Nike - Identification of the Product, Market and the Brand - Case Study Example

Nike: Branding and Marketing Identification of the product, market and the brand Nike Inc., headquartered in Beaverton, Oregon, is a manufacturer of athletic footwear. With revenues of $12bn, it is the market leader, with 47 percent market share of the $35bn footwear industry, facing competition from Reebok, Adidas, Fila, Converse and New Balance (Business Week, 2004). The two closest competitors to Nike, Reebok and Adidas, merged in 2006, thus providing even greater competition (Landler, 2005). Nike has come a long way from the time that Phil Knight sold sneakers from a car at athlete tracks and later found the company along with Bill Bowerman, Oregon track coach, in 1964. The growth of the brand has been effected both through development of a superior product as well as aggressive marketing. Its main brands are Nike Pro, Nike Golf, Nike +, Air Jordan and Team Starter. Its subsidiaries are Baur, Cole Haan, Hurley International and Converse (wikipedia). Although Nike is branded as a sportswear, it is more of a fashion product in the youth segment, and is an icon of American culture, since not all customers of Nike wear it for sports alone. The brand thrives on its positioning as a high quality product at low prices, that the company is able to maintain by outsourcing the production facilities to low cost destinations like China, Indonesia, Vietnam, Italy, the Philippines, Taiwan and South Korea. The first three countries are the major centers of production (van Dusen). Through the 1980s and 1990s, Nike marketed the brand aggressively, with big-time spending on endorsements and sponsoring events. For example, the Air Jordan brand of sports shoes, the highest-selling sneaker brand, was endorsed by the basketball superstar, Mike Jordan. The company also spent huge amounts of money on advertising during the Atlanta Olympics in 2004 and will be the official US sponsor for the 2008 Beijing Olympics. The company hit rough times in the late 1990s, after it hit sales of $9.8bn and fell subsequently as a result of expanding the product range too wide (Business Week, 2004). Even the top brand, Air Jordan, was carrying dust in the stores. The company went into a massive restructuring in the early years of the new millennium, with increased spending on research and product development and prudent spending on marketing and advertising. Market segmentation Market segmentation is very crucial in consumer markets like those of footwear. The Nike brand is essential a youth consumer brand. Although it is primarily targeted towards the athletes, the brand is looked upon more as youth fashion at reasonable costs. Yet, the segmentation has been along different types of consumers who have demand for various types of sports shoes. On the whole, however, price is not a major constraining factor since the Nike has a high brand value and customers are ready to pay. The leading customer segment, of course, is that of athletes, for whom the main line of Nike products are targeted. However, over the recent years, Nike has also sold soccer boots that are bought by the leading players of the world as well as the common neighborhood players since Nike boots. The comfortable boots that enhance the performance are expensive but the price is not usually a concern since the top players are well-paid or supported by sponsorships from clubs or the manufacturer. Even during the 1994 World Cup, Nike’s sale of soccer boots was a modest $45 million. A decade later, the company’s soccer shoe sales reached $1 billion, at 25 percent of global sales. In Europe, the main market for soccer sales, Nike’s share is 35 percent, ahead of Adidas’ 31 percent (Business Week, 2005). With the advent of e-commerce and internet technology, market segmentation has moved beyond the traditional segmentation strategies by which a particular brand is targeted at a group of customers. Mass customization is the new strategy of segmentation that consumer product sellers, particularly those of apparel and footwear, offer. Nike has been one of the first footwear sellers that adopted this strategy. Through this strategy provided online, the customer can visit Nike’s, become a member and order for a particular variation of a product in terms of color, design or size. That is, the customer can design his own shoe through this option or even put his own name and club number put on an Air Jordan shoe. With this, the customer gets to personalize the shoe and feel professional. The consumer Nike’s consumer base is the entire youth market although its branding image is that of the athlete. This is why Nike sells athletic attire as well as footwear. Primarily in order to capture the entire youth market, Nike spends a lot in sponsoring amateur, collegiate and professional sports. Over the years, it has