Business 471-Consumer Marketing
April 17, 1997
Prepared by:
Eric Berg
Scott Hussey
Chris Holmberg
Arthur Rediske
Lisa Rediske-Pike
History
Nike, Inc. is a real Northwest success story. The company started in 1958 by a man named Phil Knight with nothing more than an idea to develop a quality running shoe, which he felt the market lacked. As an undergraduate business student at the University of Oregon he developed an original shoe design whose production was quickly turned down by many sporting goods companies. Although Knight was frustrated he did not give up.
In 1964 Knight teamed up with a friend and business partner, Bill Bowerman. Knight and Bowerman each contributed $300 to develop the shoes through a manufacturing company in Japan. The shoes were sold out of their cars at track meets and stored in the basement of Knight's father's house.
Nike, Inc. was formed in 1968 and was named after a Greek goddess. The swoosh (Nike's logo) was purchased for a mere $35 from Caroline Davidson and the company was on its way. At the 1972 Olympic Trials in Eugene, Oregon the two men were given the break they were waiting for. Knight and Bowerman persuaded some of the marathon runners to wear their Nike's and two men that placed quickly stated they were wearing Nike's. This was a great advertising breakthrough for Nike, Inc. Nike, Inc. went on to pioneer major breakthroughs in the shoe industry such as the waffle sole, cross trainers, air pressure soles, and a major "Just Do It" campaign.
The Company
Nike is a successful and innovative marketing company. The company continuously sets new trends and develops new products year after year. With the addition of manufacturing good quality athletic shoes, and other products, Nike has launched many successful marketing campaigns. Endorsements by major sports figures such as Michael Jordan and renegade athletes like Charles Barkley and Andre Agassi have contributed heavily to their success. Nike has created a position and hold in the market for athletic shoes that is far above competition.
Opportunities
Even after six years of significant financial growth, Nike is continually looking for new opportunities for expansion. Nike's sales reflect a slight decrease in growth this year. The world's largest shoe company is looking for new avenues to pursue as market growth has begun to stagnate and the market matures.
Nike is now developing new niche markets in activities such as soccer, golf, badminton shoes, as well as, uniforms and other gear for college sports teams. These markets have already seen development in recent years, but Nike will soon become a major player. These sales are expecting to compensate for the decline experienced in sports shoes and apparel. The sign of a good company is one that can compensate and quickly change strategy when needed to keep sales and profits high.
International markets are also becoming very important to Nike. Sales increased last year and have passed the $1 billion mark for the first time since 1993. Nike has identified interest in expanding sales in key areas such as Asia, Mexico, and Europe. Nike is a global player and plans to increase the focus on these expanding markets.
Product
Nike produces high-quality athletic footwear and apparel geared towards active people over a range of lifestyles and age groups. Their products include shoes for running, walking, tennis, basketball, soccer, baseball, football, golf, cross training, hiking, biking, mountain climbing, and bowling. They are also producers of athletic and casual clothing. New products are brought to market quickly through continual innovation and response to consumer needs. Every product designed and produced by Nike is of the highest quality possible. This quality includes using the best materials, the most advanced technology, and the top designers in the field. Nike's research and development department is constantly thinking of comfort and quality throughout product design. Since the competition in both the shoes and athletic clothes industries are quite similar, we will refer to Nike's products as athletic wear.
Price
Fila is the only athletic wear company that charges more for its products than Nike. Adidas and Reebok charge approximately ten percent less than Nike for their athletic wear. The Nike swoosh has become a symbol associated with high quality, durable athletic wear that people are willing to pay a premium for. The premium price is not only reflected in the quality of their products, but the image that is portrayed by those who wear the Nike logo. The athletic wear industry illustrates a high level of brand loyalty. Nike believes that getting young people to buy its products will create a customer for life. A second reason Nike can charge more for its products is the high level of brand loyalty. Customers are not going to turn elsewhere if Nike charges more than the other brands. A final reason Nike can charge more is its leading-edge technology. Since it comes out with the new ideas first, customers are willing to pay more to have the new innovative product.
Nike uses a price skimming type strategy. The company brings out a product at a high price, trying to skim money from those who really want the product and are willing to purchase it at that price. After a product has been out about two months, the price is lowered.
Promotion
The brand image and reputation of Nike has been achieved through the use of hard-hitting ad campaigns. Nike sponsors all kinds of events in order to promote its products. These events range anywhere from rodeos to baseball games and even music concerts. Sponsorships allow the company to show itself even more to prospective customers. A large portion of Nike's advertising dollars are also spent on television, radio, and print advertising. The use of prominent athletes in its advertising has set a benchmark in which other companies follow. The first popular ad campaigns featured Bo Jackson as a cross-functional athlete proficient at everything. The catchy slogan, "Bo Knows" became widely used throughout a number of different advertisements for Nike. Over the past few years and currently, Michael Jordan has become Nike's superstar. He was the inspiration for Nike's brand of most popular products, the Nike Air.
