How Nike's Social Network Sells to Runners
Nike (NKE) is winning a new game that other corporations, from Coca-Cola (KO) to Verizon (VZ) to General Motors (GM), have tried unsuccessfully to play: building brand loyalty via online social networking.
In the two years since it launched Nike+, a technology that tracks data of every run and connects runners around the world at a Web site, nikeplus.com, Nike has built a legion of fans. In August, for instance, 800,000 runners logged on and signed up to run a 10K race sponsored by Nike simultaneously in 25 cities, from Chicago to São Paulo. Now the company is testing a social network to promote its basketball shoes.
How Nike+ benefits the company's bottom line is harder to gauge. Some analysts back up Nike's claims that the site is renewing the popularity of its running shoes. SportsOneSource, a Princeton (N.J.) market research firm, says Nike accounted for 48% of all running-shoe sales in the U.S in 2006. Today, its share is 61%. "A significant amount of the growth comes from Nike+," says Matt Powell, a SportsOneSource analyst.
SYNCHING WITH IPOD
But skeptics such as Sam Poser, a stock analyst at brokerage firm Sterne Agee & Leach in New York, say Nike+ attracts only serious runners, a drop in the bucket compared with its total customer base.
Overall, the use of social networks worldwide has grown 38% in the past year, according to market researcher comScore. But a recent McKinsey survey found that many companies struggle with Web 2.0 technology and that only 21% of the nearly 2,000 executives who responded were satisfied with the software available to launch blogs or create Facebook applications.
Nike's online strategy differs from those of other companies. Most have tried to create virtual communities through a build-it-and-they-will-come approach centered on a brand or specific product. Originally, the Beaverton (Ore.) company envisioned Nike+ simply as a clever way to combine music and running, not as a prototype for a new kind of marketing. "It was never about how can we convert some percentage of users [to buy Nike shoes]," says Stefan Olander, global director of Nike consumer connections.
The key to bringing runners onto the Web was the development in 2006 of a $29 Sport Kit sensor that, when synched with an iPod touch or nano, tracks runners' speed, mileage, and calories burned. When those runners dock their iPods, nikeplus.com launches, and the run data get uploaded. More important, the site is a virtual gathering place. Runners have collectively logged 93 million miles on nikeplus.com.
So far Nike has sold 1.3 million Nike+ iPod Sport Kits, according to SportsOneSource, and 500,000 Nike+ SportBands (at $59 apiece), wristwatch-like devices for runners who don't want to listen to music. While sales from these products total $56 million, that's just a rounding error at a company that posted $18.63 billion in sales in fiscal 2008.
Robyn Winters, an assistant manager of a North Face (VFC) store in Seattle, picked up a Nike+ kit and sneakers in 2006. Winters, 28, who had already run a half-marathon, credits Nike+ with boosting her enthusiasm for running and for Nike, too.
On nikeplus.com, she's part of a group of 90 runners who challenge each other to go faster and farther. Since first logging on, Winters has run two 50-kilometer races and one 50-mile race, and she plans to run two more 50-milers before yearend. This October, she bought a new pair of Nike shoes and two backpacks with Nike's Human Race logo on them—one for herself, the other for her husband.
Nike now hopes to score with another group of jocks: basketballers. The company is beta-testing Ballers Network, a Facebook application that lets players organize real-world games and manage their teams online.
Rivals are joining the race. Next year, adidas intends to introduce in the U.S. a sensor called miCoach that allows runners to upload heart rate and running data to a Web site via mobile phone. But an American miCoach will have a long way to go to catch up with Nike+. About 93 million miles, in fact.