When I was an undergraduate a long time ago, I studied economics. One day my favorite professor talked briefly about what he called a gloomy and arcane subject--The Tyranny of Sunk Costs. Over the years I have found the concept to be anything but arcane; it is a frequent visitor to the business world and especially in marketing and media.
It essence the idea is that once you have sunk a large amount of costs into something it becomes harder to walk away from it when things are not going well. The “costs” are often monetary but not always. It can be time or sweat equity as well. These costs add up to quite a financial or emotional sum and they be tyrannical when you think it is finally time to walk away from the project, idea, or media platform.
We have all seen people who are not happy in their jobs. When you ask why they stay, a frequent answer might be along the lines of, “I have been here for 20 years. Can I just leave?” The answer, of course, is yes but it is not always a simple decision. Have a stock that has declined? A real estate deal that has gone sour? Many of us will not take our medicine and get out with a loss. We stay with that job or investment in the hopes that things will change.
In recent years, I have seen the concept come to play with greater frequency as media habits shift. Not a month goes by when someone does not write or speak to me about their reluctance to pull the plug on a media vehicle or sponsorship that no longer seems to be effective. Comments such as we have been using this package for 14 years and have spent millions with it. Can we really abandon it? Usually, I tactfully try to suggest a strategic withdrawal from the weakening media asset coupled with testing new platforms with growth potential. Usually it works, but not always and not nearly as fast as it should. The same people who talk of the revolution in the media world hold fast to vehicles that have clearly outlived their usefulness. Sometimes it takes a new marketing person client side to get the change needed. He or she has no sunk costs of any kind and questions, rightly, why something is being done.
A funny thing happened when I sent this question out to selected panel members for possible comments. A lady wrote back that getting her thinking about this issue has inspired her to leave her lazy husband. “I have 12 years of sunk costs of all kinds and I am sick of it.”
Well, I hope she can work things out or simply get her husband off the couch. Separately, in the business world, we all need to be more honest about the tyranny of sunk costs.
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