Reprinted with permission from Knowledge@Wharton.
"It's got a good beat and I can dance to it." — Teenager listening to a song on a 45-rpm vinyl record on the American Bandstand TV show, circa 1960.
"It's got a good beat and I can run to it." — Jogger listening to a Sony Walkman cassette player, circa 1990.
"It's got a good beat, I can run to it, and I can compile and share important data about my exercise regimen, too." — Runner using a Nike+iPod Sport Kit, 2006.
Music, physical movement, technology and being cool have long gone hand in hand. Now, two iconic brands, Apple Computer and Nike, are collaborating on a new system of gizmos that take exercising and digital-music players to a new level. The Nike+iPod Sport Kit allows runners and walkers to listen to songs and to record, store and share information (such as speed, distance covered and calories burned) with others about their exercise sessions. The system also "talks" to runners in real time, providing information as they jog along. The $29 kit consists of two gadgets — a receiver that plugs into an iPod Nano and a sensor that sits inside the inner sole of specially made Nike shoes and transmits data to the receiver wirelessly. Buyers also get software to download the running data to a special website where the information can be stored and tracked over time and shared with other runners.
Members of Wharton's marketing department say it's a winning combination that will bolster each company's image and open the door to other co-branding opportunities. But they disagree as to whether the joint effort will actually sell more Nanos and Nike shoes.
"These are two strong brands coming together," says Wharton marketing professor Patricia Williams. "And they are brands that, in terms of their personalities, have a lot in common: They are both exciting and cutting edge. They complement one another quite well. The co-branding effort also recognizes that their brands meet a need in the market. It's a way to integrate Nike into the iPod culture and integrate iPod into the running culture. It's quite a smart move."
"It's a brilliant idea," agrees Wharton marketing professor Peter Fader. "It's something that seems to meet a genuine consumer need; that's the first and most important test. But it really, truly taps into the iconic imagery of both partners. Just when you keep thinking that the iPod has run its course and growth is slowing down, Apple raises it up a notch again and further cements the status of products involving the word 'iPod' into the fabric of American culture."
Wharton marketing professor Barbara Kahn notes that Nike and Apple have already reaped some rewards from their joint effort. Walt Mossberg, The Wall Street Journal's influential technology columnist, and other tech journalists have written glowing reviews about the kit. Says Kahn: "The goal in co-branding is to link two brands in a positive way, to merge two audiences, to generate brand awareness and media and attention — so, yes, it's working."
Another Wharton marketing professor, Americus Reed, also thinks the Apple-Nike collaboration will reap benefits. Like any co-branding effort, the Apple-Nike partnership can serve three chief goals. The first is to send a "market signal" to consumers that both firms are innovative. Like his Wharton colleagues, Reed points out that the iPod is "deeply embedded" in the fabric of pop culture, owning a staggering 80% of the MP3 market — a choke-hold that Apple would dearly love to maintain. Would-be iPod killers from Samsung and Sony have "failed miserably," Reed says, and Microsoft's new family of hardware and software music products, to be sold under the "Zune" brand name, announced on July 21, has yet to be tested against the iPod and iTunes. For its part, Nike has long been a major brand in its own right. Both Nike and Apple should benefit from the "halo effect" created by the co-branding collaboration, according to Reed.
The other two co-branding goals are, of course, to sell more Nanos and more Nikes. Research shows that there is indeed an opportunity to do that. According to Reed, about 50% of people who identify themselves as runners also own a Nano, and one-third of "runners" who wear Nikes listen to music while running. But Reed is not at all sure that the two companies will sell more products as a result of the collaboration.
"The Nano is a small piece of the iPod family," he says, "and because iPod is continuously innovating, it appears that people will not choose to buy a Nano just because this sport kit exists. Note that this kit can only be used with a Nano, which is probably not a good idea, and the sensor and receiver can only talk to each other. If one 'dies,' you have to buy a whole new sport kit."
Serious Runners vs. 'Fashionistas'
Nor is Nike likely to sell more shoes, Reed says. He notes that research by MBA students in his customer analysis class at Wharton found that Nikes are not the favored brand of "serious" runners, who prefer New Balance and Mizuno instead. "So serious runners will probably not buy Nike shoes just to get this sport kit," Reed concludes. He also points out that the technology included in the kit is not new: Pedometers and sensors have long been available to runners. "The trick here is that, [until Apple and Nike], no one has linked them directly through an intervening MP3 product to get data from the shoe to the runner."
Reed adds that more casual runners — for whom running is primarily a way to show off one's fashion sense rather getting a hard-core workout — probably will not buy the kit either. These so-called "sport fashionistas," a customer segment that emerged during the research by Reed's students, like Nike shoes for their hip style. "But they like to display their aesthetic sense publicly, and unfortunately, the Nike+iPod Sport Kit goes in the shoe and cannot be easily identified," Reed says. "Hence, it's equivalent to just having a regular iPod and regular Nikes."
