Sales and Distribution Management

Nike Channel Conflict

RISHOV MONDAL
MBA18e37
MBA MKT 3

For the past thirty five years NIKE was a company which the management focused on a few core
corporate areas namely brand building, supply chain management and sales. The company
outsourced its manufacturing to low cost countries like Indonesia, Vietnam, Korea and China.
Thus managing its global supply chain became of critical importance to the company and all its
operation ensured a smooth integration with the contract manufacturers. The production cycle
could take 15-18 months, where as the market life for a NIKE shoe was around 3-6 months.
Hence since the product had a much shorter product life when compared to its production cycle
time, it was pointless to try match the demand for a model with the supply. This also made
customization or customerization option not feasible. Hence for each new model conservative
production targets were set and then the designing of the next generation line was worked upon.
NIKE didn’t give too much importance to direct-to consumer sales and sold its product through
various retail sales channels. This consisted mainly of retail outlets or retailer distribution
centers. Discounts were provided to retailers who managed their distribution from the NIKE
factory eliminating bottlenecks at distribution centers. NIKE owned 13 NIKETown stores and 53
outlet stores in 1999. Both were not the major selling channels for NIKE. The first was used to
showcase NIKE’s newest product lines and brand building, the second was used to liquidate
overstocked or outdated inventory. In 1999, with the on-line retail boom, NIKE retailers started
pushing to be allowed to sell these NIKE products on the web. Although by the end of the year
NIKE had given permission to 10 retailers to sell online, these online sites were monitored
carefully to ensure that the brand quality and image were maintained. In September 1999, NIKE
signed a deal with Fogdog Sports to sell the entire NIKE product line on its website. The deal
assured that Fogdog had exclusive access to NIKE products for six months during which period
no other virtual retailer could buy them. Apart from this, NIKE’s official website nike.com also
entered the e-commerce arena and made hundreds of its most popular products available for
purchase online. The website still maintained its focus on brand advertising and inspirational
context though the ecommerce business options were explored. This new situation raised a
number of strategic concerns. Firstly, through all these newer developments efforts had to be
made to not alienate its conventional retailers. Secondly, their entry into the e-commerce
business brought up a lot of operational and organizational issues. Since the company had no
prior experience in handling the technicalities of retail management such as remote order
fulfillment, packaging and shipping, tracking deliveries, customer service etc. Finally, for the
first time NIKE was in a position to capture consumer data and analyze the demographics and do
relevant market research. Problem Statement In what way should Mary Kate Buckley promote
Nike.com to increase profitability and at the same time not cannibalize the sales of other
outlets? Objectives · How to cope up with the new role of playing as the direct marketer as a
company · How to cope with the six months notice period of the newly agreed upon Fogdog
deal. · Using the data collected from direct sales to use for future market Alternatives To reduce
the dependency on the major retailers to some extent. To avoid using multiple channels, by
getting only a retail chain using the product for selling Reduce the marked up price to gain more
volumes in the sales To cope up with the six months of notice period, some sales may be
redirected from other stores to the worse hit stores. Using the data collected during the direct
sales to improve on understanding the behavior and purchasing habit of the customer and thus
sharing the same at a later stage with the retailers for their better stoking of the inventory The
website may be used to actually refer the customers to the nearest outlet of the company. Action
Plan From the case we can know that the company does not sell their goods directly to the end
users, between them stands a host of intermediaries who performs a variety of functions. So we
for sure can call these as the marketing channels involved in the product or service being made
available to the consumers. For developing the distribution channel, the company first has to
understand the customer segment that is being targeted and according build on the supply chain
backwards. In the case we understand that Nike has an absolute repute of being totally conscious
about their quality. That’s why in the beginning of the opening of the e- commerce shops they
were taking great interest in the quality and the kind of focus that the websites of these
companies were giving into their product. As far as the channel partners are concerned prior to
the websites Nike was doing one of the best jobs in the markets. Its business through retailers
was too strong. To promote their brand Nike developed the concept of building the Niketown
which was first thought to be the killing machine for the retailers of nike shoes because of its far
superior location, infrastructures etc. But later the business channels partners understood the real
motive of the company behind building that type of robust expenditure maker as a promotional
mechanism for the sake of increase in growth. Almost the same type of apprehension is now
