The Sunk Cost Fallacy And How It Can Kill Your Marketing
The sunk cost fallacy is dragging down marketing. It's defined as continuing a behavior or endeavor as a result of previously invested resources (time, money or effort). Think: shelf-ware tools, poor marketing channels etc.
How many marketing channels do you know are not performing but you keep them anyway? How much tech do you have that isn’t producing the results you had hoped for, but you are continuing to use it anyway because of the large investment?
In B2B marketing, sunk costs are bound to happen. But don’t fall into the trap of letting them continue and get worse.
Tune in to see how common it is and the questions you can ask yourself to understand when to kill something in marketing before falling for this fallacy.
Transcription
Charlie:
Hi everyone, how's it going? Welcome to another episode of fwd:Thinking. You've got Charlie and Crissy here from CS2 Marketing. So today we've got a pretty interesting topic that we've been thinking about, quite a lot over the last couple of weeks, and it's all around what is called the sunk cost fallacy.
Crissy:
Yeah. That's a tongue twister, I think. Sunk cost fallacy. Say that 10 times fast. I think its ...
Charlie:
Yeah, maybe not for this podcast, maybe save it for afterwards.
Crissy:
I think it might not be safe for work after all.
Charlie:
That's pretty funny. Okay. Moving on. So what is the sunk cost fallacy? This is where individuals ... I'm reading a definition here, if this sounds boring. But individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of a previously-invested resources. So how that relates to the marketing operations is in twofold.
It's marketing or marketing operations. It's twofold... really around campaigns and tech. So a lot of times you'll have a tall... people would like to call it shelf wear. Where it's sitting on the shelf and you're not using it, but you're spending money on it. And you want to keep it because you've spent money on it already. And that is you're completely falling into the trap of the sunk cost fallacy. You sunk money into it. And the fallacy is that you think you might still be able to get value out of it, if you continue using it. And then the same thing from a campaign point of view, if you're running a campaign or a channel or any kind of initiative within marketing, you've put money, you've put time, you put resources into it. And it may not be giving you the results that you need, but because you've already invested in it, you're sticking with it.
Crissy:
Yeah. And I think this can be a source of stress for some people as well. I think if you... I compare it to... Weirdly, we have this like really fancy massager that we spent a lot of money on. And I'll look at it and I'm like, I need to use that.
Charlie:
Oh, you're talking about a real massage, like a person.
Crissy:
That'd be amazing. I think I tried it like once, and it made my skin itch. And I was thinking, okay, I'll give it another shot. Every time I look at it, I'm like, okay, I'm going to start using that. I should use that. It's expensive, it's fancy, it'll make my muscles feel better. And then, it just sits there. And I keep thinking in the back of my head, every time I walk by it, I feel a little bit like inside of me hurts. And that's just a small investment.
Charlie:
And that's not a subscription.
Crissy:
No. It is a small investment as well. And that's just a personal thing. I think everyone can think about those in their daily lives. But for those of us in marketing, especially marketing, also in tech, and then for marketers, for their campaigns, we find that where we spend the most amount of money or where we put a lot of budget, we'll just try our hardest to make things work. Wherein in the end, it might make sense to really just rip it out. And I think right now, when budgets are being slashed, or we could really free up some budget because we haven't been given any more, this is a good exercise to run through. So to not get caught in that sunk cost fallacy position.
Charlie:
Yeah. And I actually had a conversation with a client the other day about this. And there's a tool, I won't name names, but it's in the tens of thousands yearly. But they're desperate for extra MOps headcount. And I said, "Well, I know that getting rid of this tool isn't going to be freeing up all of the money for a MOps headcount, but it's going to get you somewhat of the way there and give you ability to maybe have that conversation. Because you've been freed up a little bit of budget in exchange for trying to like free up a little bit more to get that headcount.
And I think that one of the important things when the sunk cost fallacy is that you know what's in that category. And that constant trying and trying and trying to keep on... having it in the back of your mind, and it's taking up that kind of overhead in your energy. But you know that it's a sunk cost, you know it's not providing value. And it's like, genuinely does impact your happiness and wellbeing and the productivity of your team.
Crissy:
Yeah. And in some times, you maybe don't know because you're coming into the organization, and you're just given a tech stack.
And you're like, three of these things do the same thing, and then you're wondering... Or that you're hearing from the sales team now, that it really didn't get the due diligence that it properly needed or it's not working. Okay, why is it not working? So we wanted to talk through the questions or an exercise that you can go through, when trying to decide whether you continue to put resources into something or keep some initiative going, or keep a piece of tech versus not. And so, do you want to kick it off Charlie?
