Principles of Marketing

Nike, Inc
11/25/2010

Module Leader: Bal Samra

Prepared by:
 Menino Pereira
 Karthik Gowda
 Shreyans Sethi
 Ronak Shah
 Siddhashrama Murthy
 Principles of Marketing

 Nike’s mission statement is all about combining the love for sports
with a mutinous and headstrong nature to think out of the box by
means of innovation and inspiration (Katz 1994)

PRINCIPLES OF MARKETING-NIKE PAGE 21

 TABLE OF CONTENTS

INTRODUCTION..........................................................................................................................3
The Story So Far.....................................................................................................................3
MARKETING ORIENTATION........................................................................................................3
Types of Orientation..........................................................................................................4
COMPETITIVE ADVANTAGE.......................................................................................................7
Porter’s five forces.................................................................................................................7
Porter’s Generic Strategies....................................................................................................9
The MARKETING MIX...............................................................................................................11
Product.................................................................................................................................11
The Ansoff Matrix............................................................................................................13
BCG Matrix.......................................................................................................................14
Product Life Cycle.............................................................................................................16
Price.....................................................................................................................................19
Nike’s pricing Strategies..................................................................................................20
Price versus Promotion Matrix.........................................................................................21
Price versus Quality Matrix..............................................................................................22
Place (Distribution)..............................................................................................................23
Nike -Direct Marketing....................................................................................................24
Nike - Indirect Marketing (Wholesalers & Retailers).......................................................25
Value added services – Intermediaries............................................................................25
Distribution strategies.....................................................................................................25
Promotion............................................................................................................................26
Nike’s promotional strategies..........................................................................................27
Communication Model.....................................................................................................28
SWOT ANALYSIS OF NIKE INCORPORATED..............................................................................30
Strengths:.............................................................................................................................30
Strong Brand Image.........................................................................................................30
Supplier Diversity.............................................................................................................30
High Growth.....................................................................................................................31
Weakness:............................................................................................................................31
Recent Setbacks...............................................................................................................31
Child Labour and Sweat Shops.........................................................................................31
Opportunities:......................................................................................................................31
New Product Launches.....................................................................................................31
Growth of e-Retail Industry.............................................................................................32
Threats:................................................................................................................................32
Increase in Counterfeit Products......................................................................................32
Increase in Wage Rates...................................................................................................32
Intense Competition.........................................................................................................32
UNDERSTANDING AND SUSTAINING COMPETITION...............................................................33
REFERENCES.............................................................................................................................34

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INTRODUCTION
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” (Sinek 2010). A sublime demonstration which
augments market segmentation, fortifies positioning, empowers brand 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 as per customer requirements. 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 (McDonough and Braungart 2002).

MARKETING ORIENTATION
In the earlier days, Nike was known to be a product oriented organization. The motto was to
just plainly and simply just sell shoes .Gradually that changed as a function of time with the
focus shifting to a more customer oriented approach. Prime importance was given to the
consumer by endlessly striving to develop new and high quality products catering to their

PRINCIPLES OF MARKETING-NIKE PAGE 21

specific needs whilst endearing them with the feel good factor(Armstrong ,Harker ,Kotler
and Brennan 2009:41)

Question is can an organisation only survive and continue to grow in the market by just
being customer oriented? Well it is imperative to be customer oriented because if any
organisation fails to value the importance of the customers and wants to trade on its own
terms then in this competitive world, such an organisation will cease to exist. The only
exception to this is that when an organisation works in a monopoly market which does not
exist these days.

Organisations have the onus of keeping the stakeholders happy. Stakeholders are those
groups without whose support the organization would be a meltdown. They generally
comprise of investors, creditors, suppliers, community and consumers. Barring the
consumers, the other stakeholders will only be happy when they get suitable return on their
investments, job and growth opportunities etc. In this context, it’s worth mentioning MBO
i.e. Management by objective which simply refers to motivate and channelize one’s efforts
by suitably awarding or remunerating them and getting the best out them. The individuals
think at the end of the day that they have achieved their objective. But it is paramount to
keeping them motivated as they would head towards attaining the organisations targets and
objectives.

