Always consider the long-term consequences of marketing strategies

Always consider the long-term consequences of marketing strategies

Short-term gain can be a pain. By Freek Vermeulen, associate professor of strategy and entrepreneurship, London Business School

Strategic decisions often have long-term consequences – in fact, that might be the reason we consider them "strategic" in the first place. Sometimes, organisations have to accept some short-term pain for long-term gain. Indeed, in a way, any investment is like that.

However, conversely, certain decisions with short-term gain can also have more painful consequences in the long run. The problem is that managers often see the short-term benefits – and base their decisions on them – but are unaware of the potential long-term negative effects.

To give you an example, Mihaela Stan, assistant professor of strategy in the department of Management Science and Innovation at UCL, and I conducted a major research project on IVF clinics in the UK. These fertility clinics are obliged to publish their success rates (number of treatments that lead to a birth), for the sake of "transparency" and "consumer choice".

In response, many started to select their patients: those with a good prognosis were welcome everywhere, but quite a few clinics refused those with a poor one, so as not to drive down their success rates. We found that this practice worked – at least in the short term – in the sense that those clinics that were more selective enjoyed higher success rates.

Management practices and strategies have advantages and disadvantages; different short-term and long-term consequences.

However, what these clinics were not aware of is that they also learned a lot from treating "difficult" patients. When we computed the so-called "learning curves" of all the clinics in the business, we discovered that the ones that treated a relatively large number of poor-prognosis cases improved their overall success over time quite dramatically.

In fact, they learned so much from these "difficult" patients – in terms of innovative processes, tests, and techniques – that, after a year or so, they overtook the clinics that thought they were being clever by taking on "easy" cases only. That is, their success rates became significantly higher – in spite of treating tougher cases. Hence, the selective clinics – in the long run – shot themselves in the foot.

The problem is that these clinics are not aware of the detrimental long-term consequences of their actions. Sure, they can see that their success rates might be lagging some of their competitors, but what they have trouble understanding is that "that’s because some years ago we started selecting only easy patients". Therefore, they usually just continue with the practice, or become even more selective, in a futile attempt to turn the tide.

Similarly, process management systems (such as ISO9000 or SixSigma) have been shown to have detrimental long-term effects, because they harm long-term innovation; likewise for downsizing programmes (which lead to bad employee morale, low commitment and increased employee turnover) and some outsourcing practices.

Generally, management practices and strategies have advantages and disadvantages; different short-term and long-term consequences. Thinking that something has only benefits is usually rather naïve and unrealistic. When considering a strategic decision, it is always important to ask "what might be the long-term consequences?" Perhaps then you will open the door for that difficult customer.