How The Power of Habits Can Influence Brands

The power of habit

A few days ago, a friend and I talked about Nike’s recent struggles that led to the downfall of its former CEO, John Donahue. In his four-year run at Nike, Donahue bet big on the direct-to-consumer business, but a little too big. Donahue, who previously ran eBay for seven years, leaned heavily on his e-commerce experience but scaled back from the brick-and-mortar retailers that historically drove sales for Nike. From Foot Locker to independent resellers, Nike’s retail sales and relationships faded. It paved the way for footwear brands like Hoka, On, and others to thrive.

Nike’s brand is still one of the strongest in the world, that wasn’t the problem. Donahue mistake was that a strong brand could overcome the power of habit. Customers love Nike, but they love their habits more.

Despite the growth of online shopping, many people still want to walk into a shoe store, try shoes on, and walk out with a fresh new pair. The day before the Trapital Summit, I walked to the sneaker store down the block to buy Uptowns (I’m from the northeast, I still call Nike Air Force 1s “Uptowns”). I buy a lot online, but I also buy from independent retailers.

This scenario plays itself out time and time again. In our Oprah episode, we talked about how she underestimated the power of habit during the Oprah Winfrey Network’s struggles in its early years. And more recently, her Apple TV+ deal came and went. The Oprah Effect is real, but it was elevated by the low-friction, linear TV habit of turning on ABC on any weekday afternoon and seeing Oprah on TV.

The power of habit is especially relevant to music. I often read pitch decks from founders and listen to interviews from CEOs who want to fix various challenges in music, like streaming payouts, slow royalty payments, or other monetization issues. They often build products with impressive functionality, but it's unclear whether they track with the habit of music consumption.

In the past twenty years, the two most dominant formats for recorded music have been digital downloads and streaming. Digital downloads put a virus-free business model around the habit of music piracy and peer-to-peer file sharing. Years later, streaming put a more convenient business model around digital downloads. They tapped into where consumer behavior had shifted, made it easier to use, and turned it into the backbone of the business.

A lot of companies dream about being a true category creator that can revolutionize the industry, the way that Uber did for transportation and Airbnb did for travel. But one major reason that both companies gained traction is because of the habits people sought after at the time.

Uber and Airbnb are products of The Great Recession. Bankruptcies, layoffs, and rising fuel costs had weakened the traditional economy, which elevated the gig economy. People were eager to monetize assets that they already had in easier ways. Plus, the adoption of smartphones, especially for Uber, tracked with the changing habits of how people lived their lives.

Now that music streaming revenue growth has slowed down, everyone is eager for the next big thing that can deliver double-digit growth that’s up-and-to-the-right. Universal Music Group is pushing for Streaming 2.0. Non-major labels are benefitting from the growth of the independent sector. Many companies are eager to reach Gen Z and Alpha music lovers. While others have carved out lanes for themselves with vinyl or other retail products that fans already want.

The opportunity for companies that want to succeed with a widely adopted product is still high. Streaming has been the platform for a while, but it will eventually be replaced by something else. Whatever it is will have to improve on streaming from a convenience perspective and tap into where technology adoption trends are heading.

Chartmetric Stat of the Week - Milli Vanilli’s Gen Z moment

After a scandalous lip-synching legacy left its mark on the 80s R&B duo, Milli Vanilli is back and hotter than ever! Thanks to the popular Netflix series Monsters: The Lyle and Erik Menendez Story, which includes a few songs from Milli Vanilli, the group’s catalog is streaming better than ever. It’s blowing up on TikTok, where the group’s followers have grown 43.4% in the past month. Another W for Clive Davis.