Nike
Marketing Audit
Yi Gong
Mercede Ogan
Josh Staten
Matt Wolford
BUSA 308
Principles of Marketing
December 11, 2007
Company Description
Phil Knight had a great idea. However, he couldn't believe someone hadn't presented this idea before. He was quoted as saying, "[It's one of those] you're-crazy-it-will-never-work-or-someone-would-have-already-done-it ideas." (Nike Heritage, 2007) A middle-distance runner at the University of Oregon, Knight experienced the need for low-cost, high-tech athletic footwear.
In the early 1960's, German footwear had dominated the United States market and Knight understood the availability of market penetration. With little competition present, the difficulty of emerging was little to worry about. He thought importing shoes from Japan would result in a high level of competition. Thus, his idea presented itself. Before Knight could spring his idea into action, he had to formulate a plan of business.
The first thing he did was put forward the idea to legendary University of Oregon Head Track and Field coach, Bill Bowerman. Bowerman was known for preaching to his athletes about gaining competitive advantage; in their bodies, in the way they ran, and yes, in what they wore on their feet. Hence, Bowerman loved the idea. The next step for Knight was to get samples of the future product and examine the possibilities. He met with representatives of a Japanese shoemaking company, Onitsuka Tiger, and brought back several samples to Bowerman. "A week later, Bowerman and Knight formed a partnership." (Nike Heritage, 2007)
The newfound partnership led to the emergence of a little company known as Blue Ribbon Sports. Once the company began importing shoes from Onitsuka Tiger and selling them at local high school track events, the two partners quickly created new ideas to enhance Onitsuka Tiger products. Bowerman was constantly designing new ways to enhance the current designs. Once again, Knight brought forward another creative business idea. He wasn't pleased with Bowerman's helping promote new designs for Tiger, when they could use these designs to help further their own investments. Consequently, the new designs led to the emergence of a new company. Nike was born. No longer named Blue Ribbon Sports, Nike quickly grew. To help stimulate further growth, Knight and Bowerman shook hands with Jeff Johnson and Steve Prefontaine, two runners like Knight who could offer plenty of thoughtful design. Johnson was credited with naming Nike and Prefontaine, who became one of the most admirable distance runners the United States has ever seen, was credited with being the first athlete to wear Nike shoes.
From November 30, 1978, when Nike officially began its premise, until now; it has grown exponentially. Created as a footwear distributor, it now not only distributes but also develops and designs athletic footwear, apparel, and many other athletic accessories, including sport equipment. Its product line currently consists of shoes designed for running, training, basketball, soccer, and even children's shoes as well as sport-inspired
urban footwear. In addition, Nike markets shoes designed for baseball, lacrosse, football,
cheerleading, volleyball, walking, skateboarding, wrestling, and other athletic uses. Moreover, "Nike sells a line of performance equipment under the Nike brand name, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment and other equipment designed for sports activities." (NYSE Euronext, 2007) After passing competitor Adidas in market share in the late 1970's, Nike has become the world's largest shoe and sport clothing supplier.
Nike, Inc. is headquartered in Beaverton, Oregon, not far from where Knight and Bowerman once met. However, Nike's growth has allowed it to expand globally and broaden its location base tenfold. In recent estimates, Nike has over 29,000 employees working in 180 countries around the world. As of now, Nike facilities cover 6 of the 7 continents. The companies close to Nike, including its "suppliers, shippers, retailers, and service providers employ close to 1 million people." (Nike Company Overview, 2007) As you can see, Nike has grown considerably over the last few decades and currently connects with many people and places.
As a shoe and apparel supplier, in order for Nike to be successful, it has to constantly adapt to consumer behavioral changes. Nike has done just that. Nike reaped huge profits from athletic shoe sales but with competition emerging, it wasn't long before Nike expanded its enterprise. To strengthen its hold on market domination, Nike reached out and grabbed several new lines of athletic products. They acquired new companies such as Cole Haan, which sells dress and casual footwear; Nike Bauer Hockey, which
sells skate equipment for in-line, ice, and roller hockey; Hurley International, which sells athletic apparel for snowboarding, surfing, and skateboarding; and Converse, which sells athletic and casual footwear, accessories, and apparel. Adding the likes of these companies to its family has resulted in a very positive reputation for Nike. They are known for delivering exceptionally high quality athletic products to shoppers worldwide. They have responded to consumer demand and ultimately remain successful in the ever-changing world of sport.
