61-Nike Builds Brand Loyalty

When you see a dominant industry leader struggle or fail, most of the time the fault lies with a change in formerly successful company policies. These new policies usually damage the Reliability of the leader’s relationship with its most important customers. We have seen the same thing before in other blogs. This blog illustrates this unfortunate principle.

Posted 11/17/08

Nike, ever the innovator, has found a new way to build brand loyalty. It has created a web site, NikePlus.com, that connects runners around the world. This web site tracks a runner’s data and allows a runner to join with other runners all over the world to improve their times.

To make this online group work easily, the company developed a $29 Sport Kit sensor that, when synched with an iPod or Nano, calculates the runner’s speed, mileage and calories burned and provides a method to upload that data to NikePlus.com. The company has sold over a million NikePlus iPod Sport Kits. Runners have used the web site to create groups where members challenge each other to improve their times and distances. Does this work? Well, in 2006, Nike accounted for 48% of all running shoe sales in the U.S. By 2008, its share was up to 61%. At least some of that must be due to the social networking site.

Over the last few years, we have studied several thousand product innovations. We have found that product innovations fall into three major categories: First, you can provide information to your customer; second, you can reduce the resources your customer uses with the product; and, third, you can improve your customer’s experience with the product.

Recently, we developed an article which outlines eleven questions, based on these three categories, that you can use to develop your product innovations. (See “Patterns of Product and Service Innovation” in the Perspectives on StrategyStreet.com.) Nike’s innovation falls under the “improve the customer’s experience” category. Nike has provided a good answer to one of the eleven questions: Can you add to your customer’s sense of pride and well being?

Congratulations, Nike, on another customer insight.

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Update 2022:

In 2018, Nike discontinued services to its wearable device products which connected to the Nike+ website. The company discontinued manufacturing wearable devices in 2015 under the pressure of more dedicated smartwatch manufacturers.  The company increased its efforts to work with true smartwatch products like the Apple watch.

While the customers of Nike’s wearable devices were undoubtedly disappointed, Nike’s move had relatively little effect on its market share. In 2020, Nike led the market for athletic footwear. Its share was growing and it enjoyed total sales that were greater than the combined sales of the next 4 competitors in the industry.

Nike succeeded in this product market for several years, until product specialists developed better products and better economies of scale. Then, Nike wisely withdrew from that market. An innovation does not have to last forever, just long enough to recover its costs and enhance your relationship with the customer. HERE is an overview of product innovation approaches. You can use our many product innovation concepts and examples to brainstorm improvements for your own company.

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Update 1/26

The athletic shoe business is not a particularly attractive market, unless you are one of the top two competitors.  There are many small competitors who often compete on low prices. Returns in the industry are low. The top two competitors are Nike and Adidas, who hold a combined 44% of the market and most of the market’s profits. The Adidas brand continues to thrive, but Nike has struggled and has badly damaged its Reliability reputation.

Nike has led the market for years. It has dominated its competition on three out of the four components of the Customer Buying Hierarchy. It commands the industry’s highest Price, so it does not dominate with its price. But it has been impressive on the Performance aspects of the Customer Buying Hierarchy. For years, the company was a Function innovation dynamo. It introduced one clever shoe after another. It created the industry standard shoe for marathoners. It created shoes with motorized lacing and with fit controlled by an app. It developed shoes for consumers with mobility limitations. It was the first company to introduce neuroscience-based footwear designed to send calming feedback to the brain. This unparalleled reputation for innovation along with its quality shoes and market scale conferred a market dominating Reliability halo on Nike. The company led its industry in Convenience with wide placement in retail stores and a DTC program for digital consumers. The result was the industry’s largest market share and best margins.

Then, the company’s leadership severely damaged its reputation for Reliability, leading to declining share and margin problems. Nike de-emphasized its previously strong dedication to Function innovations, leaving some consumer fatigue with the company’s  offerings. Company leadership decided to emphasize its DTC business at the expense of its long-standing wholesalers and retailers (Very Large and Large customers). These channels were some of Nike’s best salespeople. It stopped or reduced product shipments to many leading shoe retailers, who were shocked and dismayed at the company’s abrupt pivot away from them. This pivot created a Convenience failure as customers of those retailers could no longer find product at those stores. Next, the consumer DTC market felt betrayed as the company reduced its customer promotional days from 30 to zero in an effort to standardize full pricing. DTC revenues fell by 15% very quickly.  By 2025, neither the channels of distribution nor the consumers themselves felt they could rely on Nike, a devastating Reliability failure.

Murphy’s law took effect.  The international business fell out of bed. In particular, the China market fell by 17% in fiscal 2025. Also, the emphasis on the DTC business added complexity to the company’s cost structure and degraded its ability to manage inventories and meet customer demands. At the same time, small competitors such as On and Hoka grew quickly and snipped away at Nike’s core market share. Predictably, as revenue and market share declined, margins, returns and free cash flow dropped.

Reliability implies more than product quality and durability. Just as important is the consistency that a company has in its relationships with all customers, both channels and consumers. Once the relationship aspect of Reliability is lost, it takes a good while to return. Nike should recover based on its long-term superb performance. However, it will take a while to recover from these self-inflicted wounds.

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