Internet marketing startegy for NikeDocument Transcript
Internet Marketing Strategy: Nike Corporation Andrew OlsenUniversity of Maryland University College
2 Executive Summary The purpose of this paper is to develop an Internet marketing strategy for Nikeand its sneakers. I will give a brief history of Nike and then elaborate on its dominantmarket share. This section will also discuss Nike’s footwear and what makes Nike, Nike. Nike’s target market is far-reaching, yet very specific. The average age of a Nikeconsumer is 25, but they have been concentrating more on the teen market because of thegrowth potential. This paper will provide proof to why this is and elaborate on its otherdemographics, such as its adult and female market. This paper will touch on Nikes business model and its various pricing strategies,such as premium pricing, target-costing/pricing and dual pricing and why it uses thesestrategies. Then I will discuss the only payment mechanism at Nike’s online stores. Nike has a very extensive and complex value chain system. It has to monitor thedistribution of its footwear from its production centers in Asia to their main distributioncenters in the US and Europe. From there they have to ship their products to all of theirretailers. In this paper I will explain how Nike does this and how it handles the logisticsof a complicated distribution system. Nike is no stranger to promoting its products. It shells out about $1 billion a yearon creating demand for its products through marketing. Nike has never been one to usetraditional online promotions and I will explain why that is and why Nike has usedsophisticated, unique and interactive ways to promote its footwear online. Finally, I elaborate on Nike’s potential sales over the next three years, whichappear to be very good, and determine the viability of Nike’s market strategy forpromoting and advertising Nike’s footwear on its online stores.
3Company and Product Overview Nike has a storied history that goes back to a long-lived business partnershipbetween Bill Bowerman and Phil Knight that began all the way back in 1962 when thetwo opened Blue Ribbon Sports (BRS). In 1972 BRS changed its name to Nike, which isnamed for the Greek winged goddess of victory. (Further history: see Exhibit 1 & 2) TheNike Corporation went public in 1981, and in its first year as a public company, it led theindustry and was sold in more than forty countries worldwide. It has evolved from atraditional brick and mortar company to a click and mortar company, as a number ofother companies have also done. Nike employs 22,000 people worldwide, and includingthe manufacturers, shippers, retailers and service providers, nearly 1 million people helpbring Nike to “athletes” everywhere (www.NikeBiz.com). Nike is primarily engaged in the design, development and worldwide marketingof footwear, apparel, equipment and accessory products. They sell athletic footwear andapparel worldwide. Nike sells its products to approximately 18,000 retail accounts in theUnited States and through a mix of independent distributors, licensees and subsidiaries inapproximately 140 countries worldwide (Nike, Inc. profile). Each month, Nike willassess the factorys performance and licenses may be withdrawn if something goes wrongor gets a poor assessment. Nike will also assist its subcontractors in finding betterproduction sites. In addition, Nike operates Niketown shoe and sportswear stores and has openedtwo Nikegoddess stores, which caters to women. Nike does not have a single sneakerfactory in the U.S. because independent contractors manufacture virtually all of itsproducts. All footwear products are produced outside the U.S., while apparel products
4are produced both in and out of the United States. At the moment, Indonesia is Nikesbiggest production center, with about 17 footwear factories that employ 90,000 workersand produce about 7 million pairs of shoes each month (www.NikeBiz.com). The athletic shoe industry is one of the largest markets in the U.S. today andNike’s largest concentration is on the sneaker market itself. They also sell all kinds ofathletic apparel and equipment, from warm-up pants to soccer balls and football pads.The three major corporations that dominate the industry are Nike, Reebok, and Adidas.Nike controls roughly 40% of the entire market, while Reebok maintains about 12%, andAdidas owns about 10% (Herzog, 2003). Its market share is more than Reebok andAdidas’s market share combined. (Exhibit 4) There are many other competitors such asNew Balance, Puma, Champion, and Fila, but these companies do not run the market likethe big three. They just own much smaller segments. (Exhibit 5) Nike is the world’s most popular brand, hence making it the worlds top shoecompany. The $10 billion company still has just over 39% of the U.S. athletic footwearmarket and sold six of the top 10 styles in 2002 (McCarthy, 2003). (Exhibit 6) TheCompanys athletic footwear products are designed primarily for specific athletic use,although a large percentage of the products are worn for casual or leisure purposes. Nikedesigns and sells shoes for a variety of sports, including baseball, cheerleading, golf,volleyball, wrestling, and so forth. (Exhibit 3 & *) They also sell Cole Haan dress andcasual shoes and a line of athletic apparel and equipment. Almost every American has at least one or two pairs of Nike shoes, which is duedirectly to the quality and popularity of the sneakers they sell. It is those sneakers that
5have been its foundation and they have been Nike’s money makers. Nike may havediversified its product line, but it will always be associated the shoe industry. Nike has been able to remain a dominant market player for a majority of theirexistence because of their innovative technology and diverse and ever changing productline. They also have a reputation for fancy footwork, especially in the arena ofmarketing. Nike is not only the biggest producer of sports shoes, but also spends thelargest amount of money on advertising and promotion. It was Michael Jordan, a five-time MVP, whose endorsement of Nike and their marketing of the superstar that helpedturn the company into the industrys dominant maker of athletic shoes and apparel. Now,Nike is hoping that the endorsements of LeBron James, Kobe Bryant (Exhibit 9), andother international stars like Ronaldo and the Brazilian Nationals will continue itsdominance as a maker of athletic shoes and apparel. Nikes presence in soccer, which isthe worlds biggest sport, became stronger after entering into new partnerships with topEuropean club teams such as FC Barcelona and Inter-Milan. During the 1998 WorldCup, six teams: Brazil, Holland, Italy, Nigeria, South Korea, and the United States,competed in uniforms designed by Nike. Furthermore, in 1999 Nike negotiated a newcontract with the Dutch soccer association, KNVB, and the Dutch team will be playingwith the Nike swoosh on their uniforms until 2006. Nike shoes have become the gold standard of sports. The Nike swoosh has beenomni present on sports products and in many sports venues and will continue to be foryears to come. Its Swoosh trademark is as recognizable as the Stars and Stripes and maybe better known than the McDonalds’ Golden Arches or even Jell-O (Reilly, 1997).
