Nike's Marketing Principles

Blessed from the mighty heavens by the Greek Goddess of Strength, Power and Victory read Nike; the brand has always captured one’s imagination and strengthened its position among the upper echelons of marketing icons. Nike’s marketing strategy draws your attention by interrupting you, attracting you, ensnaring you and finally and most importantly satisfying you. In a recent conference, Paul Knight , the charismatic founder and ex- CEO of Nike chose a divergent outlook to most other speakers on the subject of choosing Nike over competition. He asked people who run to rise from the comfort of their seats. He then asked those who run three or more times a week to keep standing. He looked on and exquisitely announced -We are for you. “When you get up at 5 o’clock in the morning to go for a run, even if it’s cold and wet out, you go. And when you get to mile 4, we’re the one standing under the lamp post, out there in the cold and wet with you, cheering you on. We’re the inner athlete. We’re the inner champion.” “Just Do It is more than a tag line, it’s a motto. It’s a cheer. It’s a rallying cry”. A sublime demonstration which augmentsmarket segmentation, fortifies positioning, empowersbrand building, and exemplifies relationship management in a snapshot, slowly and yet subtly hitting the sweet spot.

The Story So Far

More than 25 years ago, Co-founder Bill Bowerman used a waffle iron to conjure up a new sole for a pair of running shoes. Nike hasn’t looked back since. Innovation has been the mainspring for a company exalting in its enduring success. With insufficient funds to indulge in advertising, Phil Knight and Bill Bowerman took to the streets, selling shoes at local athletic meets from the backs of their trucks. The word-of-foot gripped the sporting fraternity and marked the beginning of Nike’s success on track. Then came the late 80’s and with it the pain of losing out on sales to Reebok who introduced training shoes, tailor made for a growing breed – health conscious women. In a bid to regain market share, Nike played to their strength and countered punched with new models of shoes designed for various sports. This was the phase when Knight and Bowman realized the importance of aggressive marketing coupled with product innovation and began to invest a princely part of corporate revenues towards marketing and advertising. By the early 90’s, Nike was ranked as one of the best advertisers in the world, soulfully striking one’s emotional chords rather than the rationale ones.

The Marketing Mix

One of the key ingredients of the perfect marketing recipe comes by way of blending in the marketing mix. The key elements of the marketing mix are a set of interrelated entities which are set in unison with one another. (Proctor, 2000: 212).

The marketing mix is a combination of the 4 P’s – Product, Price, Place and Promotion for any business venture.

Adapted from Exploring Business (Karen Collins)

We shall evaluate the positive and negative impact of Nike’s marketing mix in more detail.

Product:

Product is the company’s offering via goods or services to the customer. A product can be viewed at three different levels:

Adapted from Selling and Sales Management (David Jobber)

Core Product

It is the main benefit that the product offers to the customer. In the case of footwear, it is meant to protect and comfort the human foot whilst it is on the move

Total Product (adding value)

The chief aim is to ensure that customers purchase your brand. Nike has been a dominant player in the footwear market over the years. Their well-crafted design, innovative products, marketing and brand building activities have helped them gain a differential advantage over their rivals. Their packaging and labelling has been state of the art over generations.

Augmented Product(Extended Product)

The non-tangible benefits that the product can offer. This encapsulates customer service, after sales and warranty. Nike prides itself on excellent customer services with faulty products instantly replaced without any flutter. Nike warranty time is standard to current markets.

Today, Nike’s products are manufactured in more than 700 factories, employing over 500,000 workers in 51 countries. The company, through its Footwear segment, offers footwear products for men, women and children. Through its Apparel segment, it is engaged in selling sports apparel and other accessories designed for specific purposes. Under the Equipment segment, the company offers a range of performance equipment such as bags, socks, timepieces, sport balls, electronic devices. Other segment offerings are brands such as Cole Haan, Converse, Hurley, NIKE Golf and Umbro. Over the years, Nike has changed the way the game is played with its wide range of products. Nike’s offerings have been in the ascendancy with the sales of 175 different styles of shoes in the 1980’s springing to almost 772 different styles in the 1990’s collections to a remarkable 1200 different styles showcased in the 2000 collection. Nike Air Max was the first line of shoes introduced in 1987 with frequent additions in the same product line over the years. The Air Jordan XX3 was its marquee shoe product designed for basketball with the contemporary issue of environment consciousness in mind.

