Around 1980, the logo received a new slogan; « Just do it ».
Afterward numerous sportsmen got contracts with Nike as the official supplier of their sports garments. The brand also became the official supplier of event sports such as the cycle “Tour De France” at the end of 1990s, the balls of the UEFA Champions League in football…
In 2003, Nike Inc. acquired its rival converse Shoes for $305 million.
In 2005, Phil Knight (Chief Executive Officer and founder of Nike) prepared his succession. He indicated his successor: William Perez, before replacing him in January 2006 with Mark Parker.
As we can notice above, Nike brought a lot to the shoes sector but is always looking for new technology to bring to its customers.
We are going to look closer the company strategies implemented to push the consumer to buy a Nike product.
One of the key reasons for the success of Nike is because of its extensive advertising campaigns. The Nike brand is known in almost every household worldwide.
Nike’s brand management strategy is key to its global success because it is based on the sponsorship agreements with the world-class athletes, including individual performers and sport clubs.
All kinds of sportswear equipment are branded with Nike’s logo, which remind people of success and associates it with the achievements of star performers.
Nike has been the first company in the sports manufacturing sector to relocate and use outsourcing to reduce the cost of its manufactures.
The company used the vertical division of work, which means that managers and unskilled workers are separated. Thus, added to others mutations such as the transport revolution and the communication development, this lead to a more important liberalism of world trade. It enabled Nike to develop an outsourcing system. It consisted of centralising the command functions to the headquarters in Beaverton, the laboratories studies to St-Louis and the commercial responsibilities to Memphis.
In a simple way, we it is represented like this:
Today, all the textile companies are following Nike’s example, but this innovation lets them secure a monopoly though market domination.
The Nike system includes a developed branding system and an economic strategy, which promote the marketing rather than the production aspect. Indeed, Phil Knight said the branding could be completely substituted to production and that production is not important, but that it is just a tedious and marginal activity.
We arrive therefore secondly at Nike’s branding, which has turned towards celebrities. According to academic researchers, branding is “all about creating different and endowing products and services with the “power” of brand equity”.
The company has invested a lot of money in this domain and has tried to diversify in different sports, for example, Michel Jordan in basketball, Tiger Woods in golf and Ronaldo in football…
They will either shoot in an advertisement on the television or pose in a magazine with Nike products, telling the world how useful and cool their products are.
For years, Nike has known how to react to sport events, for example, when Knight wanted to associate Nike to the team of “ski de fond” Kenyane, which participated in 1998 Winter Games in Nagano. This is what economists call the “Opportunist mark”; the idea that a company uses the news to lead successful ad campaigns.
In order to maximize its market shares, Nike has placed great importance in developing their branding and marketing strategies on the net.
As we leap into the twenty-first century, it seems as though everyone is on the Internet and more companies are establishing an online presence to maintain their competitive edge. Along with high-speed Internet connection, the web has become an essential tool for any business to compete domestically and globally. Companies like Nike or Adidas have invested heavily in online brand building and image development.
We are now going to analyse their performance criteria. According to Slack and Al (2006), there are five performance criteria which are;
- Cost: derived from each operation in the supply chain doing business with each other. Cost reduction can be made through partnership agreements or by reducing the number of suppliers. Nike, being a famous brand, prices are quite expensive for the customers.
- DEPENDABILITY – on-time delivery, if individual operations in the supply chain do not deliver on-time, this will create uncertainty within the chain, and customer may over order or order early to protect themselves against late delivery
- FLEXIBILITY – the chain’s ability to cope with changes in customer demand. Often called agile supply chains. As we can see on the website, when we choose a sneaker we can modify it as we want (colors, sizes, name…)
-
QUALITY – The quality of product or service when it reaches the customer is the responsibility of every operation in the supply chain. We can certify the quality of some products with some rules for example the International Organization for Standardization (ISO) 9001, which is part of the series of ISO 9000 relating to systems of quality management. It provides the organizational requirements needed for the existence of a system of quality management.