6 Sneakers are not a necessity, but they are not a luxury either. Almost everyone hasat least two pairs of sneakers, but the only possible difference would be the brand of thesneakers and one pair is usually Nike. Nike has been able to sustain a competitiveadvantage since their beginning. They have established their name throughadvertisements, endorsements, quality, and innovation. What Nike has done is create a link between a solid product and a solid company.Consumers trust the products that Nike Inc. sell. This has been the key to Nike’s successand is one of the main reasons why they are able to charge what can be viewed as veryexorbitant prices that they do for their sneakers. However, this is the way Nike sneakersmake their revenue. The fact is consumers are not just buying the shoe they are alsoinvesting in the label.Target Market Nike has done a remarkable job of positioning itself. They have had to reinventthemselves many times in order to reach its target market. Nike has gone through arunning craze when consumers wanted the best running shoe. There was the coming ofMichael Jordan where basketball shoes ruled the footwear market. Then athletic urbanwear became king when consumers started buy Nike just for a fashion purpose. Nike hasbeen able to create an emotional link with their customers, and more specifically theirtarget market. It is extremely important to clearly define your target market and to think abouthow the product fits into their life (de Asis, 2002). Nike has been able to do this. Nikeconsiders its customers as any and every athlete and more specifically, they target thosewho endeavor to do their best in sports. For that reason, Nike markets to those who desire
7to become “champions” in whatever they do. Nike currently sells about 300 models ofathletic shoes in 900 styles for 25 different sports (www.Nike.com). (Exhibit 2) Runningshoes take the greatest share of consumer spending composing of 29% of the total market(Werth, 2002), while basketball shoes account for 18.3% of total consumer spending forsport shoes (Lenetz, 2002). (Exhibit 8) In addition, in a bold move to continue its marketdominance, Nike is spending more marketing dollars on soccer than basketball in aconcerted bid to become the No. 1 soccer brand by 2006 (Nike Heats…, 2002). However,Nike also sells more casual shoes to those who do not consider themselves as “die hard”athletes. In its goal to diversify its footwear line, this has given Nike a very broadcustomer base. (Exhibit 8) Even with its broad customer base, Nike is not really considered a Gen-X or babyboomer brand. The average age of a Nike consumer is 25 and their main target marketfor their shoes are males and females between 15 and 35 years old. More specifically,Nike concentrates on the fashion-conscious 18- to 24-year-olds with cash to burn(Markiewicz, 2002). Nike has been concentrating more so on the affluent teendemographic. The growth opportunities in the teen market are enormous. Young adults12-24 represent the fastest growing market segment since the baby boom and areestimated to exceed 40 million by next year (Fusient Media, 2001). In addition, there arecurrently 56 million boys and girls between the ages of 10 and 24 in the U.S and it isgrowing 19.5% faster than the overall U.S. population and accounts for more than $250billion of annual disposable income (Silverstar Holdings…, 2001). There are also morethan six million teens involved in sports. Nike understands that there is an extraordinaryopportunity exists in this valuable market.
8 The teen market is as fickle and bewildering, but teenagers have money and arewilling to spend it, whether it is theirs or their parent’s. Teens are spending an average of$135 per month on apparel and related products, an increase of 23% over last springs$110 total and are looking for more brand names, such as Nike (Teens…, 2002). (Exhibit10) Over a 30-day period teens shop at a supermarket 5.3 times, at a convenience store4.7 times and in a mall setting 4.3 times and 36% of teens also claim to have at one timeor another purchased something online (teen shopping…, 2002). This is why theemphasis remains on the young. They represent the future life-blood of the market. Even though Nike is concentrating on their younger demographic, they have notforgotten the more steady adult market. Nike likes to stress their shoes general trendystyling and superior performance in a given sport, which is more important to adultshoppers. Nike is a strong example of a company that markets to both adults andchildren with equal impact, and without dilution of the brand image. (Baby Steps: 2003).The adult market, specifically baby boomers, are only getting bigger in numbers and areprobably the wealthiest component of our society that currently account for nearly 30%of the $15.7 billion in annual sneaker sales, second only to the teen market (Yen, 2003). Nike has also made a dramatic push in recent years at the long forgotten femalemarket. A lot of this is directly due to the fact that spending for womens sports appareland related products has grown at a greater clip than spending for mens. Women alsomake about 60% of all sports apparel purchases and the womens category accounts forabout 45% of total spending (DInnocenzio, 2002). In response to these trends, Nike has signed prominent female athletes, such asSheryl Swoopes and Gabrielle Reece in hopes of attracting more female shoppers. Nike
9has also developed more versatile sneakers because women definitely want a product thatlooks good, but also has key performance benefits (Buss, 2002). It is looking to meet allthe athletic needs the female shopper. Nike has also gone a step further than any other athletic footwear company toattract more female shoppers by opening any all-female store, Nikegoddess. The hopehere is to make the retail experience more meaningful to their female demographic whileproviding a concentrated consumer input and feedback loop. It provides a very intimatesetting with a unique look and feel in terms of the environment of the store that isdesigned to address the needs of the female shopper. Nike will use Nikegoddess as a wayof determining how to approach the womens business (DInnocenzio, 2002). Nike has realized that their brand does not have to exactly represent their targetmarkets description or lifestyle. However, Nike also realized that it must at least becompatible with the company’s target market and it must match their consumers profileand expectations. Nike has built its brand around star athletes, such as Tiger Woods,Ronaldo, Martina Hingis, and Kobe Bryant, to name a few. However, Nike does not justsell shoes, but an image. It is selling the mythology of sport, and the surroundingphilosophy of youth, health, fitness, and the sort of in-your-face rebellion that appeals tothe adolescent in all of us. Nike works because their product, icon, and target market areall seamlessly integrated into one ideology. All this has allowed Nike to make theirbrand more relevant and familiar to their target market. Nike may have a specific targetmarket, but the way Nike has been marketed allows everyone to think of the Nike brandas "my kind of product."
