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I recently read a book called Shoe Dog, written by the original owner of Nike, Phil Knight (2016). The book describes the journey to success of the company and its very passionate team, starting in 1964. One passage stuck with me particularly. At the time, Nike was called Blue Ribbon Sports and it was selling innovative running shoes. Interestingly, Knight and his co-founder Bill Bowerman, a track-and-field coach, were driven by their passion for running. Bowerman even decided to write a book about jogging as part of a fitness program, even though it seemingly had nothing to do with the business, or so Knight describes (2016).

However, this book became extremely popular, because it enhanced the experience of runners by helping them to learn more and improve their performance. Nike was clearly selling benefits, not products, and benefits are easy to understand for the customer (Co-Schedule, n.d.). This is an early example of how Nike is slowly transforming its business model to become service-oriented, as opposed to product-oriented.

A more recent invention by Nike functions in similar ways: Nike+. This software program tracks the performance of runners through a sensor and tracking device that Nike provides. Users must register for Nike+ on the website, before they can see running history and connect with other runners. Nike+ offers training programs designed by experts, allows to set goals and acknowledges your achievements to keep you motivated. It also allows you to share your runs and play games. (Livestrong, n.d.) The Nike+ app now also rewards Nike+ members with in-store perks and exclusive features (Digiday, 2019).

With Nike+, Nike has created a customer platform, a free complementary add-on that offers extra value to the customer. This is essentially a form of bundling (or wrapping (Wixom & Ross, 2017), as it creates a joint offer of products for which the total consumer valuation by all consumers is maximized (without taking into account individual consumer preferences) Gutt [Session 3] 2019). The Nike+ app complements the Nike+ sensors, trackers, running shoes and apparel for sale, making the total bundle more valuable than the separate components. This has the potential to decrease deadweight loss, as Nike is able to charge a higher price for the bundle than for the separate Nike products Gutt [Session 3] 2019).

The components can possibly be bought separately, indicating a Mixed Bundling strategy (Gutt [Session 3], 2019). However, connecting with other Nike fans and tracking runs does not make much sense if a customer does not own Nike products. Therefore, one might argue that it is effectively a Mixed Components strategy, in which a customer can buy Nike products without using the Nike+ software, or buy the bundle including the Nike+ software (but the Nike+ software alone does not have any value, so it may be disregarded).

What Nike has done well, is that it created a bundle without increasing variable costs. These can make a bundling strategy rather unattractive to a producer (Gutt [Session 3] 2019). Nike has chosen an information good instead of a physical product to complement existing products – once created, software can be infinitely re-sold at almost zero marginal cost (Gutt [Session 4] 2019). Additionally, the value of the software for the customer increases with network externalities (Gutt [Session 4], 2019): more users on Nike+ means more people to have discussions with about running experiences and, as such, a higher utility derived from the app.

I decided to focus on Nike’s bundling efforts in this article, but it would be interesting to extend the analysis to other examples. Where have you noticed bundling efforts and how are they creating more values for businesses?

 

References

Co-Schedule, n.d. Nike Marketing Strategy: A Guide to Selling Benefits and Not Products. Assessed on 3 October 2019, through: <https://coschedule.com/blog/nike-marketing-strategy/>.

Digiday, 2019. In effort to grow direct sales, Nike integrated its app strategy into its stores. Assessed 3 October 2019, through: <https://digiday.com/retail/nike-integrated-app-strategy-stores/>.

Gutt, 2019. Session 3: Information Goods. Lecture at RSM, Erasmus University Rotterdam, 16 September 2019.

Gutt, 2019. Session 4: Versioning and Bundling. Lecture at RSM, Erasmus University Rotterdam, 19 September 2019.

Livestrong, n.d. How Does the Nike Plus Work? Assessed on 3 October 2019, through: <https://www.livestrong.com/article/533191-how-does-the-nike-plus-work/>.

Knight, P., 2016. Shoe Dog. Simon & Schuster. London.

