How Nike Could Beat Peloton at Its Own Game
The apparel giant has two big advantages over its digital fitness rivals: a massive product catalog and access to the world’s best athletes
From my first pair of Jordans to my favorite golf shirts, I’ve always worn Nike. While I know the gear doesn’t actually make me a better athlete, it always makes me feel like a better athlete.
Nike has a legion of devout customers just like me: professional and amateur athletes who draw inspiration from its ads to go back outside and get another hundred shots up, stalk the aisles of Niketown for the perfect training ensemble, and religiously sport its gear on the court.
In 2006, Nike created a membership program to reward and encourage this brand loyalty. Membership in the NikePlus program, which now has more than 170 million members, is free and includes personalized product recommendations, free shipping, and other perks. While rewarding loyalty is one side of the membership, the other side is cultivating it. To increase customer loyalty, Nike’s overarching goal is to deliver personalization at scale. Simply put, Nike may have a legion of loyal customers, but if the company knows nothing about them and can’t offer better experiences than traditional competitors and DTC upstarts, how long will those customers remain loyal?
At the core of this strategy are the brand’s apps, including the Nike Training Club app, which provides workouts across a wide range of disciplines. Nike Training Club in particular is Nike’s wedge into the digital fitness market, which has gotten crowded lately.
By giving the app away for free, Nike is betting that the downstream benefits will outweigh the subscription revenue it’s forgoing.
In its latest earnings report, fitness startup Peloton reported 210% growth in paid digital subscriptions. (Last December, Peloton shrewdly lowered the price of its digital app to help expand its consumer base.) In June, Lululemon announced the acquisition of home exercise startup Mirror in an effort to create an integrated home fitness and commerce experience among the affluent. And last month, Apple announced Fitness+, offering home workouts for $9.99 per month and offering it in the company’s Premier Apple One bundle.
Nike’s strategy with Nike Training Club differs widely from these competitors because it’s approaching it from a different angle. Rather than monetize through subscription revenue, Nike is making the app free in hopes that it will help drive merchandise purchases. Here’s how Nike could leverage its strengths to build an unassailable position in digital fitness and drive more sales.
Lure customers with free workouts
At the beginning of the year, Nike Training Club ran on a freemium strategy: Users could access a small batch of workouts for free, with the ability to upgrade to the premium plan for $14.99 per month.
After the coronavirus forced people indoors, Nike decided to give away the app’s premium section for free, a move the company is holding in perpetuity. This differs considerably from competitors like Peloton, Mirror, and Apple Fitness+, which monetize through subscription revenue. Given Nike’s goals, the move makes perfect sense.
Traditionally, Nike’s had little visibility into what its customers actually do in its gear. Nike Training Club can provide the company with data about users’ workout habits, which it can use to power a personalized commerce experience. By giving the app away for free, Nike is betting that the downstream benefits will outweigh the subscription revenue it’s forgoing: By tracking members’ fitness habits more closely, Nike will improve its ability to recommend the right product at the right time, increasing the average revenue per member.
With a deeper catalog than any of its digital fitness competitors, Nike could build a true “Stitch Fix for fitness” offering.
This strategy means Nike needs to nail its digital fitness product. To offer personalization at scale, Nike needs to learn about its users, and to do that, Nike needs them to actually use its apps. The more workouts a member does on Nike Training Club, the more context Nike has to recommend the right products, which it can do natively within the app. Given the endless list of competitors, that means Nike needs to deliver a seriously compelling product.
Luckily, it has two tools at its disposal that are uniquely Nike: a massive product catalog and partnerships with some of the best athletes in the world.
Sign up for the workouts, stay for the sneakers
So, what does a personalized commerce experience entail? At the very least, Nike needs to offer the ability to buy products from within the Nike Training Club app, which it’s currently doing through a dedicated tab that can accessed from anywhere within the app.
Heidi O’Neil, president of consumer and marketplaces at Nike, spoke with Modern Retail in May about what’s been working for the brand so far:
Something that’s definitely working for us, with how much people are working out at home, is how much love they are building for our master trainers. We see a great connection when our master trainers recommend product. We are definitely trying to just get super personal, and through data and analytics monitor the types of workouts that are important. [For example], we are seeing yoga workouts as really important, so we are creating connected experiences and journeys when we see a consumer interested in yoga, and connecting them to our yoga apparel. Then we see our yoga products trending.
O’Neil referenced the seeds of two incredibly powerful strategies for Nike: curation and personalization.
I’m a big fan of Joe Holder, a master trainer with Nike who doubles as the the fitness editor at GQ. Within my Nike Training Club app experience, there’s a section curating Joe’s favorite Nike gear. This feels like a move straight out of Peloton’s playbook. Peloton famously treats its teachers like professional athletes, and after getting exposure to Peloton’s connected subscriber base, many of its teachers have become true influencers.
As much as I love Joe Holder, Nike also has access to professional athletes. By pulling in its top talent to offer product recommendations, Nike could take its curation to another level. It’s easy to see this evolving to LeBron’s Pick of the Week.
