INTERVIEW BY GERALDINE E. WILLIGAN
HARVARD BUSINESS REVIEW | JULY-AUGUST 1992

HBR: Nike transformed the athletic shoe industry with technological innovations, but today many people know the company by its flashy ads and sports celebrities. Is Nike a technology company or a marketing company?
PHIL KNIGHT: I’d answer that question very differently today than I would have ten years ago. For years, we thought of ourselves as a production-oriented company, meaning we put all our emphasis on designing and manufacturing the product. But now we understand that the most important thing we do is market the product. We’ve come around to saying that Nike is a marketing-oriented company, and the product is our most important marketing tool. What I mean is that marketing knits the whole organization together. The design elements and functional characteristics of the product itself are just part of the overall marketing process.

We used to think that everything started in the lab. Now we realize that everything spins off the consumer. And while technology is still important, the consumer has to lead innovation. We have to innovate for a specific reason, and that reason comes from the market. Otherwise, we’ll end up making museum pieces.

HBR: What made you think the product was everything?
KNIGHT: Our success. In the early days, anybody with a glue pot and a pair of scissors could get into the shoe business, so the way to stay ahead was through product innovation. We happened to be great at it. Bill Bowerman, my former track coach at the University of Oregon and cofounder of the company that became Nike, had always customized off-the-shelf shoes for his runners. Over the years, he and some other employees came up with lots of great ideas that we incorporated. One of Bowerman’s more legendary innovations is the Waffle outsole, which he discovered by pouring rubber into a waffle iron. The Waffle Trainer later became the best-selling training shoe in the United States.

We were also good at keeping our manufacturing costs down. The big, established players like Puma and Adidas were still manufacturing in high-wage European countries. But we knew that wages were lower in Asia, and we knew how to get around in that environment, so we funneled all our most promising managers there to supervise production.

HBR: Didn’t you do any marketing?
KNIGHT: Not formally. We just tried to get our shoes on the feet of runners. And we were able to get a lot of great ones under contract—people like Steve Prefontaine and Alberto Salazar—because we spent a lot of time at track events and had relationships with the runners, but mostly because we were doing interesting things with our shoes. Naturally, we thought the world stopped and started in the lab and everything revolved around the product.

HBR: When did your thinking change?
KNIGHT: When the formulas that got Nike up to $1 billion in sales—being good at innovation and production and being able to sign great athletes—stopped working and we faced a series of problems. For one thing, Reebok came out of nowhere to dominate the aerobics market, which we completely miscalculated. We made an aerobics shoe that was functionally superior to Reebok’s, but we missed the styling. Reebok’s shoe was sleek and attractive, while ours was sturdy and clunky. We also decided against using garment leather, as Reebok had done, because it wasn’t durable. By the time we developed a leather that was both strong and soft, Reebok had established a brand, won a huge chunk of sales, and gained the momentum to go right by us.

We were also having management problems at that time because we really hadn’t adjusted to being a big company. And on top of that, we made a disastrous move into casual shoes.

HBR: How did you know that marketing would solve the problems?
KNIGHT: We reasoned it out. The problems forced us to take a hard look at what we were doing, what was going wrong, what we were good at, and where we wanted to go. When we did that, we came to see that focusing solely on the product was a great way for a brand to start, but it just wasn’t enough. We had to fill in the blanks. We had to learn to do well all the things involved in getting to the consumer, starting with understanding who the consumer is and what the brand represents.

HBR: Didn’t Nike understand the consumer right from the start?
KNIGHT: In the early days, when we were just a running shoe company and almost all our employees were runners, we understood the consumer very well. There is no shoe school, so where do you recruit people for a company that develops and markets running shoes? The running track. It made sense, and it worked. We and the consumer were one and the same.

When we started making shoes for basketball, tennis, and football, we did essentially the same thing we had done in running. We got to know the players at the top of the game and did everything we could to understand what they needed, both from a technological and a design perspective. Our engineers and designers spent a lot of time talking to the athletes about what they needed both functionally and aesthetically.

