Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line

Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line
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No industry understands the importance of the public narrative better than consumer brands. Luxury fashion and athletic apparel sell as much imagination as they do fabric and cloth. These brands live and die by the emotions they stir up in a consumer’s mind. The scent of the perfume is not why people pay for the $340-a-bottle Chanel N°5. It’s whatever dream that smell promises to bring to its exclusive wearer. 

That’s why consumer brands love celebrity endorsement. It’s the transfer of glamor and chic of a celebrity that creates a positive sentiment around a brand. As the logic goes, that positivity is then translated into the corporate bottom line. This logic was certainly reasonable in the pre-internet world. But does this logic of “celebrity transference” still hold in our hyper-connected world today? 

At IMD’s Center for Future Readiness, we track how ready companies are for a changing future. We do so by downloading every report published in the last 10 years by the standard-bearers of business news. They are The Wall Street Journal, CNBC, The Financial Times, and the likes. We’ve also enlisted all the corporate press releases circulated during the same period. We feed 10 years of data into an algorithm, big-data style. We want to look at how digitally savvy these different consumer brands are. They could be Nike or LVMH, Lululemon or Hermès. To what extent has the business community come to understand these brands? We also measure the public sentiment around them: does the public hold a positive or negative view of them? Such “textual analyses” may not be perfect, but they let us gauge how things are evolving.

As shown in Chart 1, athletic sportwear is, in general, far more digitally driven than haute couture. And the digital king is none other than Nike. That shouldn’t be surprising—Nike’s digital push came early. Back in 2017, it had already vowed to make the company less reliant on brick-and-mortar stores. What’s changing on the digital front end has also been matched by the make-or-break technologies behind the scenes. 

Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line -

Consumers may want to personalize their sneakers online and have them shipped in weeks. But to do so profitably at scale, Nike had to “digitalize” its entire supply chain. And when it did so, the company also advanced its analytics to gather insights around the clock. It can make markdown and promotion decisions instantly to move inventory across continents. It is able to locate and ship specific products to the individual stores that need them most. Such is a digital-first consumer brand.

Now you might ask, what mindset must an organization harbor to overhaul a traditional retail brand into a digital-first, consumer-direct company? Learning. That’s inescapable. Microsoft CEO Satya Nadella likes to say, “The learn-it-all does better than the know-it-all.” And when it comes to building new capability, those “know-it-alls” are all lying.

You can see this in Chart 2. Companies like Nike and Adidas are very highly orientated toward learning. Equally, they have a strong viewpoint about the future, as reflected in their high degree of certainty. It’s exactly what people call a “strong opinion, loosely held.” The company’s top brass have a shared viewpoint but also embrace learning. So, they’re open to experimentation and never retreat back to the old business model. But if pivoting is required, so be it. Based on new evidence, they then commit to scale. This is how Nike succeeded in the digital realm. But it’s also how a successful startup becomes a billion-dollar organization. 

Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line -

Here’s the final picture, and it’s a less flattering one. Nike is not lovable. It’s not lovable in part because it’s associated with too many celebrity controversies. There is the legendary athletics coach Alberto Salazar, who was found guilty of doping violations. He was also reportedly abusive toward female athletes. Then there’s the Colin Kaepernick ad campaign, which ended up enraging Trump supporters. All harken back to Nike’s endorsement in its earlier days by Lance Armstrong and Tiger Woods. Bright stars don’t just shine—they can also burn.

Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line -

The irony is this: none of these matters, at least not to the bottom line. Judging by the share price growth across the last 10 years, the public sentiment has hardly affected the share price performance. Should we be surprised? Hardly. It’s the same experience for Facebook. 

Everyone has railed against Facebook. There’s the exposés by the Wall Street Journal. Drug traffickers and human traffickers have been found to use Facebook products to facilitate their activities. This is an obvious cause for outrage. A bank would never process funding for illegal operations. A defense contractor would never knowingly sell maintenance services to terrorists. Only Facebook would—and could—take money from anyone as long as someone is willing to pay. 

Wall Street responded with a yawn. Its share price dropped by 0.2% on the day of the reportage. Meanwhile, share price has gone up by more than 36% so far this year. No matter how much negative publicity Facebook is subject to, it performs just as well as Microsoft. It even outperforms Apple as an investment. Executive bonuses are guaranteed. 

So, the nagging indication remains. If sentiment doesn’t matter to the bottom line, then, by extension, the sentiment generated by celebrity endorsement won’t matter too much either. Why do brands keep pumping millions of dollars into such endorsements? Money, as we saw in the case of Nike, may be better spent in the less glamorous areas—like digitalizing your supply chain, which no one can see. It would be a boring initiative, but it would make things easier for everyone. And thank goodness Nike has more than Michael Jordan up its sleeve. 

Thank you for reading—stay well. 

Yours,

Three Charts That Show How Negative Sentiment Doesn’t Impact the Bottom Line -

This article is written with Angelo Boutalikakis—a research associate at the Center for Future Readiness at IMD, and Zuriati Balian—a data scientist research intern.

Leave a Comment

3 comments

  1. This blog may be true for the luxury sector, but fashion and energy are increasingly being hit by bad press from the environmental campaign groups. Companies like BP and Shell are spending billions on their green strategy, with little effect on their share price.

    Good blog anyway though.
    Ian Blaby

  2. Howard – I agree with L. Nieves. Your blog is probably the best business blog out there. It’s smart and simple. That’s a beautiful combination that few blogs have mastered. Keep blogging!

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