NIKE: RUNNING OVER THE COMPETITION

Nobody takes the admonition “Just do it” more seriously than Nike, the company for
whom the slogan was written. Whether it's entering a new sport, moving into a new geographic
market, or developing a new product, Nike approaches its mission with the dedication and
single-mindedness of an athlete training for competition. And whatever the task, the goal is
always the same: To turn in a peak performance, one that leaves no doubt as to who the best is.
That's because at Nike, winning isn't merely a corporate philosophy—it's the company's
business.
“This brand is all about building products for athletes, high-performance products, very
authentic products, innovative products, bringing new technology to athletes so they can perform
better—at a higher level in their sport,” says Bill Zeitz, global director of advertising
development at Nike.
Liz Dolan, the company's marketing director, puts it in even more basic terms. “We
have a really incredibly simple mission, which is, ‘serve the athlete.’ If you're in product
development that means you have to make sure that the products really work, that they're really
great for whatever sport you are assigned to. If you're in the communications area, it means that
you have to communicate with an authenticity about the sports experience, what athletes know to
be true of what it feels like to win a basketball game, or run a marathon, or whatever.” .
This near-obsession with authentic athletic performance comes naturally to the
Beaverton, Oregon, company started in the 1960s by Phil Knight, a sports enthusiast and runner
who believed the needs of serious athletes were being neglected by Adidas and Puma, the
German companies that dominated the athletic shoe industry. With the help of Bill Bowerman,
his former track coach at the University of Oregon, Knight set out to develop a shoe that would
make a difference in a runner's performance.
The rest, as they say, is history. Nike has become a dominant player in sports apparel.
With track, basketball, tennis, and other traditional sports in the “win” column, Nike recently has
turned its attention to building its franchise in soccer, cricket, rugby, hockey, and in-line skating,
among others. After all, Dolan explains, being a global sports brand requires an intensely local
focus.
Being a global brand is extremely important to Nike because its home market, the United
States, is nearing saturation. According to John Horan of the newsletter Sporting Goods
Intelligence, sporting-goods chains have overexpanded and profit margins are threatened. When
Nike announced that its second quarter earnings in 1997 would not live up to Wall Street's
expectations, its stock dropped 13 percent. With these spurs at home, Nike has to look overseas
there it has only 27 percent of sales compared to 43 percent in the U.S. to generate additional
revenues.
But going overseas is not a sure win for Nike. “Understanding what sports the people in
[a] country play, and then being great at those sports... that's always the challenge. In the U.K.,
for instance, we are a really good basketball brand, but they don't play that there. And we are a
really good tennis brand, but they kept telling us. ‘Other than the two weeks during Wimbledon,
nobody in the U.K. really cares about tennis.’ So in the U.K. soccer is what they play. Rugby is
what they play. So we had to really concentrate on being great at two sports that were not really
something that came from our American tradition at all. That took years of product
development and talking to consumers about, ‘What does this sport really mean to you when you
play it, and what does it really mean to you when you watch it?’ The brand attributes for Nike
in the U.K. are the same—we really want to be the authentic sports brand—but the sports that are
the building blocks for that are very different in the U.K. than they would be in the United States
or than they would be in Japan.”
Outside the United States soccer is the main sport, and Nike has pursued the soccer
player and fan with a vengeance. In the United States, Nike has signed a mult iyear contract
with major league soccer that calls for it to spend $3.75 million a year to sponsor 5 of the
league's 10 teams. In addition, the contract contains a clause that allows Nike to retain
sponsorship of half of the League's teams as it expands. Overseas, Nike spent $20 million in a
sealed bid process to sponsor the Italian national team. During last year's European
championships, it bought up all the billboards around stadiums where matches were held,
effectively undermining the event's official sponsor, Umbro. In the spring of 1997, it sponsored
a worldwide soccer tour that featured top teams. It has also spent millions on global advertising