Charlie:
Sure. So there's just some general questions to ask yourself. So the first one is... once you've identified a tool or a campaign that isn't really giving you the ROI or the value, is the first thing is you're trying to figure out, should I scrap this or not? So first, develop that list of everything that doesn't seem right, in terms of the balance of value to cost and effort. But then ask yourself, have I implemented this properly? Is this tool an attribution tool or a data orchestration tool or whatever it is? Did I put the time into actually implementing this properly? Did I train the team properly? Have I just done all of the things I needed to do to get the value out of this? Is it kind of on me and once you've asked-
Crissy:
Or did your predecessor because, like I said, you might be-
Charlie:
Or their CS team, as a group of people. Yeah.
Good point. So then, the next question to ask, if the answer to that is no, then can I even put in more effort. If you can, then maybe try, unless it's just a categorical no, that you should just scrap this thing. But if you think you can put in more effort and you can, maybe take a few steps back to take a lot of steps forward. Then try it, maybe before scrapping it. But if the answer is, I literally don't have the time, I can't see myself doing this in the next few quarters, renewals coming up, then I think you got your answer.
Crissy:
Totally. And I think some of the things that... when we think about this with a client, it's kind of taking some of the emotion out of it as well. I think a lot of the times we even find like, Oh, I'm using this tool because my CMO is best friends with my wife's sister's... Like whoever. There's relationships behind some of these big decisions.
And that is so stressful for our marketing ops person, who's just trying to make this tech work. And we really need to stop doing those back door deals or stop doing those deals that are really a favor. Because no one wins in the end. But take some of that emotion out. People will understand if you make the case for why it's hurting the business or why maybe it's impacting your team, you can part ways with it.
Crissy:
And also, make sure you're not making too quick of a decision with this. So some things actually do truly take time, especially when it comes to campaigns. With tech, it's pretty clear. If you did your perfect implementation, can I get an expert to review this? That might even be better to have an expert then come in, if you do have those additional resources, to then come see if you... Okay, you did everything you could to launch it. It's just not the right fit for you.
But for campaigns, it might need to be, on the sales side, was there enough follow up? Do we have enough time to actually see results from this? Pipeline revenue in some enterprises takes a long time to see those results. But if it doesn't even match your go-to-market strategy, you probably don't even have enough time to even see that pipeline get created, and you might need to scrap it too. So really, when you're making these decisions, take all the data, but know that sometimes things take time, sometimes it's pretty clear. And then, make the best decision. And really think about the costs, the extra costs, not just how much it took to buy it or to implement it. But what are we losing for trying to put all this effort into the tool? Or is it impacting revenue because we're not able to focus on any other things. And so, I think you have like a few kinds of categories that you could compare to get a score for how well the campaign or tech is doing for you.
Charlie:
Yes. I call it MOPS…
So this is part of the prioritization framework, we're trying to work on for marketing operations people. It's mainly focused on tools. So the first one, M, is metrics and data, slash data. So is this tool really providing insight through some metric or reporting on analytics for your CMO, for the team, that they're really using, and it's really valuable?
Crissy:
Yes, so that's the first one.
Charlie:
Is it helping with data? So that's the first one. Is it helping with data? Cleanliness, quality, is it helping those reports really work? So the second one in MOPS is, O, so that's operational stability. So this is why it's a bit more focused for marketing operation stuff as opposed to campaigns. But is this platform, tool, whatever it is, is it foundational to the stability of your whole stack? So is it really helping your marketing automation platform, CRM, your integrations, whatever it is, your data quality. Is it really foundational? And is it keeping everything stable? If it is, then you don't want to take it out because it's going to cause you a lot of other downstream effects.
Crissy:
Yeah. So we have metrics, operational stability, and then the third one is pipeline and revenue impact. So this is a key one and kind of saying-
Shonal:
So, definitely felt like that ABM ... You know, the process is a team effort. And it's that way for a reason. It needs to be a team effort, or else marketing's going to do it in a vacuum, sales is not going to understand what's going out, going on, or they're going to say, "Hey, this ABM thing's not working out," right? Because they're not really involved. They're not invested in it. And vice versa. Sometimes it works the opposite way.
Charlie:
And that's the P in MOPS.
Crissy:
Yeah, that's the P in MOPS.
Sometimes it will take time to build that pipeline and revenue impact. And you might even find that this is where some things take time, like ABM campaigns. And you might need to even then, reiterate on those campaigns. We have a great listen with Shonal Narayan from EverString talking about that, was one of our previous episodes to check out. But you really want to see what's our impact on our pipeline in revenue, if we rip this out? Would we be able to actually invest that into something else that's driving more pipeline revenue? And will it save our resources?
Charlie:
Yeah. It's like, if you've got a drift bot, and people are engaging with your drift, yep, scheduling meetings. And they're turning into pipeline. Try and really understand how that tech is impacting pipeline and revenue, of course. A lot of people think, do that? Unless the tool is just kind of explicitly linked, but everything is kind of linked. And by the way, we forgot to mention in the beginning, you would get a score in each of the aspects, that's a 1 to 10. So there could be something that isn't really tying much to pipeline and revenue, but it has like really great operational stability. So then obviously, the score would weight out across all four.
