What is Concentrated Channel Risk in Marketing?

As a business owner, it’s important to understand the risks associated with relying too heavily on a single marketing channel to achieve your marketing objectives. This is known as concentrated marketing channel risk, and it can be a serious issue for businesses that are overly reliant on a single channel. In this blog post, we’ll explore what concentrated marketing channel risk is, provide examples of different types of risks, and offer advice on how businesses can mitigate this risk.

What is Concentrated Marketing Channel Risk?

Concentrated marketing channel risk refers to the risk of relying too heavily on a single marketing channel to achieve your marketing objectives. This can leave businesses vulnerable to changes in the market, shifts in consumer behaviour, or unexpected events that impact the channel they are relying on.

For example, if a business is relying solely on social media to promote their brand, they may be at risk if a new social media platform emerges or if changes in algorithms reduce the reach of their posts. Similarly, if a business is relying solely on paid advertising to drive traffic to their website, they may be at risk if changes in ad policies or rising costs make it difficult to achieve a positive return on investment.

Types of Concentrated Channel Risks

There are several types of concentrated channel risks that businesses should be aware of, including:

Market Risks: Market risks are risks associated with changes in the market, such as shifts in consumer behaviour or changes in the competitive landscape. For example, if a business is relying heavily on a single distribution channel to reach their customers and that channel becomes less popular, the business may be at risk of losing market share.

Technology Risks: Technology risks are risks associated with changes in technology, such as the emergence of new platforms or changes in algorithms. For example, if a business is relying solely on social media to promote their brand and a new platform emerges that becomes more popular, the business may be at risk of losing visibility and reach.

Operational Risks: Operational risks are risks associated with the day-to-day operations of the business, such as staffing issues or equipment failures. For example, if a business relies heavily on a single employee to manage their marketing efforts and that employee leaves the company, the business may be at risk of losing momentum and productivity.

Financial Risks: Financial risks are risks associated with changes in the financial landscape, such as rising costs or changes in funding sources. For example, if a business is relying heavily on paid advertising to drive traffic to their website and the cost of advertising rises significantly, the business may be at risk of losing profitability.

Mitigating Concentrated Channel Risk

To mitigate the risk of concentrated channel risk, businesses should aim to have a diversified marketing mix that includes a variety of different channels and distribution channels. This will help to spread out the risk and ensure that the business is not overly reliant on any one channel.

It’s also important for businesses to stay up to date on changes in the market and shifts in consumer behaviour, and to be prepared to pivot their marketing strategy if necessary. By regularly reviewing their marketing mix and adjusting their strategy as needed, businesses can reduce their risk of concentrated channel risk and increase their chances of long-term success.

Another way to mitigate concentrated channel risk is to diversify your revenue streams. This can be achieved by offering a range of different products or services, or by expanding into new markets or industries. By diversifying your revenue streams, you can reduce your dependence on a single channel and spread out your risk.

Examples of Concentrated Channel Risk

Here are some examples of businesses that have faced concentrated channel risk and the impact it had on their operations:

Facebook Algorithm Changes: Many businesses rely heavily on social media to promote their brand and reach their target audience. However, changes in algorithms can significantly impact the visibility of posts and reduce the reach of a business’s messaging. In 2018, Facebook made changes to its algorithm that prioritised content from family and friends over content from businesses and brands. This had a significant impact on businesses that relied heavily on Facebook to reach their audience, and many saw a decline in engagement and reach. To mitigate this risk, businesses should diversify their social media presence and explore other channels such as email marketing or paid advertising.

Retailer Bankruptcy: Many businesses rely on a single retailer to distribute their products, but this can be risky if that retailer experiences financial difficulties or goes out of business. For example, when Toys “R” Us went bankrupt in 2018, many toy manufacturers were left with excess inventory and lost a significant portion of their revenue. To mitigate this risk, businesses should explore different distribution channels and consider partnering with multiple retailers.

Google Ads Changes: Google Ads is a popular channel for businesses to drive traffic to their website and generate leads. However, changes in ad policies or rising costs can significantly impact a business’s ability to achieve a positive return on investment. For example, in 2018, Google made changes to its Ads policies that restricted certain types of advertising, such as ads for cryptocurrency and initial coin offerings (ICOs). To mitigate this risk, businesses should explore other paid advertising channels such as social media advertising or display advertising.

Conclusion

Concentrated channel risk is a real danger for businesses that rely too heavily on a single marketing channel to achieve their marketing objectives. By diversifying their marketing mix, businesses can spread out their risk and increase their chances of long-term success. It’s important for businesses to stay up to date on changes in the market and be prepared to pivot their marketing strategy if necessary. By taking a proactive approach to concentrated channel risk, businesses can reduce their vulnerability and achieve their marketing objectives more effectively.