I totally agree with Seth Godin’s latest post on spending your marketing budget wisely and focusing. I think that this is not unlike risk management in general. Investors, hedge funds, mutual funds have to constantly make decisions about their portfolios. Taking the two extreme cases, if you invest all you have in one stock, you have a chance of winning and a chance of losing. Most likely you will lose. On the other hand, if you spread everything over the Dow or the S&P 500 index, you will probably not lose as much, but also not win. Kind of like roulette. In marketing, however, another element is added. That is competition, which is not a consideration when picking a portfolio strategy (at least according to my meager knowledge in capital markets). When you consider this element as well, it means that you have to pick your battles wisely, and anticipate the actions of your competitors. That’s when some game theory could come into play. But all in all I think that the answer, as usual, lies somewhere in the middle. You have to figure out the right mix of your spend on different marketing channels.

I would compare this tension between focusing and diversifying to a broader discussion between product managers and CEO’s about what products a company should roll out. How to spend their budget on actual product development? Should they cater to the needs of all clients (something marketers would always say a strong yes to – now I am talking about product development, not about marketing spend) or should they focus on one product and learn how to manufacture it as best as they can, and benefit from this constant learning. The larger the diversification in production, the harder it is to react to changes, the harder it is to maintain support of all of your products and the harder it is to gain tacit knowledge in one field. It’s also hard to keep costs down and retain profitability because you are trying to react to everything that’s happening. That’s expensive.

Back to marketing, I agree with focusing, but the answers to these questions are not so simple. As a general guide, the 80-20 rule may be a good place to start. In other words, my verdict is focus, but don’t gamble!

P.S.  If you read this please comment I’d love some feedback so I can improve. Thanks.

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