I just read a great post from a blog I often read called Thought Gadgets and the author, Ben Kunz, was talking about a concept called “sunk costs.” He goes on to explain that this is an economic term that refers to past expenses or decisions that can never be recovered. The common logic of a sunk cost is that once the money’s gone, it’s gone - but folks often continue to perpetuate the same behavior (spend) because they don’t want to admit failure. Ben relates several well-known historical instances of people chasing sunk costs:

The Vietnam War - Many thought we had spent too much, and lost too many lives, to “stop the war now.”

The Concorde Jet - Throwing money into the program even though it was clear it was going to fail.

I’d say in many regards another glaring example of chasing sunk costs today would be energy companies that are continuing to chase oil as their primary source, rather than investing in developing alternative sources and technologies. The bottom line is that it’s regret and bureaucracy which often keeps these things happening.

Ben mentions toward the end of his blog post that marketers often fall victim to chasing sunk costs as well. This really hit home for me, because it touched on something that I often observe first-hand in my position as marketing director. I can’t tell you how many times I come across companies that are spending thousands upon thousands of dollars trying to communicate a brand that is ineffective and off-target. But they continue to do it because it would take too much effort and investment (and admitting they were wrong) to ‘right the ship,’ so to speak.

But how can these companies compete when the foundation of their being - their brand - is a lame-duck? The reality is, they can’t, and they’re just chasing sunk costs. It’s a sobering realization, but the only way to get them back on course for marketing success is to get the brand back in focus. Only then, should any money and effort be put into trying to communicate that brand.

I’ll bet you can think of a number of companies right now that are chasing sunk costs by spending money on an ineffective brand they’ve settled on. I can think of several brands right here in Baltimore that could use some help…

Garret Ohm
http://www.orange-element.com

This entry was posted on Wednesday, July 23rd, 2008 at 9:20 am and is filed under Blog Posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.