The Ansoff Matrix

The Ansoff Matrix is a marketing tool developed to help marketers figure out the best way to grow their business via new and existing products and new and existing markets. The four strategies involved comprise of: (Kotler, 2006:48)

Market Penetration

Product Development

Market Development

Diversification

Adapted from Marketing Management (Philip Kotler)

Market Penetration

Market penetration is built around marketing existing products to existing markets. Some of the techniques involved to increase revenue are promoting the product, professing brand loyalty etc.

Nike has invested heavily in drawing up an elevated level of brand awareness to its omnipresent customer base by way of sponsorships, advertising and promotional activities. The company have significantly revamped their supply chain system which in the past has hampered their quest to meet global customer demands. They have also driven their retail based sales strategy to maintain their shelf space with enticing incentives.

Market Development

Market development focuses on marketing existing products to new markets. Some of the methods involved in capturing a new audience are exporting products, targeting a new market segment etc.

Nike has effectively been able to expand geographically with their multifarious product offerings. They pulled off a masterstroke in 2003 signing up Liu Xiang, China’s first gold medallist at the Olympics .This was followed by an advertisement showcasing his muscle and that of a nation with the trademark Swoosh on his shoulder. The result – a walloping 66% rise in sales of its core products in China in what was the start of an intangible treasure hunt.

Product Development

Product development talks about marketing new products to existing markets. The capabilities here involve innovating new products to replace already existing ones.

Nike has constantly been on the run with its technically advanced shoes time and again. The classic example is that of the Air Jordan Lines. There have been a staggering 25 major models of the product released over the past 25 years with variable designs and signature performance re-layers.

Diversification

Diversification thrives on marketing new products to new markets. It can be classified as related and unrelated. Related means remaining in the same market one is familiar with. Unrelated is delving into a new industry with no marketing experience.

Nike has followed related diversification. The Prime example: adding the clothing line to its existing shoe operations. Nike has introduced a 3D soccer game available for download from their website which advertises their key products. This is targeted on a global scale at youngsters who gradually get associated with the product – catch them young they say!

BCG Matrix

The Boston Consulting Group matrix is a chart designed to help companies analyse the performance of their business units. The market growth and market share dimensions provide a handy evaluation for the company on how to prioritize their product portfolio.

Adapted from Perspectives on Strategy – (Carl W Stern/George Stalk)

Cash cows earn a lot of revenue and the onus is on stability strategies. In Nike’s case, a vintage example is that of the Air Jordan sneakers. They exhibit low growth but already have a dominant market share.

Stars are fledging businesses that thrive on accelerated growth of market share. Companies tend to reinvest their profits back into the business hoping to gain enough market-share to envisage themselves as cash cows. Nike has recently announced quadrupling their investments in apparel innovation and trends citing it as their biggest opportunity in the next five years. Nike has also developed its Nike+ products combining the best of both worlds – superior products and technology.

Question marks are new businesses whereby companies delve into expanding markets albeit with a low market share. Companies use share profits from other businesses to try converting a question mark into a star. Fitting example of a question mark in Nike’s case are their recent watches and electronic products designed to capture more market share.

Dogs yield low returns in a low growing market. Companies tend to employ turnaround and retrenchment strategies for their dogs or even dispose them off if they don’t foresee a measurable future. The Nike brass decided to sell Bauer Hockey in 2008 in the event of tight margins in hard goods and a flat hockey market.

Product Life Cycle

Product life cycle explains the history of a product and the stages which it went through. It can be divided into the following stages:

Introduction

Growth

Maturity

Decline

Introduction Stage:

When a product is introduced, sales are going to be low till the customers become aware of the product and its benefits. During this stage, the companies will try to establish a market and build a demand for the product.

