3-2-1nsight: Don't Go Chasing Waterfalls
Knowing when and how to chase the growth that's there for you
Welcome to 3-2-1nsight from Marketing Sciences.
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This will be my last note for the year but wanted to make sure we look at the greatest takeaway of 2021 as we head into 2022. We spent so much of Q4 looking at retail and consumers, but I wanted to take time today to help identify any company’s greatest growth hack, their product roadmap. As we examine the missteps that so many companies made as we transitioned from “stay at home” to re-opening, to our most likely hybrid future. We saw so many companies over-invest to chase growth while underinvesting in real opportunities. Use this note as something to think about as we head into 2022. Happy Holidays and see you in 2022.
And as well, I feature a couple of great things I’ve read or started reading this week. And as always, download my 130 slide consumer research deck looking at the future consumer in 2021, It’s a ton of primary research, and you can download it for free.
3 Stories
All about that viral Peloton ad responding to Sex and the City reboot death - CNET
On December 9th, Sex in the City returned to HBO, relaunching the series at the expense of Peloton. **Spoiler alert** Mr. Big is on his Peloton and dies after a Jess King class (which we’ve all figuratively felt) which then caused the stock to plummet. Seeing the success that Mr. Ryan Reynolds could generate, they released a fast response to the HBO series, hoping that it would help the stock recover. It did for a few hours, only to call again after Christopher North, who plays Mr. Big on the series, was accused of sexual harassment, causing Peloton to pull the ad. To date, $PTON is still lower than what the stock was trading at before the HBO premiere.
Lululemon earnings top estimates, but shares fall after retailer cuts forecast for Mirror sales - CNBC
Lululemon recently reported their 3rd quarter results, and while everything else in the company was humming at all cylinders, its recent acquisition of connected fitness device, Mirror, was not. Instead, Mirror’s sales forecast dropped to between $125 million and $130 million for the 2021 fiscal year, compared to its previous projection of between $250 million and $275 million. That represents a 30% drop from what the company generated in 2020 ($170M), capturing the more significant problem of so many connected fitness devices; what are they there for, and what are they supposed to do? The connected fitness problem isn’t unique to Lululemon, as Peloton, who reported in November, missed its revenue goals and recorded $376 million in net losses. Lululemon has outright said that it has high hopes for the technology and device and reiterated they would not be chasing growth for growth’s sake, making Lululemon an even more attractive company to hold in your portfolio.
Nike acquires NFT collectibles studio RTFKT | TechCrunch
Nike announced that they recently purchased an NFT studio to help them fulfill their plans for the metaverse. As John Donahoe continues to accelerate Nike’s shift to being a digital destination for consumers, Nike’s accelerating that with this acquisition to be a destination for creators as they move forward. Donahoe’s masterfully positioned Nike to take advantage of the DTC through their Consumer Director Offense initiative. The pandemic accelerated those efforts, and as they foray into the Metaverse, they continue to expand their capacity to own the customer relationship. Rather than settling on their laurels and staying satisfied with their DTC efforts, Nike continues to grow to where their consumers will head to, where their future consumers want to go with the features found within their shoes, and now loyalty in their digital ecosystem.
2 Takeaways:
The pandemic fueled connected fitness future was not a guarantee.
When Peloton went public in 2019, many doubted whether it could live up to its $4B valuation. A fair question at the time as boutique gyms, yoga studios, Rumble Boxing, Soul Cycle, and Equinox was more top of mind than ever before. The industrial sweat complex made sure to engrain itself in creating a social status of those who were fit. Elite level fitness was a part of the standard uniform, as was Rimowa luggage, APL shoes, and Chanel lipstick. The privilege of fitness often made it hard for Peloton to understand its value proposition and audience, which caused the 2019 holiday commercial snafu. But that all changed once the pandemic hit, and valuation skyrocketed to $48 billion as all the former patrons of fitness boutiques, and gyms purchased a connected fitness device.
Companies all over, such as Lululemon, saw devices like Mirror as an opportunity to help drive more apparel sales because of the “stay at home” trend that caused Peloton to 12x its market cap. But as the world reopened, we’re seeing that although there hasn’t been a massive whiplash back to in-person exercise or fitness. So many of the connected fitness companies and businesses didn’t realize that the pandemic was an event that forced a temporary behavior change. And that their solution didn’t address a deep-rooted consumer need that would allow them to persist as telehealth has. Instead, the prospects for these companies had lowered dramatically because few understood what the new normal was, especially when so many of these companies spent the giant windfall caused by the pandemic to realize that they could not chase growth. After all, we do not know if the growth and opportunity during the pandemic can persist or if it was just a byproduct. Companies that spent so much of the pandemic only improving their core product offering to chase excessive growth rather than expanding their product roadmap now find themselves scrambling to find a reason why they’re relevant to their customer. By not focusing on their why and just reacting to a temporary change, many connected fitness companies now have to answer the thorny question of how we grow as the pandemic transitions to an endemic.
