Nike’s FuelBand activity tracker is one of the company’s hottest sellers ever. Not only did the product sell out online pre-orders in one day twice, but at one point the eBay price was double the suggested retail price. Last year, Nike’s profits leaped 18%, largely bcause of FuelBand — a big turnaround from the 1% year-earlier decline.
Nike introduced the new FuelBand SE this month for $149. Like competitors Fitbit Force and Jawbone, the FuelBand tracks activities such as steps taken, stairs climbed and calories burned. Many users strive to hit fitness goals, notably the 10,000 steps a day recommended by the American Heart Association. Friendly competitions arise among family and friends as these products connect to computers and smartphones to display progress graphically.
So what were some of the marketing elements leading to the success of the FuelBand? To find out, Knowledge at Wharton asked three Wharton marketing professors: Peter Fader, Barbara E. Kahn and David Bell. The three are team-teaching a free online course through Coursera titled, “An Introduction to Marketing,” and their comments here tie into the course modules.
An edited transcript of the conversation appears below.
Kahn on branding:
Knowledge at Wharton: What is product-focused marketing, and how does that relate to the early strategy for the Nike FuelBand?
Barbara E. Kahn: If you think of a market as between a seller and a buyer, on one extreme there is a seller’s market, and on the other extreme there is a buyer’s market. In a seller’s market, if you want the product, you have to go to [the sellers]. That gives them a lot of power in that exchange. Under those circumstances, people tend to do what is called product-focused marketing…. Since you are going to come to [the seller] if you want the product, I [as the seller] work on developing a good product. I work on reducing cost. And I am very much concerned with selling my product.
When Nike FuelBand first came out — I had one of the early ones from the first generation – because there was not much else in the marketplace then, they could really focus on the unique features. I didn’t really consider anything else. I bought a Nike FuelBand because I wanted something that monitored my calories, my steps, my energy, etc., and there really wasn’t very much choice. So that is product-focused marketing.
Knowledge at Wharton: What, then, is customer-focused marketing? Why does that occur? And how did Nike FuelBand adjust its approach?
Kahn: Again, thinking about the exchange between the buyers and sellers — as more competition comes in [and] as there are other substitutes, buyers then have more choice. In that case, when the marketer wants you to buy from them rather than from the competition, they have to start focusing on what you want. And so then it becomes a customer-focused market.
The second generation of the Nike FuelBand really focused on the way the customers were using the product and less on the way Nike thought it should be used. So, one of the things that is different, first of all, is [that] they came out with different colors. [For example,] Volt is the new yellow color — so it is a kind of sexy color.
“In the new version, you just double click and the time comes up right away. That is more customer-focused. It is giving the customers what they want and giving them a reason to buy this over the competition.” –Barbara E. Kahn
The other thing that I think is really interesting is a lot of people were using this FuelBand, and no one wanted that many [devices] lining up on [their] wrist. And so [Nike] — almost as an afterthought — [allowed FuelBand] to tell the time. Well it turns out, because people did not want so many things lining up on their wrists, they were using the FuelBand as [a watch]. But in order to get the time in the original version you have to cycle through all the different [menus].
In the new version, you just double click and the time comes up right away. That is more customer-focused. It is giving the customers what they want and giving them a reason to buy this over the competition.
Knowledge at Wharton: What is the connected community and how does that relate to the Nike FuelBand strategy?
Kahn: If you are looking through these trends in marketing — product-focused when there is not a lot of competition [and then, when] the market gets more competitive … you start being customer-focused — what has happened in the last 10 years is we have a connected community: There is social media; there is the Internet. What is interesting about this product is that every day you can upload your data to the Internet. You can keep track of [of your progress] that way because [the FuelBand] does not hold that much data on each [device]. So you can keep a long record. I have had my record of what I have done for about six months now.
In addition, I can interact with friends who also have a Nike FuelBand. Or I can interact with them on Facebook. We can share data. I can tell my friend when she is being really lazy: “Move it. You are too slow.” She can tell me when I am doing well. We have this whole connected community. I think over time the power for Nike behind the FuelBand is going to be the data. Once they can get that connected to your Facebook activity and connected to other things … they can start really marketing different kinds of products to you and increase customer share and share-of-wallet.