Growth Stage:

The growth stage is a period of quick revenue growth. Sales start increasing as customers start getting to know the product and its benefits .Sales will increase further as retailers express their interest in shelving the product.

Maturity Stage:

Maturity stage is the most profitable phase. Advertising expenditure will be reduced. Competition by other firms on similar products will be foreseen. The primary objective at this stage is defending market share whilst going hell for leather with profit making.

Decline Stage:

Sales gradually begin to decline because of a potential variance in customer tastes. The market reaches its threshold for the particular product. Decrease in sales leads to either less or no profit at all.

Example

Air Jordan

Air Jordan, also simply as Jordan’s are a brand of shoes and athletic apparel produced by Nike originally designed for a very well known professional NBA basketball player Michael Jordan. The Air Jordan line is now sold by the Jordan Brand subsidiary of Nike. Since its first release in 1985, there have been new designs of the shoe released each year and have been making decent profits even after Michael Jordan retired from the NBA.

Below is the Life cycle for this product.

Life cycle curve of Air Jordan

SALES Introduction Growth Maturity Decline

TIME

Nike introduced the first series of Air Jordan shoes in 1985, there were a multiple series released till date.

The above graph illustrates the stages this product went through in product life cycle, which was introduced in 1985. It had a decent introduction, it reached the next stage i.e growth by 1992 and made a good amount of profit and reached a maturity state by 1998 and has maintained stability in this stage till date.

Nike Hockey Sticks

In 1994, the year Nike bought Montreal’s Canstar Sports, maker of the popular Bauer skates and other equipment, it then manufactured the series of hockey sticks between 2004 -06 in china. Random testing by health have found the lead in the sticks far exceeds the acceptable tolerance and because the sticks are used by youths, lead is especially harmfull. Approximately 100,000 sticks have been found to have dangerous levels of lead. Nike Bauer has issued a recall that takes the sticks out of the hands of youth and junior players.

Below is the product life cycle for this product:

Nike Hockey Sticks

Introduction Decline

SALES

TIME

The above graph illustrates the sudden decline of a product. Nike introduced different models of Hockey sticks for respective customers in American region in the year of 2008. This product has not gone through the stages which comes before the decline stage, since, quite before the product would start growing, it started to decline since the sticks were found harmful to be played with.

Positive Impact:

Nike’s gift to the world lies in the comfort of mankind’s happy feet. Creativity has always been Nike’s forte and it comes as no surprise that they have toyed with the idea of customers designing their own shoes. Watching over the process of production of their creation adds to customer satisfaction and gives them a sign of belonging. Keeping abreast with technology, Nike has collaborated with Apple Inc. to produce the Nike+ product used to monitor a runner’s performance through a radio device in the shoe linked to the iPod Nano. . The cricketing fraternity has largely benefitted from the Air Zoom Yorker, devised to be 30% lighter than competitor shoes. Athletes have found the Nike Free edition to be a major boon with the design allowing foot muscles to gain strength by way of less constriction mechanism. Basketball players found the Nike Hyper dunk to be quite useful with its superior shock absorption techniques minimizing the impact of stress on the muscles.

Customer satisfaction can be directly mapped to the success of the company. Nike’s capture of market share with its diversified product range has seen its revenue shoot through the roof in recent years.

Negative Impact

Nike also had its fair share of brickbats with respect to its products. Its futuristic-looking hockey skates bombed in the markets during the late 1990’s. The failure was deduced to be a result of rushing the product into the market before fully straightening out the probable design problems. A good 13 years after acquiring Bauer, and arrogantly making promises that it would revolutionize the business of hockey, Nike eventually sold its Nike Bauer unit to investors Roustan Inc. and Kohlberg & Co on February 2008, an unassuming fall from grace for one of the world’s powerful brands. Though Nike Bauer was a market leader, it was predicted that the company would find it hard to recover even half the $395 million amount it paid for Canstar Sports, Bauer’s Montreal-based parent, in December 1994 mainly due to the stagnant hockey market. Nike as a company was built on the assertion that low cost and high quality running shoes could be imported from cheap Asian markets like Japan and sold in the US. Nike felt the negative tremors as allegations were rife that they underpaid factory workers in Indonesia – they sold shoes for around about $150 and paid the person making them a meagre 50 cents!.Along came the by-products of child labour in Cambodia and Pakistan and unsatisfactory working conditions in China and Vietnam during production. Recently, Nike has brought about winds of change towards its irrelevant practices and is also dedicating its efforts towards environmentally responsible business operations

