Great case summary & great discussion!
@michaeljon 's comments about the Byron Sharp/EBI (Ehrenberg-Bass Institute) view is particularly timely given then brouhaha around Nike’s recent performance & change in CEO (and, presumably, strategy).
The Brooks case study is a bit of a narrative violation in that sense. Nike’s recent failings[1] are often described as a result of abandoning the EBI playbook[2] but the Brooks example seems to go even further (explicitly focusing on loyalty from repeat customers, not penetration targeting light buyers) doing what the EBI warns against, and it turns out to be a fantastic case of niche positioning as core business strategy in the process.
But why?
I’ve been working on my own positioning framework over the last couple of years which attempts to synthesize seemingly incompatible views of positioning, so below are my notes on the case (also to share on LI) that attempt to explain a bit of the why…
For background, my framework derives positioning choices from the way we fundamentally attend to the world & boils down to: prove new value on a wave; find unique value in a niche; own associated value as a brand; and ride a successful position when you get the first three right 
The core positioning tension, however, is what I describe as niche vs reach. You usually need some niche angle to get into a market (i.e., market segmentation), but the now-orthodox view of ‘how brands grow’ is simply by selling to more people (i.e., market penetration reaching light buyers and ignoring loyalty) and the HBG folks will be very quick to tell you the “STP” approach of segment, target, and position is wrong and unscientific and bad and backwards, you big dummy.
But Brooks did STP and it worked. Here’s my take on why…
First, let’s note Brooks had already tried both niche & reach strategies. They’d apparently had decades of swinging back and forth between focus and success around running (1970s), diversifying trying to mitigate risk (!) and reach more buyers in more segments and failing (1980s), refocusing on running (1990s), diversifying & failing again (2000-2001), before finally getting their ducks in a row with Weber and succeeding yet again with running.
“Do what worked in the past” is, I guess, obvious, but the big question is why the Nike et al playbook of expansion didn’t work. If you take the EBI view that brand is about memory associations, were the “Brooks = running brand” memory associations just too hard for them to shake off when they tried to diversify? Is that why no one wanted Brooks baseball shoes, for example? Was their brand actually a box that rewarded them when they stayed inside it but punished them if they strayed outside?
Hard to say! In any case, Weber puts them back in their brand box, pivoting them to a “running-only brand” which means “Real performance for real runners.” Why does he make that bet?
I like to think about positioning both on the x-axis as change over time and_the y-axis of deep dives at a particular point. Both were at play here, with the opportunity to capture new value in the market and the chance to focus solely on a heavy category buyer.
- New value on a wave: Well, rediscovered value on a wave, with “running was once again exploding” and that wave being missed by the major brands. This creates space for the proverbial ‘10x’ solution in a niche too small for the major brands to care about.
- Unique value in a niche: Cedric notes their ‘frequent runner’ ICP buys 2.6 pairs of shoes per year (!) and they could tailor their product development to suit these buyers specifically, AND that product development was noted and appreciated by the buyer (The ‘ahh’ factor — "People put on the shoe, stand up from the stool, and just say, ‘Ahh.’”).
Ok, so that’s great — there’s market momentum and a particular buyer/use case to focus on.
But why does this actually work when STP is supposed to be bad and not how brands grow?
This is the part most people IMO don’t understand about niche positioning: Niche positioning only really works if it unlocks niche distribution.
The reason the classic STP approach gets criticized is because it doesn’t make much sense in mass advertising contexts. The EBI have a textbook that discusses Burger King vs. McDonalds. BK tries to target a younger male segment through mass advertising to build loyalty; MD tries to serve anyone and everyone. But if you’re only going to target, say, 1/4 of the market, your loyalty/efficiency has to be 4x as good just to get you back to even with a mass appeal approach. The research (supposedly) says that kind of loyalty is a myth anyway, so the result is you sell less and your brand doesn’t grow. MD is therefore the bigger brand & BK isn’t. Ergo, niche positioning = bad.
But in Brooks’ case, their focus meant they could unlock niche distribution and niche marketing — speciality running stores for distribution in particular and targeted marketing towards their ICP at ICP-specific events and locations, as the case study says. They could, therefore, compete on their own terms.
This actually does work in the Byron Sharp/EBI sense too. It creates tight mental & physical availability with a target buyer. It might be that loyalty is still a function of penetration (as the EBI would say), but here they’ve achieved “niche reach,” if I can put it that way, not diluted reach, which is what Burger King ended up with.
I also love the fact this niche focus helps them both (a) focus on higher-cost, higher-margin products and (b) design products for and with their target audience, resulting in the best-selling “Adrenaline GTS [that] would save the company and fund investment in growth for the next decade,” per Weber in the case study.
That’s a fantastic niche flywheel of targeted positioning:
- Unlocking niche distribution
- Enabling in a tighter product development feedback loop
- Resulting in a best-selling product
- Positioning the company for an acquisition and future success.
In that sense, they finally owned their running brand association, and (for once) stuck to it, riding their winning positioning after their acquisition and not trying to do mindless diversification again.
All of which is amazing, especially that they land at Berkshire Hathaway.
What’s interesting, though, is that when they were acquired by Russell, it was for $115 million, as the case says, with sales in the prior year (per the Seattle Times) of $135 million, “$43 million of that in shoes at specialty running stores in the U.S.”.
That’s a very nice business. For context, however, in 2004 Nike’s market cap was $24B.
And therein lies the niche vs. reach rub.
The niche positioning playbook worked for Brooks to build a highly profitable small brand, and that’s great. When they went for reach, they failed; when they focused, they succeeded.
Nike, as a big brand, has to do reach, and has to do it well. When they started going for loyalty instead — direct sales to “members” in particular — they faltered.
Different aspirations, different brands, different playbooks.
All of which seems very reasonable, except for the fact that the EBI has been so successful evangelizing their reach playbook that many marketers would think the Brooks playbook was wrong and they should have kept doing what they were failing at — going for mass reach.
But niche positioning clearly can be a successful play, provided there is a meaningful niche to serve — not a wishful-thinking demographic niche, but a genuine market niche with its own product preferences, distribution channels, and heavy buyers. And if that’s the brand box you’re in, the Brooks case suggests you really should own it.
[1] E.g., Nike moving away from their successful, long-term brand + wholesale strategy to a short-term, DTC-style model, which worked brilliantly until it didn’t (per Bloomberg https://archive.is/lvZHp).
[2] A former brand director at Nike wrote that “Obviously, the former [Nike] CMO had decided to ignore “How Brands Grow” by Byron Sharp […] Otherwise, he would have known that: 1) if you focus on existing consumers, you won’t grow. […]. 2) Loyalty is not a growth driver. 3) Loyalty is a function of penetration […] 4) If you try to grow only loyalty (and LTV) of existing consumers (spending an enormous amount of money and time to get something that is very difficult and expensive to achieve), you don’t grow penetration and market share (and therefore revenues). As simple as that…” Nike: An Epic Saga of Value Destruction
