The Consumer Decides: Nike Focuses Competitive Strategy on Customization and Creating Personal Consumer Experiences -- Data about the Nike Plus Personalization System

During its recent Investor Days, the Nike top management board announced a strong shift of its strategy from being a sportswear brand to becoming the enabler of customized, personal experiences. “Investor Days” are an extensive briefing for analysts; taking place only about every two years (the last was in June 2005). During its recent briefing at the company’s headquarters in Portland on Feb 6, 2007, the company placed a strong focus on its new global theme “The Consumer Decides” and revealed some interesting facts about its customization ambitions and ways to sustainable consumer experience.

During the meeting, also a number of interesting performance data of the Nike Plus system were provided, the Apple-Nike cooperation that allows runners to customize their running experience in a simple but very clever way. It is a strong contrast to the exploding variety Nike is facing today, offering more than 13,000 product different styles in every single quarter.

First, Nike CEO Mark Parker explained the theme “The Consumer Decides”:

“The Consumer Decides is one of Nike's 11 maxims that really define who we are and how we compete as a company. Today, consumers have never held as much power as they do today. They have more choices and more access to those choices. They connect and collaborate with each other over the world. … Clearly, the power has shifted to consumers. For every Nike employee, there's ten million consumers out there deciding whether or not the products and brands we offer really matter. … The ability we have to connect with consumers is the single most important competitive advantage in business today, and nobody does that better than Nike. There is no substitute for connecting with consumers, but it's really just the beginning.”

Nike’s Brand President, Charlie Denson, focused in his speech on the changing consumer and the particular demand for customization:

“[Consumers] want to be part of a community, whether it's a digital community or a virtual community, or whether it's a physical community. They want to feel like they're a part of something. They want to be engaged. …

And another thing that is very, very important to us as we look to the future is the value that the consumer is placing on customization. It's a very, very important part of the way that they interact with anybody or with brands today. We used to talk about the consumer in what we thought was specific, but in today in retrospect, feels like generalities, the fact that we used to put a 18 and a 22-year old in a same set of psychographic, demographic targets. Today, I can very comfortably say that the 18 and the 22-year olds are working on different -- they're living on different planets or at different places. As Mark said, these consumers have more choices than they've ever had.

What our challenge is to keep it simple, make those choices as simple as we can, and make them personal. We've spent the last, or in our case, 20 or 30 years trying to bundle things, adding value to a purchase or a relationship. And now, it's almost in reverse, because you have to unbundle everything if it's going to become customizable.”

During the event, the Nike Plus system was described as a perfect example of this strategy. Trevor Edwards, VP Global Brand & Category Management, describes the system and gives some numbers on its acceptance:

Nike Plus "combines the physical world with the digital world. We put a sensor in the shoe that speaks to the iPod, and you can hear how far you went, how long you went and how many calories you've burned, pretty simple thoughts. And then, when you dock it, you have a world of information at your fingertips. You get to see all that you've done, all your runs stored in a very simple, intuitive web experience where you can set goals for yourself. You can see how you've progressed. In fact, this week, I think we've put up -- you can actually map your run anywhere you go. In addition, you can join in the Nike Plus community where you can challenge your friends or other community members to run physically, but compete virtually. And since our launch, we have close to 200,000 members.

What do the numbers tell us today? First important fact, 35% of the members that we surveyed are actually new to using Nike footwear. So, we've brought more consumers into our franchise. The second part is, more than half of them are actually using the survey to service four times a week. And this is probably the most important statistic, 93% said they would recommend it to a friend, 93%. This is an incredibly sticky proposition, a great way to build loyalty for our brand and obviously build the business.”

Charlie Denson describes the growth plans Nike has with the system:

“That is a dedicated consumer experience. It is changing the game, and it's creating that competitive advantage for us. We would like to see 15% of all runners using Nike Plus, 15%. Now, that's not a very big number, except for there's 100 million people who call themselves runners worldwide. ….”

So in summary, this sounds like a big success and stresses that this really has been a clever idea to provide customization in this industry in a rather simple way, but in one that matters for consumers. And with the target of 15 million users, this would be one of the largest mass customization programs ever.

In another section of the event, Don Blair, Nike’s CFO, provided some interesting figures on the scope of variety that Nike is facing today. I often mention in my presentations the explosion of SKUs and variants that global brands today think to have to offer to create appealing products in heterogeneous markets. Nike seems to have recognized that just increasing the number of variants is not the ultimate way to appeal to consumers:

“SKU productivity. One of the great strengths of our company is our ability to create compelling innovative products that excite consumers. But there can be too much of a good thing. Each quarter we sell about 13,000 different styles of footwear and apparel and because of our high rate of seasonal turnover, we sell tens of thousands of different styles every year. And there are many additional styles that make it part way through the process, but don't end up in the final line that goes to market.

Each one of these tens of thousands of styles drives costs; costs for design, development, sampling, transportation, storage and sales. For footwear 95% of our revenue comes from about 35% of our styles and for apparel the figure is about 40%. …”

Costs of samples to provide this variety were given with more than $100 million. Given these numbers, an adaptable product like Nike Plus or a truly mass customized product, produced on-demand, sounds very appealing and much more efficient.

For the full transcript of the investors meeting, go to nike.com.

Comments

[Sean Moffitt]

Awesome article, nice summary...continued goiod reading on your blog. Kudos.

Sean "Buzz Canuck" Moffitt