Price

Price is one the key component which more or less decides the fate of a company. It is a return on efforts poured into manufacturing and marketing a product. Listed below are the various components of an effective pricing strategy (Proth and Dolgui, 2010: 101)

Market- Skimming

The process of Price Skimming involves setting high price for new products. The objective is to skim the revenues layer by layer from the customers who are willing to pay more to have the product sooner.

Market- Penetration

This involves setting low prices for new products in order to attract and penetrate the market in the initial stage of the launch of the product

Competitive Pricing

Prices in this strategy are set lower than that offered by the competitors or same price with the added incentives to attract customers.

Premium Pricing

Prices are always set high for a product or service to emphasize its exclusiveness.

Economy Pricing

This is a no frills low down price technique, since the manufacture and marketing costs are kept at a minimum.

Psychological Pricing

This approach is manifested when marketer’s wants the customers to feel that they are paying less. Prices are often expressed as odd prices, for example 99.99 cents not 100 dollars.

Product Line Pricing

This approach is mostly used by the marketer who has a wide range of products or services offered. The price is reflective of the benefits of parts of the range.

Optional Product Pricing

Companies offer to sell option or accessory products along with their main product.

Captive Product Pricing

This is the practice where the prices of a basic product are kept low to attract customers and the price of a companion product without which the basic product cannot be used is kept high.

Product Bundle Pricing

In this approach different products are put in the same package and sell them for discount. This helps the sellers to move old stocks.

Promotional Pricing

This approach is mainly used by the sellers who want to promote their product by attracting attention to the business. Typical example is that of a buy one get one free scheme.

Geographical Pricing

Geographical pricing is considered for different variations in prices in different parts of the world.

Value Pricing

Prices of a product will be based on the value it creates for the customer. This is usually the most profitable form of pricing, if it can be achieved.

Nike’s Pricing Strategies

Nike’s pricing strategy all comes down to understanding the products, competition, marketing the product and most importantly determining which price point is the best for their product .Needless to say, it is very rare that an organization makes use of all the above permutations and combinations in pricing techniques. Nike is no different with its pricing strategy revolving around penetration pricing, premium pricing, value pricing, skimming pricing and psychological pricing.

Penetration Pricing

Nike initially started out on the principle of penetration pricing so as to capture market share and then gradually increased prices.

Premium Pricing

As Nike exclusive products developed; it became recognizable to consumers in that marketplace. This drove its perceived value to a higher level especially with the limited editions of the Air Jordan’s.

Value pricing

Nike went about setting the price to the degree at which consumer’s place their value on the product. It is at this very point that customers associated themselves with Nike and paid the extra penny, as long as their products remained state of the art and exhibited the cutting edge.

Psychological pricing

Nike has priced their products to $99.99 (for example). After all in one’s mind, a .99 is always cheaper than a .00.

Skimming pricing

This approach dwells on skimming market profits layer by layer. Nike has used this to good effect in setting high initial prices for the new design they bring into the market. This is then tailgated by a gradual decline in price as the design has been in the market for a while and a new product is on its way.

Adapted from Principles and Practice of Marketing (David Jobber)

Nike employs a rapid skimming strategy of setting high prices as well as investing heavily in advertising the new product. Generally, Nike shoes current season last for a period between 3 to 6 months where they are sold at peak prices. After that season, comes a process called closeout where prices are gradually reduced. The final stage is that of the inventory cleanout where a take all basis strategy is employed to sales.

Nike’s quality is directly proportional to its commitment of excellence. Excellence comes at a premium and fittingly so. This places Nike in the upper rightmost quadrant of the Price vs. Quality matrix. Nike’s products are well worth their weight in gold.

