The risk paradox
Risk Paradox

Several years ago a slightly eccentric executive creative director devised an elaborate and unusual recruitment challenge for an unsuspecting new account man. As they shook hands, a 5-foot python hidden up the creative director’s sleeve slithered out and up the arm of the now alarmed new recruit. As the snake started to wrap itself around the suit’s neck, Graham Fink started reading aloud William Ward’s poem ‘To Risk’. Theatrics aside, Graham wanted to impress a simple point: creativity is all about embracing risk. If you can’t do that, you have no business being here.

Look at anything great and you’ll see a great risk inside it. From the idea to dress up Baron George Wrangell with an eye patch to sell Hathaway shirts to using wolves in snowy mountains to sell luxury hotel rooms, where there is a leap forward, there is a willing leap into the cauldron of risk.

And the importance of risk in enabling growth gets bigger when we look at the big picture. Consider the extraordinary roller coaster with Microsoft where it stunningly authored the BASIC and MS DOS operating systems, making it a lightning rod of talent and innovation, democratising computing for the first time. However, with the success of Windows the large innovations became smaller ‘iterations’ as their mindset shifted to protecting their installed base. Later, when Google IPO’d in 2004 their ‘don’t do evil’ was a sly slap at what many people believe Microsoft had become: slow and self-interested. The irony was thick as the fervor for Google reminded people of how we once felt about a younger, exciting Microsoft.

It’s a familiar pattern. Kodak pioneers the CMOS sensor that enables cameras and later, mobile phones to capture images digitally, yet eventually loses the race because it can’t overcome the fear of losing its large but declining film business. American Express too, a pioneer in innovating secure payments became trapped for a time in its own narrow focus on premium customers while VISA reminded everyone that many shops ‘…don’t take American Express’. Not until Amex finally overcame the fear of losing the revenues from high merchant fees did they dare reduce them, increasing the number of merchants that accepted Amex, attracting new generations of cardholders in record numbers.

For risk is the bringing of opportunity. And when risks are embraced with total commitment, the payoff can be transformational. IBM, faced with the market’s steady slide toward a ‘win-tel’ duopoly, were wondering how to make more from their small but growing services business. It dawned on them that to do it really well, they needed to be able to offer services that spanned the whole gamut of the then fragmented IT industry. Instead of doing it by half, they stared down the risks of opening up their products and creating new, unproven service businesses to lead the growth in the emerging ‘solutions’ industry. As we now know, they left their competitors behind them as ‘box makers’ with smaller ‘box maker margins’.

The ‘risk cycle’
So, what makes companies open to risks at some times and shy of them at others? According to the author of ‘Two Speed World’, Gerald Ashley, where companies are in the growth cycle has enormous implications for how they feel about risk. When growing, companies are less sensitive about losses and are more inclined to take bigger bets. We see this very clearly in booming China with companies like battery maker turned car maker BYD, micro-blogging pioneer Sina and e-retailer Alibaba who have transformed retail with Taobao.com. Each have made a trademark of high-risk entrepreneurialism and the high stock prices that anticipate even brighter futures.

On the flipside, ‘slow speed’ companies headquartered in ‘slow speed’ Western markets often suffer from risk-averse thinking. The increased pressure that comes with constrained economic growth reinforces defensiveness. It promotes a tendency to explain why growth is hard to achieve. Barriers to growth become magnified, decision making slows down and there is a bias toward the short term at the expense of long term position making.

This sense of a dynamic growth-driven ‘risk cycle’ is a major factor driving marketing decision making. Market owners tend to focus on preserving their leadership making them vulnerable to risk-averse thinking whereas new entrants or faded stars need to create new spaces to have any chance of life. As Ogilvy’s Rory Sutherland says: ‘if you’re Tide in the US and have 70% of the market and can outspend competitors, a lower risk strategy makes sense. However if you’re Old Spice and are facing the risk of being de-listed, the potential for upside from brave actions is enormous.’

And recent analysis of marketing case histories show that when brands are creatively braver, the financial rewards are in fact, enormous. A study by Thinkbox and the IPA cross-matched effectiveness case study data with those that had also won creative awards. It found that on average, that media investment in creatively awarded campaigns worked 11 times harder than did the dollars put behind non ‘winners’. The effects being greatest for smaller brands, which ought to be great news for the global challenger brands rising in Asia.

Yet despite the rising economic tide lifting all the Asian ‘boats’ and the significant case and quantitative evidence that embracing risk is a key growth driver, ‘brave’ is not a word that comes to mind to describe the average Asian marketing campaign. Another word: ‘mimesis’ does. Just consider the near imitation or ‘mimetic’ nature of most Asian FMCG campaigns such as a typical skin care TVC…

… we open on a ‘slice of life’ shot where the model (it’s always a model) demonstrates the problem, followed by product introduction, a 3-D, CG ‘demo’ wrapped up with a cut back to the product and the – now smiling – model. It’s a wrap! The look is ‘aspirational white’ and the sound is best described as ‘gentle voice over’.

