In a single day, Nike lost $24 billion in market value – an 18% decline in its stock price. What can we learn from such a spectacular failure by such a sterling brand?
First, don’t blame the CEO for being a fool. John Donahoe led Bain & Company, eBay, and ServiceNow prior to Nike. He’s super-sharp. And that makes the tale all the more instructive.
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Nike’s disaster stemmed from a change in strategy based on lots of data crunching by smart people. The data said that the most loyal customers wanted edgy, high-priced performance gear, and that market trends were favoring lifestyle clothing. It also said that the company made higher profits when it sold directly through its stores or website. So Nike leaned hard into those areas.
In doing so, it neglected mainstream sports apparel and pulled back from retail partners like Foot Locker, where it sold a high percentage of its goods. That did not go well. The company neglected the centerpiece of its brand identity and lost access to retailers who rebounded once the pandemic’s e-commerce boom faded. Adidas, Puma, and many upstarts were more than happy to take the business.
Beware data. It is inherently backward-looking. It misses critical subjective factors like brand identity. It may be plentiful in some areas – like around what the most loyal customers buy directly from the firm – but just because data is abundant in some areas doesn’t make those domains more important than others.
Of course, data has critical uses. But it is also beguiling to focus on hard numbers and ignore what’s more subjective and prospective. Moreover, the people who crunch the data are often junior employees with little experience in the soft variables that drive much business success.
The morals of this story are:
1) Manage a business based on a view of the future, not what data says about the past
2) Make that view based on both hard and soft variables
3) Factor some scenarios into your view of the future. A decision like cutting off longstanding sales channels is a difficult one to undo, and it stemmed from inaccurate assumptions about the persistence of trends from the pandemic
4) Above all, don’t let data substitute for judgment. As I got taught years ago at Bain, data should FACILITATE the conversation, not BE the conversation
Contributed to Branding Strategy Insider by Stephen Wunker, Managing Director of New Markets Advisors and Author of The Innovative Leader.
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