing success in 2023 and beyond will depend on marketers' ability to leverage the capabilities of technology and data science and to effectively apply the principles of behavioral science that describe how people make decisions. These two distinct, but complementary, abilities now constitute the yin and yang of high-performance marketing. 

Yin and yang are the terms used in Chinese philosophy to describe a pair of forces or attributes that appear to be opposites, but in fact are complementary and interdependent. The basic idea is that both yin and yang are necessary to create wholeness.

Management thought leaders have applied the yin-yang concept to a variety of situations where business leaders need to pursue objectives that, at first glance, seem to be contradictory.

For example, should business leaders try to develop game-changing business strategies, or should they strive for operational excellence? Should they focus on maximizing short-term profits, or invest in capabilities that promise to create long-term value? In both cases, the greatest success can be achieved by refusing to choose between the alternatives and instead pursue both objectives simultaneously.

In their 1994 best-seller, Built to Last, Jim Collins and Jerry Porras argued that the most successful companies refuse to be constrained by the "Tyranny of the OR" and instead embrace the "Genius of the AND." Instead of choosing between A or B, these companies find a way to have both A and B.

The yin-yang concept can also be applied to several issues in marketing. For example, a yin-yang approach would have B2B marketers focus on building a strong brand and on running effective demand generation marketing programs. On both customer retention and new customer acquisition.

Today, the most compelling case for yin-yang in marketing is the need for marketers to be adept at using the capabilities of technology and data science and to excel at applying the principles of behavioral science that relate to human decision making.

The Yin - Technology and Data Science

It's been crystal clear for several years that marketing and technology have become deeply entwined and that the role of technology in marketing has been growing at an exponential rate. 

The inaugural (2011) version of Scott Brinker's marketing technology landscape graphic contained about 150 solution providers. The 2022 version of the graphic included nearly 10,000 technology solutions. So, the marketing technology universe has grown by an astounding 6,521% since 2011.

Data science has also become an integral aspect of marketing at many companies. In the September 2022 edition of The CMO Survey, respondents reported spending 8.9% (mean) of their marketing budget on analytics, a decade-long  all-time high. And respondents predicted that spending on marketing analytics will grow by 63% in three years.

The growing use of artificial intelligence will only deepen the connection between marketing and technology/data science. In surveys conducted last year by McKinsey, 50% of the respondents said their organizations have adopted AI in at least one business function, up from 20% in 2017. And of the ten most commonly adopted AI use cases identified by survey respondents, three were marketing and sales use cases.

There's no doubt that technology and data science have greatly enhanced the practice of marketing. In fact, some marketing thought leaders envision a not-too-distant future where computer algorithms direct many aspects of marketing without human intervention.

But it's important for marketers to remember that technology and data science alone aren't sufficient to consistently produce superior marketing results. To achieve consistent success, marketers must also leverage the psychological aspects of human decision making. Technology and data science are the yin of high-performance marketing, but the yang is grounded in the principles of behavioral science.

The Yang - Behavioral Science

For decades, economists assumed that humans make economic and business decisions rationally. According to standard economic theory, they weigh the economic costs and benefits of their decisions, and they usually act to maximize their economic self interest.

It's now clear that human decision making is actually a mix of rational and non-rational components. The recognition of this fact began to emerge in the 1950's when behavioral scientists started challenging the concept of human rationality. In the late 1970's, psychologists Daniel Kahneman (who later won the Nobel Prize for economics) and Amos Tversky published several scientific papers that contradicted the rational view of human nature.

The work of Kahneman and Tversky pioneered a new behavioral science discipline that later came to be called behavioral economics. In 2008, two books - Predictably Irrational by Dan Ariely and Nudge by Richard Thaler and Cass Sunstein - raised popular awareness of behavioral economics and put it on the radar screens of business and marketing leaders.

In reality, marketers have been using principles of behavioral economics for years, albeit largely unwittingly. A 2010 article in McKinsey Quarterly put it this way:  "Long before behavioral economics had a name, marketers were using it. 'Three for the price of two' offers and extended-payment layaway plans became widespread because they worked - not because marketers had run scientific studies . . ."

The key point here is that the influence of psychological factors on buying decisions is now widely recognized, so principles of the behavioral sciences play a vital role in effective marketing. Behavioral science principles are also a necessary component of high-performance marketing because, for all of the power and sophistication of technology and data science, they have some important "blind spots."

One significant limitation is that technology and data science rely almost exclusively on behavioral data - the digital footprints we leave behind as we use digital devices and channels to consume and exchange information. 

The issue with behavioral data is they they tell us what someone has done (and often when and where he or she did it), but they don't tell us why someone took a particular action or behaved in a particular way. In most cases, behavioral data reveal little about customer attitudes and motivations, and these factors exert a huge influence on buying decisions.

