Business Standard

Book Extract: Connecting with consumers

How Adidas managed to reinforce its relationship with consumers while delivering 10-fold profit

STR Team 

AUTHORS: Christian Madsbjerg, Mikkel B Rasmussen
PUBLISHER: Harvard Business Publishing

PRICE: Rs 1,250
ISBN: 9781422191903

In the midst of a routine strategy session, a senior executive at Adidas found himself wondering, "Is yoga a sport?" This led him to start asking the most fundamental questions about the products he was making and selling. What do we do here? How do we define ourselves? What business are we in?

That senior executive is Adidas's James Carnes, and he works out of the company's main headquarters in Herzogenaurach, Germany. Every time he crosses the campus, he sees photographs of athletes winning gold medals, cases of track shoes replete with dust from Olympic soil, and a display of the original Samba from 1950, the first shoe emblazoned with the iconic three white stripes.

His company is so steeped in history, in fact, that even members of its most senior did not fully realize that they were in the midst of a fog until it was almost too late. Only when Adidas delved deep into a method of sensemaking did the company fully realize that its perspective on the market would bring it right back to where it started.

What are sports?

In an attempt to gain a deeper understanding of what was going on, Carnes assembled a number of his own designers and teamed them up with human-science analysts. It was late July, and in the quiet of the summer months, Carnes could spare some of his team's time to engage in an open-ended method like sensemaking. This was not a high-level project that had been planned for months. It was not included in the annual "cycle of development projects," and it was not cleared with top It was simply an attempt to get a better understanding what was going on with these urban sports-like activities. In dialogue with the analysts, Carnes reframed the phenomenon: "How do we sell sports equipment" became "What are sports?"

The team went out and spent in-depth time with a select group of this new tribe. After collecting data and analyzing it, the team identified a growing group of people who were highly engaged in sports without self-identifying as athletes. These people did not train to win a particular game or tournament; they trained to be fit for life. In 2003, Adidas had almost nothing to offer this particular type of consumer despite this segment's potential to form the largest consumer group for athletic equipment in the coming decade.

The sensemaking method revealed a number of patterns. Some of these echoed deeply rooted beliefs already in place at Adidas, while others challenged the entire ethos of the company. Adidas was built on offering high-performance products to athletes. The investigation revealed that urban athletes also had great expectations from their workout clothing and gear. They were willing to pay for high-performance shoes, apparel, and other gear that enabled them to perform at their best while working out. So far, so good.

But another pattern revealed that urban athletes were seeking style in their clothing. At that time, Adidas designed gear that worked extremely well at the running track or football field, but the products didn't make the consumers look particularly attractive or stylish. The company was actually promoting a fashion line of clothes and shoes, but they were designed with the nightclub in mind, not the yoga class. Most urban athletes were working out in the midst of pedestrians and shoppers, and they wanted to look good while on the 'urban stage'. Multicolored spandex just wasn't going to cut it for this crowd. Although Adidas had nothing in its product line that addressed these needs, a collaboration on urban sports gear with the British superstar designer Stella McCartney later changed this.

Finally, it was clear that these people contextualized their work­out routine within a larger narrative. Working out, be it running, mountain biking, going to the gym, or doing yoga, was something people did as part of an attempt to live a healthier life. These same urban athletes were also deeply invested in eating food they deemed healthy, in calculating their daily intake of caffeine and other sub­stances, in measuring their heart rate during various activities. They were looking for ways to incentivize their fitness goals: "I can eat one chocolate truffle a night if I do my whole workout," or "I will know I am successful when I can wear that little black dress I just bought on sale."

Christian Madsbjerg
Christian Madsbjerg
Companies need a human lens no matter how sophisticated technology becomes: Christian Madsbjerg

Regardless of how much data you collect, you still need to understand why customers are behaving the way they are, Christian Madsbjerg tells Ankita Rai

Predictive analytics solutions claim to help enterprises in building effective customer relationships. Do you think companies still require a human lens to solve business challenges?

Companies need a human lens no matter how sophisticated technology becomes in providing data about consumers. Regardless of how much data you collect, you still need to understand why customers are behaving the way they are, and what that means for your company. When your customer landscape is disrupted by, say, new technology or generational shifts, what changes is more than just what your customers are doing. There is a massive transformation in why they are doing it, and you need not just information about their behaviour but a new way of making sense of the underlying changes in people's lives. Big data can answer questions like, in what demographics certain sports are growing fast. It cannot answer a question such as "is yoga a sport?"

Executives often find themselves in a fog as the old models for how customers behave don't work. We need to ask fundamental questions: what do we do here? What business are we in? In such cases, you need derive meaningful patterns - you need a human perspective.

What are some of the mistakes companies make in understanding their target market?

Executives are not stupid. They are where they are because they have had success in the past. But this leads to a common error - orthodoxies about what works have built up during periods of success and remain the lens you use when looking at consumer behaviour even when this behaviour changes fundamentally. It is very hard to uncover your own orthodoxies and it is often these that get in the way of understanding customers.

Another reason why companies miss out is because they assume that people are the same if they look the same on paper. However, concepts and products can't just be copied and implemented.

Also, often people are not aware of what is most important to them and if they did they couldn't express it. This makes surveys great for knowing what people think they do, but dangerously inaccurate as to why.

Reprinted by permission of Harvard Business Review Press. Copyright 2014 Christian Madsbjerg and Mikkel B. Rasmussen.

All rights reserved

First Published: Mon, February 09 2015. 00:14 IST