What Can We Learn from Nike's Struggles?

Source: Runners World

Over the past year, the S&P 500 Index has risen by roughly 20%.  Meanwhile, Nike's shares are down by more than 30%.  Revenue growth has stalled. In February, CEO John Donahue announced major layoffs.  What happened to Nike?

The company has made a number of key strategic mistakes in recent years.  I'd like to focus on one key blunder.  Nike focused a bit too much on the allure of driving growth by selling lifestyle-oriented shoes and apparel.  As a result, it didn't invest enough in innovation for the hard-core athlete, particularly runners.  Upstarts such as Hoka and On seized upon this opportunity, brought innovations to market, and grabbed market share.   For years, Nike had led with innovation for the serious athlete, and then used its brand credibility to appeal to more casual athletes and lifestyle customers.  

The Nike story is not a new one.  Many companies begin by appealing to a targeted market segment with innovative products, then expand their reach to the mass market.  However, many firms stumble by failing to protect the core, as well as failing to innovate sufficiently.  They begin to lose their hard-core customers, and ultimately, that damages the brand.   The loss of brand equity ultimately makes it harder to succeed in the mass market.  

How can companies avoid this trap?  First, they need to think about how every move to extend a brand or reach the mass market will affect the hard-core loyalists that were at the core of the initial success?  How will they perceive each particular growth strategy?  Are they diluting the brand, or damaging their reputation for technological preeminence?  Second, they need to invest substantially in customer research that focuses on the pain points and unfulfilled needs of their hard-core customers.   Third, they need to make sure incentives within the firm don't over-emphasize growth at the expense of succeeding with the narrow market niche that formed the heart of the firm's initial success.  Finally, they need to scan the external environment voraciously to examine trends that might lead to a change in consumer preferences among their hard-core brand loyalists.   These steps can help a firm make sure that it doesn't leave itself exposed to innovative upstarts.