The Game Theory Behind Nike’s Colin Kaepernick Ad
https://money.cnn.com/2018/09/14/news/companies/nike-kaepernick/index.html
Nike’s newest “Just Do It” advertisement featuring Colin Kaepernick sparked controversy, prompting both praise and anger. Donald Trump tweeted, “What was Nike thinking?” and hundreds of Nike customers burned shoes and vowed to #boycottNike. Yet, a few weeks later, Nike stock is at an all-time high, brand awareness has dramatically increased, and sales increased 31%. How is this possible? The answer lies in simple game theory.
There are two players in the game: Nike and the customer. Nike has two options: use Kaepernick, or don’t. The customer has three options: support Kaepernick, oppose him, or remain neutral. The payoffs for Nike are simple, if they don’t use Kaepernick, nothing will change. The customer will still be just as likely to buy Nike shoes regardless of their views on Kaepernick. If Nike uses Kaepernick, the payoffs will be different. For this blog’s purpose, we will say that supporters will be 2 times as likely to buy Nike shoes, neutral customers will be 1.3 times as likely (due to increased brand awareness), and those who oppose Kaepernick will refuse to buy Nike shoes.
The tricky part is the payoff for the customer. How much value does a customer gain from supporting or opposing Kaepernick? Unfortunately, this is a highly complex social and political issue that is unable to be quantified. Therefore, we will use the placeholders X, Y, and Z. However, we can still solve the mixed Nash equilibrium using market statistics. For example, a poll showed that 44% of people between 18-34 support Nike’s use of Kaepernick while 32% opposite it. Nike could predict those percentages and therefore predict the payoffs. Using the previous statistics, the payoff for not using Kaepernick would be 1*.44 + 1*.24 + 1*.32 = 1 versus the payoff of using Kaepernick being 2*.44 + 1.3*.24 + 0*.32 = 1.192. Therefore, this model predicts at 19% increase in sales when Nike features Kaepernick.
Using game theory and market research, Nike was able to predict customer choices and then chose the appropriate strategy, and judging by the current statistics, it looks like Nike’s model was accurate.