The more you risk, the higher the reward:
Realistic or not?
We've heard that adage so many times. I myself have used that in trying to convince clients to take on a new idea that I deem to be groundbreaking, creative, and would be a "first of its kind" execution.
But my viewpoint has changed.
After having learned more about risks and its management and mitigation (albeit from a financial perspective), I changed my mind.
It is not true that the more you risk, the higher the reward.
I am not sure who coined this - but I am guessing finance people.
What is interesting is that it's also being used by creative executives (and media planners, like myself) to sell concepts that are rather risque and controversial - all under the guise that "you can't bore your consumers into buying your product - you can only excite them". (I believe that's a paraphrase the great David Ogilvy.)
But the model - as depicted above - has some problems:
1. It assumes that for every unit of risk that a client takes, it generates a commensurate amount of return to the client.
It may not be a one-to-one relationship - but it is linear nonetheless: for every 1 unit of risk you take, you get some unit of reward.
I don't think that's realistic.
There must be a point beyond which taking on more risks won't generate as much returns or potentials for rewards.
2. It also assumes that the more risks you take, the expected the returns ought to keep on coming - so one should keep on taking risks.
So if the amounnt of risks that a client takes approaches infinity, the rewards also should approach infinity.
Again, I don't think that's realistic.
There's only so much "reward" that one can get - unless one believes in The Secret, which states that "there is an infinity of abundance out there".
A more realistic proposition:
Risk and Potential Rewards are 'hyperbolic'
OK. Before you tune out, let me visually show you what I mean:
I believe that the above more accurately represents the relationship between taking risks and the possibility of a reward or returns on investments.
Let's break down the possibilities in this visual representation:
1. If you don't risk, you don't get anything.
The curve starts at zero - which means, if you don't take a risk, you won't get anything. I think we can all agree with that one.
2. The relationship between risks and rewards/returns is not linear but is a curve that is similar to the "diminishing returns curve".
Focus on the top half of the figure: There must be a point beyond which taking on more risks won't generate any additional potential for return. There is a 'decreasing efficiency' or 'decreasing risk-to-reward conversion'.
Let me illustrate:
If I took on some "b" risks ("b" being a number), the returns I get would be much higher than if I had taken some "a" risks. However, if I took on "d" risks, the returns would not that different had I taken only "b" risks.
That's the law of diminishing returns - nothing lasts and goes on forever, basically
3. For every risk one takes - regardless of the amount - there is an equivalent possibility of failure.
The first, linear model assumes that if you take risks - there is no possibility of loss, no possibility of a backlash. It's all good - and it lasts forever!
This model, however, acknowledges the real meaning of risk: to take risks - any amount of risk - means being open to both possibilities of failure and of success.
If I took on "a" risks, the possibility of success is there - but so is the possibility of failure. If I took on "d" risks, the possibility of success is also there - but so is the possibility of failure.
The possibilities between success and failure may be imbalanced - but that is not the point: The point is, for every risk, there is a possibility of success and the possibility of failure - simultaneously. Otherwise, it is not risk.
(In this visual diagram, I have made the
possibility of success a mirror image of the possibility of failure.
But it may not necessarily be so.)
So what do these have got to do
with marketing and advertising?
Let's stop the idea that "the more risks you take, the more rewards you get so let's get creative..." I think it is irresponsible of ad and marketing professionals to recommend this approach: There are no guarantees that if you risked a lot, you'll get as much as what you risked.
Let's also start thinking in terms of risks in advertising and marketing: If we are to elevate marketing discussions to be more than just "advertising and promotions", we need to accept, take on, and include in our thinking and philosophies the concepts of risks.
When we talk of "ROI" or "accountability" or "ROMI", we need to talk about not just "thresholds, creativity, optimal budgets" - but also risks.
So what's next?
The concept of risk may have originated from finance. In fact, the charts above are from finance's portfolio management theories.
It's time that we treated marketing investments as investments.
It's time for clients to start asking their agencies and 'media brokers' to think like real brokers and financial analysts and consultants. It's time that agencies to start thinking in terms of investments - in the real sense of the word invesment.