So, as a whole Nike is customer as well as sales oriented because only such organisations
that are bi-oriented make it to the top and sustain rather than the ones who fail to
recognise the importance of the blend.

Types of Orientation

Adapted from Principles of Marketing (David Jobber)

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Product Orientation

Product oriented organisations are those which centre its activities on continually improving
and refining it’s products or services so that customers get the best value for the money
spent on these products or services. In simple words, in this type of orientation
organisations look for ways how to delight their customers. Innovation and quality
management is the key to be successful using this marketing strategy. The earlier approach
used by some business that whatever is put forward to the customer, he/she will accept it
or that there is buyer for everything that a manufacturer produces does not work any
longer. Nowadays, organisations have realised the importance of treating their customer’s
views seriously and put them into account whenever new products or services are
launched .This involves managerial functions of research and development, design, testing,
marketing, quality management and various other functions.

Nike used to be a product oriented that constantly endeavoured to innovate with products
that are comfortable, durable and value for money. In the early days, they would just
manufacture shoes and aggressively sell them. But in the late 80’s, it became apparent that
they were missing a trick as Reebok overtook them in sales by catering to market needs.
This is when there was a realization that a product oriented approach was inhibiting and a
customer focussed outlook was the best way forward. A virtual group was formed within
the organization to set about working on ways and means of approaching the market along
with the perceptions, culture changes and a different thought process about
business(Velsor, McCauley and Rudeman 2010:324) . The rest is history!

Market/Customer Orientation

A market orientated company is one that organises its activities, products and services
around the wants and needs of its customers. Until recently not many organisations were
customer oriented. A major swing towards market-orientation has led to intensified market
research and product ranges carefully designed to fir customer preferences. In these
customers wants and needs are given penultimate preference rather than developing
products which are just imposed on the customers. Being market oriented makes the
companies less vulnerable to product failures as in the first place the products are
developed and introduced at the right time as per the customers’ needs. Organisations treat
this with utmost importance and have able people with a foresight hired to handle the
customer preoccupied department (Heiens 2000)

Nike has gauged this and strived to be highly customer oriented. They have their designers
and strategists work around the year to develop products and making sure that they are
introduced in the market at the right time .Timing of the launch of product is very important
for the product to become a cash cow. They have seen steady rise in profits since the time
that they have started treating customer’s views and financial conditions prevailing in the
market at any given time with importance. For example, in the times of recession there is no

PRINCIPLES OF MARKETING-NIKE PAGE 21

point of launching a luxury shoe in the market. The people are anyways bearing the brunt of
a depressed economy and would become very cautious of what they are spending on during
such hard times. Instead, it would be wise to introduce a shoe which is not very expensive
-something like a ‘budget shoe’.
What this will do is that it will help Nike in the long term by keeping the customers loyal to
them even during recession times. People will associate with them more as they will see
Nike as a company who still looked after the customers’ interests during tough times and
will also help Nike build a good image of it in the minds of the people. By employing such
strategy it is also possible that Nike may be able to attract customers who were using other
brands as Nike is providing better quality shoes at a lesser rate. This can help generate new
business even in hard times.

Also, Nike was a pioneer in coming up with a product named “NIKEID”. This is a service that
helps people to customise a product for themselves. This was a giant step by Nike to provide
customers with a personalised experience thereby giving them an impression of well looked
after and cared for. This was a masterstroke in terms of generating more business,
increasing customer loyalty and probably referrals.

Hence as Market/Customer Oriented, Nike should continue to –

Carry out research as to what customers want and develop products on lines of customer
research. The company should also think of new ideas to keep the customers happy and test
new products in smaller market before launching them into wider market to ensure what
has been developed is in line to what people want.