being created among the retail distribution channels with the e-commerce section of the
company. The fear of losing out to the nike website (which is company owned and delivering to
the customers directly) is actually making them wary of the situation. The company is trying to
utilize the fact that using a direct sales model through the Order procurement trough the websites
actually has a much higher rate of profitability though doing away with the retailers was never
away an option. From this perspective it can be said that there s chance of channel conflict if the
intensions of the company as a whole about the usage of the website as a whole is not clearly
stated to the retail outlets. As of now though the sentiments of the retailers have been hurt over
the Fogdog deal of not being able to for the next six months any inventories from the company,
Nike, still an unclear vision over the matter can surely lead into one trying to eat into the piece of
pie of the other. If the company, in a bid to increase its profitability, chooses to sell through its
website (nike.com) at a price which is lesser than the marked up price of the retailers then surely
the question of cannibalizing of the company’s product comes into the foray. And it is need less
to say that this is so very easy for the company which on direct sales is getting a profit of around
an amount which is almost equal to the cost price of it. After speaking about so many things
about the eating up of own’s share it should also be noted here for a company like Nike which
specializes in a footwear touching and feeling the commodity plays a very significant as well as
necessary part of business. So though it might be giving out a signal of channels of distribution
of goods getting into other’s territory it is not so. Ever of the the channels here has a very definite
and distinct role to play. This is again evident from the fact that the company website although
having a customer model from the manufacturers in the developing world, still it has the option
of locate a shop nearest to you icon which will help the customer find the nearest brand outlet.
But the intensions of the company still lie in the fact of exploring the direct sales procedure to
increase in the profitability. The inherent advantages that the usage of the website have are
something like helping in cutting down on the sales price, to let everyone access the product
models irrespective of the geographical locations etc. on addition foraying into altogether totally
new horizon of marketing its goods that will actually help the company reduce the dependence
on its retailers and also lead to a better understanding of the needs of the consumers because of
the detailed interactions that take place when direct sales takes place. Inventory level that
requires to be maintained will also be lowered since the orders will be placed directly and so the
company can order as is required. On other hand the problems the company might feel on along
run are that of direct sales of this kind will require a very high standard of standardization. Since
the customers are not actually feeling and trying out the apparels so a prescribed model would
hav to be the same for all the time it is being manufactured for all the aspects of it. Thus a very
high finesse has to be reached on part of the manufacturer. Though at an initial stage the
company is offering customerization for sales in the long this might not work out well, because it
would be too difficult a product to be put in the mainstream. The other major problem is that of
since the direct to customer model would not even have a warehouse of the company’s own, it
would become increasingly difficult to handle any spike in the demand as there would be no
buffer stocks for the same. So as of now , though the website can be used as an added mean to
reach the consumers, for Nike it would be too difficult to make it a standalone tool for increase
the sales, more so considering the product that the company is upto. Since some of the retailers
have been hit hard by the company getting into some contracts, they need to be alleviated by
giving more sops, like redirecting a part of the sales from the general stores to them by the usage
of the websites function of finding the nearest shop. It will surely help to increase the profit
considering the fact that the number of internet users are growing and thus such an interface will
bring in customers who were probably not so keen enough to visit the shops an also those who
could not get the right the product they wanted as this tool will help them to know where it
would be available. To keep the growth moving with the increase of website visitors, the
company also needs to increase the number of retail shops across the geographical locations, so
that the website may work as a replica on a functional mode of the Niketown. Also to promote
sales through the website so as to keep getting the consumer feedback the company could go for
a model in which certain percentage of the business might be done through the website and the
rest through the retailers. This division might be done on the basis of the exclusivity of the
product. As the company gets a hold on the direct sales part which is still not the domain in
which it is not comfortable enough , then it can expand its core competencies on the field of the
delivery and logistics and thus increase on the profit margin from not outsourcing everything
also letting the brand keeping the quality standards it would like to be associated with whatever
the brand Nike does.