How Much is Too Much Spending?
In marketing as in life, there is a natural tendency to get greedy and think that more is always better. It often seems that anything worth doing, is often worth overdoing.
The challenge is to not let initial success get the best of us or lead us down the path of excess. 10x the spending does not always translate into 10x the results.
Most marketers are familiar with the concept of under-investing. This is where there clearly isn’t enough funding to get a particular program off the ground or to generate any significant returns. I’ve seen instances where most of the budget gets sunk into production leaving far too little for distribution or execution. How many of us have worked on great programs only to see them wither on the shelf and die a slow death because of insufficient funds? Better save yourself the trouble the next time.
While this is fairly universally understood, I am not sure that the opposite is true. How many of us, for example, have the discipline to scale back successful programs or ambitions that experience diminishing returns?
After all, it is human nature to keep plowing resources and efforts into activities that work or yield positive results. Nothing wrong with that other than we need discipline to recognize that too much of anything can actually be a bad thing.
The S-Curve
One of my all-time favorite business concepts is illustrated by the S-curve. The S-curve is a simple graph, which beautifully illustrates the “goldilocks” principle we are all familiar with: too cold, too hot, and just right. The principles put forth in this chart can apply to almost any business activity.
Simply put, the S-Curve says the following:
1. Up to a certain amount, your resource investment will fail to generate a positive return
2. Eventually, as the resources keep increasing, a threshold will be crossed where the returns on an activity finally exceed the inputs/efforts.
3. The positive returns, however, do not continue indefinitely. They will ultimately suffer from diminishing returns even as more resources get devoted to a program or activity.
4. Pushed to the limit, further investments will actually create negative returns on the entire investment.
The last point is the key one. The law of diminishing returns tells us that hardly any investment can go on indefinitely without ultimately creating waste. For example, look at trade show or advertising investments. While too little funding of these activities is obviously not desirable, we can all instinctively recognize that always-bigger booths or campaigns will not generate ever increasing returns. There may even come a point where too much is actually a negative signal or turnoff for our customers. Think of extravagant booths or a barrage of advertising you simply get tired of seeing.
While the primary responsibility of marketers is to create communication strategies and programs that generate demand, few are trained, disciplined or even measured on finding the right balance/mix.
The next time you want to significantly increase investing in a particular activity, just ask yourself this simple question: where am I on the S-curve? Think about it.
photo credit: zen via photopin cc
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