And their marketing strategy was partly to blame.
Nike's marketing strategy has always been a straightforward one:
- Invest one-tenth of revenues into demand creation and sports marketing
Invest in brand marketing focused on innovation, inspiration, creativity, and storytelling.
- Nike wanted to move towards a direct-to-consumer model (people would buy from Nike.com instead of stores).
It meant the CMO moved a lot of Nike's marketing dollars to performance marketing because they could measure the direct return on investment and took money away from brand marketing, which is much harder to track the ROI of.
The problem with this is that Nike was spending all its dollars extracting sales from its existing demand and not spending enough to expand the size of its market (brand).
I like to think of your advertising strategy across three core buckets:
1. Direct ROAS Bucket (demand extraction): Your direct ROAS bucket is your money machine. For example, I can spend $1 and get > $3 back (or whatever your target is). You'd nearly always saturate this bucket because you can track the profit you're making.
2. Indirect ROAS Bucket (demand extraction + demand creation): Your indirect ROAS is your incrementality model. It's usually created using things like conversion lift studies. It shows how many additional conversions you get on other channels like direct or search when you spend money on advertising channels that can't be tracked directly, e.g., YouTube or social video. You still hold that spend to a ROAS target, but it's calculated indirectly.
3. Brand ROAS Bucket (demand creation): Your brand ROAS bucket is focused on engagement, aided and unaided awareness etc. This is the money that helps you to keep expanding your market.
To have a winning marketing strategy and avoid blowing up your business like Nike, you need a logical mix across all three buckets.
This post was originally shared by Kieran Flanagan on Linkedin.