Today, Nike has also responded very well to the evolvement of the worldwide web. Their webpage, nike.com, is one of the most visited and searched for websites. They offer links to investor relations, news about the company, and information on job opportunities within the organization. More importantly, they market their endorsed athletes with specialized commercials and advertisements starring these athletes. But most importantly, through their website you can search for Nike products, purchase, and set up personal delivery options. Nike has come a long way since their founders sold its shoes out of the back of their cars. They have adapted nicely to the ever-shifting market and kept up nicely with the speedy technological revolution. They have made a name for themselves, which millions of people have had the opportunity to experience. Nike: "the Greek personification of victory." (Word Info, n.d.)
Business Mission
The Nike mission: "To bring inspiration and innovation to every athlete in the world." (Nike Mission, 2007) This mission statement was derived from a Bill Bowerman quote; in which he said, if you have a body, you are an athlete. Thus, from the mission you get the sense that Nike's target market has no limits. In turn, it's safe to say that Nike has acted upon that mission, and today has become the world's largest retailer of athletic footwear and apparel. But for Nike, profits aren't anything. The day Knight and Bowerman shook hands, they ...
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Business Mission
The Nike mission: "To bring inspiration and innovation to every athlete in the world." (Nike Mission, 2007) This mission statement was derived from a Bill Bowerman quote; in which he said, if you have a body, you are an athlete. Thus, from the mission you get the sense that Nike's target market has no limits. In turn, it's safe to say that Nike has acted upon that mission, and today has become the world's largest retailer of athletic footwear and apparel. But for Nike, profits aren't anything. The day Knight and Bowerman shook hands, they promised to lead a company "with integrity and a commitment to the highest ethical standards." (Corporate Governance, 2007) Their focus on mixing innovation and integrity has resulted in an enterprise expansion only entrepreneurs can dream of. But as you would expect, the Nike enterprise didn't evolve overnight and neither did its mission. In the late 1990's, Nike had different goals. Its mission statement then read, "To maximize profits to shareholders through products and services that enrich people's lives." (Mission statement, 1998) Nike never lost sight of its original commitment of offering integrity; they just added a bit of sales-orientation. But just as quickly as Nike grew, so did its shift back to the consumer. That is where Nike stands today.
Marketing Objective
Nike's marketing objective is to establish global dominance but maintain the brand image. Nike has positioned itself as a supplier of well-designed footwear for those seeking a competitive advantage. "Nike lures customers with a marketing strategy
centering around a brand image, which is attained by a distinctive logo and the advertising slogan: Just do it." (Nike, Inc., 2007) In order to achieve its objectives, Nike sets goals of attainment. For example, in 2004, Nike set out to "increase its market share in the Asia Pacific region from 26% to 30%." (Strategic Analysis, 2000) To accomplish such an objective, Nike would typically create an advertising campaign that would attack the particular target market it was addressing. Additionally, Nike would either flood the targeted area retailers with its products or open one of its outlet stores. With contracts with over 25,000 retailers, so far Nike has done well achieving its goals of global supremacy.
Nike's financial projection:
The data shows that currently Nike had 8%-9% growth rate in revenue for last three years and will able to reach 16 billion on revenue for 2007. Compare to the 12% growth rate of revenue during 2004-05, Nike had suffered from the recession of mature footwear market. Nike predicts that company will maintain less than 10% revenue growth rate for next four years and hopefully will reach 18 billion at 2008. Nike will have 7.1 billion gross profits 2007 and increased 8% compare to last years. In net income part, Nike increased its net income from 1.4 billion to 1.5 billion from 2006 to 2007 and will reach 2 billion at 2011. In 2006, Nike had a negative cash flow about $-433.9 million, and in 2007 it generate positive cash flow about $902.5 million. For every 4 years of Nike's operation, it will experience one year that has negative cash flow in company operation. Nike predicts that the next year, which will have negative cash flow, is 2010.