The Bottom Line

Technology/data science and behavioral science are the essential yin and yang of high-performance marketing, and leveraging both will be critical to marketing success in 2023 and beyond. Therefore, I'll be devoting several posts this year to specific aspects of these important topics.

Illustration courtesy of DonkeyHotey via Flickr (CC).

Sunday, January 8, 2023

Looking Back, Looking Forward

The beginning of a new year is what behavioral scientists call a temporal landmark, a time that stands apart from other times and often prompts a desire to make significant changes in our lives. If you doubt the impact of temporal landmarks, just consider how often we make "new year's resolutions" to lose weight or exercise more.

Temporal landmarks also exist in business. The beginning of the calendar year marks the start of a new fiscal year for many companies, and that's when business leaders are inclined to launch new initiatives or make other changes to improve business performance.

Like many marketers, I used the final few weeks of 2022 to reflect on what happened during the year and to plan for 2023. Because of the tumult of the past few years, I spent a good bit of time thinking about whether and how this blog needs to change and what the focus of my content should be in 2023.

The Pandemic Legacy

The COVID-19 pandemic and its knock-on effects have fundamentally changed the landscape of B2B marketing. The pandemic triggered a chain of events and conditions that altered the attitudes and behaviors of business buyers and thus required B2B marketers to modify their go-to-market strategies and marketing tactics.

In 2020, for example, governments at various levels ordered business shutdowns, many companies implemented work-from-home policies, and virtually all in-person marketing events (trade shows, conferences, etc.) were cancelled. As a result, B2B marketers were forced to adopt new ways of engaging with customers and prospects since in-person interactions were essentially impossible.

What is remarkable is how quickly the pandemic-induced methods of interaction have been embraced by both buyers and sellers. In less than three years, remote human (e.g. video calls) and digital self-serve (e.g. e-commerce) interactions have become entrenched parts of the "new normal" of B2B buying and selling.

Research suggests that these new B2B go-to-market models are likely to be persistent and durable. In the December 2021 edition of the McKinsey & Company Global B2B Pulse survey:

  • About two-thirds of global B2B buyer respondents said that when they are given a choice, they choose remote human and/or digital self-serve interactions across their entire purchase journey.
  • More than 90% of global B2B seller respondents said their new go-to-market model is just as effective as (or more effective than) the model they were using before the pandemic began.
  • 60% of global B2B buyer respondents said they are willing to spend $50,000 or more on a single purchase made via an e-commerce channel or other remote interaction, and 27% said they are willing to spend $500,000 or more.
The main point here is that B2B marketing has evolved in significant ways over the past three years, and the keys to successful marketing in 2023 will be substantially different from what they were in 2019.
How This Blog Will Change in 2023
My objective for this blog has always been to provide information and viewpoints that are timely, thought-provoking and useful. To accomplish these goals, the content of this blog needs to evolve to reflect how the B2B marketing landscape is changing.
Last year, I began publishing three new types of posts - book reviews, research round-ups and deep dives. The research round-up posts discuss the results of 1 to 4 recently-published research studies. The deep dives are longer posts that enable me to address important topics in a more comprehensive way. Like last year, I will be publishing book review posts and research round-up posts on a monthly basis. I'm planning to publish one deep dive post each calendar quarter.
I'm planning two additional changes to my blog content for 2023. First, I'll be publishing two economic update posts this year, one in late April-early May, and one on late October-early November. One challenge in writing economic update posts is that, while some official economic data are published on a weekly or monthly basis, the U.S. Bureau of Economic Analysis only publishes GDP data on a quarterly basis. So data for real GDP growth in the first quarter of 2023 won't be released until late April.
Lastly, I'm planning to make the content of this blog more thematic in 2023. I'll be focusing several posts on a select group of issues that have a major impact on the success of B2B marketing efforts. These are high-level topics that, by their nature, are multi-faceted, and each of these topics will require several posts.
One of the major themes this year will be the need for B2B marketers to master two very different bodies of knowledge and capabilities. I'm calling these two domains the "yin and yang" of high-performance marketing, and I'll describe this theme in more detail in my next post.

Image courtesy of Jernej Furman via Flickr (CC).

Sunday, December 18, 2022

Our Most Popular Posts of 2022

This will be my last post of 2022, and I want to thank everyone who has spent some of his or her valuable time reading this blog. My goal here has always been to provide content that readers will find informative, thought-provoking and useful, and I've been immensely gratified by the attention and engagement this blog has received.

I'm planning to make a few changes to this blog in 2023. The plans are mostly final, and I'll be detailing them in my first post of next year on January 8th. In general, though, I plan to focus more of the blog content on the strategic themes that are shaping the practice of B2B marketing. More to come on this next month.

For the past several years, I've used my last post of the year to share which posts have been most widely read. For this list, I'm only considering posts that were published in 2022. I've ranked the posts based on cumulative total reads, so those published earlier in the year have an advantage.