10Pricing Nikes business model is based on the total revenue equation, TR=P*Q, whichmeans that in order for them to make a profit they must maintain high margins whileexpanding sales. This business model is normally consistent with demand curve pricing,which means that if you raise prices, demand will decrease and vise versa. However, inthe case of prestige goods, the demand curve sometimes slopes upward. Someconsumers believe that they getting a better shoe at a higher price, but that all depends onthe perceived value of the brand, which will be discussed next. Nike practices a premium pricing policy. (Exhibit 11) Prices range on the highend from $200 for a pair of Gary Payton Basketball sneakers to $175 for either a pair ofTiger Woods golf shoes or the new Air Jordans. A pair of women’s running shoes willrun you as much as much as $150, $140 for a pair of lifestyle shoes, or $130 for a pair ofsoccer sneakers. On the low range prices range from $30 for a pair of men’s sandals or$50-$65 for a pair of casual sneakers and $20 for a pair of women’s sandals and $30-$45for a pair of casual/leisure sneakers. You are not only paying for the “best product,” youare also paying for the Nike brand. (Exhibit 12) Nike is able to charge a premium for its sneakers because of the strength of theirbrand. Its brand recognition is very high and it has a strong international base. BecauseNike is an established premium brand, the pricing strategy should clearly demonstrate thehigh quality and style of the brand, if the product is to meet the consumers needs forimage and social status. This pricing strategy is based on the consumers perceptions ofvalue and a strong brand such as Nike usually equals a higher perception of value. A
11strong brand allows you to maintain a certain amount of pricing premium and consumerinterest, which is beneficial to the sales and margin growth the product should generate. Nike may have a premium pricing policy and it may be able to do so because it isa premium and established brand, but it is very important to remember that the consumerdecides whether a product’s price is right. That is why, pricing decisions are buyeroriented like the other marketing mix decisions. The willingness to pay is the maximumprice a customer will pay for a specific product at a certain performance level and thehigher the perceived value of a product, such as sneaker, the more the customer is willingto pay for it (Butscher & Laker, 2000). However, effective buyer-oriented pricinginvolves understanding how much value consumers give to the product and setting aprice that fits this value. If consumers perceive that the price is greater than the product’svalue, they do not buy the product. In addition, if consumers perceive that the price isbelow the product’s value, they buy but then the seller loses from its profit opportunities.This is where target-costing/pricing approach becomes very important. (Exhibit 13a&b)Target-costing/pricing approach can help maximize return on products with short lifecycles while determining the value consumers give to the product. Nike also incorporates a dual-pricing strategy, which means that after a newsneaker ($90+) is introduced, Nike will sell off the rest of the “old product” at a lowerprice corresponding to its relative market values. Nike displays its latest shoe modelsfirst at premium retailers like Footlocker or Niketown and sells its older shoe models atdiscounters and outlets (Billington, Lee, & Tang, 1998). Nike’s target-costing approachplays an important role here also because as mentioned earlier, it can help maximize
12return on products with short life cycles while determining the value consumers give tothe product. Finally, Nike does not offer a price-matching program because as themanufacturer, they can only suggest a retail-selling price. If Nike were to do so, theywould be "price-fixing," which is against business law. A retailer can determine if theywant to lower the price for competitiveness and keep in with the selling costs of thecurrent market (www.NikeTown.com). Nike footwear can be bought online from any retailer that has a website. Thereare a variety of ways a person could pay for their Nike’s online, like online check, debitcard, or credit card. At Nike the only payment mechanism that is used is a credit cardbecause it is the safest and most secure way to guarantee payment for the product. It isalso a way of protecting the consumer. Nike footwear is available at a number of localretailers so if you do not have a credit card they can be purchased at your local retailer.Purchasing footwear through NikeTown.com or NikeGoddess.com is not necessary it isjust another added service Nike provides for purchasing their footwear.Distribution Nike has a very extensive and complex value chain system. Tens of thousands ofsneakers get piled onto cargo ships from Asia and sent to distribution centers in the US.Nike is a manufacturer without factories, meaning that they separate the physicalproduction of goods from the design and marketing stages of the production process(Gereffi, 2001). Since all Nike footwear products are produced outside the U.S., Nikehas to monitor the distribution of its footwear from its production centers in Indonesia,China, and so forth to their two main distribution centers in the U.S. in Memphis,
