Forget About Marketing, For The Sake of Strategy. Just Like NIKE Did

I have difficulty to clarify to curious (and new to me) people, what our “high view” expertise in Applica Partners is, or basically what do we do. Being a strategy and innovation consulting firm, and assuming these people know I hold a business position, I always say “we do strategy ” and just trying to be a little more specific, I emphasise “corporate strategy “. For my annoyance – once surprise-  the majority of my interlocutors reply something like: “ok, in what? strategy in what?” while showing me their best dull eyes face.

As if this was not enough, they often say it with an intonation suggesting I am being pretentious or trying to look too smart. So, being a decent person as I am (or forced to be), I give a short explanation: We work with companies to define their direction – dull eyes are still there -, so I continue: Yes! To analyse the industry, the market, the company itself about what to do. Abrupt full stop.

 Ahhhhhhh! they reply as if receiving a warm shower of relief. MARKETING! they say. You do marketing… – dull eyes change owner, plus a slap-hand emoticon shows up-. (arrrgg)

As you probably imagine, these persons belong to the ‘common people’ profile more than to the ‘people into business’ profile, but the fact is that many of this kind of persons, the common people ones, hold management – or business related- positions in their full-time jobs.

Hard to face it – question face –

So the big issue here is:

Tweet this: Marketing is strategy, strategy is not marketing. – Confuse this and be ready to be a victim of industry dynamics #strategy

This phrase is appropriate when insisting in bringing the word ‘marketing on board, of course –

I understand how widely this confusion permeates around the infra-business world. Nowadays, companies and independent business professionals claim to have a strategy, or strategies,  to win. These strategies can fall on wherever you desire to. It might be in between of ‘the best strategy to tweet your tweets it twitter’ and simply ‘competitive strategy’. Yes, strategy is a ‘poor-little-word’ overused term.

But now, something in the big leagues of business happened that will help us to have a clearer mind of WTH strategy is, or even better, something that will clarify the very single point that strategy is not marketing.

Strategy:

As a starting point, in order to anchor you – or to put you into context-, I will share what I have maintained as my understanding  (OK!, not my understanding, but my definition) of what strategy is.

Strategy is a thinking process aimed to deliver a set of defined decisions that allows organisations to (1) have a precise beginning, (2) keeping direction and aim while progressing (or growing) in order to (3) achieve perfection at the ending.

 Nike and it’s shocking announcement

On mid April of 2014 , NIKE Inc., announced that it would fire about 50-60 of its employees working on the Nike’s 70-person hardware team, all whom belong to the “digital sports division” of NIKE – a team of about 200 people, which is mainly technology focused.

This is an abrupt exit from the wearable technology market. Which is now really crowded.

This news can be shocking for some, but not really for some others. It appears that Nike will focus on fitness software efforts instead of custom hardware.

 

fuelband

Nike was one of the introducers of this product, hence walking the first steps of the category. Apparently it was doing quite OK in the effort of spreading its reach, in despite of being only the third largest provider of digital wearable bands (after Fitbit and Jawbone). The most important success of the endeavour – at least to the naked eye – was the deep engagement it was getting from a growing community of users of the device. So people wonder Why the **** it just quitted?

In order to get a deeper understanding of the whole situation with the market of digital wearables, we can consider a passage from Cnet – by Nick Statt about the noisy news:

<< Nike has never disclosed sales figures of either of its FuelBand models. The NPD Group estimated that in 2013 wearable fitness trackers were a $330 million market, in a competition largely centered around Jawbone, Fitbit and Nike. Fitbit had the lead, capturing 67 percent of sales at brick-and-mortar and large e-commerce retailers, while the FuelBand accounted for 10 percent. That puts Nike’s take at a mere $33 million. >>

So $33 million…..hmmm how good is that if you are Nike? Well, it is certainly not much if compared to the overall income for the 2013 fiscal year:

<< NIKE Brand wholesale revenues increased 8 percent to $18.4 billion, while Direct to Consumer revenues grew 24 percent to $4.3 billion, driven by 14 percent growth in same store sales and new door expansion >>

This information about 2013 results is just to have a better idea of what the 33 million value of NIKE’s fuelband share of market can mean, since it is difficult trying to understand how well is NIKE’s device doing without having a general perspective of the company’s business magnitude. However, I am sure that, from the strategic point of view, no CEO would ever ditch such an innovation based solely in an isolated P&L result. So once again… Why?

Well, here is why. 

NIKE’s purpose, motto, and mission

Mini prologue to this subsection: terms in the subtitle have a greatly “strategic” root.

First question any strategic review must answer: 

 What is the holy business you are in?

  • The company has a clear answer to that:  NIKE is in the business of making big moments bigger – so touching, yes! –this is their motto-.

Now we must understand how is the company going to accomplish that?

There are some  clear responses for that as well:

  1. They need to fulfil their mission:

<<To bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete. – awww so cute, yes!>>

  1. What is NIKE doing in order to reach that point:

Notice a brief description of the company in their website: 

<< about Nike Inc: ‘NIKE, Inc. is the world’s leading innovator in athletic footwear, apparel, equipment and accessories’. >>

So far it is clear what is the direction they are following. The strategic direction of course!

Now, let’s continue with the depiction of this particular news about abruptly quitting a promising market:

How promising?

According to a new report from Juniper Research the sector of technology wearables, which includes google glass eyewear, will grow from $1.4bn (£878m) of annual sales this year to $19bn (£11.9bn) by 2018.

Promising indeed! Don’t you think? Well, it is, but there is a hiccup here and this is ‘other competitors’ who also want a piece of the pie. As we commented Nike was only the third largest producer of wearable fitness trackers with an approximated 10-15% of the market share of such a market.

