Four big strategic mistakes Nike needs to reverse

A few words of sympathy for John Donahoe, the soon-to-be former CEO of Nike. Six months ago, he was the feted boss of one of the biggest brands in the world. Now he’s the corporate bogeyman in every LinkedIn post you read over the weekend. If the blogosphere is to be believed, Donahoe is guilty of every business sin ever conceived, from hiring consultants to wearing a suit too much.

The ex-Bain Stanford MBA, previously a successful eBay CEO, appeared the ideal candidate when he took the helm in 2020. But the end was nigh in March when Nike shocked the market with a revenue downgrade. And it was super fucking nigh when Nike lowered expectations further in a dismal earnings call in June. The company’s share price plummeted 20%, wiping out £21bn of value overnight.

Last week’s announcement that Donahoe would retire came as no surprise. He was the man to blame for messing up Nike.

And, for once, this simplistic explanation does appear to be the valid one. Donahoe got his strategy wrong. Plain wrong. It might have taken four years to reveal that fact, but such time lags are to be expected. Nike provides marketers with four salutary lessons in what not to do. None of the lessons are especially surprising, but as Nike so deftly demonstrates, that does not stop them from being true or enormously damaging when ignored.

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Error 1: Product matters

It’s easy to miss the central point of any marketing success or failure – the product itself. Ignore those marketers who tell you it’s all about advertising or disruption or mental availability. All those roads still pass through the product crossroads. And Nike’s product was losing its appeal.

Under Donahoe, Nike cut back on radical products and heavy R&D, and began to look too closely at existing products and current customer demand for its product development coordinates. “If you drive a car just by looking in the rear-view mirror, that’s not a good thing,” Nike’s chief design officer Martin Lotti observed recently. “The bigger opportunity is the windshield.”

To make the situation worse, Donahoe initiated his Consumer Direct Acceleration (CDA) strategic plan: previously specialised sporting teams were generalised into men’s, women’s and kids’ divisions. It was an attempt to “create a more premium, consistent and seamless consumer experience across Nike’s owned and strategic partner ecosystem”. But it effectively removed the killer specialism at the heart of Nike’s product success – one that saw an occasional hot new product eventually trickle down from professional sport to everyday fashion. Nike also provides further evidence, if it were needed, that any plan that contains the word ‘ecosystem’ is always, and I mean always, a signal of sloppy thinking.

Error 2: Going too short-term at the expense of long

Just because the work of Peter Field and Les Binet is simple does not mean that big brands will apply it. Companies keep making the same basic mistake of going too short term with their marketing. And we will only see more of the same as executives – like Donahoe – emerge from the digital ghetto of performance marketing where a rounded, more advanced grasp of the discipline is so often missing. And it’s doubly true in America, where the Godfathers of Effectiveness, Binet and Field, are largely unknown and generally unread.

In Massimo Giunco’s epic takedown of Nike’s strategy on LinkedIn, its former senior brand director notes the shift in the company’s marketing investments from “brand enhancing” to “sales activation”, with increases in performance marketing taking place under Donahoe’s leadership. We all know this story and what happens next.

Initially, the ramped-up performance marketing delivers good ROI because it continues to run on the fumes of past brand marketing. But over the next two years, as brand investment fades, so too does demand. Long term drives short term; bad executives take from long to increase short, long stops impacting, short stops working, end.

Nike increased its annual investment in advertising under Donahoe. But it became known as ‘demand creation expense’ and was increasingly channelled to more digital, direct channels aimed at its online ‘membership’ customers. Nothing wrong with that, provided it does not come at the cost of the long-term stuff. Big, emotional outdoor ads don’t deliver any ROI. But they speak to the whole market who aren’t look for anything at the moment but will one day. And they remind consumers what Nike is all about.

Shorn of much of that investment, Nike’s performance marketing was too much about product, too targeted at existing customers and too focused on rational, often price-based messages that did nothing for brand. The company that pretty much invented the big brand playbook with ‘Just Do It’ forgot how to do it.

The most important word in Field and Binet’s canon is “and”. You need both long, mass-market, emotional brand building, and short, targeted product activation, and you need them in roughly the right proportions. When you don’t have that – because of a false certainty in ROI, or a half-blind career path in digital, or a long-running scepticism of ‘traditional’ ATL comms – it’s just a matter of time before things play out badly.

Error 3: DTC is a stage, not an end state

Despite what we were all sold a decade ago by photos of fresh-faced 20-somethings in casual clothing setting up direct-to-consumer (DTC) brands with cool, misspelled names, these people were not ‘crushing it’ or worth billions. It soon became apparent that digital-only comms and an exclusively direct ecommerce channel would never turn a profit. They needed wholesalers and other retail partners for the extensive, widespread physical availability that enables you to win.