13Tennessee and Wilsonville, Oregon. Nike also owns or leases several other U.S.distribution centers. (Exhibit 15) When Nike footwear is shipped from Asia to the Wilsonville, Oregon distributioncenter is one of the first stops it makes before being sent off to their various retailers. Itships out 26.6 million pairs of footwear each year (www.NikeBiz.com). The Memphis,Tennessee distribution center (Exhibit 16) serves as the other main distribution centers inthe U.S. for Nike footwear. It is a major force in the U.S. making sure Nike’s footweargets to their retailers. Nike operates 19 distribution centers in Europe, Asia, Australia, Latin Americaand Canada. They have had more distribution centers in the past, but because of EUpolicies Nike closed around 20 distribution centers throughout Europe and replaced itwith a main center in Belgium for all of Europe. (Exhibit 15) Nike markets its products in approximately 140 foreign countries through anumber of independent distributors, licensees, subsidiaries and branch offices. It alsooperates 162 retail outlets outside the U.S., which are comprised of NikeTowns, factorystores, employee stores and Cole Haan stores. In the U.S. Nike sells its products to approximately 18,000 retail accounts, whichinclude main retailers such as Champs, Eurostar, Finish Line, Footaction, Footlocker,Hibbetts to name a few. Recently, Hibbett cut a deal with Nike that lets the companyimport goods directly from the Far East instead of going through Nikes distributioncenter, which cut their freight costs quite a bit (Reeves, 2002). Many of Nike’s retailersalso include various department stores and smaller local “athletic stores.” Finally, thereare a number of Nike retailers. Nike runs 13 NikeTowns in major cities, over 70 Nike
14Factory Stores featuring healthy discounts on recent inventory and a few Nikegoddessstores. This is not to mention the Nike’s online retailer, www.Nike.com orwww.NikeTown.com. Nike has 17 regional sales offices throughout the U.S., which areresponsible to taking orders from retailers and maintain inventory. (Exhibit 17) Nike has recognized the importance in monitoring value chains and itsdistribution is as about as tight as you can make a consumer goods-oriented business. Itis actively working with their many logistics vendors. They are incorporating the latestwarehouse management software with Nike’s system in order to manage their shipping,inventory, distribution, etc… Toll’s integrated logistics solution has consolidated threeNike distribution centers into one in Altona, Victoria (Rennie, 2002). Last year Menlocustomized and staffed Nike’s distribution center in Memphis (Menlo in…, 2002). Inaddition, Emery Forwarding, which is part of the Menlo Worldwide group, provides Nikewith its integrated "QuickSource" logistics program that combines inbound/outboundtransportation, storage, inventory management and order fulfillment 24 hours a day,seven days a week. Mallory Distribution Centers (MDC) is the logistics and warehousing arm of TheMallory Group and provides warehouse logistics services, including inspection andpackaging for Nike (www.mallorygroup.com). FKI Logistex is the world’s second-largest materials handling systems company and provides Nike with an automatedlogistic system for handling parcels and packages, particularly in the overnight couriermarket (www.fkilogistex.com). Another of Nike’s vendors, Island Pacific, provides themwith fully integrated suite of software to manage the entire range of their merchandising
15activities assuring that merchandise desired by customers is in retailers stores pricedcompetitively (Island Pacific…, 2003). Finally, the UPS Logistics Group has tailored shipping information for Nike’sonline retail store www.NikeTown.com. If you place an order for sneakers online fromNike, a UPS Logistics Group company has had its hands all over your order. UPS stores,packs, and ships all goods ordered through the Nike Web site. It stocks shoes and warm-ups in their warehouse and fulfills orders hourly, loading goods into trucks headed to thehub (Eskew, 2000). Nike prides itself on its ability it effectively and efficiently manage its value chainsystem. By effectively and efficiently managing its value chain, Nike’s goal is to reduceits cycle time, reduce its inventory costs and lower its overall spending on transportation,and so forth. Nike believes that they have been able to achieve this goal with theirvarious logistics vendors. With its core logistics vendors, Nike has been able to betterserver all of its consumers by being able to cut costs and improve shipment time andinventory turnover. Satisfied customers and an effective and efficient distribution systemis a key aspect of Nike’s marketing strategy.Promotion Nike shells out about $1 billion a year, or a tenth of its annual revenues, oncreating demand for its products through marketing (Herzog, 2003). It uses a productoriented advertising campaign meaning Nike is trying to convince the consumer topurchase their product. Nike has been able to develop successful advertising campaignsand effectively market their footwear through the hard work of their many ad agencies. Throughout the years Nike has had many different advertising campaigns, some