Once you know how I use the product, you might be able to market shoes to me or certain kinds of clothing. If you can upload my data with my Facebook data, you will know that I’m using this in New York or I’m using it in San Francisco or something like that. Or you can see who my friends are and can connect to my friends. Then you can market to my friends…. So once you have that data, if you figure I now have your Internet data and I have your offline data, they know how many calories I am burning. They know when I am doing these kinds of things. You link all those data together and you have a really pretty big picture of your consumer. It seems like there is a lot of opportunity to try to add customer value by understanding exactly what you want and where you are.
Fader on customer centricity:
Knowledge at Wharton: How do activity or fitness trackers, such as the Nike FuelBand, relate to the principles of customer centricity?
Peter Fader: These activity trackers or electronic fitness bands — or whatever it is we want to call them — are actually a great example, or a great opportunity, for customer centricity in action. Part of it is the data…. But part of it is that it gives a company a chance to really surround its valuable customers with a variety of products and services — and information — and to use that information to figure out which kinds of products and services to deliver up to the right kind of customer.
It recognizes that customers are all different from each other. It recognizes that what they are doing or how they are moving around can interplay with what other behaviors they have: what they eat; what kinds of exercises they do; where they live; what their lifestyle is. It gives a company a chance to better understand their customer — not necessarily the specific details of their heart rate and so on, but just a better picture that they could not get any other way.
It is hard to say how much of this data is actually being stored and used by the companies, because the data is going someplace where it can be seen not only by the user, but also by other people. For instance, in the case of the Nike FuelBand, it becomes social fun — I can see my friends’ activities and can compare them to mine. So the data is definitely being stored somewhere. Of course, the user has a lot of control over it.
“One of the other great opportunities with these electronic gadgets is that it gives companies — beyond those that are already in the space — an entry point to deal with customers in a new and different way.” –Peter Fader
One of the other great opportunities with these electronic gadgets is that it gives companies — beyond those that are already in the space — an entry point to deal with customers in a new and different way. For instance, I can see a big pharmaceutical firm giving these bands out — giving them to people as service, as a way to understand what they are doing. Not necessarily to try to push pills on them, but all the pharma firms are talking about customer centricity. They recognize that they need to understand their customers more than just developing new drugs and hoping that people are going to buy them. So it does create new kinds of business opportunities. And I can see lots of different kinds of firms, besides pharma, getting into the space as well.
Knowledge at Wharton: Would the data on someone’s exercise or sleep habits be useful in determining metrics such as customer lifetime value?
Fader: All the data … that are being collected by these electronic fitness bands is a blessing and a curse. On one hand, it adds to the whole idea of big data. It gives us all kinds of columns in a database — all kinds of observations — that we did not have before … that we could not have even dreamed of a few years ago. So on one hand, all of the challenges and opportunities associated with big data are associated with these new kinds of data structures. But there are opportunities there as well. If we can triangulate someone’s purchasing habits with their media consumption, with their exercise activities, with their sleep habits and so on, we can get a more complete picture about who does what.
I am not saying that this kind of information will transform our understanding of customer behavior. I am not saying that it will contribute significantly to our estimates of customer lifetime value. But it can’t hurt. And it is so new and it is so different, it is hard to say just how much incremental contribution it will have. So it will be great to see that. We understand what kinds of statistical methods we would want to use. But the results — the impact — of these new data sources are something the future generations will tell us.
Knowledge at Wharton: What do you see in the future for these and related products and services?
Fader: We are just barely getting started with these new electronic fitness bands. I think there are a lot of people today who are messing around with them. They are trying them out — sometimes unsuccessfully. It is not clear what they are doing with the data or how they are sharing it — or what companies are doing with the data.
But I see this as more of a generational kind of issue. I imagine that the next generation will start putting these fitness bands on our children when they are not even a year old. It will just be something that we want to monitor all the time — obviously for different reasons when they are infants or toddlers than when they are adults. But people are going to be used to wearing these things. They are going to be used to using the data.
The whole idea of the quantified self — a concept that a lot of people are talking about today — it tends to apply more to grownups. Can I look at myself, my exercise, my nutrition and other kinds of habits? But when the quantified self works down to one- and two-year olds — and when they are accustomed to doing it and when they start tying in their exercise activities with their social media usage and their school work and so on — we are going to get just a much more complete picture about individuals.
