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Currently, have two MID environments for Marketing Cloud (One is production and the other is 'sandbox')

I need to be able to have separate folders for two business units: 'Live' and 'Test'

When I go to the Email Studio I can see that the folders that I see in 'Test' are the same as the ones that I see in 'Live'.

To test this I renamed the folders in one MID and then I saw that the names had changed in the other MID.

I wanted to clarify if this was expected behaviour as well as how the folders work in Marketing Cloud.

Currently, in the 'Live' environment I am also unable to move them from the folder: 'All Shared Content'

To solve this any information to clarify how these should work and how I can manage Test vs Live content.

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Marketing Cloud doesnt have a "real" sandbox environment. When you have a sandbox configured, what you get is another business unit with call "Sandbox". This gives you the advantage of been able to build things in a partially silo'ed environment. I say partial, as it would still share some common resources with the the other orgs (e.g. All subscriber's List).

The short coming of this sandbox is that you are unable to automatically push your builds to the "live" environment, as most of this has to be done manually. You have the option of setting up API integrations with your live environment, but this method is buggy and resource intensive.

There is however a work around for data extensions and content builder files / folders. If you have a sharing folder in your live and production business units, you can build in one environment, and share with the other. This is what I suspect is been done in your account. So in order for your Test account to be able to share files with your live account, the same file has to be made available to both business units.

To move your assets from different folder, I would suggest duplicating them.

Reference:

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Changes to the folders 'stuck' when using firefox browser.

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