Sales Orientation

Such an organisation’s main objective is to maximise the profits at any cost. This kind of
orientation is also necessary as the main aim with an organisation is created is to earn
profits via sales. It has a liability towards its stakeholders to show that it’s doing well and
progressing steadily or at least it’s stable and sustainable in the long run. People get
confidence in any organisation when they foresee a reasonable rate of return on their
investment or probably the amount of labour they put in taking the organisation ahead.
Since, long profit has been an indicator of the health of an organisation, the first thing that
people ask is whether an organisation is making profit or loss or at least is it breaking even.
Hence, to answer these questions and keep everyone happy and interested in the
organisation, companies have to adopt a sales oriented strategy as well. Sales oriented
organisation helps itself to grow fast since profits can be earmarked for growth plans in
other countries or probably for introduction of new product lines.

Nike has got their strategy bang on in the sales orientation area. Their low manufacturing
costs and high selling price has helped them scale unprecedented heights. Revenue
generation of 19 million and a net income of 1.9 million in 2010 are sums that speak for

PRINCIPLES OF MARKETING-NIKE PAGE 21

themselves. The soaring profits have helped them further invest in diversifying and entering
new markets. This has also kept all stakeholders involved content in terms of monetary as
well as non-monetary benefits.

COMPETITIVE ADVANTAGE
Competitive advantage can be defined as a set of exclusive features and offerings of a
company that are perceived by markets to be a step ahead of competition (Lamb, Hair and
McDaniel 2010:39). By constantly embarking on innovative time and again, Nike has come
to be known as the most successful player in the past and continues to be today. How has
Nike become the biggest player of the game? How has it successfully captured almost half of
the market in sport sector? Well, they JUST DID IT and are continuing to JUST DO IT!

Roots to competitive advantage:

It is obvious that it has not been a red carpet journey for Nike. The way Nike whiffs at the
opportunities and with the way it approaches challenges makes it unconquerable. Apart
from having vital and enthusiastic workforce and entrepreneurial attitude, its wide range of
quality products, effective & efficient marketing tactics and strong presence in e-retail
industry give Nike an extra edge.

Price and product differentiation, an impact the swoosh logo has created, greater benefit
(utility) to customers are a few reason why company is still at the top. Corporations often
seek to achieve both productivity and differential advantages but only a few succeed. Nike
features right up top.

Porter’s five forces

Sustainable competitive advantage is when one company’s value creating products are
impossible to imitate by its competitors. Michael Porter’s model helps to understand the
sources of Nike’s sustainable competitive advantage over its rivals.

PRINCIPLES OF MARKETING-NIKE PAGE 21

 Adapted from Competitive Advantage (Michael Porter)

Threat of new entrance

Apart from the usual suspects, competition cannot be underestimated from new
contestants in the industry. This affects the business more or less in a negative manner with
the newbies eating into the profits of the already established brands. In the case of Nike,
new competitors like Under Armour are rapidly move up the ranks and are certainly the
ones to be watched out for.

Threat of substitute products

This threat thrusts the company towards constant innovation and also pushes to produce
cost effective products. Nike felt the ill effects of Doc Martens persuasion of making young
buyers experience hiking style sneakers in place of traditional shoes.

Bargaining power of customers

Consumers don't just buy a product for its attributes. They purchase it for the experience,
value and the emotional benefit that the product provides. During intense competition,
technological lead is not enough and the company must possess strategic marketing and
presenting capabilities. It is very important to make the buyer a feel that they have
purchased the best available product in the market. Nike is in a position of strength having
accumulated a loyal customer base. All they need to ensure is to come up with appealing
products at regular intervals of time.

Bargaining power of suppliers

How much of a bearing does the supplier have on the overall business of the organization?
The suppliers call the shots in terms of bargaining power to companies that depend on one
of them and are devoid of any alternatives. Conversely, a business can hold the upper foot
on the suppliers as is the case with Nike. Nike does not make its own shoes, using private
contractors In Vietnam to get the job done. They exercise control by paying low wages to
helpless factory workers and threatening to switch factories in case of anomalies (Lussier
and Kimball 2009:90).