BUT, it is a SO promising market, that of course there are more players ready to jump in. “Since Nike launched the first Fuelband early last year there has been an explosion of fitness wearables and apps,” according to Nitin Bhas, senior analyst at the tech consultancy Juniper Research, that I previously quoted.

For example: Jawbone, iHealth, Garmin, Withings and Adidas are some of the firms offering dedicated fitness-measuring gadgets. Plus Sony with its Smartband –http://www.sonymobile.com/global-en/products/smartwear/smartband-swr10/

On top of that, there is the imminent avalanche of smart watches coming. Samsung is taking the lead, and Sony is working its way too. These smart watches run android applications that will of course offer fitness tracking applications among other wonders. 

This market, instead of promising, has become a spooky one. 

Regarding our conversation about strategy Vs. marketing we have deployed a little bit of ‘market’ analysis and industry & trends spotting. In order to fully understand the true situation of Nike and its fuelband story we most highly stress out who these competitors are   

So who are they?

They are hardwarers!

They are in the technology business. In the hardware arena. They’ve got the expertise, the resources, the capabilities and the talent to do so.

Who are we talking specifically about here? about NIKE, that as portrayed itself, is an innovator in design and concepts for the athletic footwear, apparel, equipment and accessories. Not hardware certainly. 

We could arguably wonder, why NIKE got into the game at all? Because the concept is pure dynamite!   

They got one more great tool to make a big moment bigger for its community and embarked in the adventure. In piloting and introducing the concept, the have succeed. 

mark_parker_preview

“Our strong results demonstrate our relentless focus on delivering innovations that resonate with consumers,” said Mark Parker, President and CEO of NIKE, Inc.”

Now, the way you get to materialize these innovations, is another topic. Strategic one as well. And as such, a huge public company it is, it has to look after its shareholders interests:

“Nike delivers consistent results because we focus on the biggest opportunities for growth while we manage risk across our diverse global portfolio. This is how we continue to drive long-term value for our shareholders.” Remarked the President.

 Did you see the part of the risk management? ok!

As posed by Jef Holove, CEO of Basis,  recently acquired by Intel. “Hardware requires deep expertise in things that are unique to the consumer electronics world,” says.

“It also requires a certain fortitude. Certainly Nike’s move is a reminder that doing this category is difficult.”

Is this a marketing thing? No. It is pure strategy. Of the good strategy type. 

“The tech is a means to an end,” reminded Sam Poser, a Nike analyst for Stern, Agee & Leach.

This previous phrase is a great reminder that aligning your strategy to your capabilities is still an important decision when setting the path your company must follow. Fortunately, still in our strategic thinking level, there are ways to go around it. 

Custom hardware is tough, it needs specialization. Nike is looking for it. How? They are probably borrowing it on exchange of the one skill they decided they can excel at. Fitness Software Development

Nothing yet announced, but known, is the closeness between NIKE and Apple Inc. shown by the electronics company’s CEO Tim Cook, a hardcore user of Nike’s band, who is also a member of the Board of Nike. Another proof of this potential alliance – one more strategic topic- is that there are no apps available for android of the Nike fitness software. Is this a stoic proof of loyalty from Nike to Apple? 

Alliances are an intelligent way to  take on trends you are not ready to face yourself, and in this case it makes a good sense since the launch of an expected iWatch is around the corner. 

Why? well, Apple is a company that, as we know, has been honing its capabilities on hardware development for several years, and have more adequate and powerful distribution channels for that. Remember your lessons about business and management? Divest, sell, defend, invest etc? It was not only academy.

Commitment with innovation

“Our deep connection with the consumers ensures we focus our innovation on products and services that consumers expect and also on those that they never thought possible” If NIKE developed the concept and this has been proved successful, why to stop after an avalanche of competition if they can strengthen their position with an intelligent alliance?

Bottom Line 

Strategic lines:

fitbit band

  1. Nike introduced an amazing concept, but as it usually happens, it was soon challenged by ferocious competition.
  2. Nike’s fuelband was overtook in market size due to its limited functionality regarding data management, which Nike is not skilled at. Fitbit is juggling this topic in a great way, reaching other markets, like the corporative one, in which companies offer its employees fitness programmes in order to create a better life quality for them, and their natural choice is Fitbit, not Nike, because of the data management Fitbit does for irs clients.

fitbit software

  1. Nike didn’t react. Nike didn’t reallocate budget to strengthen its market presence, nor tried to make its product better, let alone cheaper. Making the product better would have meant to build new skills. Which takes time, resources and is risky.
  2. Nike reconsidered its position in the strategic competitive landscape and made a brave decision. To leave it.

<< Don’t you ever fight a war, if you can’t win it>>

What Nike did, was to analyse its strengths, its options and took another way.

<< At the end, this unexpected decision might take Nike to the very same destination it was looking for at the beginning, through a better path >>

Key takeaways:

Don’t you ever forget:

  1. Marketing is strategy. Strategy is not marketing.
  1. Don’t think about marketing, think about your future. Marketing comes later

Biggest perils of the confusion:

  1. Tweet this: Do marketing with no proper strategic view and you’ll find urself reacting to industry trends, striving for survival, not for #growth
  2. Market research must have a deep strategic objective defined. Don’t be fooled by the ‘market’ word.
  3. Moreover, a strong, mythical brand is not enough to pursue new categories. Who better than NIKE regarding the value of a brand? Very few.

Now you can go and follow the questions posted in this entry, and you will be kind of applying strategic thinking to your business issues. Which is good. Better that confusing everything with marketing, of course.

 NOTE of the author: This post is the base of an analiys of the ‘Fuelband’ as a case-study for new-product-development under NIKE, using the HI-Board model. Available for suscribers. Suscribe here to access it  

 

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