Strengths
Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets.' Nike has a healthy dislike of is competitors. At the Atlanta Olympics, Reebok went to the expense of sponsoring the games. Nike did not. However, Nike sponsored the top athletes and gained valuable coverage. Nike has the capabilities to always stay one step a head of their competition. Dominating 20% of the market, Nike is able to progress without putting much worry on the other companies in the market.
Nike has no factories. It does not tie up cash in buildings and manufacturing workers. This makes a very lean organization. Nike is strong at research and development, as is evidenced by its evolving and innovative product range. They then manufacture wherever they can produce high quality product at the lowest possible price. If prices rise, products can be made more cheaply elsewhere (to the same or better specification), Nike will move production.
Nike is a global brand. It is the number one sports brand in the World. Its famous 'Swoosh' is instantly recognizable, and Phil Knight even has it tattooed on his ankle. Retailing in over 140 countries, Nike has the capabilities to market and formalize their products for each part of the world they sell in. In 2006, sales were in fact higher in Europe and Asia, than in the U.S. (Stepankowsky), proving that the international influence is a major benefit to the company.
Weaknesses
Nike does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes. If the market of sports shoes is ever found in a rut, Nike could take a sufficient profit loss.
The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. Can you tell one sports retailer from another? So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike.
Opportunities
Product development offers Nike many opportunities. Its owners whom truly believe that Nike is not a fashion brand fiercely defend the brand. However, like it or not, consumers that wear Nike product do not always buy it to participate in sport. Some would argue that in youth culture especially, Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out i.e. consumers need to replace shoes.
There is also the opportunity to develop products such as sport wear, sunglasses and jewelry. Such high value items do tend to have associated with them, high profits. Nike has begun to research into the accessory side of the sports world. With such a wide selection of markets to get involved in, Nike has the opportunity to diversify their product lines extensively.
The business could also be developed internationally, building upon its strong global brand recognition. There are many markets that have the disposable income to spend on high value sports goods. For example, emerging markets such as China and India have a new richer generation of consumers. There are also global marketing events that can be utilized to support the brand such as the World Cup (soccer) and The Olympics.
Threats
Nike is exposed to the international nature of trade. It buys and sells in different currencies and so costs and margins are not stable over long periods of time. Such an exposure could mean that Nike may be manufacturing and/or selling at a loss. This is an issue that faces all global brands.
The market for sports shoes and garments is very competitive. The model developed by Phil Knight in his Stamford Business School days (high value branded product manufactured at a low cost) is now commonly used and to an extent is no longer a basis for sustainable competitive advantage. Competitors are developing alternative brands to take away Nike's market share.
As discussed above in weaknesses, the retail sector is becoming price competitive. This ultimately means that consumers are shopping around for a better deal. So if one store charges a price for a pair of sports shoes, the consumer could go to the store along the street to compare prices for the exactly the same item, and buy the cheaper of the two. Such consumer price sensitivity is a potential external threat to Nike.
Marketing Strategy
Nike's target market strategy is to provide apparel and athletic shoes through a favorable brand image. The brand image relies on their distinctive logo and the advertising slogan, "Just Do It." In order to maintain this image, Nike uses vast investments in brand promotion and advertising. They do this mostly through the promotional activities such as product sponsorship with professional athletic teams, celebrity athletes, and many college athletic teams. Nike provides production for a wide variety of sports.
The marketing strategy begins with the product. The starting point for the marketing mix is the product offering and product strategy (p. 48, Lamb). In the case of Nike, the product is a tangible good, such as shoes, apparel, and accessories. Nike is considered to sell consumer products. Consumer products are bought to satisfy individual's personal wants (p.284, Lamb).
In an attempt to increase profits, Nike linked up with Apple to create a product that combined the two company's knowledge and power. Together, Nike and Apple created a sneaker that holds an iPod Nano. This campaign is titled "Tune Your Run." The iPod can track workout data and submit the data onto a website where the athlete can track and analyze the date later. The information captured includes the miles run, the pace, and calories burned (Gibbert). Apple's iTunes also hosts a Nike Sport Music store that is full of recommendations by professional trainers and athletes (O'Malley). The introduction of this new product has the potential to reach a wide variety of people and a mass amount. By teaming up, the two companies' have created an almost super product, bound to dominate.