Now, on one hand, that can be a bit creepy. It can be a bit intrusive. It might be a bit too much. A lot of that data might be useless. But it is going to be a new era. And the idea of people managing their own data — figuring out what the value of that data is to themselves and maybe economically — a lot of folks are talking about that. A lot of companies are developing new business models around that idea.
But I think that these gadgets — these armbands that people are wearing — are going to be the major breakthrough to let people understand the value of their data. And I think these business models will take off as a result of these gadgets moving their way down to children.
Bell on go-to-market strategies:
Knowledge at Wharton: Who’s the lead user, and what are the key segments for the Nike FuelBand?
David Bell: The really interesting thing about the Nike FuelBand is that it potentially appeals to a very, very wide range of users. Everybody from the serious athlete who’s interested in really monitoring what’s going on with the body, to the so-called “weekend warrior” and maybe people like you and I who like to play a bit of tennis, a bit of basketball, this and that, here and there. So, there’s potentially a very, very wide group. I think it also cuts across all of the traditional segmentation variables, like gender — it’s for both men and women. It cuts across various age groups, various socioeconomic brackets. So, this is a product, I think, that if marketed effectively, potentially has a very, very wide target group and a number of segments within that.
“It’s probably going to be difficult to come up with a better messaging than ‘anyone who has a body is an athlete.’ I think that’s what’s really key here.” –David Bell
Knowledge at Wharton: Why is the price $149, and what’s the right point of comparison to communicate price fairness?
Bell: Pricing is a very, very difficult thing to get right, because the price has to be something, obviously, that makes sufficient margin for the firm. The price also has to be fair and relevant relative to the competition, and whatever those other points of comparison and products are. And it also has to be something that the customer feels comfortable with. I think $149 is a price that’s high [enough] that I don’t just feel this is a cheap piece of plastic around my wrist. It’s something that really has technology embedded in it [and that appears to be] a good product and an interesting product. [The price is] not so high that it’s going to be completely inaccessible. But the point of comparison is very, very interesting. Is this like a $50 monitor that would monitor my heart? Clearly it does a little bit more than that, so I don’t want that point of comparison. Is it a new sort of piece of technology, like an iPod or an iPad or an iPhone — something that we’re all used to carrying around? Well, it’s kind of related to those, because it has a USB connection where I get the data feed.
So, I think it’s really interesting — from a pricing point of view — how you use all of those things that we’ve discussed to communicate this value. Of course, it ends in a nine, so it’s cheaper than $150 in some sense, but it doesn’t overly cheapen the product. Those are all the various elements that presumably Nike thought about when it set the price: Here’s the cost; here’s the willingness to pay. What’s the right comparison, in terms of the competition, and then also, the other things that affect fairness in the channel?
You want to take into account what the various competitors are doing, what the early products, like the Fitbit, were and also what might be coming next. How can one then, as has been done with other products in this general class, add to the product line through different colors, different technologies, maybe different levels of service in terms of data feed. So, this is a product where we might start to see that kind of differentiation coming through, too.
Knowledge at Wharton: Why is the message more focused on emotion, rather than on a rational appeal?
Bell: This is a really interesting question. When we discussed in the earlier Coursera segment about the way one communicates, the way one designs a message, and the seven Ms of marketing and communication, one of the key issues around the message is, should the message have a rational appeal? Or should it have an emotional appeal? And of course, it depends on the kind of product.
Emotion is important here, because Nike has this notion that anyone who has a body really is an athlete. We’re all athletes, in some sense. And so, we should be doing the best that we can with our bodies…. Think of the early campaigns of Nike — “Just do it” and “Be like Mike.” It’s very aspirational. It gets you to think about the power of getting in better shape — the way you’re going to feel, the way others are going to perceive you. So, it’s much more important to have that kind of messaging to really resonate with the customers, than a messaging that’s [focused on] count[ing] the number of steps that you’re doing.
This is the technology, and this is how we feel it. I think this is a classic case where the product itself is based on really interesting technology, but the way that you market and communicate it is actually through things that appeal to the heartstrings in terms of the emotion. And of course, that’s going be a much more successful barrier to future entrants in this category than if it were just purely a play based on technology. Because then when the next player comes in with better technology, the point of comparison may be eroded. But it’s probably going to be difficult to come up with a better messaging than “anyone who has a body is an athlete.” I think that’s what’s really key here.