campaigns and signed leading national soccer stars such as Eric Cantona (captain of the national
champion Manchester United soccer team in the U.K.) to highly lucrative contracts.
But nothing matches Nike’s sponsorship agreement with the Confederacao Brasil de
Futebol, Brazil's soccer federation, which cost the company a breath-taking $200 million. Why
Brazil? It won the 1994 World Cup soccer match. The contract is a 10-year deal that includes
appearances in Nike-produced exhibition matches and community events. Nike will supply
Brazil's national teams with sports kits. In return, the teams will participate in five annual
friendly soccer games that Nike is arranging, and to which Nike retains the television rights.
Nike will also have access to training clinics in Brazil and to the infrastructure of the game.
Nike has applied the same technical skill and drive to soccer shoes that it applied to the
basketball shoes. For example, when Nike couldn't find equipment for testing the best stud
configurations and traction in cleated soccer shoes, it decided to build its own. The goal is to
create the world's best soccer shoe, but that won't be easy. First, the competition isn't yet ready
to roll over and play dead. Adidas retains sponsorship of many top teams and players, including
the national teams of Germany, Spain, and France. It also sponsors Wo rld Cup 1998, with the
rights to sell official soccer balls and sports apparel. Further, Adidas has invaded Nike's home
turf, sponsoring three U.S. teams and featuring players from those teams in its U.S. advertising.
“We don't think that anybody can get near to us on the product side,” says Peter Csandai, an
Adidas spokesman. Reebok, Nike's main competitor in the U.S., has also signed contracts with
at least 30 professional soccer clubs throughout the globe.
And there's competition at home from firms such as Vans, a small California company
that aims directly at the teenage market by targeting the California adolescent —an
Internet-surfing latchkey kid. As the number of teenagers in the United States grows from 25
million in 1997 to over 31 million in 2010, this move could prove shrewd. These kids are not
into team sports; instead they are attracted by individual sports such as skateboarding,
snowboarding, surfing, and mountain biking. Within two years of entering the market for
snowboard boots in 1995, for example, Vans has become the third largest company in the
business. So, it’s in a position to make a move on Nike.
Competition is not Nike's only problem; some of its actions haven't left fans cheering
either. Signing bad boy Eric Cantona generated a lot of criticism and infuriated the soccer
establishment in the U.K. In 1996, Nike flew eight of soccer's hottest players to Tunisia to film
an advertisement in which the athletes competed against the devil. Not surprisingly, this ad
drew angry letters from many offended fans. Even the Brazil deal has been heavily criticized.
As part of that deal, Nike had to pay Umbro an undisclosed amount to cover the remaining two
years of its contract with the Brazilian federation. “Nike is going in and almost encouraging
teams to break contracts,” says James R. Gorman, president of Puma North America. Finally,
not all soccer athletes are convinced Nike is better. Many pro players continue to get their
equipment from companies such as Umbro, Puma, and especially Adidas, which has been part of
the sport for decades, not just the last few years like Nike.
Still, with over $8 billion in sales in 1997, Nike remains the biggest player in the game.
Adidas is a distant second with $3 billion. With its free spending, Nike appears to have changed
the economics of the game. Nike intends to be the number one supplier of soccer gear by World
Cup 2002, but so far its efforts have produced only $200 million in annual sales. It has a long
way to go before it scores a match-winning goal in the global soccer market.

Questions for Discussion

1. What is Nike's mission and how does the company accomplish it?
2. Using either the Boston Consulting Group or GE Matrix approach, analyze Nike’s
business portfolio. How would you characterize its basketball, running, and soccer
businesses? What is Nike’s growth strategy?
3. What are Nike's markets and how is Nike positioned in these markets? How does it
reach these markets?

Sources: Linda Himelstein, “The Swoosh Heard ’Round the World,” Business Week, May 12,
1997, p. 76-80; “In the Vanguard: Trainers, Sneakers, and Shoes”, The Economist, June 7,
1997, p. 62; Geoff Dyer,“Nike Puts Its Hands on Ultimate Trophy”, The Financial Times,
December 14, 1996, p. 9; and Patrick Harverson, “Putting Their Shirts on Soccer Deals”, The
Financial Times, November 1, 1997, p. 15.