Nike has prided themselves by providing the most up to date and innovative designs for their shoes and apparel. The people at Nike are consistently bringing forth new ideas and constantly working on product development. Their products not only focus on design but functionality. As human potential evolves, so do their products (nike.com). They have been committed to produce goods of every make, model, and body size. At Nike headquarters, more than thirty women and men work together in creating new ideas and designs. They collaborate with designers to bring market products that take athletic performance past the next level (nike.com).
At Nike, the product researchers focus on three primary areas, grasping the main concepts and goals of the company. By having criteria and categories of study for each product, Nike can ensure that their products are staying consistent with their goals and mission. The three categories are biomechanics, physiology, and sensory/perception. By including all three areas in their studies, Nike can make certain that their products will include the characteristics they and the customer's value as important.
Nike is always looking for product extension. Recently in 2007, Nike acquired Umbro, a British apparel, footwear, and sports equipment company. Nike saw football as an important growth category and found that the acquisition would significantly expand Nike's global leadership in football (Casey). By obtaining Umbro, Nike is not only extending their already established product line, they are also allowing the capability to develop their international markets.
In another partnership attempt, Nike has introduced a new basketball store with Foot Lockers called "House of Hoops," in an attempt to show how U.S. athletic retailers may sustain the interest of shoppers (Cheng). Here, customers are able to purchase professional player exclusives and other items. Nike and Foot Locker together have created a destination for the basketball consumer. Their goal is to open up 100 stores in the next three years. At these stores are walls of sneakers that showcase professional athlete's shoes. There is also a t-shirt bar, which allows customers to customize their purchases with local designs.
In addition to the numerous extensions of Nike, one of the most important product developments to Nike is the customization of their products. Nike has made it more accessible and easier for mass customization. From shoes to apparel to accessories, a customer has the capability to customize almost anything that they purchase. This is important because it allows customers to be more involved and attain what they actually want from the purchase.
Nike is sold in over 25,000 retailers in the United States and is in over 140 countries. They sell internationally through independent distributors. Nike owns facilities in Oregon, Tennessee, North Carolina, and The Netherlands. They operate leased facilities for Niketown and NikeWomen retail stores. There are over 200 Nike Factory stores and over 100 sales and administrative offices (nike.com). Strong sales in Europe and Asia make up for the slower growth in the U.S. (Stepankowsky). The international market is very important for Nike because their intense product differentiation focuses on sports that vary across the globe.
Niketown's average 30,000 square feet of selling space. Nike has been operating Nike Factory Stores around the world since 1984. Nike also offers online ordering of shoes, apparel, and accessories. Nike's US distributions centers dealing with footwear are located in Oregon, Tennessee, and New Hampshire. Apparel and equipment products are distributed out of Tennessee, Oregon, and California. Nike also has many subsidiaries that include Converse, Cole Haan, Nike Golf, Nike Bauer Hockey, and Exter Brands Group.
Nike makes huge investments in advertising and brand promotion. The promotional activities include agreements for product sponsorship with professional athletic teams, celebrity athletes, and numerous college athletic teams. They also use the web to promote their brand name and products by updating their website regularly and making it appealing, a Facebook profile, and smaller websites created for specific sports. Nike also has established one the most well known logos and brand slogan. The Nike swoosh is recognized worldwide. The slogan, "just do it," can also be recognized globally and when heard, people automatically think of Nike and their products.
Celebrity endorsements include well-known athletes such as Michael Jordan and Tiger Woods. Nike is constantly looking for people/athletes who are not only good at their sport but positive role models in the community. Having these positive role models encourages a strong positive image for Nike. Nike is beginning to use not only athletes but also anyone who is optimistic and constructive in their community to promote their products. Recently Nike signed a tattoo artist, Mr. Cartoon, from Los Angeles who is considered one of the best artists around. He has designed and created six lines of limited edition shoes for Nike. His shoes designs are able to appeal to a wide variety of people because of the diversity in designs.