16more successful than others, but were always created to reflect public opinion. Some ofthe major strategies used to achieve this goal are the use of television,magazine/newspaper, and online promotion. (Exhibit 20 & 21) Nike has beensuccessfully using traditional promotion tools since its inception. However, Nike wasslow to respond to the e-commerce market and online promotion methods and it did notfully embrace them until well into the new millennium. Nike finally realized that theInternet can leverage and enhance the other vehicles such as media advertising,promotions, sponsorships and publicity (Narisetti, 1998). Nike has never been one to use traditional online promotions. It has not investedmuch in banner ads or search engines because anyone that knows Nike knows that theyalso have a website. They do not need to use a search engine to find NikeTown.com orNike.com. In addition, almost all of their TV ads have their website address on it.Furthermore, Nike products are sold by hundreds of retailers and any number of them canhave a website so it is the responsibility of that retailer to promote their site. If you typein Nike in a search engine any number of retailers that sell Nike’s will pop up along withNike.com and the NikeTown site. Even if you type in Nike sneakers the Nike websitesdo not even make it into the top 100 search returns. Nike does however, promote theirwebsite and use banners on top online malls, such as 24HourMall.com. Because of clutter caused by pop-ups, banner ads and many other onlineannoyances, Nike has pushed the envelope to develop unusually sophisticated andengaging Web offerings (Elkin, 2003). When Nike first wanted to generate traffictowards its website in 2000, it used the combination of rich media Web advertising, acliffhanger TV spot, and an engaging e-commerce-enabled site (Jackson, 2001). Part one
17of the advertisement was a normal TV commercial. However, in order to see theconclusion of the commercial, the individual would have to sign on to the Nike website.It was the first time traditional advertising was used to send its viewers directly to theInternet. This not only increased Nike’s already high brand awareness, but also increasedwebsite traffic and sales. The fact is the future of online advertising is more aboutapplications than ads because those applications involve the user in new, unique, andmost importantly interactive experience (Carton, 2003). An application such as richmedia allows you to create so much more of an emotional experience for peoplecompared with a banner ad (Rewick, 2000). By inviting a consumer to participate insomething interactive will reward them for their participation, often in the form ofmore/specific information that matches their needs or some degree of entertainment(Jaffe, 2003). In keeping with the style and philosophy of their TV ads: sports as self-realization, Nike’s online ads and promotions place a lot of emphasis on athleticpotential. They utilize limited video-like images as icons/links to additional pages toshowcase their products. Nike called upon several companies for its online branding andadvertising solutions. Viewpoint worked directly with Nike to provide a complete richmedia solution for an interactive product presentation at the Nike Shox website.Customers were able to look at all of the shoes in the Shox line from any point of viewand could also take the shoe apart and examine its separate components (Nike Shox).Traffic to Nike’s online store dramatically increased along with sales. The Nike Shoxsite received an estimated 540,000 hits and NikeTown.com sold out all three Shox line
18products within 24 hours of their release. They continued to be top sellers daily in theNikeTown with almost 4,000 units sold in the first 4 weeks after launch (Nike Shox). Nike is also actively using Macromedia Flash and Director and Shockwave on itsvarious websites, like NikeBasketball.com. Macromedia, the maker of the popular Flashtool for Web animations, actively works with YaYa, Radius Inc., and Zendo Studios toprovide Nike with additional interactive applications on its various websites. Flash is oneof the most widely used development applications for Web sites, advertisements andgames. YaYa worked with Nike to design a Vince Carter slam-dunk game. The game,which launches from an email sent by Nike to a targeted audience, begins by lettingplayers choose their own shoe color of Nike Shox basketball sneakers (Vitzloff, 2001).Players can then email their high scores to their friends, which they can try to beat. Thisis email advertisement with an interactive twist. Zendo Studios created the Nike Freestyle Remixer, which is an innovative onlineentertainment piece featured on NikeBasketball.com. This is an interactive onlineextension of Nike’s Freestyle TV ad that features pro basketball players and streetballersshowing off their hottest ball-handling skills (Chu, 2001). Nike and Zendo have givenusers the ability to create their own re-mix of the video and send it to their friends viaemail. The Freestyle Remixer is one of the most-visited features of NikeBasketball.comand it has allowed users to simultaneously create and consume a video experience(“Zendo Studios: 2001). Nike has just used this as another interactive emailadvertisement. Another important interactive feature that Nike has added to its website isNikeiD.com. NikeiD lets customers design their own shoes. They can select from 1,000
19or more possible design combinations, which are basic style, colors, size and a briefphrase of your own creation that appears on the back of the shoes. Customers can thenview their personal designs from a variety of angles, as discussed earlier. Nike spent sixmonths working with suppliers in Asia to rejigger its manufacturing for custom-madesneakers (Keenan, 2002). NikeiD has been able to draw steady traffic and 20% ofsneaker sales at the site are customized (Swartz, 2002). This is just another hands-oninteractive tool that wraps Nike products in an engaging, relevant brand experience, whilealso being able to recreate Niketowns intensity and popularity (Fleming & Shiple, 2001). Finally, NikeTown.com provides customers the opportunity to locate a store nearthem that sells Nike products, if you do not or cannot shop online. The store locator ispowered by Vicinity and