Competitive Rivalry

This is described as the jockeying and scrambling for position. Cut throat competition ceases
to exist over a combination of factors like quality, price and speed. Nike faces strong
competition from Adidas-Reebok, Fila and Puma. One’s move is monitored and anticipated
diligently by the other. (Lussier and Kimball 2009:90).

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 Nike Adidas Reebok Puma New Balance Others

Porter’s Generic Strategies

Nike falls into the differentiation strategy quadrant. Their successful brand management
strategies have ensured that their products remain less price sensitive on the backdrop of a
loyal customer base. Nike’s position has made it even harder for emerging competitors to
break into the lucrative market.

Market Share – Key Players

Nike has a substantial competitive advantage over its rivals in terms of market share. Its
brand image has largely benefitted from its reputation for innovation and quality placing it
as number one in the apparel and athletic footwear industries. In terms of e-commerce,
Nike is a step ahead of competition with their highly interactive website. They have adopted
a merchant model encompassing three pillars of their e-commerce approach: bricks and

PRINCIPLES OF MARKETING-NIKE PAGE 21

clicks, pure-play e-retailers and an online store to help them market and promote products.
The Internet has helped Nike reduce cost and increase sales. The website has helped them
conduct market research and analyse customer’s buyer behaviour. This has helped them
spring out exciting promotions and marketing campaigns. Nike has also moved into a
strategy of global 3 marketing capitalization whist their competitors suffer from a restricted
distribution line of attack.

Graph of competitive advantage:

25

20

15
Nike
Adidas
10 Reebok

0
2008 2009 2010*

Altman Z-Score
By combining 5 different ratios, Edward Altman came up with a very useful tool called
Altman Z-Score which uses statistical techniques to predict a company's fiscal-fitness using
the 8 variables from a company's financial statements.

Based on this evaluation, we can compare Nike’s credit risk with others.

Nike 6.94

Adidas Group 2.5

Reebok 4.37

Score (>2.99) – Safe zone

Score (between 2.7 and 2.99) – Grey zone (exercise caution)

Score (between 1.8 and 2.7) – Based on the financial figures only, company in distress zone
(going bankrupt within 2 years of operations).

Score (<1.80) – Bankruptcy Imminent

Nike stands high with the score of 6.94

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The MARKETING MIX

Adapted from Exploring Business (Karen Collins)

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, 2001: 212).

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

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 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

PRINCIPLES OF MARKETING-NIKE PAGE 21

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):

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.

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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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

 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.

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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 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 stocking 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.

Air Jordan (Example – 1)

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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

Below is the Life cycle for this product:

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 (Example – 2)

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 has found the lead in the sticks far exceeds the acceptable
tolerance and because the sticks are used by youths, lead is especially harmful.
Approximately 100,000 sticks have been found to have dangerous levels of lead.

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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:

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.

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 Nike, Inc., Performance Chart (2006-2010) (USD Millions)

20 18.6 19.1 19.0

16.3
15.0
15

10

5 1.9 1.9
1.4 1.5 1.5
0
2006 2007 2008 2009 2010

Revenues Net Income

Global Data Limited 2010

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)

PRINCIPLES OF MARKETING-NIKE PAGE 21

Pricing Strategies

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.

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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

Price versus Promotion Matrix

Adapted from Principles of Marketing (David Jobber)

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.

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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

Price versus Quality Matrix

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.

Breakdown of costs for a pair of Nike shoes from an Indonesian plant (Lormand 1995)

Production labour $2.75  

Rent, equipment $3.00  
Materials $9.00  
Duties $3.00  
Supplier’s operating cost $3.00  
Shipping $0.50  
Cost to Nike $20.00

PRINCIPLES OF MARKETING-NIKE PAGE 21

 Promotion and advertising $4.00  
Research and development $0.25  
Nike’s operating profit $6.23  
Sales, distribution, and admin. $5.00  
Cost to Retailer $35.50
 

Retailer's rent $9.00  

Personnel $9.50  
Retailers Operating profit $9.00  
Others $7.00  
Cost to consumer $70.00

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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

 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 these 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

PRINCIPLES OF MARKETING-NIKE PAGE 21

redesigned and overhauled their website incorporated with e-commerce functionality. A
variety of products were put up for sale at full retail prices (McIntyre and Perlman 2000).