It was effective—to a point. But we were missing something. Despite great products and great ad campaigns, sales just stayed flat.

HBR: Where did your understanding fall short?
KNIGHT: We were missing an immense group. We understood our “core consumers,” the athletes who were performing at the highest level of the sport. We saw them as being at the top of a pyramid, with weekend jocks in the middle of the pyramid, and everybody else who wore athletic shoes at the bottom. Even though about 60% of our product is bought by people who don’t use it for the actual sport, everything we did was aimed at the top. We said, if we get the people at the top, we’ll get the others because they’ll know that the shoe can perform.

But that was an oversimplification. Sure, it’s important to get the top of the pyramid, but you’ve also got to speak to the people all the way down. Just take something simple like the color of the shoe. We used to say we don’t care what the color is. If a top player like Michael Jordan liked some kind of yellow and orange jobbie, that’s what we made—even if nobody else really wanted yellow and orange. One of our great racing shoes, the Sock Racer, failed for exactly that reason: we made it bright bumble-bee yellow, and it turned everybody off.

HBR: What’s different now?
KNIGHT: Whether you’re talking about the core consumer or the person on the street, the principle is the same: you have to come up with what the consumer wants, and you need a vehicle to understand it. To understand the rest of the pyramid, we do a lot of work at the grass-roots level. We go to amateur sports events and spend time at gyms and tennis courts talking to people.

We make sure that the product is the same functionally whether it’s for Michael Jordan or Joe American Public. We don’t just say Michael Jordan is going to wear it so therefore Joe American Public is going to wear it. We have people who tell us what colors are going to be in for 1993, for instance, and we incorporate them.

Beyond that, we do some fairly typical kinds of market research, but lots of it—spending time in stores and watching what happens across the counter, getting reports from dealers, doing focus groups, tracking responses to our ads. We just sort of factor all that information into the computer between the ears and come up with conclusions.

HBR: What did you learn from the casual shoe failure?
KNIGHT: Understanding the consumer is just part of good marketing. You also have to understand the brand. That’s really the lesson we learned from casual shoes. That whole experience forced us to define what the Nike brand really meant, and it taught us the importance of focus. Without focus, the whole brand is at risk. Just because you have the best athletes in the world and a stripe everybody recognizes doesn’t mean you can take that trademark to the ends of the earth. The ends of the earth might be right off that ledge!

Ultimately, we determined that we wanted Nike to be the world’s best sports and fitness company and the Nike brand to represent sports and fitness activities. Once you say that, you have focus, and you can automatically rule out certain options. You don’t end up doing loafers and wingtips and sponsoring the next Rolling Stones world tour. And you don’t do casual shoes under that brand.

HBR: Can you expand a brand without losing focus?
KNIGHT: To a point. A brand is something that has a clear-cut identity among consumers, which a company creates by sending out a clear, consistent message over a period of years until it achieves a critical mass of marketing. The thing is, once you hit the critical mass, you can’t push it much further. Otherwise the meaning gets fuzzy and confused, and before long, the brand is on the way out.

Look at the Nike brand. From the start, everybody understood that Nike was a running shoe company, and the brand stood for excellence in track and field. It was a very clear message, and Nike was very successful. But casual shoes sent a different message. People got confused, and Nike began to lose its magic. Retailers were unenthusiastic, athletes were looking at the alternatives, and sales slowed. So not only was the casual shoe effort a failure, but it was diluting our trademark and hurting us in running.

HBR: How, then, has Nike been able to grow so much?
KNIGHT: By breaking things into digestible chunks and creating separate brands or sub-brands to represent them. If you have something that’s working, you can try to expand it, but first you have to ask, does this expansion dilute the big effort? Have I taken the thing too far? When you come to the conclusion that you have—through conversations with athletes, your own judgment, what’s happening in retail stores or focus groups—then you have to create another category.