- SPEED – how fast customers can be served (time between requesting product or service and receiving it), alternative perspective is the time taken for goods and services to move through the chain. Faster throughput means less time as inventory. For Nike, it is in average from two to four days without extra-fees.
Figure 1 Performance Criteria
This figure shows that Nike is pretty well-positioned relative to its direct competitor Adidas. This does not seem surprising; indeed Nike is number one on the market. But as we show the figure, the criteria "cost" can be improved and the others criteria, except flexibility, can be improved too.
A differentiate is done between various types of operation by using four dimensions, these are the four Vs of operations. They are;
- Volume: How many products or services are made by the operation?
- Variety: How many different types of products or services are made by the operation?
The two elements above are contradictory in the sense that if one is more or less high, the other will be more or less low or the contrary.
- Variation: How much does the level of demand change over time?
- Visibility: How much of the operation’s internal workings are ‘exposed’ to its customers?
We can represent it in a special diagram. (It will concern just the Nike sneakers)
Volume Low • High
It is High because they produce and sell a big quantity of shoes.
Variety Low • High
It is Low because you there are not too many kind of sneakers.
Variation Low • High
It is Low because the customers do not have a too much choice.
Visibility Low • High
It is very Low. The customers know almost nothing about where the products come from.
Despite the fact that Nike does not have a transformation process, all companies can draw their current state value. The Nike one looks like the following drawing;
This can be improved by removing one or several process, if there are not indispensable and change them by one process which will do the work of the both previous ones.
The profits generated by the employer of a cheap workforce have allowed Nike to bet over the marketing to invest in research and development and in the design of their products.
Nike’s system has a really good structure, including a developed branding system and an economic strategy, which matches with the branding and promotes the marketing rather than the productive aspect. Despite all the huge profits, it is in this economic system that we see the main limits of Nike’s system. An outsourcing system pushed to extremes which contract with sweatshops in the worldwide, where the workforce is the cheapest to organize its’ subcontracting and poses ethical problems.
Some years before, factories at Nike brought up many issues. The following is an extract from an issue in the Campaign for Labour Rights newsletter.
“My first thought, as I held those shoes in my hands, was pride at how well-made they were and that I had a part in making such fine shoes. And then I put them on my feet. They felt so good! Four years I worked in the factory, and until now I never had a pair of Nikes on my feet. We could not even think of buying them at the wages we received. And then I was very sad when I thought of the conditions under which they were made and angry”.
This quote reflects the feeling of the workers at the Nike factories.
It is for that, there is a growing movement criticising Nike for underpaying workers in their Asian factories.
Workers in China or also in Vietnam earn less than two dollars a day and it is worse in Indonesia, where they just earn on average one dollar a day. Even if the cost of living is quite low, in these kinds of countries workers need at least three dollars a day.
Moreover, the work conditions are not perfect. Indeed according to Ernst & Young “… the workers at the factory near Ho Minh City were exposed to carcinogens that exceeded local legal standards by 177 times in parts of the plant and that 77 percent of the employees suffered from respiratory problems”.
But if it was just about the work conditions and the wages that Nike was involved, it would have been able to keep this a secret. But the worst in this case are the employment of children. Indeed in 1990s, Nike was reported to employ child labour in Pakistan and Cambodia to produce soccer balls. After several legal claims for unfair public campaigns associated with the advertisement of corporate brand, Nike has ceased its irrelevant practices and tries to lead socially and environmentally responsible business operations.
Despite big promotional and advertising campaigns, the original Nike products remain unavailable to most people because their prices are quite expensive. This pushes the purchasers to buy franchise copies holding Nike’s logo, another bad point for Nike.
But today, the greatest risk for Nike is the relationship with its supply chain transformation because Nike’s reputation depends on them. Indeed, if a customer is not satisfied, he will blame Nike and not the one of the chain suppliers. That is why the relationship between the contractors must be “perfect”. Thus some elements must be respected, as we can see from the diagram below.
