Adidas Ditched TV Ads. Will FMCG Producers Follow Its Lead?
Kasper Rorsted, the charismatic CEO of Adidas Group, sent shockwaves through the media world in early 2017 when he announced that the sportswear maker would no longer spend any of its marketing budget on television advertising, instead ploughing its resources into digital media.
Is this the beginning of the end of TV advertising?
Many observers were quick to describe the decision as a severe blow to television and a sign of things to come, with some going so far as to ask whether it was the beginning of the end of TV as a medium for advertising. Others speculated on whether other industries, such as FMCG producers, would follow the German company’s lead. But a closer look at Rorsted’s decision and the dynamics surrounding it indicate that rumours of TV’s death may prove to be exaggerated. Instead, it seems, brand owners should seek to design marketing campaigns that are “media-neutral” – to set their strategy first, and only then decide which media offer the best way of implementing it.
Rorsted came to the German sportswear manufacturer from Henkel, where he presided over a tripling of the company’s share price. The Harvard Business school alumnus had previously worked at tech giants Oracle and HP. At Henkel, Rorsted had developed what Bloomberg News called a “cult-like following,” thanks to results like pushing net margins from 7 per cent to more than 10 per cent. He came to Adidas in October 2016 with a mandate to shake up the company, which was struggling in the U.S. market, under threat from upstarts like Under Armour. The CEO, a native of Denmark, also has an ambitious target of growing profits by 15 per cent a year through 2020.
Consumers are “cutting the cord”
As Rorsted took over the reins in Germany last year, digital spending was pulling even with TV in the U.S. and other markets. Streaming services are booming, and more and more consumers are becoming “cord cutters” – giving up their pay-tv subscriptions. And in comparison with TV, of course, digital advertising has the key advantage of being able to “price its eyeballs”, as one expert put it – to know that viewers are engaged and interacting with the content, not passively consuming advertising while focused on other activities, or using a recording device to skip over the ads entirely.
In addition to the ground rules of this new environment, which affect all brands equally, there may be a reasonably good, narrower case for companies like Adidas to drop TV advertising, or at least to reduce it sharply.
Is this the way to go for all FMCG companies?
First of all, with a younger demographic than most FMCG companies, Adidas is better able to use digital marketing, including social media and mobile advertising, to reach its consumers. Secondly, although television retains its advantage over digital in its monopoly – so far – on broadcasting live events, particularly sports, Adidas’s sponsorship efforts ensure that it will continue to get visibility from sporting events. The company also benefits from the TV campaigns of retailers, including footwear chains.
The relationship with retailers is a two-way street, of course – since retailers also depend on brands’ marketing campaigns to drive traffic to their bricks and mortar stores. And here, Rorsted’s decision ties in with another target: increasing sales at Adidas’s own online store, which accounts for less than 10 per cent of the company’s sales. That share should be helped by another trend that’s reshaping the business of activewear: mass customisation of products such as running shoes, which obviously is better suited to an online sales channel where the producer establishes a direct relationship with the end-user.
But that’s different from the rest of the world of FMCGs, and it’s also an indicator that Rorsted’s brave new digital-only world may not be the right strategy for his old company, Henkel, and its rivals. Furthermore, while Adidas’s younger demographic means its logical for mobile to play a bigger role than it does for FMCG producers, it remains to be seen how those consumers’ tastes and media consumption habits will change as they mature.
It’s unlikely that cord-cutters will return to paying for standard pay-tv packages. But human physiology won’t change, and it will always be more convenient and comfortable to consume media on a larger screen. What’s more, the ability to afford a large screen, and to choose what’s on it, are both factors that increase as consumers age.
Will the media-neutral approach be the next trend in FMCG advertising strategy?
At this point, marketers old enough to remember the 1980s will no doubt recall predictions that video recorders would spell the death of cinema. But just as an excursion to see a film on the silver screen in the company of other people turned out to be an experience that couldn’t be replaced by watching a video at home, so the lure of watching big events on a big TV screen may prove resistant to the threat from mobile phones and tablets.
All of this suggests that for FMCG companies at least, a better approach than Rorsted’s is one that’s media-neutral: Decide whom you want to reach, with what message, and only then choose the media that’s best suited to accomplish that goal.
Just months before Rorsted’s bombshell announcement, Coca-Cola Co.’s outgoing global Chief Marketing Officer Marcos de Quinto defended the role of television in the company’s marketing efforts. The company’s “one brand” approach relies on television to tell the same story, in a single global campaign for multiple varieties of its products, better than its somewhat scattershot digital efforts. De Quinto told a beverage-industry conference that TV remains “very, very critical for our business.”
For the people whose job is to build and maintain FMCG brands, those are words to live by – regardless of how Rorsted’s digital-only strategy fares at Adidas.
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