Criticism of Nike’s Strategy

I. Did Nike really gains from Tiger Woods’ scandal?
⇒ What has been the real result of this scandal?

From a financial point of view, Nike (NKE) was right to stick by Tiger Woods despite the scandal that enveloped him in 2009, but the fascinating new study that makes this case also suggests that when brands encounter controversy they ought to destroy the village in order to save it, so to speak. That can’t be right.

Carnegie Mellon University’s Tepper School of Business looked at Nike golf ball sales from the pre- and post-Woods scandal periods, in which most brands chose to sever their ties with Woods. The academics compared that to the effect Woods had on Titleist before and after he ended his endorsement of that company in 2000. Overall, the scandal cost Nike $1.7 million in sales and lost the company nearly 105,000 customers, the study shows:

However, Woods’ endorsement — which cost $200 million — was so lucrative to Nike that despite that decline the company still saved money* it would have lost had it abandoned the golfer:

… from November 2009 to April 2010, we find that Nike made an extra revenue of $2.0 million from Tiger Woods’ endorsement effect which we estimate as additional $1.6 million in profit. From this, we conclude Nike’s decision not to join the likes of Accenture, AT&T and Gatorade was the correct decision.

The quant-y MBAs who predominate in the ranks of marketing vice presidents will love this study: It puts some hard data on the nebulous question that perennially bedevils the field: How do my marketing dollars affect sales?
But advertising clients would be wrong to conclude, as the Tepper folks do, that just because Nike eked out a $2 million saving then sticking by Woods was the right decision. That $2 million came at a great cost, not just to Nike but to the golf category in general, and it doesn’t account for the non-quantifiable credibility hit that Nike took, especially from the “did you