And it is not just these facts which threaten the Nike strategy and degrade its image, we can also quote the following:
- Some of Nike’s ads are associated with US female empowerment
- Textile industry adversely affects the environment and, therefore, the company is permanently striving to maintain its eco-friendly reputation
- Economic downturn in North America and Asian Countries
- Increase in the Price of Raw materials
- Possibility of distress from growing beyond its capabilities
Despite all these drawbacks, Nike remains one of the best actors in sportswear and several solutions and opportunities are offered to Nike managers to pursue growth. For example, they can:
- Produce sportswear products from manufacturing waste
- Extension of eco-friendly projects like ‘Reuse-A-Shoe Program’ aimed at further recycling
- Emphasis on corporate marketing strategy through the promotion of corporate brand and sponsorship agreements
- Increase female participation (with sponsorship)
- New technology and innovation to stay on top of market needs
- Growing reputation in non-basketball sports will boost e-business
- The company can continue to implement its corporate projects to suit the demand and social needs of its worldwide customers. Though the main action might be put on any promotions and new sponsorship agreements which can be concluded with rising sports stars
- The e-commerce is limited to the USA. However, it has planned to expand to Canada and other international countries in the near future.
- Materials are sourced closer to the factory – the majority within 200 miles (320 km) – so less energy is used for transportation.
Besides advertising, another way of improving their sales is by having discounts on their products. They can give a small discount for their customers in order to gain their trust. They should also reduce the price in the long term. By doing so, they will be able to influence the customers who buy counterfeiting towards the company.
Some years ago, Nike decided to put an important budget to build a more lean, green and equitable supply chain. Indeed, Nike stiffens its contracts with suppliers in working conditions by imposing a 'charter Nike', as explained above. Internal and external audits are also conducted and published periodically.
Meanwhile, Nike responds to this criticism by working with other brands (including Adidas, Puma and Diesel) to fight against the exploitation of workers. Many social projects are also the result of this "association".
Nike is investing in sports clubs and local charities. It sponsors non-governmental organisations, built under the ideology of respect for the environment such as Greenpeace. Nike also provides support and financial contribution to support social projects and micro enterprises.
Last year, Nike declared its two mains objectives for 2015. The first, a turnover growth of around 8%, and the second, is a profit per share growth of around 16% with an expansion of capital yield. To achieve these goals, Mark Parker, the CEO of Nike, said: "We have strong competitive advantages in our portfolio - innovative products and compelling brands that stand in the eyes of those who buy them and they match, and the greatest athletes and teams in the world. We focus on developing, fuel and accelerate the strength of our portfolio”.
In conclusion, Nike is the best “Sportswear Company” in the world, with turnovers reaching milliards every year, with a department research and development in constant activity. Nike focuses its qualities in six sports of predilection. The company owes all its success to Phillip Knight, who was replaced by Mark Parker. A small firm at the beginning, Nike has known how to become a big and influent firm at international level. It was the first company in the sneakers sellers to utilise outsourcing with a purpose to do huge economy of workforce cost. Being a success, a lot of companies have copied from them but the gap was already made.
Nike’s strategy of branding, which consists of sponsoring the best sport celebrities and teams internationally or nationally known, let them to be the brand associated to quality and effort. Nike has had a good perception in betting on the expansion of internet, indeed it developed its e-commerce and today is one of the most advanced in its sector. The website is often actualised and lets the customers create their own unique shoes.
The strategy was brightly achieved until some cases of children employed in Nike’s factories were discovered. From this moment, Nike’s strategy was questioned. Several organisations were interested about Nike’s working conditions and workforces.
Today, all this is behind Nike. After these incidents, the Nike managers reacted by enhancing them and promote a better image of the company after these events.
First they made their contract stricter. Secondly they were working with others companies in the same sector such as Adidas or Diesel about the working conditions of workers. And finally, they were successfully trying to get back their image of innovation and performance of their products.
Last year Nike published its plan for 2015 and the managers announced a turnover close to 27 billion dollars with a cumulative cash flow of over 12 billion.
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