it provides customers with locations, directions, distance, andcontact information to Nike retailers up to 500 miles of your location. Vicinity has morethan 280 clients with an aggregate of more than three million real world store locations(Christopher, 2000). Basically, Nike realizes that different consumers are going to connect with themin different ways and they want the consumer to have a brand experience thats relevantto them (Elkin, 2003). It has been through these interactive and engaging promotions thathave helped generate all the traffic and sales on Nike’s websites. Nike was even namedAdvertiser of the Year at this year’s One Show Interactive (Creative; 2003). (Exhibit 24) Nike has a number of ad agencies, such as Wieden & Kennedy, R/GA andDoubleYou, which have created a number of e-commerce sites for Nike. The uniformmind-set among them has been to resonate with the consumer in as many ways aspossible and that has been to through deep interaction with the Nike brand (Taylor,
202003). Nike is continuing to look for ways to do more with online advertising as a brandcommunication medium, such as leveraging their TV creative and giving it impact online(Hayes, 2003). They also continue to do a lot more with services and tools that enhancethe Nike brand from a value-added service point (Hayes, 2003), which should continue toincrease traffic to the Nike sites, while quite possibly increasing sales.Pro Forma Financials The sneaker market is an elastic one and is dependent on the economy and thehealth of the retail market. As the economy and/or the retail market goes so does thesneaker market. Since consumer confidence and spending is increasing and the economycontinues to improve, Nike has great growth potential and should continue its dominancewell into the future. Most recently Nike’s sales grew 8% to it over $10 billion mark for the first time.In addition, last year sales grew by almost 7% to just under $9.9 billion. (Exhibit 25)What has made this growth so impressive is that it has come on the heels of theFootlocker Nike feud. This has been a battle that has gone on for over a year and itstarted when Footlocker cut the number of Nike sneakers priced above $100. Inresponse, Nike cut its sneaker shipments to Footlocker by roughly 40%. Footlocker hasbeen their most profitable strategic alliance, until now. It has and will continue to effectUS sales the longer the dispute goes on. However, even though Nike’s US footwear saleshave fallen around 1% from last year and by almost 5% since 2001, Nike’s sales haveincreased significantly because of a greater reliance on non-U.S. markets. (Exhibit 25) Nike is still dependent on the US footwear market and cannot allow this disputewith Footlocker to continue. However, there is still greater growth potential
21internationally and Nike has learned to develop that market since their dispute withFootlocker. If and when this dispute resolves itself, nothing should hinder Nike’s salespotential. Nike spends on average over $1 billion on advertising and promoting theirproducts and three-quarters of that is spent just on their footwear. Advertising productioncosts are expensed the first time the advertisement is run. TV and print placement costsare expensed in the month the advertising appears. The majority of Nikes promotionalexpenses result from payments under endorsement contracts. Accounting forendorsement payments is based upon specific contract provisions. Generally,endorsement payments are expensed uniformly over the term of the contract after givingrecognition to periodic performance compliance provisions of the contracts. Total advertising and promotion expenses have continued to increase each andevery year. They will continue to increase, especially with the recent signing of LebronJames to a $90 million endorsement contract and Kobe Bryant to a $40 million one. Nikehas seven of the top ten most expensive endorsement contracts. (Exhibit 9) Nike’sadvertising and promotion expenses have increased almost $50 million since 1999.(Exhibit 26) Nike has made a name for itself through its advertising and promotion. It doesnot hold back when advertising and promoting their products. When expenses need to becut the advertising and promotion budget is usually left untouched. As was alreadymention, Nike uses a variety of traditional and Internet advertising and promotiontechniques. They are looking to increase the brand identity and consumers valueperception. The stronger the brand, the higher the perception of value, which leads to an
22increase in sales. With Nike’s goal to continue to dominate the global athletic productmarket, they will continue to increase their advertising and promotion budget. It isexpected that by 2006 Nike will be spending over $125 million more then they do now toadvertise and promote their products. (Exhibit 26)
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26 provides a glimpse of the company’s innovative new work.” iMedia Features. Retrieved online July 9, 2003 from iMediaConnections.com on the World Wide Web: http://www.imediaconnection.com/content/features/020303b.aspHerzog, Boaz. (2003, June 24). “Nike Scores Endorsement Deal with Lakers Kobe Bryant.” The Oregonian. Retrieved June 13, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“HIGH SCORERS: TOP SHOE ENDORSEMENT DEALS FOR ATHLETES.” (2003, June 30). FN, Section: pg. 66. Retrieved July 2, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“Island Pacific Announces Marketing License Agreement with KMG Solutions.” (2003, January 13). Business Wire. Retrieved July 1, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Jackson, Adam. (2001, February 6). “Online Advertising: On the Brink of a New Era?” ClickZ Today. Retrieved July 7, 2003 from ClickZ on the World Wide Web: http://www.clickz.com/ad/online_ad/article.php/836611Jaffe, Joseph. (2003, July 7). “Best Practice: Inviting Interaction; If “traditional” advertising is one extreme and involving experiences is the other end of the spectrum, then inviting consumers to interact fits neatly somewhere in the middle.” iMedia Features. Retrieved online July 9, 2003 from iMediaConnections.com on the World Wide Web: http://www.imediaconnection.com/content/features/070703.asp