Alongside curation, an even bigger opportunity is personalized merchandise experiences. As O’Neil mentioned, Nike has already seen success connecting users to the appropriate apparel for their favorite workouts. Why not take it to the next level and start productizing its recommendation muscle?
It would require some serious engineering to build a Peloton-like leaderboard for 170 million members and counting, but Nike could start by codifying member tiers and formalizing a hierarchy of rewards.
With a deeper catalog than any of its digital fitness competitors, Nike could build a true “Stitch Fix for fitness” offering. In fact, it already has some of the infrastructure built out. All Nike Training Club members get access to Nike Experts for product recommendations and 60-day product trials included with their membership. Since Nike is already using workout-specific data to tailor recommendations, why not take the next step and send those products to customers before they even know they want them?
Like Stitch Fix, Nike could charge a styling fee for each shipment as a sign of commitment on behalf of the user, and even offer an exclusive Style Pass–like upgrade option for members who have proven especially loyal. Another route would be to offer subscriptions. Nike has already experimented in that direction with the recently launched Nike Adventure Club for kids.
Considering the perks included in the existing membership and Nike’s keen focus on personalization, these offerings don’t seem far off. However, any recommendation product relies on usage data — the more usage, the better the recommendations. Perhaps a more important priority than monetization is making sure members actually use Nike Training Club in the first place.
Keep them coming back for more
In that same Modern Retail interview from May, when asked what Nike’s doing to keep new users interested, O’Neil referenced the Nike Training Club workout library.
We started building up our library of workouts — I think we now have over 185 online workouts — and we’ve expanded the workouts to make sure we are responsive to all fitness levels. We are seeing shorter workouts trending, so we have from 15 minute to 60 minute workouts now. The variation of workouts is more extensive, from yoga to core workouts to total body, and then of course I mentioned we layered in the streaming on YouTube, with our master trainers every week.
It may seem like Nike’s workout offering is a bit scattershot, but going broad is key to its strategy. Every small difference in the type of workouts Nike offers is another cost, but it’s also another opportunity to further personalize a member’s experience. Based on Nike’s recent growth, it seems like these classes are resonating so far: According to Retail Dive, “Nike active members increased nearly 60% in [its most recent quarter], and the retailer also saw 50% of members start a workout through the training app in Q1, while recording 200% growth in demand for the retailer’s commerce app.” However, there’s still another workout frontier that Nike is well-equipped to offer and hasn’t tapped into yet.
While most digital fitness apps offer either a range of general fitness workouts or specialized workouts within one discipline, like yoga or high-intensity interval training (HIIT), Nike has an edge if it decides to expand into a different kind of workout: sports-specific skill development.
The new Nike isn’t just hawking shoes — it’s giving its customers the resources to reach their fitness goals.
Rather than stopping at general fitness like many of its competitors, Nike could expand its library to include skill-development workouts that it can offer in partnership with its sponsored athletes. I’m not sure how much MasterClass paid Steph Curry for his basketball class, but Nike could almost certainly afford it and then some. It could even incentivize athletes to participate as part of its endorsement deals. This would also open up Nike Training Club to a younger audience — athletes in middle school and high school are still honing their craft and would likely be more interested in workouts that are specific to their sport than general fitness workouts.
While Nike Training Club does offer a small collection of athlete-branded workouts, they’re led by the company’s master trainers. Much like curating product lists based on athletes’ preferences, having professional athletes lead their own workouts — whether it’s dribbling mechanics with Kyrie Irving, agility workouts with Megan Rapinoe, or core strength with Rafael Nadal — would increase engagement by giving fans deeper access.
Beyond expanding its workout library, there’s another natural path for Nike to increase loyalty and retention: continue expanding the rewards program. In the past, Nike has experimented with gamification, workout-driven rewards, and partnerships, leading to some really creative offerings. Along with exclusive access to Nike products, the brand has offered discounts from Apple Music, ClassPass, and Headspace. It would require some serious engineering to build a Peloton-like leaderboard for 170 million members and counting, but Nike could start by codifying member tiers and formalizing a hierarchy of rewards. Increasing exclusivity with each reward could drive competition and encourage participation. Plus, giving members something to work toward and rewarding them with exclusive items that signal their dedication will make them far less likely to take their digital workouts elsewhere.
The future of the swoosh
While you used to be able to find Nike products all over the place, that’s changing fast. The company recently closed accounts with nine wholesalers as part of its mission to double down on direct relationships with customers.
By offering Nike Training Club and the broader membership for free, Nike’s exchanging physical accessibility for digital accessibility. As it continues shifting customer interactions to its digital channels, Nike will cultivate data that will allow it to serve customers better than it ever has. The new Nike isn’t just hawking shoes—it’s giving its customers the resources to reach their fitness goals. Peloton has proven that helping customers get fit can create cultish loyalty, and that’s without the personalized commerce opportunities Nike can offer. Nike already has a loyal customer base, but fitness experiences will help it establish even deeper bonds with customers — perhaps leading to more time spent in Nike apps and more gear sent to the checkout tab.
A version of this post originally appeared on Good Better Best.
