How Nike's Social Network Sells to Runners

The Nike+ site is drawing hordes of runners, and its success may hold lessons
for brand building on the Web

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.
Nike+ Shows Why Corporate Social Networking Is
Important
When Nike+ launched two years ago, there were many skeptics.  Other corporations have tried to create a strong
social network for their users.  The results have been horrendous for most, but Nike has been able to build their
brand and establish strong avenues of interactions with their customers through this social network.

What did they do that Coke, General Motors, and several other large corporations did not do?

First, they gave the platform connectivity and interactivity.  Using a device within the running shoes themselves,
members can track every run they do and keep accurate records of how well they are doing.  This in itself has an
appeal to those who are serious about running, but Nike+ took it a step further by allowing users to communicate with
other runners around the globe.  The mutual interest that can often be called a passion gave the network the “legs” to
bring people in and keep them coming back.

The second thing they did was give purpose to the network.  Through events that could only be coordinated online do
to logistical challenges of multiple-locations worldwide, Nike+ made itself into a hub for runners to participate with
distant peers towards common goals.  Earlier this year, nearly a million users logged on and signed up to run a 10K
race.  It was sponsored by Nike simultaneously in 25 cities.

In a recent interview that Businessweek’s Jay Greene had with Stefan Olander, global director of Nike consumer
connections, the enthusiasm for the products and network were evicent.  Skeptics were harsh when the network first
started, but its success in accumulating active users has made most silence their criticisms.

But in the end, the real question is, “Has Nike+ helped the company sell more running shoes?”

“Absolutely, yes,” said Olander. “We’ve seen great conversions so what we do in our continuous service is we see
the relative market share that we gain from other brands and it gives us a tremendous opportunity.  If someone is
used to running in another brand and they like another brand, once you start using Nike+ you have a really good
reason to try out Nike’s line of shoes.

“We like to think we have a fantastic running shoe line but a lot of that is just what you’re used to so if someone is
used to another brand the only reason could be communication.  Another reason is the community and you have
another reason to try it out.”

While sales of related products have hit $56 million, it is a drop in the bucket for a company that posted $18.63 billion
in sales in fiscal 2008. For a real impact that would raise the eyebrows of other corporations, there would need to be
a bigger splash that crossed several products, not just the running shoe niche that appeals mostly to hard-core users.

“I am convinced that the learnings we’ve drawn from what Plus does from a behavioral perspective – absolutely we’ll
be to use that and replicate it,” Olander continued.  “I don’t think that it necessarily means always using the same
technological solution with a chip in your shoe and a receiver but the insight that you can use digital technology to
enhance someone’s performance and make sure that there is both a community angle of it and all the social
attraction – all those layers we can definitely use in other categories.”
With a beta launch of their Ballers Network on Facebook underway and plans for future expansion into other
products, it is possible that Nike could be the first major corporation to truly enhance their bottom line through social
networking.

The keys to launching a strong corporate social networking site are:

 User Focus - Make it useful, fun, and informative for your customers and potential customers.  People do
not want to participate in networks that simply advertise new products or offer specials.
 Niche Building - Having a social network is nice, but creating one that is THE place to go for participants
passionate in a particular niche is extremely important when it comes to making a network stand out.
 Product Tie-Ins - In the end, a social network should make a splash on the bottom line.  People have
shown that they are willing to spend money on a product if the benefits work both ways: the product must
enhance the use of the network and the network must enhance the use of the product.
 Event Tie-Ins - The Internet is loaded with ways to learn about and register for events.  By using the social
network to improve the efficiency and communication of events, especially ones that are locally focused but
involve multiple venues, the overall value of the network will be enhanced.
 Set Community Goals - Nike+ is getting close to logging 100 Million Miles amongst their users.  To
promote this, they ask a very simple question:

After all is said and done, don’t forget.  A social network is made for socializing.  There should be ways for users to
communicate with each other as well as management within the corporation.  If all of these things are done, a strong
social network can be built that will succeed where most others have failed.

Since the '06 launch of Nike+, the company "has built a legion of fans," and is "building brand loyalty via
online social networking," according to Jay Greene of BUSINESS WEEK. The technology used in Nike+
"tracks data of every run and connects runners around the world" at nikeplus.com, and this past August,
800,000 runners "logged on and signed up to run a 10K race sponsored by Nike simultaneously in 25
cities." The company now is "testing a social network to promote its basketball shoes,"and Nike is "beta-
testing Ballers Network, a Facebook application that lets players organize real-world games and manage
their teams online." But how Nike+ "benefits the company's bottom line is harder to gauge."
SportsOneSource said that Nike "accounted for 48% of all running-shoe sales in the U.S." in '06. Market
share has increased since then to 61%. SportsOneSource analyst Matt Powell: "A significant amount of
the growth comes from Nike+." Greene notes Nike originally envisioned Nike+ as a "clever way to
combine music and running, not as a prototype for a new kind of marketing." Nike Global Dir of Brand
Connections Stefan Olander: "It was never about how can we convert some percentage of users (to buy
Nike shoes)."  SportsOneSource indicated that Nike to date has sold 1.3 million Nike+ iPod Sport Kits,
and 500,000 SportBands, "wristwatch-like devices for runners who don't want to listen to music." Sales
from these products have totaled $56M, though that is "just a rounding error" for a company that posted
$18.63B in sales in FY '08 (BUSINESSWEEK, 11/17 issue).