Nike - Indirect Marketing (Wholesalers & Retailers)

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. Nike controls 338 retail stores in the US and 336 stores worldwide. Nike’s
products are distributed on a level basis. Highly priced premium products are saved up for
some distributors whereas lowly priced products are readily sold to mammoth stores such
as Wal-Mart at cut prices.

Value added services – Intermediaries

Nike benefits from a strong intermediary nexus. Stores like Footlocker contribute
significantly to Nike’s successful performance as an organization. They help in all of the
above mentioned aspects(in chart) especially reducing transactional costs, providing after
sales benefits, finance and marketing benediction and state of the art storage space .

Distribution strategies
Nike follows an intensive distribution strategy where products are stocked in scores of
outlets. They are readily made available to genuine and interested intermediaries so as to
further help them extend their reach to the end customers. For example in the UK, Nike
products can be found in retail outlets like JJB Sports , supermarkets like Tesco’s as well as
promotional exhibition fairs.

PRINCIPLES OF MARKETING-NIKE PAGE 21

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 was 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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

 Adapted from Principles of Marketing (David Jobber)

Nike’s promotional strategies

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 brand building and 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.

PRINCIPLES OF MARKETING-NIKE PAGE 21

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.

Communication Model

Adapted from Marketing Management ( Philip Kotler)

Research by Jobber and Lancaster (2009) has revealed that selling is often the prima facie of
the communication mix rather than the promotional mix.
Nike has efficiently translated all the key factors in efficient selling via their communication
mix. 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 (customers). The
message has been conveyed through a variety of promotional channels as discussed earlier

PRINCIPLES OF MARKETING-NIKE PAGE 21

with a phenomenal amount of success. The feedback and response have been
overwhelming.

Positive Impact

Nike has always been a bold marketer. They have endorsed top sporting personalities and
teams as part of their promotional strategy on the outlook that customers always want to
associate themselves with success. The commercials featuring Michael Jordan were a huge
hit with people flocking to stores to buy what caught their eye. Nike’s direct mail and
internet marketing scheme has come to be a model of success. Their promotional strategy
has targeted specific segments and magically ingrained their products in line with the
customer’s secret aspirations. Nike is iconic signifiers of personal health, faith and social
inclusion. This has helped Nike propagate their brand, thereby capturing market share in a
diverse range of products and generating hefty revenues in the bargain.

Negative Impact

Some of Nike’s tie ups have adversely affected them in the market space. Nike had to pull
back more than 38,000 pairs of sneakers from the market because the logo offended
Muslims. Nike has constantly engaged in ambush marketing since the 1984 Los Angeles
Olympics. Ambush marketing is seen in both lights – creative as well as parasitic but
arguments are that a reputed company Nike could well do without it. Tiger Woods
commercial advertisement for Nike after his infidelity issues was not well received by
viewers and deemed as bad PR. The sweatshop debacle remains a blot on Nike’s otherwise
vanilla image.

PRINCIPLES OF MARKETING-NIKE PAGE 21

SWOT ANALYSIS OF NIKE INCORPORATED

Strengths Weakness

 Strong Brand Image  Recent Setbacks

 Supplier Diversity  Child Labour and Sweat Shops
 High Growth

Opportunities Threats
 New Product Launches  Increase in Counterfeit Products
 Growth of e-Retail Industry  Increase in Wage Rates
 Intense Competition

Below is the evaluation of Nike’s strengths, weaknesses, opportunities and threats.