That’s partly because most consumers want to squeeze their bananas before they buy them. Partly because consumers often don’t know they want bananas until they are in a store buying pineapples and see your bananas glistening across the aisle. And often because getting people to buy direct from your bananas.com site requires them to see them over at Tesco a few times first.

Every surviving DTC brand beyond five years of age learned this the hard way and went quickly into traditional brand communication and even more traditional channels of distribution.

Today’s Target is full of American DTC brands that proudly boasted that they would only ever sell direct a decade ago. Donahoe obviously did not get the memo. Maybe his time at eBay blinded him to the very real advantages of omnichannel distribution and the need for successful direct and indirect channels to be successful. Perhaps he was a spectacular victim of Covid (not the virus, the mindset – see Error 4, below).

Whatever the reason, Nike burned vital bridges with many of its wholesale partners, while pushing its own digital channel as the future of the business. The goal was to grow the digital side of the business from 26% in 2023 to 40% by 2025. This would have meant more margin for Nike and the holy additional bonus of all that consumer data. But gradually, the lack of physical availability hurt Nike so much that not only were indirect sales hit, its DTC revenues also fell by 8% in the three months to May.

Earlier this year, Donahoe acknowledged to CNBC that as it shifted toward digital, it “over-rotated” away from wholesale “a little more” than it should have.

Add the shelf space Nike gave up to its very appreciative smaller competitors, and the ill will the move caused among big retailers you really don’t want to fuck with, and you have a perfect argument for why omnichannel is still the only way to go.

Error 4: The boring brown line of continuity always wins, eventually

Donahoe was unlucky in that he took the helm just as Covid was tightening its bastard grip on consumers. Consequently, when he was formulating his strategy for Nike, he was doing so very much under the shadow of a giant societal change that seemed to suggest a massive redirection of future consumer behaviour. All kinds of marketing experts lost the plot and told us the world was changed forever. And many executives drank this in. They made the almighty mistake of extrapolating an exceptional Covid bump into a future that was never likely to happen. Donahoe was clearly one of them.

As your humble columnist pointed out at the time, Covid certainly fucked around with all kinds of things, but – like everything else – was always going to pass and allow the boring brown line of continuity (see chart above) to eventually reassert itself and revert everything back to the mean. Donahoe must have looked at what was happing to online sales in 2020 and assumed it was the digital change that many had predicted for so long. He built a strategy for a future that never was.

Instead Covid subsided from the consumer consciousness, people took off their masks and went to the mall again. Not in the same numbers they had back in 2019 but still in the large, expected amounts that any Covid-free prediction would have suggested. And just as they arrived, Nike was pulling out. Donahoe’s initial diagnosis was off. If your diagnosis is off, your subsequent strategy is going to be off too. And no end of tactical prowess and investment can save you from that. Having set his giant Nike tanker on a bad strategic path, reversing course was all but impossible.

Enter the new/old guy

Ultimately, four big mistakes saw off John Donahoe. He did not invest enough in product; he forgot to balance short-term performance with enough long-term brand building; he needed omnichannel distribution; and he should have realised Covid was a bubble and not the start of a new era. All obvious errors. And ones that the CEO of Nike should have been able to avoid.

And before you feel too much sympathy for Donahoe, remember he will earn more than $100m for his four-year tenure. Despite not understanding ‘the long and short of it’ or being able to appreciate the value of an omnichannel approach.

The baton now passes, predictably, to the exact opposite of Donahoe. Elliott Hill is a Nike lifer. He wears sweats to work. He started out as an intern in the 1980s and only left when the company passed him over for the CEO job in favour of you-know-who. “Nike has always been a core part of who I am, and I’m ready to help lead it to an even brighter future. For 32 years, I’ve had the privilege of working with the best in the industry, helping to shape our company into the magical place it is today,” Hill said in a statement upon getting the position.

And while Hill has a huge job in front of him, it’s also relatively straightforward. He’s already won back the demoralised Nike troops simply by being Elliott Hill. Because his predecessor was poor, the Nike share price has already jumped at news of his appointment. Now he just needs to reverse the mistakes in quick time.

He needs a series of big brand campaigns and a permanent balance of long and short communications. He needs a successful omnichannel approach, with a vibrant presence across wholesalers and a leading-edge direct digital business too. And he needs Nike to return to its sporting roots with products that define the market demand rather than rework it.

Nike has done it before. It just has to do it again.

Mark Ritson is an award-winning columnist and marketing professor, currently teaching on the Mini MBA. His 12-week, 100% online courses run every April and September and are designed to help busy marketers feel more confident and effective in their role. Learn more and book your place here. He teaches long and short, product development, omnichannel and proper strategy formation in his epic online course the Mini MBA in Marketing which kicks off this week. Still time.