Bounded rationality is the idea that we humans don’t make rational decisions based on all relevant criteria. Instead, we narrow the boundaries of the information we consider in order to make quicker decisions. If the majority of human decision making wasn’t artificially bound in this way then few decisions would ever get made. We are too limited in time, the availability of information and our own cognitive abilities to try to make perfect decisions, so we settle for “good enough” decisions. Social scientists call this compromised decision making “satisficing” and the mental shortcuts we use to narrow the bounds of such decisions “heuristics.”

Like all heuristics, these boundaries are good enough to make quick decisions of minor consequence, like employing “extremeness aversion” and defaulting to the middle “Silver” option when selecting a carwash without even bothering to learn what is included in that option. But heuristics also serve as useful starting points from which we make more consequential decisions. “Price anchoring” is a classic example of using a heuristic (in this case, starting with the first price we see or hear) and then adjusting from there. Kahneman and Tversky, who coined the term “anchoring” actually refer to it as “anchoring and adjusting” for this reason. The anchor is the heuristic—a useful starting point for thinking about a subject—in this case, the first price. Then we reason our way away from the anchor. When we price anchor in a sale—whether we are the seller anchoring high or the buyer anchoring low—we are effectively hacking this heuristic, leveraging the fact that people stop reasoning well before all the information is considered. 

I’ve described the two different uses of heuristics to set boundaries that help us make decisions. In inconsequential decisions like a car wash we use these shortcuts to make the decision quickly and completely. In decisions of consequence like buying a car, we use the same shortcuts as a starting point from which to then reason our way to a more thoughtful decision. The more consequential the decision, the more reasoning we apply to get a more fully-informed decision.

I’m sure you’ve already spotted the problem. These artificial boundaries that are meant as starting points for consequential decisions can calcify and become more real than is useful. In some cases they become a form of social or organizational law. One example of this is the 80/20 heuristic of the “working” and “non-working” components of a client’s marketing budget.

Who Are You Calling “Non-Working”!?

Before we get to the 80/20 boundary itself, let’s dwell on the ridiculousness of the labels. In this model, media spend is referred to as the “working” part of the budget and creative and production are known as “non-working.” 

Kyle Reese was sent back in time to save Sarah Connor so she could give birth to John Connor who would then lead the human resistance against the machines. (It’s true, you can look it up.) But I wonder if he shouldn’t have been sent back in time to stop the person who came up with these insulting labels. It’s hard to know what has been more damaging to the cause of effective marketing, the 80/20 heuristic that has been codified into law or the disparaging label of “non-working” spend. 

If creative and production really are non-working then why be so irresponsible as to spend 20% of your budget on them? Shouldn’t you be focused on getting that to zero?

The obvious, undeniable truth is that creative and production are multipliers of the media spend, not subtractions from it. Every rational thinking marketer intuits this. And yet, so many still use this label. Non-working. Fuck you. Piling more GRPs on a shitty ad is the definition of non-working. 

Now, About That Ratio…

Okay, this label clearly pushes my buttons. I can write a little bit more calmly about the 80/20 ratio, because this idea of what should be a starting point (“80/20 feels approximately right, so let’s start there and then begin reasoning”) getting calcified into law (“It’s 80/20. My boss said so.”) well, it happens a lot. 

Even the Pareto Principle—what most people refer to as The 80/20 Rule—isn’t as specific as “80% of effects are derived from 20% of causes.” According to Wikipedia, “the term 80/20 is only a shorthand for the general principle at work.” That principle is that a large percentage of outcomes are driven by a small percentage of effort or resources. Sometimes it’s 90/10. Sometimes it’s 70/30. Sometimes it’s 70/20. (There’s no requirement for the numbers to add up to 100.) 

80/20 is a heuristic—a tool for quick decisions of low consequence and a starting point for decisions of greater consequence. Marketing spend is a decision of sizable consequence but many seem to have dropped the important step of reasoning away from the starting point and instead view the starting point as law.

If we actually applied the Pareto Principle to marketing budgets we would value the creative and production more highly than the media spend. I’m not saying we would reverse the spend ratio, but we certainly wouldn’t be bound by the heuristic. 

Media is a commodity. The ad is what leverages the commodity into something useful, useless or in between. The shortcut of spending 20% of a marketing budget on creative and production and 80% on media is as good a place to start as any, but if your budgets always end up at this ratio then you’re clearly skipping the important step of reasoning. You’re just going through the motions, blindly following a law that was never meant to be a law at all, only a place from which to begin reasoning.

Let the reasoning begin. Be guided by this rational starting point but not bound by it. And ffs, don’t label the investment in the creation of the ad “non-working.” It’s always been the most important and hardest working part of the budget.