The sporting company known as Nike has been a global success for decades but seems to be losing ground to its competitors recently. What went wrong
Nike. An American success story and one of the world’s most valuable brands. A slick logo, a catchy slogan, and a compelling product and marketing strategy have pushed the brand to greater heights over the years. It is hard to think of many who have built equity like this in the past half-century.
However, after 44 years as a publicly traded company and 60 years in business, Nike had its worst shock in the market – losing US$28 billion in market capital in a single trading day, as its shares plummeted 20%, setting off warning alarms.
So, what went wrong? MartechAsia asked Mario Braz de Matos, Co-founder and Managing Partner, Flying Fish Lab, for his perspective and insights.
Nike’s powerhouse brands have been losing footing against upstart brands – such as On and Hoka – besides facing competition from long-time rivals like Adidas. Why is that?
Mario: There are several reasons behind this. Nike has, for the longest time, been a brand that embodies the “challenger spirit”. Phil Knight, Nike’s founder and chairman, famously said: “We are the industry Goliath, and we will remain that way by thinking and acting like the industry David.”
Nike seems to not only have lost this spirit but also made several strategic mistakes. The main one was perhaps the decision (apparently a recommendation of McKinsey) to shift its focus from its conventional retail to its D2C platform, at the expense of channel partners that supported the brand for decades, has meant not only that those partners were upset at the change in the relationship (less investment, less product inventory, etc.) but also created an opportunity for new brands to get that opportunity to break into this highly competitive sports apparel market. Additionally, this focus on its D2C platform meant that Nike did not need to retain as many people who managed the brand at a central level, having lost a significant amount of talent with experience. A company is, ultimately, the sum of experiences of its talent and the expertise and knowledge that this talent (as an aggregate) has acquired over the years. In simple language, the people who are the “soul” of the company – because they understand the ethos of the brand and they have the experience to tell what is more likely to work, or not.
In the short term, due to COVID-19, the D2C strategy seemed to have paid off. But when you look at the mounting excess product stock, you can see clearly that the business is going in the wrong direction – and the business paid the price when it announced the last quarterly results recently.
Nike remains the biggest player in the field by a large margin, but its size is also hampering its ability to push out great products and storytelling to the market. Is this a case of a brand becoming big and lazy, and not pushing the envelope enough? Did Nike’s scale hamper its innovation agenda? The company CEO John Donahoe is reportedly pinning the company’s innovation slowdown on remote work, in response to criticism of the company’s products as of late. Why doesn’t this sound right?
Mario: We get back to the point above. The strategy that he was pursuing did not require big, bold innovation. So, by letting go of those people, he took a gamble on the future. Ultimately, the issue is that Nike gambled its future from a brand-led ambition to a business-led ambition. That in turn led to organizational changes that impacted its existing innovation capability.
Scale can be an advantage, especially in an industry where you have yearly distribution contracts, where you need minimum orders, so that would be the last reason. Remote working is a reality in almost every big company, in the US and abroad, so this feels like a very poor excuse.
When did Nike stop being cool for the younger generation and is there anything the brand can do to get back in the game? Could ‘Controlled Disruption’ be the answer? What did Nike miss out on? What are the lessons for marketers when it comes to Controlled Disruption in marketing and branding?
Mario: When we use Controlled Disruption, one of the first things we do is explore what are the category rules, behaviours and expectations. If you study Nike’s past behaviour, this was a great example of a brand that kept looking for fresh perspectives, to create new opportunities in the category. We call it “intelligent naivety” in the context of Controlled Disruption.
So, the short answer is yes and no. Yes, Controlled Disruption would be able to help Nike identify ways to find its “mojo” back again, but… No, it would not, on its own, be the answer, because there are some “basic” management issues which are simple hygiene factors that do not require Controlled Disruption.
To put it in a different context: if you’re Singapore Airlines you don’t question the value of your travel agent network and decide to “go it alone” by just focusing on your website. That is a mistake that needs correcting, with or without Controlled Disruption.
To put it in a different context: if you’re Singapore Airlines you don’t question the value of your travel agent network and decide to “go it alone” by just focusing on your website. That is a mistake that needs correcting, with or without Controlled Disruption.
Nike ran a massive campaign “Winning Isn’t for Everyone” at the recently completed Summer Olympics in Paris and spent more on marketing during the marquee event to boost business. The brand will roll out new $100-and-under sneakers in countries around the world. In your opinion, was this initiative a strategic win for Nike, or does it risk being seen as another misstep?
Mario: You just have to look at the focus and relentless consistency of Nike over the last few decades, to see how this is both a sign of defeat and a strategy that will risk back-firing. As powerful as Nike is, it can’t say one thing one day and then run a campaign that flies in the face of what it has been saying for the last decades. Personally, I find the tone of the campaign quite offensive as it pitches winning as something that should be achieved at all costs – and that’s not how I see Nike. Relentless, determined, yes, but inconsiderate? No.
Going on the offensive in the lower end of the market is a double sign of failure: failure to sustain an ever-greedier premiumization strategy, as consumers start questioning the value of such a premium in what is, after all, a relatively standard product; and a failure to cover the variety of consumer needs, exposing yourself to other players delivering value in a way that you have been able (or willing) to provide.
To be clear, I am not saying that rolling out a new range of lower-priced sneakers is wrong. It is the fact that this is deemed “news-worthy” by the business, that signals what Nike has gotten wrong in these last few years: the arrogance of the industry Goliath.