HBR: How did you make that discovery?
KNIGHT: Accidentally. I can’t say we had a really smart strategy going forward. We had a strategy, and when it didn’t work, we went back and regrouped until finally we hit on something. What we hit on in the mid-1980s was the Air Jordan basketball shoe. Its success showed us that slicing things up into digestible chunks was the wave of the future.

The Air Jordan project was the result of a concerted effort to shake things up. With sales stagnating, we knew we had to do more than produce another great Nike running shoe. So we created a whole new segment within Nike focused on basketball, and we borrowed the air-cushion technology we had used in running shoes to make an air-cushioned basketball shoe.

Basketball, unlike casual shoes, was all about performance, so it fit under the Nike umbrella. And the shoe itself was terrific. It was so colorful that the NBA banned it—which was great! We actually welcome the kind of publicity that pits us against the establishment, as long as we know we’re on the right side of the issue. Michael Jordan wore the shoes despite being threatened with fines, and, of course, he played like no one has ever played before. It was everything you could ask for, and sales just took off.

KNIGHT: By the end of the 1980s, McEnroe was ready to hand over the angry young man mantle to become more of a tennis elder statesman. And he wanted his Nike image to reflect his new attitude. This coincided perfectly with the emergence of Andre Agassi. When I first saw Andre he was a 15-year-old junior tennis star at Nick Bollettieri’s Tennis Academy in Bradenton, Florida. Even then, image was everything to Andre. He had long hair on one side of his head and no hair on the other. His approach to the game was as it is now—“hit the ball as loud as you can.” And he was the best player around. From a marketing standpoint, Andre was the perfect vehicle for Nike. Like us, he was anti-tennis establishment and he was different.

To satisfy McEnroe’s need for an image change—and to appeal to the huge market of older tennis players who don’t want to look like Andre—we segmented the Nike tennis products. Andre became the vehicle for Challenge Court, the “rock and roll tennis” part of the line, while McEnroe and David Wheaton launched Supreme Court, the more subdued part of the line. For as bold and irreverent as Challenge Court is, Supreme Court is tuxedo tennis. It’s changed my job from finding players who represent Nike tennis to finding players who represent specific roles within Nike tennis.

We use the players not only to market and design our products but also to set a positive example for the sport. Andre Agassi, for example, has been integral in attracting a lot of young players to the game—and a lot of young players to Nike. Like Michael Jordan in basketball, Andre transcends the sport of tennis. He’s got 7,000 members in his fan club—and not all of them are 14-year-old girls.

HBR: We’ve been talking about brand building. Isn’t TV advertising a big part of that?
KNIGHT: Today it’s a very important part. In fact, when people talk about Nike, the TV ads are practically all they want to talk about. But we became a billion dollar company without television. For years, we just got the shoes out there on the athletes and ran a limited number of print ads in specialized magazines like Runner’s World. We didn’t complete the advertising spectrum until 1987, when we used TV for the first time.

Our first TV campaign was for Visible Air, which was a line of shoes with transparent material along the midsole so consumers could see the air-cushioning technology. Having gone through the painful experience of laying people off and cutting overhead in the mid-1980s, we wanted the message about our new line of shoes to hit with a punch, and that really dictated TV advertising.

The Visible Air launch was a critical moment for a couple of reasons. Until then, we really didn’t know if we could be a big company and still have people work closely together. Visible Air was a hugely complex product whose components were made in three different countries, and nobody knew if it would come together. Production, marketing, and sales were all fighting with each other, and we were using TV advertising for the first time. There was tension all the way around.

We launched the product with the Revolution campaign, using the Beatles song. We wanted to communicate not just a radical departure in shoes but a revolution in the way Americans felt about fitness, exercise, and wellness. The ads were a tremendous hit, and Nike Air became the standard for the industry immediately thereafter.

HBR: Did TV change the character or image your company projected?
KNIGHT: Not really, because our basic beliefs about advertising didn’t change. We’ve always believed that to succeed with the consumer, you have to wake him up. He’s not going to walk in and buy the same stuff he always has or listen to the same thing he’s always heard. There are 50 different competitors in the athletic shoe business. If you do the same thing you’ve done before or that somebody else is doing, you won’t last more than one or two seasons.