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28McCarthy, Michael. (2003, April 3). “Rivals scramble to topple Nikes sneaker supremacy.” USA TODAY, Section: Money, pg. 1B. Retrieved June 13, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“Menlo in Nike Golf deal.” (2002, December 4). Journal of Commerce Online, Section: Logistics, pg. WP. Retrieved June 30, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Narisetti, Raju. (1998, November 16). “Technology (A Special Report): Pieces of the Puzzle --- New and Improved: Ad experts talk about how their business Will be transformed by technology.” Wall Street Journal. Retrieved July 1, 2003 from MdUSA database ABI/Inform on the World Wide Web: http://www.umuc.edu/library/.“Nike Heats up Soccer.” (2002, October 21). FN, pg. 11. Retrieved July 3, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“NIKE HISTORY.” (Dec2002/Jan2003). The Ecologist, Section: Economics, Vol. 32, Issue 10. Retrieved June 19, 2003 from MdUSA database Academic Search Premier on the World Wide Web: http://www.umuc.edu/library/.Nike, Inc. Competitors. (2003). Yahoo! Finance: Retrieved June 19, 2003 from Yahoo! Finance on the World Wide Web: http://beta.finance.yahoo.com/q/co?s=NKE
29Nike, Inc. profile. (2003). Hoover’s Online. Retrieved June 21, 2003 from MdUSA database Hoover’s Company Information on the World Wide Web: http://www.umuc.edu/library/.Nike Shox. “How Viewpoint Helped Shox Put the Boing in Nike’s Online Sales.” Viewpoint Case Studies. Retrieved July 5, 2003 from the Viewpoint website on the World Wide Web: http://www.viewpoint.com/index1.html?vp1&company/7- 81.jsp“R/GA Takes the One Show Interactive by Storm Winning Five Awards: The Most of Any Agency.” (2003, May 8). Business Wire. Retrieved from Yahoo! Finance on the World Wide Web: http://biz.yahoo.com/bw/030508/85467_1.htmlReeves, Amy.(2002, March 11). “Hibbertt Sporting Goods Birmingham, Ala. Retailer Learns Lesson After A Slight Misstep.” Investors Business Daily, Section: A, pg. 12. Retrieved June 30, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Reilly, Rick. (1997, March 17). “THE SWOOSHIFICATION OF THE WORLD.” Time Australia, Issue#11. Retrieved June 25, 2003 from MdUSA database Business Source Premier on the World Wide Web: http://www.umuc.edu/library/.Rennie, Philip. (2002, June 20). “Trains, Planes And Profits.” Business Review Weekly (Australia), Section: News & Features, pg. 32. Retrieved July 5, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.
30Rewick, Jennifer. (2000, October 23). “E-Commerce (A Special Report): The Lessons Weve Learned --- Advertising: Beyond Banners --- Net advertising is still young -- and still trying to find an approach that works.” Wall Street Journal. Retrieved July 8, 2003 from MdUSA database ABI/Inform on the World Wide Web: http://www.umuc.edu/library/.Robson, Douglas. (2001, July 2). “Just Do...Something: Nikes insularity and foot- dragging have it running in place.” Business Week, Issue: 3739, pg. 70-71. Retrieved July 4, 2003 from MdUSA database ABI/Inform on the World Wide Web: http://www.umuc.edu/library/.“Silverstar Holdings Acquires Student Sports, Inc.; Acquisition Adds Leading High School Sports Media and Marketing Company to Silverstars Portfolio.” (2001, September 25). Business Wire. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Smith, Paul R. & Taylor, Jonathan. (2002). Marketing communications: an integrated approach. 3rd edition. London; Milford: Kogan Page Ltd.“SPORTS NUT: TOP TEN PRICIEST SPORT SHOE CATEGORIES.” (2003, May 19). FN, Section: pg. 18. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Swartz, Jon. (2002, October 29). “Thanks to Net, Consumers Customizing More.” USA Today. Retrieved July 8, 2003 from Archetype: News on the World Wide Web: http://www.archetypesolutions.com/news-usatoday1.html
31Taylor, Catharine P. (2003, May 12). “Creative; Beyond the Banner; Online ads have come a long way since the birth of the Web.” ADWEEK. Retrieved July 5, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“Teens spending more.” (2002, May). Chain Store Age Executive, Volume 78, No. 5, pg. 35. Copyright 2002 Lebhar-Friedman Inc. Retrieved June 15, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.“Teen shopping patterns revealed.” (2002, April 1). DNR, Section: Volume 32, No. 13, pg. 13, Copyright 2002 Fairchild Publications, Inc. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Werth, Brian. (2002, March 6). “Rising Athletic Footwear Sales Please Bloomington, Ind., Vendors.” Herald-Times. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.Wyner, Gordon A. (Winter 2002). “Get Serious About Pricing.” Marketing Research, Volume 14, Issue 4. Retrieved June 25, 2003 from MdUSA database Business Source Premier on the World Wide Web: http://www.umuc.edu/library/.Yen, Hope. (2003, June 3). “Boomers push sales of sneakers, retro styling.” The Associated Press State & Local Wire, Section: Business News. Retrieved July 6, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.
