(By Bob McCurdy) Adidas recently discovered the difference between cost-efficient and cost-effective, according to an article titled, “Adidas Corrects Marketing Effectiveness Strategy,” where the company admitted that their focus on “efficiency” rather than “effectiveness” led to a detrimental focus on ROI and over-investment in bottom-of-the-funnel media channels. The company admitted they were under the misapprehension that only “performance” (bottom of the funnel) channels drove ecommerce sales, when in fact they discovered that brand activity (top of the funnel) was driving 65% of sales across wholesale, retail, as well as ecommerce.
I’d like to touch on a challenge that exists today for both local and national advertisers: striking the proper balance between top-of-the-funnel and bottom-of-the-funnel media channels.
In retrospect, it was not surprising that Adidas’ marketing balance went astray. On March 17, 2017 speaking to CNBC, Adida’s Chief Executive Kasper Rorsted proclaimed, “Digital engagement is key for us.” He continued, saying that “all” the company’s engagement is through digital media.
Last week, Adida’s global media director Simon Peel backtracked on Rorsted’s statement, commenting on their bottom-of-the-funnel focus, stating, “The reason for that is short-termism because we are trying to grow sales very quickly. We had a problem that we were focusing on the wrong metrics, the short-term, because we have fiduciary responsibility to shareholders. Those wrong metrics were caused by Adidas’s four attribution models – Google Last Click, Google Custom, Adobe, and Facebook – as well as a focus on short-term, real-time measurements that focused on ROI and return on ad spend (ROAS).”
Several years back, Clorox also fell prey to the same short-term siren. Then, CMO Eric Reynolds said, “We realized we were getting very short-term focused in two ways. We were targeting the kinds of people who already loved us … and kept pushing our investments down to them. We sold stuff. The ROI went up. We felt great about that. But guess what? We forgot the golden rule of brand building: brands are built through penetration.”
In 2019, offline media continues to set the table for online media, which is why so many DTC and online companies like Amazon, Facebook, and Google are using mass media to market their products and services now more than ever. DTC brands have also finally realized that one way to bring down customer acquisition costs is to have strong brands built via mass media.
Regarding ROI, note it is a measurement of “efficiency” not “effectiveness.” The fact is that every marketing dollar after the first delivers less impact than the previous. From a pure advertising efficiency (ROI) standpoint, there is a greater response from an advertising budget reduction than increase. This is a clear indication of diminishing returns. Budget increases often mean more sales volume but a less “efficient” use of the ad budget, which is okay, as the goal is not to simply maximize a metric, ROI, but to maximize profits and position a brand/company for long-term success.
The things that drive long-term business results (emphasis on reach, penetration, and broad brand-building activity) are all things that don’t reflect well in a short-term ROI/efficiency calculation, so overly focusing on ROI is akin to peering through the wrong end of a telescope. High-performing companies employ a more balanced approach to short- and long-term objectives and media. As the work of Les Binet and Peter Field, the ARF and others has shown, there tends to be an optimum effectiveness of 60% for brand building (upper funnel) and 40% for activation (lower funnel) in advertising budgets.
An effective media plan is similar to a balanced diet:
– Don’t skip meals. Advertise consistently.
– Strive for a balanced diet. Taking advantage of the synergy between digital and traditional media.
– Limit the alcohol. Avoid getting digitally or traditionally drunk.
This week the Gap’s CMO, Alegra O’Hare, who joined the Gap from Adidas in February, announced that the Gap’s focus for the holidays will be completely digital. Ironic timing in light of the admissions referenced above.
Strive for balance and equilibrium in life and in media. Attain a solid balance between scale and precision, digital and traditional media, and good things will happen.