No wonder Millward Brown’s own data shows that consumers are bored.

The human animal doesn’t cope well with risk
So why, in the face of a buoyant, growing market that ought to stimulate risk taking are we doing the opposite? Part of the issue is that human beings are not very good at assessing risk and reacting to risk.

Psychologists for example have shown that we process risks emotionally not rationally as one might think. As such, we tend to confuse risk with familiarity; we over-state the risk of things that are new to us regardless of the fact that the actual probability of loss is not as high as it is ‘felt’ to be.

A second learning is that we’re much more driven to prevent a loss than we are to make a gain. Social experiments consistently show that for a given economic value (say $100), in a game with fixed probability, people are more motivated to prevent losing the $100 they have, rather than winning $100 they didn’t have. Same reward, same probability, but different behaviour.

Perhaps this explains the problem the Asian marketing community seems to have with ‘emotion’ as strategy. Despite evidence that humans beings decide emotionally and that ‘emotive campaigns’ are twice as profitable as ‘persuasive campaigns’, Millward Brown data shows that most campaigns in Asia are rationally based with 53% containing ‘new product news’ and 51% containing ‘multiple messages’. One in every three campaigns aims to literally instruct the audience what to think with a continuous voice over.

The risk-avoidance pre-test
Our fear of chartering the relatively less travelled emotional path in communications is beset with risk-avoidance behaviours and protections. The increasingly entrenched use of norms-based pretesting is preventing the adoption of new thinking and more effective communication forms. An analysis of winning IPA case studies showed that those that passed the pre-test produced less profit than those that didn’t. And a study by Brainjuicer found that ‘emotional engagement’ is a significantly better predictor of large in-market effects than is ‘rational persuasion’.

Much of the advertising pre-testing orthodoxy, based on decades old thinking is at odds with the modern, post-advertising world. Increasingly, digitally led campaigning doesn’t contain the old fashioned ‘key visual’ needed to conform to the like-against-like norms based testing methodology. A marketing culture that insists on a rigid deployment of advertising testing to test social media centric ideas or long form film for example, results in higher scores for those items that match the biases inherent in the test. This reinforces old ideas at the expensive of the new, retarding the roll out of bold, new non-‘advertising’ thinking.

So, what can be done, to embrace more risk? On the one hand we can acknowledge that not every company is an Apple or Facebook with ‘risk’ hard-wired into the DNA. Yet, there are specific things that every marketing department can easily do to reinvigorate themselves with the thrill of new thinking.

3 marketing ‘risks’ that we need to take

1. Carve out 25% of everything you do for ‘risky business’
Companies need to set ‘rules’ that sanction the marketing team to take risks. Coke, who previously norm-tested everything they did equally recently broke with this convention and implemented a 70/20/10 system where 20% of marketing spend goes against ‘disruptive’ ideas and a further 10% is set aside for really new ideas that ‘most aren’t ready for yet’. Mathematician, hedge fund manager and author Nicolas Taleb says companies should adopt a ‘barbell strategy’ where resources are placed on totally proven thinking and high risk bets with nothing in between. Even dry old McKinsey recently concluded that marketing effectiveness would improve if companies spent 25% against ‘risky new ideas’ that are a bold step away from the normal practice.

2. Make digital your ‘risk playground’.
While there’s a great argument that Asia’s risk averse approach to television is the largest and most obvious place to take greater risks, in order to create a movement of change, it is better to start small. Most marketing directors across Asia are only committing ‘experimental investment’ to digital, so it is imperative that we ensure that the creative strategies are also bold and experimental. Our Johnnie Walker Yulu was successful but it was important too because it delivered insight in a new way to create brand campaigns: With the right idea and digital support you can reduce your media spend by half and still attract an audience of 20 million! What is the new experiment being tested in your next digital effort?

3. Create a culture that explicitly embraces risk
Company and marketing leaders need to set an agenda that openly embraces risk, so everyone knows how to behave when they face one. They need to share risks with lower level marketeers otherwise the junior ranks will filter out all the risky ideas for fear of being made scapegoats if it goes wrong. This point isn’t lost on Facebook’s Mark Zuckerberg. As he announced their IPO, he simultaneously launched to the world his ‘5 Hacker Values’ including a promise to stay hungry ”…building great things means taking risks.” Risk taking doesn’t have to mean ‘don’t test!’. But it does tell us how to test. In order to create a culture that is open to new ideas, it is imperative to ‘test boldly’. Testing familiar ‘mimetic’ ideas in old-fashioned overly rational methodologies gives us more of what we already have. It is opportunity wasted.

High speed Asia is on the rise. Marketing missteps hurt less here because strong organic growth brings new restorative opportunities faster than is the case in the slower growing West. But it won’t always be like this. Growth will eventually flatten out. This ought to be the ‘experimental age’ of marketing in Asia. The new socially connected world is more fluid and complex. Concrete systems and one-way communications must give way to greater flexibility and experimentation. Or face the consequences. In the words of the prosaic William Ward, ‘…the greatest risk in life is to risk nothing’.

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