Fader, however, says that fashionistas may still buy the sport kit in large numbers. Even though Reed is correct in pointing out that the sensor is invisible inside the shoe, runners can still brag about the fact that they are using the Nike+iPod [pronounced Nike Plus iPod] Sport Kit. Moreover, Fader says, neither Nike nor Apple may be seeking serious joggers as new customers anyway, because the companies know that serious athletes already have access to electronic products that can record information about their runs — including a runner's heart rate, which, significantly, the Nike+iPod Sport Kit does not provide. Says Fader: "This sport kit is for people who want to make fashion statements."
For her part, Williams says the kit may be attractive to casual runners who want an easy way to make the transition to more serious running. In any event, she says, the co-branding initiative does not hurt Nike and it may end up helping Apple more than Nike. "It can increase the connection consumers have with iPods and it makes the brand more relevant to this part of their lives. As they start using the kit and become a part of the running community, sharing data and challenging people whom they don't even know, they deepen their ties with the Apple brand."
As for Reed's point that serious runners prefer other brands to Nike, Wharton marketing professor Lisa Bolton notes that the market of serious runners is quite small relative to the general market of consumers who wear sports apparel, which is where Nike can really ring up sales.
"A product like Nike Plus could add to the general allure of Nike for these consumers, thereby contributing to Nike's overall brand equity," says Bolton. "In other words, even if Nike doesn't sell a lot of Nike Plus shoes to serious runners, they can still sell them to non-serious runners. And merely having Nike Plus in their product line may burnish sales of other products. That's likely where the real money is."
Paying High Prices
Bolton adds that the Nike+Apple Sport Kit may work to Nike's advantage in another way: by helping to convince consumers that higher prices are worth paying for all sorts of Nike products, not only Nike shoes but accessories like Nike Plus women's sleeveless T-shirts. These shirts are sold for $60, while those of other brands cost $30 to $50. Bolton asks whether consumers perceive such price differences as justifiable and whether fairness matters to consumers who purchase Nike products.
"My own research suggests that cueing consumers to a firm's costs can modestly lower profit perceptions and improve perceptions of price fairness," Bolton says. "But some costs are not seen as fair — for example, promotional costs or third-world labor costs, although these are not typically spontaneously apparent to consumers. The 'fairest cost' is cost of goods sold and is tied to quality, so it is up to Nike to convince people that the products' costs and quality are sufficiently high to justify its high prices. So far, they appear to have been successful. A product like Nike Plus may help their entire product line by convincing people that Nike invests a lot in order to be technologically superior."
Looking at the larger picture, Williams believes the introduction of the sport kit may mark merely the beginning of a foray by Apple into new territory. "What's interesting about the MP3 player phenomenon is consumers use them everywhere as a complement to almost any activity they undertake," she says. "The question is how Apple can leverage the iPod's position to become more integrated into those activities as opposed to being just an accessory to those activities. I don't know what those activities may be, but the opportunities are there."
Relying on Buzz
One Nike marketing official has said that Nike will not spend money on traditional advertising to create interest in the sport kit and will, in fact, rely on buzz marketing and word-of-mouth referrals.
"This is bad," asserts Reed. "The pre-existing 'blah' perceptions of Nike on the part of hard-core runners will spread as negative word of mouth that will not be countered by cool imagery, hip music and other positive effects that would come from a traditional campaign. Word of mouth is usually good if people have good things to say. However, most hard-core runners will continue to spread their lackluster attitudes toward Nike shoes, even with the availability of the new sport kit."
Another reason the lack of traditional ads might harm Nike's attempt to sell more shoes stems from the fact that sport fashionistas "need to be constantly reinforced with imagery and hip marketing strategies so that they can remain motivated to purchase," Reed says. This lack of support seems inconsistent with Nike's typical approach to new-product launches, which includes massive advertising and integrated marketing support.
Reed thinks it is nonetheless possible that the decision to forego traditional ads may reflect the fact that Nike's primary goal is to send a "signal" to customers, not to sell more shoes. "The technology probably doesn't cost that much, so the $29 price point is probably giving Nike a fairly hefty margin," Reed says. "Sales of the kit may be seen as mere icing on the cake."
For their part, how much support are Apple employees providing to market the sport kit? Reed visited an Apple retail store in suburban Philadelphia a few days after the product was launched in mid-July and was not impressed. "The salespeople didn't seem enthused about the product and didn't seem well-trained about its features," Reed reports.
Traditional ad campaigns and lethargic salespeople may not mean much, though, when well-known companies like Apple or Nike can rely on free media to spread the word about a new product. In addition to Mossberg's write-up in the Journal, favorable articles about the sport kit have already appeared in USA Today, PC Magazine and Time.com, and general news stories about the kit have appeared in other venues.
"This Knowledge@Wharton article is exactly the kind of thing Apple and Nike are looking for," says Fader. "The fact that this article exists says that this one joint venture has captured readers' attention more than a lot of other ventures out there."
Reprinted with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania."