Principles of Marketing Nike Inc free essay sample

Principles of MarketingNike, Inc11/25/2010| Prepared by: * Menino Pereira * Karthik Gowda * Shreyans Sethi Prepared by: * Menino Pereira * Karthik Gowda * Shreyans Sethi * 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) * 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 Principles of Marketing TABLE OF CONTENTS TABLE OF CONTENTS INTRODUCTION3 The Story So Far3 MARKETING ORIENTATION3 Types of Orientation4 COMPETITIVE ADVANTAGE7 Porter’s five forces7 Porter’s Generic Strategies9 The MARKETING MIX11 Product11 The Ansoff Matrix13 BCG Matrix14 Product Life Cycle16 Price19 Nike’s pricing Strategies20 Price versus Promotion Matrix21 Price versus Quality Matrix22 Place (Distribution)23 Nike -Direct Marketing24 Nike Indirect Marketing (Wholesalers Retailers)25 Value added services – Intermediaries25 Distribution strategies25 Promotion26 Nike’s promotional strategies27 Communication Model28 SWOT ANALYSIS OF NIKE INCORPORATED30 Strengths:30 Strong Brand Image30 Supplier Diversity30 High Growth31 Weakness:31 Recent Setbacks31 Child Labour and Sweat Shops31 Opportunities:31 New Product Launches31 Growth of e-Retail Industry32 Threats:32 Increase in Counterfeit Products32 Increase in Wage Rates32 Intense Competition32 UNDERSTANDING AND SUSTAINING COMPETITION33 REFERENCES34 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. â€Å"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. † â€Å"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 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) Product Oriented 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 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 â€Å"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 Oriented 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 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. 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 dont 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). 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 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 lobal 3 marketing capitalization whist their competitors suffer from a restricted distribution line of attack. Graph of competitive advantage: 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 companys fiscal-fitness using the 8 variables from a companys financial statements. Based on this evaluation, we can compa re 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. 9) – 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 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: 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): 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 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. 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. 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 Montreals 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 t he 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. 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 runners 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. Nike, Inc. , Performance Chart (2006-2010) (USD Millions)| | 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) 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. 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. 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 Rent, equipment Materials Duties Supplier’s operating cost Shipping Cost to Nike| $2. 75 $3. 00 $9. 00 $3. 00 $3. 00 $0. 50 | $20. 00| Promotion and advertising Research and development Nike’s operating profit Sales, distribution, and admin. Cost to Retailer| $4. 00 $0. 25 $6. 23 $5. 00 | $35. 50| Retailers rent Personnel Retailers Operating profit Others Cost to consumer| $9. 00 $9. 50 $9. 00 $7. 00| $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. 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 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. 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. Adapted from Principles of Marketing (David Jobber) Nike’s promotional strategies Advertising Nikes 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. 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 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. SWOT ANALYSIS OF NIKE INCORPORATED Strengths| Weakness| * Strong Brand Image * Supplier Diversity * High Growth| * Recent Setbacks * Child Labour and Sweat Shops | Opportunities| Threats| * New Product Launches * Growth of e-Retail Industry| * Increase in Counterfeit Products * 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 â€Å"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 25th 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 â€Å"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, 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 2nd 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 s tores 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 companys 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 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 Nikes 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 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 â€Å"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 â€Å"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) REFERENCES McDonough W. , Braungart M. (2002) From Inspiration to Innovation [Online] available from http://www. mcdonough. com/writings/inspiration_innovation. htm [30 July 2006] Sinek, S. (2010) Why Does Your Company Exist? [Online] available from http://sinekpartners. typepad. om/refocus/2010/03/why-does-your-company-exist. html [12 March 2010] Katz, D. (1994) Just Do It: The Nike Spirit in the Corporate World. New York: Random House Armstrong G. , Harker M. , Kotler P. and Brennan R. (2009) Marketing: An Introduction. Edinburgh: Pearson Education Limited Heiens, R. (2000) Market Orientation: Towards an Integrated Framework. Academy of Marketing Science Review 2000 1 Pro ctor, T. 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