It takes courage to admit you made a mistake, more so to do it in public in front of one’s peers, but if we don’t do it, we don’t make progress. One of the biggest problems in science today is called positive publication bias. For the sake of their careers, scientists tend to only publish research that has positive results and thus the scientific world largely ignores null results. The same is true in advertising since we only share successful case studies to enter award shows.
When we don’t share failures, others can’t learn from them and thus repeat the same mistakes. Brands, like scientists, are in competition, so there is a bias towards not sharing failures for that exact reason. This hinders the entire industry at a time when the advertising effectiveness could use help.
We should all be grateful then to Simon Peel, Global Media Director at Adidas, for his candid EFF Week presentation last month. He stated that focusing on efficiency, not effectiveness had led the brand to over-invest in digital advertising. This was not entirely unexpected. In 2017 when the new CEO announced that Adidas was abandoning television advertising because “digital engagement is key,” many commentators called this out as being misguided. They have been vindicated — but the danger here is that we latch on to this as evidence of something too simple, and fail to learn anything. We need to invest for the long term, leverage a suitable mix of brand and performance, and much of digital advertising works like direct marketing. Growth is a function of penetration – 60% of Adidas revenue came from first time buyers – not loyal customers. Well, yes, we know all that – and so did the people at Adidas, as Simon said in his talk. Yet the overall budget split was heavily skewed towards digital and performance – 77% versus 23% for the brand. Why?
Whilst they were aware of the IPA benchmark to allocate 60% of budgets to brand activity to maximize growth, a multitude of things got in the way. This is where we can learn something useful about the issues marketers and agencies face in real-life working for global brands. It is easy for pundits like myself to opine on strategy and suggest best practice based on robust evidence but the messy truth is that there are systemic issues that drive these mistakes. As a consultant, understanding those is just as important as knowing what the evidence says.
The issue writ large can be described as “metric fixation” and it operates at every level of modern business:
“The key components of metric fixation are the belief that it is possible – and desirable – to replace professional judgment with metrics; and that the best way to motivate people within these organizations is by attaching rewards and penalties to their measured performance.” (Jerry Muller, The Tyranny of Metrics)
Adidas used various data points to make investment decisions. Direct to consumer sales, whilst only a small portion of the total, is the most profitable, which biases the business toward them. It used attribution modeling from Google and Facebook and had no brand tracking in place. Thus it succumbed to the McNamara fallacy, ignoring that which it didn’t measure, and began to believe that last click digital advertising was driving sales, a fallacy its digital partners were complicit in propagating. These short term and indeed short-sighted metrics are unfortunately part of a much broader issue, which is short-termism foisted on companies by finance.
“We had a problem that we were focusing on the wrong metrics, the short-term because we have a fiduciary responsibility to shareholders.” – Simon Peel
Adidas had multiple agencies around the world using different measurement frameworks and brand positioning, a matrix organizational model that pit different business units against each other, had succumbed to discounting in many markets, and was overly focused on ROI (an inherently short term efficiency measurement) and reducing costs.
The solution begins with investing in broader and more robust ways to measure advertising and to focus on media quality above cost. When Adidas brought in econometric measurement they learned that 65% of sales were being driven by brand activity, performance online was driving sales offline, and that it needed to invest more in tv, outdoor and cinema to create a balanced communication strategy. Nothing is as simple and clear cut as it seems, all advertising does some blend of brand and performance, and everything must be considered holistically. Last click attribution from Google led them to invest in paid search, which only ever demands fulfillment rather than a generation and hence doesn’t drive penetration. When AdWords went down in Latam and their paid search stopped, it had no impact on website traffic or revenue.
The problems didn’t stem from a lack of knowledge. They were organizational and systemic, which is often the case. As well as a better measurement framework, both brand and communication strategy must be integrative and centralized, allowing for exceptional variance at the local level within the established strategic guidelines. Finally, incentives within the company must be aligned to the strategy because no one is going to risk their annual bonus even if investing in the long term health of the brand is the right thing to do.
The danger of being beholden to metrics is particularly acute when we consider the amount of fraud in the digital media ecosystem. Facebook recently paid a $40M fine for consistently overstating its metrics and this is simply the last of a long line a measurement it has misstated to advertisers, always in its own favor. Even if one believes wholeheartedly in data to drive decisions, it seems unwise to commit vast sums of money based on metrics that cannot be trusted.
-Views expressed are personal. The article is from Economic Times-Brand Equity.