sponsored summer camps in amateur athletics and athletic programs of Division 1 Universities in the US. Nike also sponsors professional leagues like the National Football League, National Hockey League and National Basketball Association. Nike was the pioneer in selling sports footwear online. It opened its web site as early as in 1999 and has since then provided multiple channels for selling all its products, through brick and mortar retail stores and online. It has also entered into a marketing arrangement with United Postal Service to deliver products ordered through mail order or the internet. For the last several years, Nike has expanded into new markets like China and India that have experienced increasing disposable incomes in the hands of the young generation. Positioning of brand The company developed an impressive number of products specifically for the Atlanta Olympics, namely Monsterfly for sprinters and Air Zoom miller for distance runner. Rather than sponsoring the event, as the competitors did, Nike opted for sponsoring sportspeople wearing the brand. This provided the company a far more publicity mileage than the traditional marketing techniques as all the top four sportsment who finished the100 meters wore the swoosh logo of Nike, which was first advertised in a basketball championship for which the champion was endorsed by Sara Lee (Business Week, 2004). Its advertising slogan “Just do it” has been a great hit with the young customers. According to Philip Kotler, a product should be judged according to its core value, the actual value and the augmented value. The core value of the Nike product is its use value as a sports shoe but the actual value is its superior quality that enhances the performance of the sportsperson. The augmented value of a particular product is determined by the branding, packaging and special features. For Nike, the branding through large advertising spending, sponsorships of events and endorsements of sportspersons augments the value much more than its core value, which is at par with its closest competitors. The Air Jordan commercials during the 1980s and 1990s increased Nike’s market share to such an extent that Adidas and Reebok found it difficult to design competing commercials (shsu). Nike’s mission statement says "To lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike" (nikebiz.com). Customers are Nike’s top priority and all its strategies are focused towards customer satisfaction. Particularly through its web site, Nike tries to customize its products in order to increase customer loyalty. Marketing Mix of Brand For developing a strong brand, it is essential to have an appropriate marketing mix, that is the four P’s – product, price, place and position, as proposed by Neil Borden in 1964 (articles tree). Nike understood the marketing mix correctly, enabling it to design its strategy effectively. Since the product is targeted at young adults and teens, all its promotional campaigns use young stars like Michael Jordan, Serena Williams and so on. Analyzing the four P’s, it is obvious that Nike has developed the product as well as it can be. More recently, the company is undertaking even more intensive research into the development. For example, it is developing Nike Free, a particular type of shoe that would give the runner the feeling of being barefoot. This was prompted by the success of barefoot training for Kenyans (Business Week, 2004). Nike has achieved customer loyalty both through advertisement and quality. The customization possibilities of Nike shoes have added to the quality maintenance. Nike’s product range is widely spread out, with shoes and apparel available for soccer, basketball, combat sports, tennis, American football, athletics, golf and so on (wikipedia). Besides, Nike clothing has emerged as a popular icon of the hip hop culture of modern young Americans. It has also partnered with Apple Inc to develop the Nike + product that monitors the runner’s performance through a radio device attached to the shoe. In terms of price, the second criterion of the marketing mix, Nike shoes are expensive than other athletic shoes. However, these shoes are either catered to the well-off or are sponsored by the club or the manufacturer. Hence, in terms of pricing, Nike finds favor. However, Nike sells also through the retail and it has few own stores. Hence, the retailing margin often eats into the demand for the product although the cost of production for Nike shoes are reasonable. The concept of place, or location, of sale of the product has changed greatly from the time that the theory of marketing mix was first proposed. Most consumer products like Nike sells through multiple distribution channels. Nike sells through 25,000 retail stores across the United States including its own Niketown stores, sponsorship programs as well as online. In the