So, in case you missed any of them, here are our five most popular posts of 2022:

  1. [Deep Dive] Online Marketplaces Reshape B2B Commerce and Prompt New Marketing Tactics
  2. Why Brand Loyalty Is a Rare Commodity
  3. [Book Review] A Strategic Guide to Using Artificial Intelligence in Marketing
  4. Novelty Is Essential for Compelling Thought Leadership
  5. [Deep Dive] Is Purpose Marketing Right for Your Company?

Happy holidays to everyone, and best wishes for a great 2023!

Image courtesy of Republic of Korea via Flickr (CC).

Sunday, December 11, 2022

Why You Should Spend Part of Your Marketing Budget on Things That May Not Work

Marketers work relentlessly to optimize the performance of their campaigns and programs in order to maximize marketing ROI. But optimization isn't always the right objective. Read on to find out why marketers should spend part of their marketing budget on things that may not work.

The United States is the largest and one of the most vibrant venture capital markets in the world. In 2021, venture capitalists invested $329.9 billion in over 17,000 deals, according to the National Venture Capital Association (NVCA).

NVCA has also reported that total 2021 exit value - which is the cash venture capital investors receive when VC-backed companies are acquired or go public - was over $774 billion.

Venture capital investing isn't for the fainthearted. The venture capital business model is governed by what is usually called the "power law," which holds that out of every ten early-stage investments VC investors make, two will produce all the returns they earn. The other eight investments will generate little or no returns, and some will completely fail.

A successful venture capital investor is like a baseball power hitter who hits home runs, but also strikes out a lot.

So, why am I discussing venture capital in a blog about B2B marketing? Because the venture capital model can help marketing leaders make better decisions about how to manage a small but important part of their marketing budget.

The Revenue Allocation Challenge

The most important and difficult decisions marketing leaders must make inevitably involve the allocation of marketing resources (money, people, time, etc.). Regardless of company size, the resources available for marketing are rarely (if ever) sufficient to enable marketing leaders to do everything they'd like to do. Therefore, resource allocation is an intrinsic part of every significant marketing decision.

Resource allocation decisions can be difficult for a host of reasons, but one of the greatest challenges marketing leaders face is the need to deploy their resources to both maximize performance in the present and build a solid foundation for success in the future.

To increase the odds of achieving future success, marketing leaders need to consistently invest in programs that are specifically designed to identify the capabilities, tactics and other innovations that may become critical for effective marketing in the future. But the reality is, there is a strong tendency to prioritize investments that will produce short-term benefits and to underinvest in activities whose benefits are delayed or uncertain.

The 70-20-10 Rule

Fortunately, there's a resource allocation "rule of thumb" that can help marketing leaders overcome this strong human tendency. It's called the 70-20-10 rule (or sometimes the now-next-new rule), and it's been used for a variety of business purposes. Many companies have used it to allocate innovation resources, and Coca Cola reportedly used a version of the rule for years to guide marketing investment decisions.

Here's how the rule works.

The 70 ("Now") - The rule states that 70% of your marketing resources should be devoted to capabilities and programs with a proven performance track record. This will typically include the marketing channels, tactics and technologies you're already using. The primary goal of these capabilities and programs is to drive short-term performance.

The 20 ("Next") - The rule provides that 20% of your marketing resources should be allocated to emerging marketing channels, tactics and technologies. This category would include capabilities and practices that a growing numbers of other companies are successfully using. It would also include marketing channels or tactics that you have previously tested in small pilot programs and now want to use on a broader basis.

The 10 ("New") - The remaining 10% of your marketing resources should be invested in new capabilities and techniques that have just appeared on the scene. This category would also include the investments you make to test new creative concepts, value propositions or customer segments.

Use a Venture Capital Mindset

One of the main benefits of the 70-20-10 rule is that it prompts marketing leaders to consistently allocate part of their marketing budget to the development and testing of new marketing strategies, capabilities and techniques.

The 10% investment category funds the activities that drive true marketing innovation. In fact, this "bucket" of activities and investments can be accurately described as a company's marketing innovation incubator.

But . . . 

The marketing activities in the 10% bucket are by definition new and unproven, and therefore they are high-risk undertakings. These activities are inherently experimental, and, as we all know, experiments aren't always successful.

That's why marketing leaders should use a venture capital approach when selecting and managing the activities in the 10% bucket. Venture capitalists recognize that, no matter how much research and other due diligence they perform, they can't accurately predict which of the companies they invest in will turn out to be big winners. They understand that most of their portfolio companies won't produce significant returns, and they view this high "failure" rate as part of the cost of reaping the benefits produced by the winners.

Marketing leaders should adopt a similar mindset when thinking about the activities and investments in the 10% bucket. Many of these activities and investments probably won't be highly successful, but some of those that are can potentially produce exceptional marketing results.

Image courtesy of Vall d'Hebron Institut de Recerca VHIR via Flickr (CC).