One major promotional strategy that has been very effective for Nike is the use of interactive and web marketing. Nike is taking advantage of the web as a medium for commerce, brand extension, relationship building and conversation starting (O'Malley). Nike has recently created a Facebook profile to connect with the generation y market group who are constantly using the Facebook network. Nike can update their customers about new products and keep them informed of events and things that are going on with the company. "We always start with the consumer and then look for the best ways to connect with them," says VP of global brand, Trevor Edwards (O'Malley).
Nike products do tend to be more expensive for their market of sport shoes and apparel. But the prices reflect the quality of the products and the experience when purchasing. Nike prides themselves on giving their customers the experience that they want and expect when purchasing products. Their high quality products reflect the research and attention Nike applies when creating their goods. Nike recently made a deal to sell its Starter footwear and apparel brand to Iconiz Brand Group. This deal signals the sneaker giant's move away from the low-end market (Casey). Nike wants to separate themselves from the Wal-Mart types. By moving away from the low-end market, Nike can continue their brand image of high-tech, performance driven and exclusive products.
Nike looks at all aspects of the marketing mix when creating and producing their wide variety of products. A lot of research and time goes into the products to ensure that they are producing what the consumers' want. Nike says that one of the most important things they want to create is an experience. "The experience is important because it's part of the emotional connection. Individualism is very important to today's consumers. The Nikes of the world are beginning to understand you need to take the products to mass and to be able to customize (Cheng)." Nike makes sure to stay one step ahead of the market and continues to provide what the consumer wants and expects.
Implementation
In order to let Nike to maintain and grow its 30% of market share on footwear market in future, it is required that Nike should continuous to keep working on 4 Ps-price, promotion, place and product.
In price, Nike should focus on the will of consumers that want to purchase variable economic products on footwear. To support that improvement, Nike can deliver to the entire segments that want cheap and quality products. Since China and other East Asia countries play an important role on the global consumers market, Nike is looking for a way that offer cheaper and quality footwear product to people of those countries can afford.
In placement, Nike plans to open up more stores and franchise to reach maximum buyers and targeted customer in order to expand long term Nike buyers. Since more and more business is doing online, Nike should expand their contribution channels toward e-commerce and online marketing.
In promotion, Nike has to still strength its Swoosh brand to catch entire demographic for their sports needs. Nike has some major competitors like Adidas and Reebok who have same quality and pricing strategy. They are capable to take control Nike's footwear market shares if Nike fails to maintain it. To compete with them, Nike has to continuous spent its extra revenue for sponsorship, sport event and advertising; and maintains its visibility in the eyes of consumers. Because one of Nike's advantages on the footwear market is its unique and fashionable design of sport shoes, it always needs the feedback from buyers. In Nike's future plan, the needs to communicate more with our consumers and gain their feedback on our product will be our biggest future concern on customers' satisfaction. It is required that Nike uses its consumers' feedback to create more comfortable and cheaper shoes for diversity of customers.
In product, Nike needs to come up new design ideas for variable consumers and customize special sport product for different age, gender and cultural background consumers. Currently, there are huge demands for designer sportswear especially for women and children. People can visit Nike.com and design the style of shoe they want to wear and deliver to people's house. Also, Nike plans to product more economical but quality guarantee shoes so mass can afford.
Nike's mission is, "To bring inspiration and innovation to every athlete in the world." (Nike Mission, 2007) According to them, an athlete is anyone who has a body. It can be concluded then, that Nike's goal is to inspire and innovate every person in the entire world. This mission statement pushes the limits of the company and proves the amount of effort and energy Nike expects from their employees. Though the mission of Nike may seem unreachable, Nike has achieved everything in their mission statement thus far. Nike is consistently motivating people across the entire globe and constantly performing with their products, thus living up to their word.
References
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Casey, Nicholas. (2007, October 24). Nike Deal to Buy Umbro Will Extend Football Hold. The Wall Street Journal.
Casey, Nicholas. ( 2007, November 16,). Nike Sale of Starter Marks Shift from Low End Market. The Wall Street Journal
Cheng, Andria. (2007, November 20). Nike, Foot Locker Shoot to Score with House of Hoops. The Wall Street Journal.
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