Positive Impact

Nike’s dominance in the market through its vehement promotional strategy coupled with a smart pricing function makes the market as a whole unattractive for competitors. In most cases, it has identified the precise price points across its range of products. The impact of Nike’s pricing strategies can be seen in its overwhelming sales and profit margins (on a single pair of shoes!!!) as depicted below.

Negative Impact

Nike’s pricing strategy has not always been quaint. The Air Jordan brand shoes were premium priced, released once every year in order to keep the value of the shoe as high as possible and make it a collector’s item. However, this has prompted this line of shoe to be highly duplicated or imitated which has become a major headache for Nike with the virus spreading to the other products just as well. In 2003, the overpriced Air Jordan’s at $200 were biting the dust on store shelves as consumers shifted base to Sketchers (SKX ), K-Swiss (KSWS ), and New Balance shoes who slowly began nibbling away at Nike’s heels.

Nike has not utilised all the strategies of pricing. Each and every pricing strategy has its own advantages and disadvantages. Nike can venture into approaches like promotional pricing as an attraction tool for the customer by mentioning the word FREE. Nike can also utilize product bundle pricing by combining products (with a high and low demand) and selling them at a discounted price.

Place (Distribution)

Place pin points to effective distribution of products or services to the end customers. It is paramount for the organization to correctly estimate the needs and wants of the customers to meet its marketing objectives.

Adapted from Principles of Marketing (David Jobber)

Channel 1: Direct Marketing (No intermediaries)

The direct marketing channel has no intermediaries. The company sells straight to the customers.

Channel 2: Indirect Marketing (One intermediary)

The first level of indirect marketing involves one intermediary. The company sells its goods to large retailers who in turn line them up for customers.

Channel 3: Indirect Marketing (Two intermediaries)

The second level of indirect marketing involves two intermediaries. The company sells its goods to wholesalers who buy in bulk and sell them to smaller retailers.

Channel 4: Indirect Marketing (Three intermediaries)

The third level of indirect marketing involves three intermediaries. The company sells its goods to agents who contact wholesalers who further sell to retailers.

From the view of the producers, more number of levels leads to higher complexity and much less control.

Nike employs the first two channels to good effect. Here’s how:

Nike -Direct Marketing

By 1999, NIKE had opened 13 of their privately owned NIKE Town superstores located in high traffic upmarket surroundings. The first of those was a posh store in Portland which was soon bettered by a larger than life outlet in downtown Chicago. Nike also operated 53 outlet locations focussed on liquidating overstocked and outdated inventory. NIKE redesigned and overhauled their website incorporated with e-commerce functionality. A variety of products were put up for sale at full retail prices.

Nike – Indirect Marketing (Retailers)

Nike operates 338 retail stores in the US and 336 stores worldwide.

Retail stores in the US

Retail stores Worldwide

Nike’s store formats include a mix of departmental stores, footwear stores, goods stores, tennis, skate and golf shops, and as well as retail accounts. Nike store are centrally located and easily accessible. The company operates three significant distribution centres located at Memphis, Tennessee and Wilsonville, Oregon in the US. Then, there are the leased distribution facilities which operate on a comparatively smaller scale in the home country. Nike also runs 14 distribution centres worldwide with Japan and Belgium among their prime locations.

Subsidiaries

NIKE also has global presence through several of its subsidiaries. The wholly owned subsidiaries include Cole Haan, Converse, Umbro and Hurley. Converse is engaged in designing, distributing and licensing of athletic and casual footwear, apparels and accessories. Cole Haan designs, markets and distributes luxury shoes, handbags, accessories and coats. Umbro is engaged in the designing, distributing and licensing of athletic and casual footwear, apparel and equipment for soccer under Umbro brand. Hurley designs and distributes sports apparel relates to surfing, skateboarding and snowboarding. Nike is developing high calibre information systems, logistics and a much improved supply-chain management system. In the good old days production was based on instinct. Nike used to take a guess as to the number of pairs of shoes to churn out and hoped to cram them on retailers’ shelves. Nike has revamped its supply chain management systems since the disaster to ensure the right amount of sneakers find their way across the world more quickly.