Strengths:

Strong Brand Image

Nike relishes a very solid brand image, which assures the company both great sales and
profits. It is and has been the largest seller of sporting apparel athletic footwear on a global
scale. The company attracts customers with a marketing strategy which centres around a
distinctive logo and an advertising slogan “Just do it” which is widely popular across the
globe. Through its huge celebrity brand endorsements and strong brand awareness
campaigns it has been climbing the top brands chart over the years. Nike ranks 25 th in the
top global brands list with an estimated brand of value of nearly $14 billion compared to its
competitor Adidas rank of 62 (Interbrand, Best Global Rankings 2010). It currently ranks 124
(2010) in the fortune 500 list (CNNMoney). In addition to its lead brand - Nike, the company
also owns other strong brands such as Umbro, Converse, Hurley, Chuck Taylor, All Star, One
Star, Cole Haan and Bragano. (Global Data Limited 2010)

Supplier Diversity
Nike has a strong and wide supplier base worldwide, which helps the company in meeting
its customers' needs efficiently. Nike’s belief in “diversity drives innovation” has helped in
gaining competitive advantage and its well-planned supplier diversity program has had a
major impact in the way they conduct their business. Its apparel manufacturing takes place
in the 13 different countries and the company’s Nike brand apparel is also manufactured in
34 countries by various independent contract manufacturers. The company incurs relatively
lesser operational costs as all of its footwear is produced in low cost nations such as China,

PRINCIPLES OF MARKETING-NIKE PAGE 21

Vietnam, Indonesia and Thailand. During the financial year 2009, these countries
manufactured 36%, 36%, 22% and 6% of total NIKE brand footwear, respectively (Nike
Annual Report 2010)

High Growth
The company has been witnessing a strong growth in sales in geographies such as Asia
Pacific and the Americas. Nike’s increasing presence and growing customer base in these
regions have resulted in a strong financial performance. Earnings reports of highlight how
the company’s employees are working overseas to improve profit margins, as growth in the
world’s biggest economy is slowing down. Nike’s orders for delivery through late November
2009 signalled emerging market demand will remain strong. Comparing with the previous
year (2009), orders from emerging markets for Nike’s brand athletic footwear and apparel
rose 30%. In China, Nike’s orders in 2010 rose by 16%, the company’s 2 nd major market
behind North America, compared with 7% in North America. (Nike Annual Report 2010)

Weakness:

Recent Setbacks
Operations may take a hit due to the company suffering setbacks in Russia. Stockmann and
Nike agreed to terminate the franchise and announced the closure of 5 stores in Russia from
2010. Stockmann used to operate Nike chain comprising seven small stores located in
Nizhny Novgorod, Rostov-on-Don, Novosibirsk, and St Petersburg. As of now, only two
stores in St Petersburg are likely to be transferred to another company. This development is
expected to impact its sales in Russia. (Global Data Limited 2010)

Child Labour and Sweat Shops

Nike has been critiqued for moving out of countries like South Korea and Taiwan because of
workers demand of higher than poverty level wages. The company has relocated factories
engaging in below par working conditions in low cost countries such as Mexico, China,
Vietnam and Indonesia. Nike has also been criticized for child labour in some of its factories
in countries such as Cambodia and Pakistan. Such allegations undermine the company's
corporate social responsibility and may adversely affect its brand image. (Segerstorm 2010)

Opportunities:

New Product Launches

Nike always focuses on new product innovations which helps the company create
competitive advantage and build brand equity. Innovation continues to be a cornerstone of
the company’s corporate strategy with significant efforts focused against consumer
demands for products that are convenient and effective. Recent new products include Zoom
Kobe V, lowest-profile and lightest basketball shoe. It also launched N7 Collection, a select
range of performance footwear. Further in 2009, the company also introduced Nike Lunar

PRINCIPLES OF MARKETING-NIKE PAGE 21

Glide+ and Nike+ Sport Band. Such new product launches will be beneficial for the company
in the near future. (Global Data Limited 2010)