It’s never been more critical to understand your audience.
The impact that TV has on Peloton’s audience is outsized. Two weeks ago, their stock tanked after a surprise plot twist (which they took part in) from Sex in the City’s new season on HBO. Rewind to 2019, when they released a holiday spot that faced a considerable backlash and caused their stock to tumble. Peloton took away the wrong lessons from 2019, thinking they needed to release a quick response ad (that was more for marketing people who love talking about marketing) to answer the crisis. Again, that backfired as well. They pulled their response ad by the end of the week due to accusations regarding Christopher North. The result is that their stock is still tumbling; they’re still in free fall as a company. Their audience is highly television attuned, and taking PR and media for granted rather than considering their audience’s habits and behaviors has only added to their problems.
Nike has always been a product company first and a fantastic brand company second, and they’ve never forgotten that priority. Focusing on their product roadmap gave their brand the credibility to own mind share in everything from the NBA, sports, athletics to self-improvement. Nike has conquered the world of physical products and retail in a way that no other brand has been able to. As they continue to further transition into owning the customer relationship and a stronger push into digital, it only makes sense that they continue to innovate in the digital space.
In 2019, Nike saw the opportunity to tie the blockchain to its sneakers with Cryptokicks, a simple and intuitive digital extension. It's not enough to just own the shoe; it matters that you know you own what shoe. That idea didn’t seem like it would matter in 2019, and it still doesn’t matter much in 2021, but hence why it's essential to understand your product roadmap because that informs you who your audience should be. That allows you to move forward with your plans rather than react to market opportunities, conditions, or competition.
1nsight
Moving forward to your product roadmap is your greatest strength.
Many companies are playing some kind of game with current financial conditions, trying to chase growth. Many pandemic fueled darlings that saw giant market caps occur because of their ability to capitalize on a massive sum of customers and consumers forced to stay at home have seen their market caps fall back to earth. Still, they continue to grow the most important metrics, revenue, and EBITDA. While Wallstreet slashed their multiple because the market changed, so many of these companies continued to expand their fundamentals so that when the market decides to re-evaluate what winning or losing looks like, these businesses will continue to be attractive.
As we transition to a “hybrid world,” the companies that have a strong product roadmap will continue to grow and lap their competition, as a product roadmap allows you to strategically not box yourself in to chase after good growth opportunities. A strong product roadmap enables you to understand tradeoffs that much of your competition may not yet realize while also allowing you to manage your consumers’ expectations better. Capitalizing on opportunities that make sense for your future customer while satisfying your present customer is the key to achieving the most critical metric for any business, retention. Nike’s foray into the Metaverse comes at a cost, as it may distract them from their IRL shoes, despite new competitors coming at them every day like All Birds and ON Running. But they’re able to make this choice and choose this opportunity because they always knew that they wanted their product presence to exist in all worlds and their brand to be intrinsic to all generations.
Customers will always stay with a business as long as they keep them happy and make them lick at their lips for what’s coming next. Tesla is the master at this. The first automaker went directly to their consumer and received a $518 million loan. Remember, after announcing the Model 3, over 518K future customers paid the $1000 preorder price that also ensured Tesla $21.7B in revenue before they ever released a single Model 3. They continue executing this playbook by creating a car that consistently meets their customer’s expectations and constantly tease a future experience that is consistently years late but always financed by prospective customers. Despite always being late, it doesn’t matter as Tesla continues to have high retention for any eclectic vehicle buyer. Tesla uses its product roadmap as a strategic advantage to maintain and ensure high retention.
As you continue to think about your roadmap as a weapon rather than just a talking point, it allows you to have the proper discussions regarding the tradeoffs you’re willing to make. Are you ready to lose some customers to gain new customers? Can you allow some present customers to be unsatisfied at the cost of going after growth that your competition can’t easily access? The moment you’re able to have these conversations, you’ll realize that you’re at the point where your company is on the cusp of planting a large moat for itself while your competitors scramble to chase after your crumbs.
When we compare the present fortune of Peloton, we can see that by not having a proper product roadmap, they’re now at the whims of PR and external factors that they cannot control. By not teasing their consumers about their brand’s future and why their consumers should stay with them, they are now susceptible to the external fluctuation of media, personalities, and press. As they have nothing to show, talk, or express when these snafus happen, which forces them to react to the present commentary rather than steer it towards the future and what they’re trying to build.
Currently, Peloton sees a trend of fewer rides, lowering revenue, supply chain issues, and a large audience. Peloton has made it harder on themselves to recognize who they’re trying to please, how, and why. By chasing the growth available to them in 2020 at the cost of not solidifying their product roadmap, they may have acquired too many of the wrong consumers for them to grow back into that $48B market cap. If they had their product roadmap figured out in 2020, they would’ve been able to attract consumers they want that would help them get to that $48B, rather than now hope and pray that not another HBO character dies after a Peloton ride. Though, to be fair, I almost always feel like I’m dead after an Alex Toussaint class.