Myth of Small Bets
The myth of small bets starts with a fun story from the mid-2000s.
At the time, Alan Horn and Warner Bros. were in fourth place in the entertainment market and, based on the need to grow market share, adopted a “big bet” strategy. The big bet strategy meant making big investments in event movies each year, movies like the Harry Potter franchise and The Dark Knight.
Meanwhile, Jeff Zucker and NBC Universal were in first place in the entertainment market and, based on the protect market share, adopted a “small bet” strategy. The small bet strategy believed that the way to continue to profit was to make small, distributed investments to manage for margins instead of ratings.
So what happened to these executives and their contrasting strategies?
Alan Horn’s big bet strategy became the wildly profitable franchise movie strategy we’re now all so familiar with, and Horn was poached by Disney in 2012 to roll out the strategy at the house of the mouse.
What about Jeff Zucker? He got fired.
What exactly did Alan Horn realize?
Horn realized two things:
1. People wouldn’t go to more than 6 or 8 movies in a movie theater each year.
2. People increasingly only go see franchises they’re familiar with: big movies with big stars, big effects, and big budgets.
Those two insights gave Horn the confidence to make an increasing series of big bets that initially seemed too risky to make and today seem too risky not to make. Perhaps counterintuitively, on a risk-adjusted basis, big bets are more profitable than small bets.
Anita Elberse, a professor from Harvard Business School, explains why it is that moviegoers don’t go see as many movies in theaters today: there’s simply too much competition for attention. The world is increasingly global and competitive and, as a result, consumers have an almost infinite amount of choice. As Elberse says, “breaking through the vast media clutter requires enormous bets on blockbuster strategies.”
Furthermore, this trend only appears to be accelerating.
The Lego Batman Movie is an example of this accelerating trend, where two brands – two brand giants – are joining forces to make an even more enormous bet on a blockbuster.
All marketers, B2B marketers included, need to pay attention to and invest in big bets themselves.
B2B marketers should determine which markets they can profitably win market share in and, after completing that calculus, should immediately set about creating a B2B franchise that can be marketed every year, in every market, in every vertical.
An excellent example of a B2B franchise is the “State of” reports from Salesforce. Salesforce started with The State of Sales and, based on its success, created The State of Marketing, The State of IT, The State of Customer Service, and The State of Analytics. Salesforce realized it had a franchise on its hands and quickly exported its big bet strategy to each of its business lines.
However, making bigger and bigger creative bets is only half the strategy.
The other half of the strategy is making bigger and bigger distribution bets.
So what does it require to make a big distribution bet?
It requires excess share of voice (ESOV).
In B2C marketing, there’s a well-known relationship between a brand’s share of voice (SOV) – typically defined as its share of all category advertising expenditure – and its rate of growth. Simply put, brands that set their share of voice (SOV) above their share of market (SOM) tend to grow (all other factors being equal). Conversely, brands that set their SOV below SOM tend to shrink. Furthermore, despite the enormous changes in media over the last 50 years, the share of voice rule has been known for five decades and still holds true today in both B2C and B2B marketing.
The recommendation for marketers is this: calculate your SOM and set your SOV higher than your SOM every year. Specifically, in B2B, 10% ESOV lifts market share by 0.7% points per year. Over time, as you win SOV, you will win SOM.
Learn from Alan Horn: bet big on both creative and distribution.
You can’t afford not to.