Growth of e-Retail Industry

Rising popularity of online shopping may benefit Nike. According to Internet World Statistics
as on March 2009, the internet penetration in the US is about 74.7 % of the total population
and the user growth has been 138.3 % in the period from 2000 through 2008.The Company
can increase customer base by utilizing the opportunity to market its presence across the
world through web services. As it is cheaper to maintain online shops compared physical
stores, company can save on operational costs. The company already retails through its
website and further enhancement of its internet service will prove to be beneficial. With the
increase in the internet penetration in the US, the company can foster its growth. (Global
Data Limited 2010)

Threats:

Increase in Counterfeit Products

Counterfeiters are benefitting from Nike's brand name, pretending as official sellers on the
internet and playing on customer’s confidence in the company. The growing market for
counterfeit merchandises has been on upsurge across industries and is affecting the sales as
well as the image of the company’s brands. The fake merchandises in the industry are eating
into the market share of the branded products through their low price offerings. Since the
customers end up buying the counterfeited goods bearing the duplicate brand labels, low
quality of these counterfeits affects the consumer confidence and also tarnishes the brand
image of the genuine company. Thus the company is prone to these challenges and any
underperformance of the counterfeit products can have a major effect on the company’s
fortunes. (Global Data Limited 2010)

Increase in Wage Rates

Increasing manpower costs may have an adverse effect on the retailers, such as the
company. In the US, the government increased the minimum wage rate in 2009.
Furthermore, many states and municipalities in the country have minimum wage rate even
higher than $7.25 per hour due to higher cost of living. Such increases in the minimum
wages increase the operating costs of retailers and have an adverse effect on their profits.
With Nike’s employee base of more than 95,000 people, the company is bound to come
under pressure due to the pay hikes. (Global Data Limited 2010)

Intense Competition
The company could be impacted by the growing competition in the market. With rising
competition, the industry has been witnessing consolidation wherein the smaller entities are
being acquired by or merged with major players. The arrival of private brands in the industry
is also on the rise. The company also faces stiff competition from players such as Adidas

PRINCIPLES OF MARKETING-NIKE PAGE 21

Group, PUMA AG Rudolf Dassler Sport, Polo Ralph Lauren, Fila USA, Inc., Reebok
International Ltd. and Callaway Golf Company. Rising competition may also force the
company to reduce its prices, which may adversely affect its margins. (Global Data Limited
2010)

UNDERSTANDING AND SUSTAINING COMPETITION

Nike competes globally with a significant number of athletic and leisure shoe companies,
sports goods companies, and big firms with diversified lines of businesses, apparel, and
equipment, including Adidas, Puma, and others. (Annual Report 2010)

With $19 billion in revenue in 2010 (Annual Report 2010), Nike is the largest player in its
industry, outpacing number-two Adidas by $5 billion at current exchange rates. However,
with just 7% of the market, the company has sufficient growth opportunities. Nike can
sustain and top the competition by:

 Continuing to explore and invest on emerging markets such as China and India. Given
its global brand and unrivalled product innovation capabilities, Nike can gain
significant market share in the emerging markets
 Concentrating to grow its nascent brands such as Converse, Umbro and Hurley.
Leveraging Nike’s marketing and logistics resources, each of these brands can double
their size over the next five to seven years
 Designing promotional as well product bundle pricing strategies for the untapped
consumers and segments who are not able afford Nike brands because of the
brand’s high price structure
 Renewing and extending contracts of key sporting celebrities such as Kobe Bryant,
Cristiano Ronaldo and Lebron James. The introduction of “Air Jordan” by linking up
with Michael Jordan was one of the mega success stories till date
 Continuing to invest on product development and new technologies, to provide
advantages to customers who buy Nike products
 Forming partnerships with more retailers to promote and sell their products,
especially in the emerging markets
 Developing newer and innovative products for youngsters (children) and women
(Nike currently holds the number one spot for women’s training footwear. There is
still scope to capture more market share in this area)
 Supporting more organisations such as “Livestrong” which in-turn helps the
community. (Livestrong is a Lance Armstrong foundation which has been formed to
fight cancer. Nike has helped raise more $80 million for the foundation) (Reuters)

PRINCIPLES OF MARKETING-NIKE PAGE 21

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