Home Nike store Three charts that show how negative sentiment doesn’t impact the bottom line

Three charts that show how negative sentiment doesn’t impact the bottom line

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No industry understands the importance of public discourse better than mainstream brands. Luxury fashion and sportswear sell as much imagination as it does fabric and fabric. These brands live and die from the emotions they arouse in the mind of the consumer. The smell of the perfume is not the reason people pay for Chanel No. 5 at $ 340 a bottle. It is the dream that the scent promises to bring to its exclusive wearer.

That’s why mainstream brands love celebrity support. It is a celebrity’s transfer of glamor and chic that creates a positive sentiment around a brand. Logically, this positivity then translates into the bottom line of the business. This logic was certainly reasonable in the pre-Internet world. But does this “celebrity transfer” logic still hold today in our hyper-connected world?

At IMD’s Center for Future Readiness, we track how ready companies are for a changing future. To do this, we download all the reports published in the last 10 years by the flagship of the economic news. They are The Wall Street Journal, CNBC, The Financial Times, and tastes. We also collected all corporate press releases issued during the same period. We feed 10 years of data into an algorithm, big data style. We want to examine how digitally savvy these different mainstream brands are. They could be Nike or LVMH, Lululemon or Hermès. How well has the business community understood these brands? We also measure the feeling of the public around them: does the public have a positive or a negative view of them? Such “textual analyzes” may not be perfect, but they do measure how things are going.

As shown in Figure 1, sportswear sportswear is, in general, much more digitally oriented than high fashion. And the digital king is none other than Nike. This shouldn’t be surprising – Nike’s digital push came early. In 2017, he had already committed to making the company less dependent on physical stores. What changes on the digital front-end has also been matched by the breakthrough technologies behind the scenes.

Consumers may want to customize their sneakers online and have them shipped within weeks. But to do it profitably on a large scale, Nike had to “digitize” its entire supply chain. And when it does, the company has also advanced its analytics to gather information around the clock. It can make markdowns and promotions decisions instantly to move inventory across continents. It is able to locate and ship specific products to the individual stores that need them the most. Such is a consumer brand focused on digital.

Now you might be wondering what mindset should an organization adopt to transform a traditional retail brand into a digitally driven, consumer driven business? Learning. It is inescapable. Microsoft CEO Satya Nadella likes to say, “Knowing everything is better than knowing everything. And when it comes to creating new abilities, these know-it-alls are all lying.

You can see it in Chart 2. Companies like Nike and Adidas are very much geared towards learning. Likewise, they have a strong outlook on the future, as evidenced by their high degree of certainty. This is exactly what people call a “strong, loosely held opinion”. The top executives of the company have a common point of view but also embrace learning. Thus, they are open to experimentation and never go back to the old business model. But if pivoting is necessary, so be it. Based on new evidence, they then commit to evolve. This is how Nike succeeded in the digital arena. But it’s also how a successful startup becomes a billionaire organization.

Here’s the final photo, and it’s less flattering. Nike is not kind. It’s not adorable in part because it’s associated with too much celebrity controversy. There is the legendary athletics trainer Alberto Salazar, who has been convicted of doping violations. He was also said to have been abusive towards female athletes. Then there’s Colin Kaepernick’s ad campaign, which ended up infuriating Trump supporters. All of them point to Nike’s endorsement of its debut by Lance Armstrong and Tiger Woods. Bright stars don’t just glow, they can burn too.

The irony is this: None of this matters, at least not for the end result. Judging by the growth of the share price over the past 10 years, public sentiment has hardly affected the performance of the share price. Should we be surprised? Barely. It’s the same experience for Facebook.

Everyone railed against Facebook. There are the presentations of the the Wall Street newspaper. Drug traffickers and human traffickers have been found to use Facebook products to facilitate their activities. It is an obvious cause of indignation. A bank would never process the financing of illegal transactions. A defense contractor would never knowingly sell maintenance services to terrorists. Only Facebook would accept and could take money from anyone as long as someone is willing to pay.

Wall Street responded with a yawn. Its share price fell 0.2% on the day of the report. Meanwhile, the share price has risen over 36% so far this year. Whatever negative publicity Facebook gets, it works just as well as Microsoft. It even surpasses Apple as an investment. Executive bonuses are guaranteed.

Thus, the nagging indication remains. If sentiment doesn’t matter to the outcome, then by extension the sentiment generated by celebrity approval won’t matter too much either. Why do brands keep injecting millions of dollars into such mentions? Money, as we’ve seen in the case of Nike, can be better spent in less glamorous areas, like digitizing your supply chain, which no one can see. It would be a boring initiative, but it would make things easier for everyone. And thank goodness Nike has more than Michael Jordan up its sleeve.

Howard yu is a LEGO professor of management and innovation at IMD business school. His book Leap: How to thrive in a world where anything can be copied was published by PublicAffairs in 2018.

This article is written with Angelo Boutalikakis—A research associate at IMD’s Center for Future Readiness, and Zuriati Balian-a research intern in data science.