Positive impacts

As Nike’s market share grew, it buoyed merchants who carried their products. This helped Nike negotiate terms with retailers on location, display and inventory levels – all of which contributed to the overall customer experience. NIKE Towns in Portland and Chicago became an instant hit with customers flocking in to witness the two-story wall painting of Michael Jordan and trying out shoes in the mini basketball courts. Souvenirs and other rarities were a showcase for the latest Nike had to offer and helped in brand building activities. The 53 stores opened up for liquidation served as a handy means for getting rid of

excess inventory whilst maintaining control of the brand. Nike’s re- launched website keying in on inspirational content as well as innovative products was met with a phenomenal amount of success.

Negative impacts

In the early days, Nike suffered from retailer inconsistencies. Imperfect information was received on inventory levels leading to stock outs and misallocations .The infamous i2 fiasco was a rap on the knuckles for Nike’s brand image. It was made an example of as a company that botched up its supply chain unit. It was a deemed to be software glitch and the repercussions cost Nike more than $100 million in lost sales, leading to a depressed stock price by about 20%, which further went on to trigger a flurry of class-action lawsuits. Succinctly, the i2 demand-planning engine ordered for a surplus of thousand Air Garnett sneakers than the market had called for and a thousand fewer Air Jordan’s than were actually in demand. Nike looked at various operational workarounds but at best it was a classic case of damage limitation. The opening of the NIKE Towns and e-commerce applications was a cause of concern for Nike’s traditional retailers initially as it would eat into their business. Nike allayed fears by positioning their direct marketing strategies differently to the retail markets but doubts were still casted on the anomalies of this move.

Promotion

Compelling promotions and captivating advertisements are the cornerstones of a successful product in contemporary times. Listed below are the various components of an effective promotional mix.

Advertising

Nike’s legend with television commercials dates back to October 1982 with the first advertisement broadcast during the New York Marathon. Wieden and Kennedy were the creators in chief back then and not surprisingly their partnership with Nike still holds fort to this day and age. Nike advertisements are very appealing and leave a long lasting imprint in the viewer’s minds.

Public Relations

Public relation is an entity that focuses on both brand building as well as defending. Nike has recently employed the green public relations strategy. This has been a powerful weapon in the corporate social responsibility aspect with environmental issues the subject of concern in contemporary times.

Personal Selling

Nike endorses the personal selling technique to good effect. Customer assistants in Nike retail stores have direct contact and constant interaction with the buyers of their merchandise. Nike representative’s often train customer assistants on the latest in technology and merchandize.

Sales Promotions

Sales Promotions are driven around the accelerated purchase of products. Nike entices its customers with discounts, rebates and gift coupons.

Direct Mail

In the direct mail method, publicity material is sent to a customer within the targeted segment. Nike’s concentrated efforts in recent times towards publishing its customer catalogues has been met with open arms – a staggering 200,000 responses to the catalogue e-mail in 60 days.

Internet Marketing

The dot com industry has been an emerging trendsetter in ever growing and evolving marketing strategies. Nike has given volumes of ad space to its armada of products via a network of sites. Nike is accelerating Internet marketing campaigns to diversify extensively on the web. The impact of these promotional strategies can again be traced back to the profits at which Nike operates on.

Sponsorship has been a key strategy in Nike’s promotional activities. Nike endorses a galaxy of celebrity athletes across all sports. Michael Jordan was an absolute superstar for them in terms of publicity and sales. A whole array of national teams including the Indian National Cricket Team is under sponsorship contracts with Nike. News has just come in of Nike’s win as the official uniform sponsor of the National Football League (NFL) for a deal worth a whopping $500 million.

The Communication Model

Adapted from Marketing Management – Philip Kotler

Nike has efficiently translated all the key factors in efficient communication. Through their marketing strategies, they have reached out to a plethora of audiences and gained a profitable response. They have encoded their ideas, coated them with creativity and pushed them through to be easily decoded by the receivers (custo