Wixom, B.H., Ross, J.W. 2017. How to monetize your data. MIT Sloan Management Review, 58(3).

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These days, there are apps for everything: cleaning your house, finding a mate or even for holding a button for as long as you can (not a joke – it is called ‘Hold on!’ (Insider, 2017)). In 2014, a much lovelier option for spending your time became available: Bark’N’Borrow allows you to ‘rent’ a dog from a dog owner (Bark’N’Borrow, n.d.). The app allows dog owners to create a profile for their dog with photos and descriptions, and match their dog to potential human playmates. They can then meet and see if the dog is comfortable with the borrower. The app also includes a background check on all users for safety reasons. (123Pet, n.d.)

For the borrower, the advantages are obvious; although they do not get paid for their services, they get to spent a day with a dog of their choice without having to commit to all the responsibilities of owning a dog. In addition, the borrower can get to know dog owners in the area, if wish to launch a dog-related business later. (123Pet, n.d.) On the other side, the dog owner may use the app to make sure their dog is not left alone while they go to work. The dog will be taken care of for free and will exercise as well (123Pet, n.d.).

Because of all these benefits, the question lingers as to why it took so long for a dog ‘rental’ business to be introduced. When we look at some of the difficulties of bringing demand and supply together in a two-sided platform, as discussed by Zhang (2017), it becomes clear:

• Searching costs: these were very high before the app, as there were no easy ways to find the other party. The app facilitates matching.
• Trust: without a background screening, how would you know who to trust with the care of your dog? The app has a screening process (side note: the app would facilitate trust even more if it introduced a reviewing option, bringing user-generated feedback about other users).
• Non-standard rental procedure: ‘renting’ a dog was not commonplace before the existence of the app. As such, rental procedures were not in place, meaning high effort for both the demand and supply side to instate the process.

Considering how the app facilitates the ‘rental’ process between the dog owners and borrowers, it is important to note that the app is influenced by (positive) network externalities. This means that the value of a network increases with the number of users (Li, 2019). The larger the supplying community (i.e. dogs available), the more attractive the app becomes for borrowers. Similarly, dog owners have a larger choice of playmates if the borrowing community expands.

With these network externalities, one would expect that the app would be priced as low as possible, as to stimulate usage on both sides of the market. However, Bark’N’Borrow has chosen recently to charge both sides of the market equally, at $4.99 per month, in order to make the app more ‘exclusive’ (123Pet, n.d.). This strategy only starts to make sense, when you consider that both the service and the information stream run through the platform: owners have to pay for access to these valuable assets. Seeing as both sides of the market benefit equally from usage of the app, the company seems to have chosen not to ‘subsidise’ one side of the market. One risk of this strategy, however, is that the next exchange between a dog owner and borrower that have met, may take place off the platform. The app will then have lost its value as the match has already been made.

We will have to see how this digital pricing and business model develop in the future. For now, it seems that the entrepreneurs behind Bark’N’Borrow have come up with a solid idea to make many people and their dogs very happy. Here’s to many more exciting apps in the future!

 

References

123Pet, n.d. Want to Rent a Dog for Canine Cuddles? There’s an App for That! Assessed on 29 September 2019, through: <https://www.123petsoftware.com/rent-a-dog/>.

Bark’N’Borrow, n.d. Our Story. Assessed on 29 September, through: <https://barknborrow.com/about/>.

Insider, 2017. 17 ridiculous apps we can’t believe exist. Assessed on 29 September 2019, through: <https://www.insider.com/pointless-funny-iphone-and-android-apps-2017-5#pay-099-and-you-get-to-hold-this-button-for-as-long-as-you-can-6>.

Li, T. 2019. Session 6: Information Strategy – Digital Platforms. Lecture at RSM, Erasmus University Rotterdam, 26 September 2019.

Zhang, Y. 2017. Pricing: Competition. Lecture at the National University of Singapore (NUS), 7 November 2017.