Adidas: We over-invested in digital advertising

Original article by Sarah Vizard 17 Oct 2019 on Marketing Week

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Adidas admits that a focus on efficiency rather than effectiveness led it to over-focus on ROI and over-invest in performance and digital at the expense of brand building.

Adidas is on a journey to shift from marketing efficiency to marketing effectiveness, admitting a focus on ROI led it to over-invest in digital and performance marketing at the expense of brand building.

The sports brand’s global media director, Simon Peel, explains that four years ago the company didn’t have any econometrics, its attribution modelling was based on last-click and it didn’t do any brand tracking. It also focused on efficiency over effectiveness, leading it to look at specific KPIs and how to reduce their cost rather than what was in the best interests of its brands.

This focus on efficiency was one of a number of issues that needed sorting at the company in order to drive long-term growth. It also had an over-supply problem, meaning its products were too often sold on promotion and creating price sensitivity. Plus, it had multiple agencies, inconsistent measurement and a business set-up that meant its main divisions were competing against each other and creating friction on messaging and creative.

“All the basics that exist to tell you how much you should invest in marketing didn’t exist,” Peel told the EffWeek conference this week.

Over the past four years, Adidas has been working to change this. Under a new marketing playbook – dubbed ‘Creating the new’ – and a renewed focus on generating brand desire, Adidas introduced a new campaign framework with emotional, brand-driving activity at the centre. This was an attempt to connect with consumers around major campaigns three or four times a year, while at the same time Adidas ran advertising with a rational message.

Adidas also had a performance budget linked to ecommerce in the belief that digital ads drove digital sales. Adidas was keen to drive online sales because it is the most profitable part of its business.

“We had an understanding that it was digital advertising – desktop and mobile – that was driving those sales and as a consequence we were over-investing in that area,” said Peel.

At the same time, Adidas brought in an econometric model. That helped it discover that where it had thought loyal customers were driving sales, and it was therefore investing in CRM, in fact 60% of revenue came from first-time buyers.

Adidas also found that its business units were not just driving their own sales. It thought that football advertising would drive football sales but found in reality that all advertising drove general Adidas sales.

Plus, while Adidas thought only performance drove ecommerce sales, in fact it was brand activity driving 65% of sales across wholesale, retail and ecommerce, while performance also drove wholesale and retail sales.

This was a problem because Adidas’s advertising split was 23% into brand and 77% into performance. Yet work by Les Binet and Peter Field recommends the split be 60:40 in brand’s favour.

We had an understanding it was digital advertising driving ecommerce sales and as a consequence we were over-investing.Simon Peel, Adidas

“The reason for that is short-termism because we are trying to grow sales very quickly,” said Peel. He added: “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).

That led Adidas to over-invest in paid search, for example, an error it uncovered in its Latin America market when a breakdown at Google AdWords and therefore inability to invest in paid search didn’t lead to a dip in traffic or revenue coming from SEO.

“It told a very digitally focused story, that you should invest in paid search, online display. But when you look at econometric modelling it tells you something very different,” said Peel.

What the econometrics told Adidas was that it should invest in video, which hadn’t shown up before because it didn’t do well in last-click attribution, as well as TV, outdoor and cinema to drive ecommerce.

Adidas is now working on what the right media and attribution model is for it. Peel believes that will involve econometrics as well as a test-and-learn approach.

“We are just walking, we have a long way to go. We do overly focus on digital attribution, but we are improving,” he concluded.