Previously, Nike had used only 15% of its advertising budget to gear ads towards women. In the past few years, women have spent more on athletic shoes than men have. This has led Nike to re-target a larger portion of its advertising budget successfully towards women. Targeting different and potentially larger segments has helped Nike achieve even higher levels of image awareness.
Nike has also developed programs such as Participate in the Lives of America's Youth (P.L.A.Y.) involving college students who donate time to coach youth athletic teams and become role models for the children. The reasoning behind this is that Nike feels that children will admire and pay attention to someone that is closer to their age.
Nike products are found almost everywhere you look. Nike sells its products at various stores including most department stores, some discount warehouse stores, specialty stores, outlet stores, and its own Niketown stores. All athletic and sporting goods stores carry at least a minimum amount of Nike brand name products. The Nike name is highly visible in stores that carry shoes. The distinctive look of the shoe and large Swoosh that is usually highly visible sets Nike apart from any other brand on the shelf or the rack. The name Nike is also clearly recognizable and associated with NikeTown. NikeTown is a Nike superstore that carries every product that Nike makes. NikeTown has become regionally recognized for promoting sporting events and supporting local sports teams, professional and amateur.
Customers
Nike's typical customer profile is a 25-34 year-old, Caucasian male who works full-time as a professional/manager earning $40,000+ a year. However, Nike's customers can be anyone since its product line is so wide that it can appeal to anyone. Nike's customers care about quality, style, and innovative designs of its products. Many customers also like the perceived status that comes from wearing Nike products.
Competition
Nike has three major competitors. Reebok is Nike's main competitor. Reebok's shoes are less expensive and, therefore, attractive to those who are not brand loyal. Reebok is not as cutting edge as Nike, but the company is always close on its heels.
Fila is starting to gain market share with its new marketing strategy. The company is concentrating its advertising toward women and teenagers. Fila gained .86% market share between 1995 and 1996. Fila is becoming quite popular with the younger population and is achieving its marketing strategy.
Nike's last competitor, Adidas, is holding its position in the athletic wear industry, but does not seem to be a threat to Nike. The company has a very weak advertising campaign and a relatively low market share.
Analysis
We have chosen five criteria to evaluate Nike's marketing program. We feel each criterion is decisive and relevant in determining whether Nike's marketing program is successful. The five criteria we have chosen are: sales and profits, market share, store visits, customer interviews, and advertising strategy.
The sales and profits criteria were chosen because we think that a rise in a company's sales and profits is one good indication of a successful marketing strategy. However, looking at the financial statements alone does not give a big enough picture of the success of Nike's marketing program.
Over the last three years Nike has seen increases in revenues from 3.9 billion to over 6.4 billion, and an increase in profit margins by 1%. Total assets and net income have also risen steadily as Nike remains very profitable reporting $553 million in profits for 1996.
The outlook for the company seems bright due to the growth of international sales recently. Total sales in the United States last year were $3.9 billion, while sales in Europe reached an impressive $1.3 billion, and other international sales accounting for almost $1.2 billion. As long as Nike continues to search for and evaluate new opportunities in foreign markets the company will continue to grow and prosper at this impressive rate.
The second criteria we examined is market share. We chose to look at Nike's market share growth or decline in recent years since this demonstrates the success of Nike's marketing plan. We believe that an increase in market share would show that the company's marketing program is successful. We also believed that seeing the market share of Nike compared to its competitors would be useful to our analysis.
Nike's market share in 1994 was 30.1% and in 1995, it was 36.98%. This was an increase of almost 7%. We feel that this is quite an accomplishment and was affected greatly by Nike's stronger advertising campaigns in 1995. In 1995, Reebok was Nike's closest competitor with a 20.40% market share. Fila and Adidas follow with 5.56% and 5.19% respectively. The gap between Nike and Reebok is increasing which shows that Nike's marketing program is stronger than Reebok's
We chose to use store visits as a third criteria for analyzing Nike's marketing plan. We believe that aspects such as product position, shelf share, in-store advertising, and sale prices would give us an in-depth view of how well Nike's marketing program is performing. We think that a company with an excellent marketing program would have its products in the front or center of the store, have the largest shelf share, have posters and other in-store advertising, and have some sale prices as eye-catchers. We visited Athlete's Foot, Bon Marche, and The Sports Authority.
