This article also appeared in Finweek Magazine in their 28-March 2013 issue
The 36 Chinese Stratagems are an essay of powerful tricks personifying the ancient Chinese art of being cunning. Not only are these stratagems potent tactics in times of war and politics, but they can also be effective in today’s business world.
First revealed in history roughly 1 500 years ago and written up almost 500 years ago, since the Nineties the stratagems have become increasingly popular in the Chinese world of business. However, they are still relatively unknown in Western countries.
One of the stratagems gives the following advice:
“Feign madness but keep your balance: Hide behind the mask of a fool, a drunk, or a madman to create confusion about your intentions and motivations. Lure your opponent into underestimating your ability until, overconfident, he drops his guard. Then you may attack.”
In laymen’s terms, if your adversary thinks you are crazy, he won’t feel threatened by you and so will not take you seriously or put up a fight against you.
History is full of examples of this potent tactic being used to good effect. The Trojan horse is a well-known war story about the deception that the Greeks used to gain access to the city of Troy. Following a futile 10-year siege, the Greeks built a gigantic wooden horse and hid Greek soldiers inside. After the Greeks pretended to sail away, the Trojans brought the horse into Troy as a victory trophy. That same night the Greek soldiers secretly crept out of the horse and opened Troy’s gates for the rest of the Greek army, which had sailed back during the night. The Greek army then destroyed the city of Troy, decisively ending the Trojan war.
Another great example comes from Roman history. Before the Roman Republic was founded, kings ruled Rome. For many years Lucius Junius Brutus, the creator of the Roman Republic, pretended to be stupid. This way he was able to fool the family of King Lucius Tarquinius Superbus into trusting him while he covertly planned to overthrow them. Using this element of surprise, Brutus toppled Tarquinius Superbus while his guard was down, forcing him into exile and ending the reign of kings over Rome.
So the obvious question is: how is this relevant to the world of business? This same strategy can be a very powerful weapon in your arsenal against competitors.
Skechers shoes used this cunning tactic to take on market-leader Nike. It’s not easy to compete head-on with the formidably strong Nike global brand. Instead of trying to be another Nike, Skechers chose instead to take a low profile. It created an unattractive competitor product so questionable in its effectiveness claims that rivals did not take it seriously… until it was too late. Crazy? Maybe. But Skechers toning shoes proved to be the ultimate Trojan horse, tiptoeing in quietly and capturing the market right out from under Nike’s nose.
In 2010, Eric Sprunk, Nike’s vice-president for global product and merchandising, concluded an innovation speech to investors by taking a dig at the toning shoes fuelling its competitors’ sales growth. “Wouldn’t it be great if we could make a pair of shoes that made your butt smaller, made my gut look smaller, make your muscles look a little bit bigger, just by putting them on and … walking in them?” Sprunk quipped. “Nobody can do that. I was just teasing…”
However, the sizeable market share growth that Adidas’ Reebok division and Skechers USA enjoyed in 2010 due to their toning footwear ranges, was no laughing matter. Although Nike held onto first position in the US woman’s athletic footwear market, its market share plummeted to 31%, or $412m, in the first quarter of 2010. Compare Reebok’s market share which more than doubled to 7%, or $90.3m, and Skechers’ share that tripled to 17%, or $225.7m. This hit Nike hard. In the first quarter of 2010, footwear was the only division of Nike’s US business to show a dip in sales, dropping 1% to $1.2bn. This was compared to Nike’s overall revenue, which improved 7%, to $4.73bn. “Nike spent months watching this thing develop and did nothing about it. Now they are paying the price of a missed opportunity,” said sports retail analyst Matt Powell. And they paid a big price indeed, with toning shoe sales in the US rocketing from $17m in 2008 to nearly $1bn in 2011.
With their $100-plus price tags, women’s toners became one of the most profitable footwear lines in the US. In 2009, the top 10 bestsellers in athletic footwear didn’t include any toning shoes or women’s footwear. Fast-forward to 2010, when a SportsOneSource survey revealed that women’s toners had taken six of the top 10 places for athletic shoes: four Skechers Shape-ups and two Reebok EasyTones. The four remaining shoes were in the Nike corner, including a pair of Air Jordans selling for $150. According to NPD Group, 2008 saw US toning-shoe sales amount to a mere $17m. This soared eightfold to $145m in 2009, the year that both Reebok and Skechers launched their toning shoe products. In the first four months of 2010, toning footwear sales skyrocketed to $252m – 75% more than the total for the whole of 2009. “The explosion of growth in this space in such a short period of time eclipses everything I have witnessed in the industry over the last 25 years,” said adidas CEO Herbert Hainer.
Were toning shoes just a passing fad with dubious benefits? Maybe. Skechers were forced to pay up $40m to the US Federal Trade Commission (FTC) for misleading advertising of its Shape-ups, Resistance Runner, Toners, and Tone-ups. The FTC also slapped Reebok with a hefty $25m fine for unproven claims about its EasyTone toning shoe line. Nevertheless, consumers purchased toning footwear in droves and “[Nike now] realises it’s definitely a category, and they can’t ignore it,” said Chris Svezia, a sporting-goods analyst at Susquehanna Financial Group.
Other companies have used a similar Trojan horse strategy. Jones Soda*, for example, embraced tactics too outrageous for competitors to take them seriously. Founder and CEO up to 2007, Peter van Stolk, added his own secret sauce to the brand. By 2005 it had created buzz, triggered 30% annual revenue growth in a flat-lining beverage industry, attracted powerful distribution partners such as Starbucks, and amassed $30m in yearly sales. So what was the magic ingredient in a Jones Soda? The customer. The customer was at the heart of almost everything about a Jones Soda, from labels to flavours. That was essential because in his honest, profanity-filled style, van Stolk said, “The reality is that consumers don’t need our s***.” The world wasn’t crying out for another soda, even if the flavours were Blue Bubblegum or Turkey & Gravy. So how do you get customers to buy a product they don’t need? If you were van Stolk, you made them feel it belonged to them. In his words: “People get fired up about Jones because it is theirs.” Back in 1997 when Jones Soda launched, they made many bold, unconventional moves. None was more significant than placing its customers’ photos on its bottles. The unique, eye-catching pics on Jones’ black and white bottle labels originated mostly from its fans and still do today. This built an intense sense of loyalty to the brand and a cult following. Van Stolk launched myJones, a customisable 12-pack of bottles on which anyone could have his/her picture and message. Customers can upload their pictures and provide their own unique messages. MyJones subsequently grew into one of the keystones of the Jones Soda brand. Even today their tagline reads “Your photo, your soda, your brand”.
Does Coca-Cola make its customers feel like they own the brand by putting their pictures on its bottles? No. And that’s precisely the point. By acting crazy, your competitors won’t pay attention to you, just like Coca-Cola ignored Jones Soda. This allows you to build your power base and grow your market share without your competitors even realising it.
Often the Achilles heel of formidable adversaries is that their arrogance and complacency about their market leader position stops them from taking smaller, unconventional opponents seriously. This is indeed what happened with Nike, and why they didn’t see Skechers and toning shoes coming until it was too late. It seems not only unlikely, but virtually impossible that Skechers could capture the lucrative toning shoe market from Nike. However, it is precisely when things seem impossible that the stealthy, slightly crazy rival can find a way in.
In the words of the legendary Apple commercial, “Here’s to the crazy ones…. The only thing you can’t do is ignore them, …. because the ones who think they are crazy enough to change the world, are the ones who do.”
* Jones Soda took a severe beating in 2007 during the national launch of canned soda in the US, posting a 98% profit drop that year. Stephen Jones took over from van Stolk as CEO in 2007.