Building a direct-to-consumer experiment inside a huge, global company like Nike can be tricky. You want to align with the broader goals of the organisation but remain nimble and creative. Someone who knows all about the challenges of striking that balance is former Nike executive David Cobban, who incubated and developed the Nike Adventure Club, a monthly shoe subscription service for children, which allowed parents to swap out their kids’ old trainers for new ones.
As the D2C Summit drew to a close, Cobban joined Robbie Baxter, author, speaker, trainer and advisor, Peninsula Strategies, to discus his pioneering work at the shoe giant as well as his latest venture UNBRKBLE, which develops and delivers consumer-centric tools and strategies for companies to deepen their relationship with their customers.
The Nike Adventure Club journey started when former CEO Mark Parker asked his leadership group to explore ways of doubling the value of the company and whether that could include business model or service innovations. At the time Cobban was part of the company’s sustainability team, tapping into the access over ownership trend and looking at how, instead of buying a shoe, a customer could swap an old trainer for a new one, sending the used shoe back to Nike to be recycled.
“Growth and sustainability are intertwined,” said Cobban. “Ultimately we were all about new economic oxygen. The goal was to bring in new revenue growth and to do that without totally being bound to physical goods. Nike sells 800 million pairs of sneakers a year so growing without the need to have more physical stuff in a landfill or the ocean is very important.
“What was also very important for us was the customer priority because, as we know, customers are beginning to get more and more interested in sustainable practises.
“Making it easy for people to return shoes to Nike – and we have this facility called Nike Grind which allowed us to recycle those shoes and grind them into sports courts and playgrounds – was a real bonus and benefit to the customer and the reason why they would stay loyal to us.”
A sense of belonging
Cobban was tasked with testing out subscriptions and seeing whether it was a valid business model that could be added into the Nike membership approach.
“Nike, over the last three or four years, have switched from a being brand that does membership to being a membership brand,” he pointed out. “As brands we are always in service of customers. In our case, by listening to people who want to run faster or jump further, you begin to understand they have more than just product needs, they have service needs and they have identity needs.
“They want to hear content from other athletes like them or someone who inspires them. And in doing that you realise that people want to become a member of that brand.
“So on nike.com you will see there are the words ‘become a member’ and there are benefits to that, like access to different sorts of products. Nike has over 200 million members and they have membership IDs for those members. They haven’t translated it fully to subscriptions yet and that is why we were doing experiments.”
According to Cobban, the biggest benefit of having a business incubator within Nike (called Valiant Labs) is the autonomy it has and the fact that it can adopt a lean innovation practice. Moving at great speed, the incubator can experiment without the attention that comes with being part of a global brand, starting small and adjusting prices when necessary. To stay below the radar Cobban and his team operated under a ‘burner brand’ called Easy Kicks.
With things in place, Valiant Labs began a process of de-risking. “You have a huge bucket of unknowns and you prioritise them,” said Cobban. “And each time you learn about that unknown you can tick it off. Over time you can go back to your investors and say – look we had 100 unknowns and now we only have 20 or 10 unknowns. You can create confidence that you will get that return on your investment.”
From running kit to kids
Initially the focus of the experiments carried out by Cobban was the running community – the belief being that, with athletes, there’s a very high turnover of trainers. It soon became clear another group was burning through shoes even quicker.
“In the early stages we were doing interviews with runners and those who were parents said that a subscription for shoes would be brilliant for their kids because they really go through shoes,” said Coban. “Not only are they wrecking them or their tastes change over time, but they grow out of them – the obsolescence is built in. So we pivoted at that point to start thinking about kids.”
After carrying out interviews with parents and children, a small website was launched laying out the subscription offer – for US$20 a month you could swap shoes whenever you want. Easy Kicks got 50 people to sign up and join the programme for three months, before interviewing them and getting feedback on what needed to improve.
“You are not making any money at this point but you are buying the learnings,” said Cobban. “Nike had been asking the question about growth and efficiency which, as a large organisation, is everything that you are driving for.
