Issue 25 - On Nike's (mistaken?) Push into DTC

Lots of big news and bigger debates this week.

Nike is one of the biggest brands in the world, but it recently took a boot to the teeth after a second-quarter financial report.

Rumor is it was because of their foray into DTC…

Meta is in the news again too (as always) with Mark Zuckerberg promising a kind of marketing utopia, even as media buyers continue to grapple with never-ending issues and bugs.

This week:

• Nike loses their DTC gamble

• Meta’s Big Promise

• New feature (maybe)? - Meta’s Bugs of the week

• Quick Hits

Nike loses their DTC gamble

On June 28th this year, Nike released its Q2 report. Its stock dropped by $25 billion on the same day. This capped off a $70 billion drop over 9 months, and prompted an ex-senior marketing director at Nike, Massimo Giunco, to shed some light on how we got here. 

Giunco’s 21-year stint with Nike ended two years ago, but not before witnessing a major change in direction which then newly appointed CEO John Donahue announced in 2020. 

• Nike would prioritize DTC through the Nike website over existing wholesale 

This seemed like a great move during Covid, but not so much when people returned to brick and mortar. 

At that point, Nike had terminated contracts with many long-standing partners who had no issue filling up shelves with competitor products like Hoka and On. 

• Nike would eliminate categories such as basketball, football, etc, and replace them with gender (men, women, children)*

The logic behind this was that they were duplicating resources, and shifting to DTC would give them enough customer data to inform product decisions.

This also meant firing previous category experts, like someone who had been working on basketball products for 20+ years. 

It seems this approach didn’t work for them since they reinstated the original categories at the end of 2023.

*Reportedly McKinsey’s idea.

• Nike would switch from a reliance on brand marketing to go all-in on digital marketing.

And along with this, switch from demand creation to customer retention. 

Long story short, it didn’t work out. Let’s figure out why. 

All in on digital marketing

Giunco suggests the CMO must not have been aware of the “growing academic literature around the inefficiencies of investment in performance marketing/programmatic advertising [...] Things that (led) other large B2C companies - like Unilever and P&G - to reduce those kinds of DC investments in the same exact period…” because the strategy ended up being “an impressive waste of money”. 

If you ask any of the top advertisers in DTC, they might be skeptical that this was the sole cause of money loss. Here at the DTC Times, we regularly report on digital ad tycoons’ findings and their conclusions often look like this: the digital marketing landscape is unforgiving, but rewards those who do it right. 

Nike definitely has the resources to do it right. 

What else could explain their struggles, then?

Demand vs DR. From Giunco’s article: "Nike invested a material amount of dollars (billions) into something that was less effective but easier to be measured vs something that was more effective but less easy to be measured.”

He’s talking about them switching from demand creation through brand advertising to direct response (DR).

According to Gregory Kennedy, founder @BrandZen, this is the cause of Nike’s woes.

Eric Seufert, founder of Heracles Capital and writer of the insightful Mobile Dev Memo, thinks otherwise.

Link to Eric’s blog post breaking down his thoughts on brand - direct response. 

The truth is, Nike may have just done direct response poorly. But should they have been investing in brand marketing regardless? Bryan A. Jackson, founder @triunionmktg thinks so:

There are those, however, who think that when done correctly, brand and direct response advertising are indistinguishable from each other: 

Interesting theory. 

Either way, Nike supposedly turned data-driven, so why weren’t they able to spot trends and correct course? 

Maybe because it wasn’t about the marketing. 

The clearest problem

…is that Nike did more than just redirect its ad money into DTC. It also cut off much of its wholesale network and fired “hundreds of colleagues [...] and together with them Nike lost a solid process and thousands of years of experience and expertise in running, football, basketball, fitness, training, sportwear, etc., built in decades of footwear leadership (and apparel too).” 

This could explain the lack of exciting new products (Nike’s most-sold shoe is still the Air Force 1, whose release dates back to 1982). 

We like @echantech’s take on this point. 

Takeaway: This is a tricky one because of all of the variables involved. 

Nike made a strong move into DTC and away from wholesale during a time when a lot of DTC-native brands are going the opposite direction. It’s no secret that digital CACs are growing while margins are getting squeezed, which is why DTC brands are moving to diversify beyond the single sales channel. 

Nike didn’t just shift their focus to DTC though. They upended their popular product categories, removed decades worth of leadership, and have been in an innovation rut for quite some time. 

The debate of performance or direct response marketing vs brand marketing was front and center in this discussion as well. While the tactics for each can diverge wildly, the truth is there is considerable overlap as well. And you probably need to do both well as you scale.

Meta’s big promise 

Sure, Zuck, that would be great. 

Except it's technically what they already promise with Meta Advantage Shopping Campaign + (ASC +), the setting where you let Meta’s AI manage your ads for you.  As with Google’s equivalent PMax, many top advertisers are hesitant to trust these black boxes.

Those who managed to decipher PMax found it was investing far too much in branded search, while recent reports suggest that ASC + could be showing too many ads to existing, high-intent customers rather than potential new ones. 

So far, they haven’t delivered. 

Can they? 

That is the wrong question. 

“Do they really want to?” is more pertinent.

Here’s Jeromy Sonne’s take on why:

1. First off, Meta’s source of truth is f*cked

All Meta has to measure its performance on are pixels (user activity on a Meta website) and CAPIs (sellers sending their conversion data back to Meta). 

Jeromy says these signals will only weaken as privacy measures tighten, so things are only going to get worse.

2. Data remains siloed

Meta obviously won’t share data with Amazon, Walmart, etc…and vice-versa. 

Which means none of them will really be able to deliver the dream outcome. 

3. Meta and advertisers have misaligned incentives 

Jeromy also asks, “If the fix for your ROAS was to move 20% of your Meta spend to Google, would they tell you?”

“No.” Is the probable response.

Takeaway: Zuck’s got his eye on the dream we all share. His ability to deliver on it, however, seems doubtful. Not just due to technical challenges either, but because the advertising platform and the brand can never have perfectly aligned incentives. 

Meta Bugs of the week 

Zuck’s a big-picture guy, we get it, but some advertisers would rather he fix the day-to-day stuff than make grandiose promises. 

New Meta bug of the Week (should we make this a recurring section? Let us know!)

And he’s not the only one.

A quick scroll through this thread will show you how random the outcomes are for different people. Which sounds a bit like when Meta is working correctly. Ahhh, the uncertainty.  

Takeaway: Another week, another Meta bug. We’re seriously considering making this an ongoing feature, so let us know in the poll below if you’d like that. 

Quick hits

• In-store digital ads are gaining traction at Sam’s Club

• CPG wire on the “candy-ification of wellness”

• A free script to find out what your PMax campaign is doing

• Attribution platform Haus secures $20M in funding