The Equimarginal Principle and Industrial Marketing

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Does the equimarginal principle guide the spending of your industrial marketing resources?

We all recognize the costs of the things we do, but what about the costs of the things we don’t do? When you’re spending your time answering emails or chatting at the water cooler, you’re not overseeing your website’s development or monitoring the success of your marketing plan – and there are costs associated with that.

Quite simply, each dollar or hour of time you spend on X isn’t being spent on Y.

Combine this idea (known as opportunity cost) with the concept of diminishing returns, and you have the tools to understand how the equimarginal principle should dictate your allocation of marketing resources.

For example, you could go to all the trade shows in the US, but would it be worth it? You might get a bunch of qualified leads at the first two, but by show 34 or 35, you’re probably just meeting the same people over and over.

And think of the opportunity cost of attending all those shows! The money and time spent could surely be put to better use. The key is to find out when enough is enough – when the time, money, or other resources spent on one marketing initiative are better off being used on another.

Out there somewhere is the perfect mix of inputs that provides you with maximum output. This will be the mix where your marketing return on investment will be equal across the board.

Will you ever achieve it in reality? Probably not, but you should be striving to move toward it.

Take note, however, that the equimarginal principle requires making the following assumptions.

Your company has a fixed marketing budget.
Marketing budgets are usually fixed, and though they change from month-to-month or year-to-year, they should generally be viewed as static.

Your resources have alternative uses.
Some resources have a practically infinite number of uses. You can do just about anything you want with your time and money, right? But if, for example, your intern can’t do anything well beside social media, there is no opportunity cost to just having that person do social media all day.

Your resources are subject to diminishing returns.
The more you use a resource, the less return you receive from it. Would you ever try to write an entire white paper in one sitting? No, because the resource you’re using – brainpower! – diminishes with additional use.

You may think that the above is hogwash and that your industrial marketing efforts are fine because that’s how things have always been done. Well, you’re leaving money on the table, and that isn’t a good thing. The best marketers I know are the ones who understand the above principles – core concepts of managerial economics.

What metrics are you currently using to determine your marketing expenditures and their effectiveness? Let me know by leaving comments below.

Photo credit: desaparecido

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