“But for a start-up or an incubation in an organisation that is not the question. The question is simply – are we solving a problem for the customer and can we build a solution to that? Can we get line of sight to making money on it and if you can answer those three questions then you might say, yes, it is worth it for the company.”
The next level
The next challenge facing Cobban was going from 50 to 1,000 members. “You have moved away from the friends and family that you have messaged and said you should join this, it’s fun,” he pointed out. “You have to get out there and recruit and try and get to those 1,000 true fans, which is the next main milestone.
“We started using Stripe as the payment processor and that was really useful because it allowed us to look at data analytics of the behaviours of our customers. Also Shopify started to get more sophisticated in the reporting that we were getting from them. We used them as our order management system and were able to have an inventory that we could match to what was in the warehouse.”
Nike, over the last three or four years, have switched from a being brand that does membership to being a membership brand.David Cobban
The biggest obstacle Valiant Labs faced was issues surrounding trust. With few people knowing the Easy Kicks brand, customers weren’t sure if the offer of US$20 for Nike shoes was too good to be true.
“The people who didn’t convert said they didn’t believe it was real,” said Cobban. “That’s when we added Easy Kicks in with Nike and we put on the website that Nike is our official supplier. That triggered a huge increase in our acquisition because people saw Nike was backing this and that this must be a legitimate business. Then we blew past about 3,000 members.”
To get the right pricing structure the business incubator carried out a “lemonade stand test”.
“At US$20 a month, swap when you want, people became addicted to it and they started to swap quicker and quicker,” Cobban explained. “We went into a mall for the weekend and put three different pricing models in front of people and signed people up live. After 10 hours of pitching in a mall you really get good at it. It’s very good way to find your value proposition.
“That led us to time-based subscriptions – four shoes a year, six shoes a year, 12 shoes a year and different pricing for those. That also helped us understand how to deliver on the final part of the three questions which is how do you make money because we could be predictable at that point.
“There wasn’t any variability in the choices the parents had to make other than the three plans and that really stabilised the business and gave Nike enough confidence to say let’s change it from Easy Kicks and relaunch it as Nike Adventure Club.”
A big part of the success of The Adventure Club was the content that went with the subscription service. “One of the reasons we changed the name was because we moved from being just a convenience-based product replenishment business to becoming a content business,” Cobban pointed out. “When we sent out the box with shoes there was like an adventure kit and kids could have a journal following the physical adventures they were doing. Covid then accelerated that even more with people being stuck at home so Nike Adventure Club launched as this content-based business.
“We moved from physical adventure kits to digital adventure kits so we would send out weekly emails with challenges for kids to do. And when social justice happened with George Floyd we got involved in that and looked at how parents should talk to their kids about race. So in addition to solving a shoe problem, people were getting all these amazing things and churn just dropped.”
Pulling the plug
At the end of 2020 Nike decided to discontinue the Adventure Club. Cobban pointed out that its axing did not reflect the popularity of the subscription service.
“What it was really about was prioritisation. There is a challenge around being part of this huge tanker and you are in this little speedboat driving along the side, steering weird courses while the tanker moves along.
“And things shift. Covid brought about a huge digital acceleration, so because of those changes in the environment the tanker has to make big decisions and this is part of the reason why we took down Nike Adventure Club. The company had to focus on some big priorities to make sure that people that just buy in stores were now buying online.
“One of the things we did was document the whole story of the three years of Easy Kicks and the Adventure Club and a lot of those learnings are already starting to be imbedded within the organisation. So if you think about an innovation function, which is what we were, we can pat ourselves on the back because we validated that subscriptions were a good business model for Nike. Subscriptions will undoubtedly come back into the eco-system.”
Breaking new ground
Having co-founded UNBRKBLE with Matt Fiedler (co-founder of record-of-the-month club Vinyl Me, Please), Cobban is now in a speedboat that doesn’t have to travel in the shadow of a tanker.
“When you are an entrepreneur you are not beholden to any time scale other than your own passions,” he said. “So instead of just being on a treadwheel investing in more growth and more marketing, you can stop and say: The 1,000 customers I have now, how do I increase the depth of connection with those people?
“You have to take the big decision to stop investing and stop growing in order to see whether you really have a viable business here.”