In early September, Nike set the internet and news media on fire when it employed Colin Kaepernick – former 49ers quarterback turned national political protester – to be the face of the 30th anniversary celebration of its Just Do It campaign. While for some the campaign was brave and well-received, some opponents of this movement responded with a fire of their own: burning their Nike products in protest. Others were more moderate in their negative reactions, throwing away their Nike products or simply pledging to never buy products from Nike again.
But instead of digging into the divisive social and political nature of this campaign, which nobody reading this needs or wants to hear about again, let’s focus on something entirely different: the economic impact of a company diving into a hot social topic. Is it good business to take a bold stance on a divisive issue, or is a company best served by focusing on maintaining their business and that alone? Should a company never align itself with a cause outside of its core business or… just do it?
First things first, does a boycott adversely affect a company’s earnings?
In the case of Nike, it actually appears to have been a boon, with sales increasing by 31% the weekend immediately following the campaign’s launch compared to a 17% rise over the same period in 2017. Although Nike is a public company and therefore probably has more accessible data, a similar trend was seen with Chick-fil-A in 2012 following President Dan Cathy’s comments regarding the “biblical definition of the family unit” which were criticized by opponents as anti-gay. These comments were met by a protest and calls for boycott, which was responded to by supporters with a counter-protest to intentionally eat at Chick-fil-A the day after the initial protest. Sales appeared to skyrocket, and neither of these contentious statements appear to have diminished the actual business operations in either case.
Odds are, every single person reading this found one (or both) of these protests to be ludicrous, which means I’ve successfully alienated my whole audience, but I hope you’ll read on.
There’s a pretty simple economic and mathematical explanation for this. Let’s start with Nike, and let’s ask ourselves two questions: how likely are you to buy a piece of athletic apparel in the next 7 days? And how likely are you to shop specifically for a Nike product?
If you were to poll everyone in America with these two questions in the run up to Labor Day weekend before the Just Do It campaign launched, you probably would have gotten a fairly low ratio on both. Perhaps the average person had a 10-20% likelihood of buying a hat or a pair of shoes on that particular weekend, with more able to be tempted by a particularly good sale. Furthermore, for everyone who is brand loyal to Nike or its subsidiaries, there’s probably another who is loyal to Under Armour, or Adidas, or Reebok, so the answer to the second question, in aggregate, is maybe 25%. If everyone in America had a 20% chance of buying shoes in a given weekend, and a 25% likelihood that they would be Nikes, that’s a 5% chance that any given person will buy Nike near-term. Remember that number.
Now, Nike launches an ad campaign featuring a controversial figure. Let’s just say that the country is perfectly divided 50/50 in strong support and strong opposition to this figure. 50% of people light their Nike shoes on fire, throw them away, or otherwise swear off Nike forever. However, among supporters, this campaign significantly increases their likelihood of buying specifically Nike and specifically now. If, in aggregate, supporters doubled their likelihood of buying from Nike and further doubled their likelihood of buying something at all, then Nike is looking at a 50% rise in their sales (7.5% total likelihood after the campaign vs. 5% before):
Even though this is incredibly rough statistics, it illustrates the point. To put it in words, affirmative activism appears, at least when it comes to consumer products, to carry more weight than negative activism, i.e. boycotts. It’s not that boycotts are categorically worthless, it’s just that if there is a reasonably equivalent counter-movement, those in the affirmative camp punch harder economically than those in the negative. Someone out there may never buy another Nike product as a result of this campaign, but then, they were 95% unlikely to buy a Nike product in the near future anyway, whereas a supporter of the campaign probably marched into a store that very week with the specific intent of buying something with a swoosh on it. A similar pattern holds for the Chick-fil-A example. There are a dozen other fast food restaurants someone could go to on any given day, with the likelihood they’ll even have fast food at all substantially below 100%, but an avid supporter in the midst of a tumultuous social debate cranks their individual rate up to 100% overnight, becoming worth far more than they were worth on the sideline. In fact, the less likely it is that someone would specifically visit Chick-fil-A before the controversy, the more weight a counter-protester carries. To put it in even more simple terms (and use the most ham-fisted chicken pun ever), when it comes to the economics of companies engaging in divisive social issues, it seems a bird in the hand is definitely worth two in the bush.
This is of course discounting a whole lot of other factors. For one, Nike and any other company of their size almost certainly has mountains of demographic data that let them cheat the numbers further in their favor. If they know going into an ad campaign that 75% of their active customers approve of the message, they may not care if the majority of the whole world disagrees with them, because the whole world isn’t their target audience. If Chick-fil-A had instead made comments about veganism, the protest vs. counter-protest cost/benefit may have been even more pronounced, because an individual with a vegan diet is significantly less likely to be a recurring customer at a place with the word “chicken” in the name. Consider also the adage that “no press is bad press.” I’m currently a quarter of the way through the amazing behavioral economics tome Thinking Fast and Slow, so the power of mental nudging and association is fresh on my mind. Advertisements exist to create awareness, and it just might be a marketer’s dream to have one of their campaigns explode in the media, even if it’s in a contentious way.
I realize that all of this is fairly Spartan, perhaps even Machiavellian. That’s probably intentional, as I really wanted to sanitize this post as much as possible from the emotion of it all. Still, my goal has never been to ascribe those hardline tendencies to businesses. Business well-being is good for shareholders yes, but also other stakeholders like employees and the communities that the businesses live in and serve. Reputation is key in attracting and retaining talent as well as customers, and I think most people would laud companies who engage in corporate social responsibility. And there is certainly a place for boycotts when companies are found to be doing truly deplorable things. Some boycotts have even resulted in major social and cultural change… I’m sure at least one famous one comes to mind. However, for many of these high-flying but ultimately short-lived social issues, it appears that jumping into the fray can be safe and even beneficial if calculated carefully enough beforehand. Like it or not, it’s an economic quirk that lives squarely at the corner of free speech and free markets, both of which I hope are here to stay.