The final one is selling experience for S. This includes CX and obviously, your sales process, things like that. Now, is it helping you sell better through a better experience for the customer? Better experience for sales team? Obviously, that does impact pipeline and revenue, but is it really helping you connect with your customers, sell better, have a scale, your approach to engaging with your customers through your sales engagement? And all of the different aspects within that.
Crissy:
And I think also, brands because as we've talked about before, branding activities can lower your cost of acquisition. But also, it'd just be a better selling experience for your team. Because people already know who you are, they understand your brand a bit more, they have that kind of a sense of wanting to be part of that brand. And so, I think for some campaigns where people don't have a direct tie to pipeline and revenue, just because they can't see it.
This is a good thing to also keep in mind, does it make your selling experience better? Brand experience? Can we find that implied intent that maybe you're not seeing in the pipeline revenue impact. And getting those details from the sales team, maybe interviewing them to see if that's been part of impacting their deals and their selling cycle, is good to do too.
Charlie:
Yeah. So once you've given a score of 1 to 10, all of those aspects, you've asked yourself the previous questions, like, did I even do this properly? Were we ready? There's one other question that I just want to add, is try to get an expert opinion. Christie touched on it. But a lot of our clients come to us, and they ask us these kind of questions. And where we come at it without that background and that emotion tied to the tool. Unless we want part of the selection process as well. But if it was there before we got there, we can be really objective and say, do you know what? You're just not using this. Like, yes, you might be using it for this tiny use case here, but that's just not enough to pay for it.
Crissy:
Or they're just not ready to.
Charlie:
Right. Oh, 100%. That happens all the time.
Crissy:
Yeah. And I think that is a sad case in some part-
Getting ahead of yourself. And then also, if there's been big massive changes in your company, in your org, you may have seemed like you're going to be ready. And then now, you're just really not. And I think that's also places where people are right now, where maybe your team's been cut in half. And yes, you were ready to embark on some big change with or strategy a for a campaign or this big tool to help you do attribution. And you got everyone on the same page with it. Those people have gone. It's really hard to then make the case to keep investing in it. So…
Charlie:
That's probably the hardest one to deal with because you think the reason why I have to get rid of this is because we're no longer ready. It's a hard thing to admit to yourself. And actually thinking about, that's probably one of the biggest reasons why people fall into the sunk cost fallacy trap. And they think, maybe we will be ready soon, then we'll be ready next quarter, we're ready next quarter, and then before you know it, it's been a year or longer, and you just still haven't got the use out of it.
Crissy:
Yeah. And it doesn't mean that you can't one day... you can return to it, but for now it's just not.
Charlie:
Yeah. So then once you've done this exercise, and then you have some tools or programs or channels, whatever it is that is on this list that it has low numbers across the MOPS prioritization that I went through, you don't think you're ready to put in more. Maybe you got some advice from someone, they also think it's not ready, think what you else you can do with that money. Because I think a lot of people think that... you kind of forget that you have a budget. Everything takes away from that budget and you don't have this unlimited budget.
So if you're paying 50 grand for an attribution tool, but you're not using it, that's 50 grand that you could be putting in something way more impactful. So if you were probably getting a tiny bit of value, and you're holding onto that sunk cost fallacy, but then you realize, okay... you have to realize that's $50,000 that you could put into something else and maybe get a ton of value. So it's undeniable that you're getting value out of it. I think people forget that aspect. They just think, Oh, well, if we want to do this other thing, we'll find the budget for that.
Crissy:
Totally. And I think that that is key as well because a lot of the times marketers, especially, were afraid, Oh no, my budget might get taken away from me then. Because if my CMOs sees like, Oh, I'm not using this 70K anymore, then my budget's going to be taken away by 70K. It's like, well, but if you have the case to say, "Okay, I'm not going to be spending this money, but I do want to use it for XYZ, and this is why. Have that at your disposal when you are having that conversation, when someone tries to just take that line item away from you and give it to someone else. Because that's a key thing you want to hold on to, the budget, if you can.
Charlie:
Yeah. And I think from our point of view, you think of marketing and marketing operations, people, process, technology, and data. The one thing that you can always get the most bang for your buck from investing into is people. So even if you took away the fanciest tools in your stack, and you just had some really amazing people to execute within a smaller set of marketing technologies, you're going to do better than just trying to just layer on more and more tools and complicated aspects for one person to deal with. Because you can always benefit having more people, is what I'm trying to say. So if you have a few tools that are sitting there that you don't really need, then build that case to get head count. And then, if they say, “No.” Then say, “Okay well, what happens if I can reduce the budget by removing these tools?”
Crissy:
Totally. So Marie Kondo your tech stack and your campaigns. Figure out what's really providing you that high prioritization score, aka giving you joy. So we hope that was useful, I think, for marketers and marketing ops, and we will see you on episode of fwd:Thinking.