And from the beginning, we’ve tried to create an emotional tie with the consumer. Why do people get married—or do anything? Because of emotional ties. That’s what builds long-term relationships with the consumer, and that’s what our campaigns are about. That approach distinguishes us from a lot of other companies, including Reebok. Their campaigns aren’t always bad—their Air-Out Jordan campaign last year worked well—but it’s very transaction oriented. Our advertising tries to link consumers to the Nike brand through the emotions of sports and fitness. We show competition, determination, achievement, fun, and even the spiritual rewards of participating in those activities.

HBR: How do you wake up the consumer?
KNIGHT: By doing new things. Innovation is part of our heritage, but it also happens to be good marketing. You can probably trace it back to the 1960s, when we were selling $100,000 a year instead of $1 billion. We saw the company as having a great competitive advantage because we had a great product at a great price. And it worked a little bit. But what really made things pop was when we innovated with the product. That’s when we said, “aha!”

We’d have a hard time stopping innovation in the product area, but we’ve consciously tried to be innovative in all areas of the business, and right now that means advertising. We need a way of making sure people hear our message through all the clutter. In 24 words or less, that means innovative advertising—but innovative in a way that captures the athletes’ true nature. Bo Jackson and Michael Jordan stand for different things. Characterizing them accurately and tying them to products the athletes really use can be very powerful.

Of course, trying to wake people up can be risky, especially since we generally don’t pre-test our ads. We test the concepts beforehand, but we believe that the only way to know if an ad works is to run it and gauge the response. So we get nervous when we’re ready to go to press, and then we wait and see if the phone rings. If the phone rings, that’s usually good. Although some of the calls will be negative, complaints tend to be in the great minority. Besides, we’re always prepared for some criticism because somebody will be offended no matter what we do. We don’t let that hold us back. Our basic philosophy is the same throughout the business: take a chance and learn from it.

HBR: How do Nike’s TV ads create emotional ties with the buying public?
KNIGHT: You have to be creative, but what really matters in the long run is that the message means something. That’s why you have to start with a good product. You can’t create an emotional tie to a bad product because it’s not honest. It doesn’t have any meaning, and people will find that out eventually. You have to convey what the company is really all about, what it is that Nike is really trying to do.

People at Nike believe in the power of emotion because we feel it ourselves. A while ago there was a book published about Nike, and one person who reviewed it said he was amazed that a group of intelligent, talented people could exert so much passion, imagination, and sweat over pieces of plastic and rubber. To me, it’s amazing that anyone would think it’s amazing. I can’t say I would be that passionate about cigarettes and beer, but that’s why I’m not doing cigarettes and beer.

HBR: What’s the advantage of using famous athletes in your advertising?
KNIGHT: It saves us a lot of time. Sports is at the heart of American culture, so a lot of emotion already exists around it. Emotions are always hard to explain, but there’s something inspirational about watching athletes push the limits of performance. You can’t explain much in 60 seconds, but when you show Michael Jordan, you don’t have to. People already know a lot about him. It’s that simple.

The trick is to get athletes who not only can win but can stir up emotion. We want someone the public is going to love or hate, not just the leading scorer. Jack Nicklaus was a better golfer than Arnold Palmer, but Palmer was the better endorsement because of his personality.

To create a lasting emotional tie with consumers, we use the athletes repeatedly throughout their careers and present them as whole people. So consumers feel that they know them. It’s not just Charles Barkley saying buy Nike shoes, it’s seeing who Charles Barkley is—and knowing that he’s going to punch you in the nose. We take the time to understand our athletes, and we have to build long-term relationships with them. Those relationships go beyond any financial transactions. John McEnroe and Joan Benoit wear our shoes everyday, but it’s not the contract. We like them and they like us. We win their hearts as well as their feet.