international market, Nike sells through distributors, retailers and franchisees. However, Nike’s distribution channels are strategically decided and hence are extremely effective. Even the online sales, which are not mediated through the shop floor, are strategically allied with logistics providers. Nike is most aggressive in its promotion, both through push and pull mechanisms. Through its television advertisements and sponsorships, Nike provides information on its products as well as make them want to buy the products. Through the branding of the product as a strong athletic gear aimed to improve performance, Nike induces young adults and teens to desire for the product, which is named after the Greek goddess of victory. In the sports footwear industry, Nike ranks most favorably in terms of its marketing mix. All the television advertising, sponsoring, endorsements and the strategic partnerships like that with UPS are designed to increase the company’s revenues. For example, when the company decided to focus on soccer shoes in Europe, it adopted the same strategy that made it successful in athletic shoes in the United States. It sponsored the Manchester United Club with a phenomenal 14-year amount of $450 million for its merchandising and apparel. Similarly, when the company entered into the sports apparel segment, it designed stylish clothes that were endorsed by the tennis star, Serena Williams (Business Week, 2004). Sources of competitive edge The main source of competitive advantage for Nike is its positioning as an American sportsgear company. It is a pioneering manufacturer of the product and has had the early mover advantage in capturing the market. The closest competitors, Adidas and Reebok, that entered the market after a decade, failed to take away the lead Nike had already taken. Its positioning as a symbol of American strength and prowess has been a major strategic success. In its manufacturing process, Nike’s strategic choice of outsourcing production processes predates the trend that has become popular in many manufacturing industries in the present times. Nike does not have any factory of its own and its main manufacturing facilities are located in Asia, providing it cheap labor. However, the strength of Nike generates from its designing capabilities and adaptation for a wide variety of sports. Critique of marketing The most serious criticism of Nike’s strategic decisions has been in terms of labor relations. Nike has been criticized of exploiting the workers in all the locations that it manufactures, that is, in China, Vietnam, Dominic Republic, Mexico and Indonesia. In 1996, an activist group in Vietnam found that Nike flouted the minimum wages laws of the country, which in any case was far lower than those in the United States. Particularly in the free trade zones in Asia, Nike has been blamed for providing poor working conditions to the laborers. Nike has also been blamed for using child labor in its factories in Cambodia and Pakistan (Time, 1997). Nike has adopted a code of conduct for ethical practices but it continues to outsource production to local companies in other countries that openly flout such norms. While the popular Nike advertisements project strong American women, many activists claim that the production facilities in Asia in effect disempower the women in these countries. Consumer activists have also filed lawsuits alleging that Nike engaged in false advertising. Although the court overruled the case, citing the Nike advertisements as nothing but commercial promotions, these unethical practices tarnished the company’s image that resulted in the slump in its sales for some years. Over the last four to five years, however, Nike is attempting to rectify the problem and has adopted a program for making the code of conduct effective in all its vendor facilities. Works Cited Landler, Mark, Two Brands Running as a Team to Overtake Nike, August 4, 2005, New York Times, http://www.nytimes.com/2005/08/04/business/04shoe.html Marketing Teacher, Nike, http://marketingteacher.com/SWOT/nike_swot.htm Van Dusen, Steven, The Manufacturing Practices of the Footwear Industry: Nike vs. the Competition, http://www.unc.edu/~andrewsr/ints092/vandu.html Business Week, The New Nike: No longer the brat of sports marketing, it has a higher level of discipline and performance, September 20, 2004, http://www.businessweek.com/magazine/content/04_38/b3900001_mz001.htm SHSU, E-marketing strategies: A Comparative analysis of athletic shoe Industry, http://www.shsu.edu/~mkt_ssm/mkt575/Shoes.htm Articles Tree. Marketing Mix, http://www.articlestree.com/marketing/understanding-your-marketing-mix-brings-success-tx374717.html http://en.wikipedia.org/wiki/Nike,_Inc. Time, Taking A Look Inside Nike's Factories, 1997 http://www.time.com/time/magazine/article/0,9171,988059,00.html?promoid=googlep Read More