Nike is given the best shelf position in each store. Products are placed at the consumers' eye level and are dispersed according to the specific type of product. Athlete's Foot is a small store carrying the major brands, but Nike emerges because of its placement. Bon Marche displays Nike on the eye level, but also mixes other brands in the shelves. The Sports Authority has a large display for Nike and competitors. Nike is clearly the leader, but loses some visibility due to the large number of products on display in the entire store.
Nike maintains the highest shelf share over competitors at every store we visited. Athlete's Foot and Bon Marche's breakdown of shelf share are very similar to one another. Nike controls approximately 50% while Reebok, Adidas, and Fila share approximately 16% each. The Sports Authority sells some other brands not sold at Athlete's Foot and Bon Marche. Therefore, Nike's shelf share drops to approximately 40%, Reebok, Adidas, and Fila maintain approximately 16% each, and other brands account for approximately 10%.
In-store advertising is limited in all three stores. Bon Marche had no in-store advertising; Athlete's Foot had televisions playing a Michael Jordan video indirectly advertising for Nike, and The Sports Authority display pictures of athletes and brand logos.
Sale prices applied to Athlete's Foot and The Sports Authority, but Bon Marche had no products for sale. Older styles were on sale to clear out their inventory for new products. Sale prices were typically 15-20% lower than the original price.
The fourth criteria we chose to evaluate Nike's marketing program was customer interviews. We believed that talking directly to the customers would benefit our analysis greatly, because they are whom Nike's marketing program is geared towards. We feel that if the customers are familiar with Nike's advertising, like the products, and are buying the products, then Nike's marketing program is successful according to these criteria.
We interviewed two customers, one at The Sports Authority and the other at Athlete's Foot. The customer interviewed at The Sports Authority was definitely a loyal Nike customer. He was wearing a Nike hat, jogging suit, and shoes. He knew about all of Nike's advertising and could tell us anything we ever wanted to know about Nike. The other customer we interviewed at Athlete's Foot was not nearly as brand loyal as the first customer we interviewed. She was mostly concerned with style when she purchased her shoes. She liked the colors in the shoes and the way they laced up. She knew all of the Nike advertising from television, but said that she did not feel the advertising had anything to do with her decision to purchase. She stated that she just buys shoes that are comfortable and look good, and this time they happened to be Nike's. We feel that her statements imply that Nike's advertising is getting across to customers and as long as Nike continuously designs comfortable and good-looking shoes this type of customer will continue to buy Nikes. We think that both of these interviews support the position that Nike has a very successful marketing program.
The final criteria we used to evaluate Nike's marketing program was its advertising strategy. We believe that a good advertising strategy, which consists of concentrating on your typical customer, creating a lasting impression in customer's minds, and showing off the products is a major component in having a successful marketing plan. Without a strong advertising strategy, we do not feel that it is possible to have a successful marketing program.
Nike advertising is different that any other companies' advertising. It is memorable to its customers because it is so different. Nike creates its commercials and advertising for its typical customers, but the company also makes sure they are interesting to anyone who may see or hear them. The only part of the current advertising strategy we are uncomfortable with is that the commercials and ads are not showing the new products enough. Customers are not able to see the products up close to get a feel for them. Nike has almost deliberately steered away from showing off its products, which we feel is quite risky.
Conclusion
From our analysis, we have determined that Nike has an excellent marketing program. The company's performance was superior in each of the five criteria we developed. We were surprised by how high Nike's sales were and at how much the company's sales increase each year.
We were excited by Nike's gigantic lead in market share. We assumed that Nike was the top athletic wear company, but we never thought the lead was that large. The growing market share shows the power of Nike's marketing program.
The information we gathered from the store visits did not surprise us because we assumed that Nike would have the best positioning, most shelf share, and in-store advertising. This information supports our conclusion that Nike has an excellent marketing program.
The two customer interviews were really interesting to us because we had assumed that almost all customers would be brand loyal. We were surprised when one of the two people interviewed was not brand loyal at all. However, since she knew about Nike's advertising and products we believe that Nike was successful in its marketing. The company's aim is to give potential customers information about its products.
The advertising strategy used by Nike excited us because it is so different from other companies' advertising. We feel that even though Nike is taking a risk by not exposing its products more in its advertising, that it may have a big pay-off in the end. This risk could be considered a weakness in the company's marketing program, but if this advertising strategy fails, Nike can always go back to showing off its products in its advertising. We believe that taking risks is often the only way to succeed, so we applaud Nike for trying.
As a whole, we conclude that Nike has an extremely successful marketing program. We feel that the company is in control of the market and that other companies are always trying to catch up. The company's outstanding marketing program will lead to many years of new products, happy customers, and satisfied stockholders.