Strategy Bites: Nike Takes a Stand
The Context
Strategy is about identifying opportunity in a market segment and developing a plan to capture it.
Nike released a new ad for the Olympics - considered controversial by some - built around the premise that “Winning Isn’t for Everyone”.
Let’s look at the strategy behind this ad.
How Nike Lost its Stride
In the last 12 months, Nike stock is down 33% and heading in the wrong direction.
Nike has historically had two revenue anchors:
Superstar Athlete Brands: Tiger Woods, Michael Jordan, and LeBron James are (probably) 3 of the most lucrative athletes ever and Nike built brands around them through their prime and beyond.
Everyday Athletic Wear: Middle school basketball? Casual weekend golfer? Men’s league softball? Chances are you saw people in Nike gear in all of these events. Nike was synonymous with sport.
Let’s look at the trajectory of both of these anchors.
Where are the Next Superstars?
Nike is associated with superstars and winners.
Tiger Woods is estimated to have earned over $500M through his Nike contracts. Air Jordan sells billions of dollars of product every year and LeBron at least hundreds of millions.
Who’s next?
LeBron is nearing the end of his career, Tiger has moved on from Nike, and Air Jordan, while enduring, is just one brand.
No athlete - in Nike’s portfolio of athletes or outside - has the upside potential of these athletes. The likes of Giannis, Jayson Tatum, Luka, and Kevin Durant are athletes, not brands. Rory McIlroy? Good, but no Tiger.
This lack of “next generation” talent means athlete-driven brands will likely be less influential in the next decade than the past one.
Declining Brand Loyalty; Increasing Price
Switching gears, the everyday athletic wear market isn’t gone, but it’s changing. Brand loyalty is declining and it’s easier than ever to seek out products that are specially crafted for specific activities.
In the past, the shoes at the mall were the best options available. Now every shoe ever invented is somewhere on the internet.
Take running as an example. Hoka is purpose built for runners and designed a series of product lines largely around this activity.
Oh, and they’re oftentimes cheaper than Nike too.
Want Nike running shoes? Try to find them among the sea of other products, sports, and options.
If you’re a serious runner, are you more likely to go with the brand purpose-built for you (and that’s cheaper) or the brand where your activity is one of many?
Let’s assume this theory is true that specialty brands are increasing their share in this “serious” market. That’s okay - there’s plenty of market opportunity among enthusiasts and casuals.
Winning in the Enthusiast Segment
To win in this general population market typically requires a combination of brand recognition, value, and availability.
Brand Recognition: Does the brand name carry weight with consumers in that field?
Value: Is there value for the consumer? Is there either product differentiation to command a higher price, is the brand within a “close enough” range to alternatives, or is it the lowest cost?
Availability: Is the product where the consumer is shopping and easily obtainable?
Nike dominates Brand Recognition, so I won’t spend time on it.
On Value, they’ve increasingly created too much of a gap between themselves and alternatives for the everyday consumer.
One small personal example - I need a new pair of workout shorts. Nothing high end, just a decent pair of shorts. Target sells their All in Motion branded workout shorts for $20. Nike’s equivalent shorts largely are priced around $55 and up.
Is Nike better? Probably. Maybe. I don’t know. Is it 3x better? Not for my casual use case.
On Availability, over the past 5 years, Nike has pursued a strategy of creating more direct-to-consumer digital relationships. This strategy worked…until it didn’t. Dropping brick-and-mortar partners (Macy’s) and pulling back on others (Foot Locker) decreased their Availability. Turns out, these relationships were important to being in front of customers.
The bottom line is that Nike now has…
Increasing competition
More price differential compared to alternatives
Less availability
No new superstar athlete brands in the early innings.
The Strategy: Define a Market
Let’s get back to “Winning Isn’t for Everyone”.
This statement is a mindset. An identity. A stance on the type of consumer that they want to connect with the brand. Nike is telling people: If you’re the type of person that works hard and wants to win, choose us.
In the absence of clear product differentiation (which, I’d argue, doesn’t materially exist here), wearing Nike has to mean something; otherwise, they’ll lose on value every time against generic competitors.
Strategy is making trade offs and telling some people that your product or brand isn’t for them. You won’t see a luxury brand cut prices to gain market share because prestige, not price, is their value.
Bringing this back to the beginning, Nike has identified a segment of consumers that want to latch on to the identity of striving to be a winner. This might mean the brand turns off customers that shun that image. That’s okay. Trying to be everything to everyone is rarely a successful strategy.
Re-developing their identity is just the first step toward breathing new life into the brand. They still need to solve Availability - getting back in front of customers in the variety of places their shopping - as well as more clearly articulate their Value proposition at their current prices.
Nike is still a world class brand. Their last chapter saw them lose identity and fail to demonstrate value to the consumer. The next chapter can start with developing a strong identity and then building a value proposition around that customer and their needs.