32“Zendo Studios: Zendo Studios creates new form of online entertainment for Nike.” (2001, May 9). M2 Presswire. Retrieved July 6, 2003 from MdUSA database LexisNexis on the World Wide Web: http://www.umuc.edu/library/.http://nike.jp/nikebiz/global/pdf/repo/vision.pdfwww.24hourmall.comwww.emeryworld.comwww.fkilogistex.comwww.islandpacific.comwww.mallorygroup.comwww.Nike.comwww.NikeBiz.comwww.NikeTown.comwww.pg.dk/advertising/thomsen.pdfwww.pointroll.comwww.theproduct.com/6m147/solutions/nike.pdfwww.ups.comwww.viewpoint.comwww.wisecat.verywise.co.uk/search-engines.htm
33 Appendices: Exhibit 1: Nike Timeline: Year 1938 Phil Knight: Born, Portland, USA 1959 Graduates from the University of Oregon where he met coach Bill Bowerman 1962 Graduates from Stanford University where his MBA paper was on trainer manufacturing 1964 Sets up Blue Ribbon Sports with Bowerman to import trainers from Japan 1971 Nike, named after the Greek goddess of winged victory, is founded. The swoosh is designed by Portland University design student Carolyn Davidson, who is later paid in shares 1972 Bowerman invents the waffle trainer sole 1974 Jimmy Connors wins Wimbledon wearing waffle Nikes 1980 Nike lists on the New York stock exchange 1984 Carl Lewis and Nike dominate the LA Olympics 1985 Knight signs unknown basketball rookie Michael Jordan 1987 Nike launches Air Max 1988 Nike ad man Dan Wieden says "you guys just do it" at a meeting. A company slogan is born. “Just Do It” 1997 Nikes rookie golfer Tiger Woods wins the Masters by a record 12 strokes 1998 Signs $17m (£11m) annual deal with Brazilian football team. 2000 Nike signs £300m deal with Manchester United giving it rights to all of Uniteds merchandise 2003 Nike announces third quarter results with sales up 6% to $2.4bn (£1.4bn) and profits of $125m. Annual sales are forecast to be $10.6bn Source: (Hatfield, 2003) Exhibit 2:Nike History:
35 Air Resolve – Tennis $75.00Air Jordan’s $175.00 Air Payton’s $200.00 Tiger Wood’s Golf Shoe $175.00Air Max Griffey – Cross-Training $140.00 Nike Shox TL – Running $150.00
36 Air Zoom Total 90 II F.G. – Soccer $150.00 Air Rift Leather B (unisex) – Lifestyle $100.00 Air Vos – Walking $75.00 Air Zoom Talac – Outdoor $140.00 Exhibit 4: Nike Competitors DIRECT COMPETITOR COMPARISON NKE FLH RBK ADDDY.PK IndustryMarket Cap: 14.12 B 106.16 M 1.99 B 206.25 MEmployees: 22,700 2,099 7,400 2.40 KRevenue Growth (ttm): 4.30% 4.50% 3.50%
37Revenue (ttm): 9.89 B 3.13 B 471.55 MGross Margin (ttm): 40.98% 38.95% 37.44% 35.28%EBITDA (ttm): 1.17 B 66.69 M 248.63 M 38.04 MOperating Margins (ttm): 10.50% 2.81% 6.30% 3.66%Net Income (ttm): 740.10 M -63.65 M 135.29 M 10.60 MEPS (ttm): 2.77 -1.42 2.09 0 0.606PE (ttm): 19.16 16.11 14.813PEG (ttm): 1.23 1.02 0.930PS (ttm): 1.31 0.11 0.63 0.452 FLH = Fila Holdings SpA RBK = Reebok International Ltd ADDDY.PK = Adidas-Salomon AG Industry = Apparel, Shoes & Accessories Industry Nike, Inc. Competitors. Yahoo! Finance: http://beta.finance.yahoo.com/q/co?s=NKE Exhibit 5: Nike Athletic/Casual Footwear Competitors Adidas Salomon, Inc. Fila Kenneth Cole Productions, Inc. K-Swiss, Inc. New Balance Reebok International Ltd. Saucony, Inc. Skechers U S A Inc. Steven Madden Ltd. The Timberland Company Vans Inc. Exhibit 6: Market share 2002 market share of U.S. athlete shoe market based on wholesale value of retail shipments Brand Market Share Nike 39.1% Reebok 12.0% New Balance 11.6% Adidas 9.6% (McCarthy, 2003) Exhibit 7: Sneaker sales: 1998 – 2003
38 1998 -3.3% 1999 -1.4% 2000 2.7% 2001 2.7% 2002 2.5% 2003 (estimate) 4.4% (McCarthy, 2003) Exhibit 8: Athletic footwear U.S. retail dollar sales by classification: Shoe Type Sales Percentage Running 27.9% Basketball 15.6% Cross training 10.9% Walking 9.1% Low performance 6.3% Hiking 6.3% Tennis 4.8% Skateboard 2.7% Sport sandals 2.6% Other 14.3% Source: (McCarthy, 2003) Exhibit 9: Top 10 endorsement contracts Athlete Contract Company Tiger Woods $100 million Nike LeBron James $90 million Nike Allen Iverson $50 million ReebokMichael Jordan $47 million Nike, Others Kobe Bryant $40 million NikeVenus Williams $40 million ReebokMartina Hingis $30 million NikeLleyton Hewitt $30 million NikeTracy McGrady $12 million Adidas David Duval $8 million Nike
39 Source: (Top Shoe Endorsement Deals for Athletes, 2003) Exhibit 10: The Coolest Brands According to consumers 13 - 18 years old BRAND TOTAL MALES FEMALES NIKE 23% 28% 18% SONY 13% 22% 5% ADIDAS 13% 12% 13% A&F 10% 8% 12% OLD NAVY 9% 6% 12% Source: (Teen Shopping…, 2002) Exhibit 11: Source: (http://www.theproduct.com/6m147/solutions/nike.pdf) Exhibit 12: Nike Marketing Channel Manufacturer Wholesaler RetailerLabor $2.75 Nikes payment to $20.00 Retailer CGS $36.48
40 factory (CGS) (from Nikes SP)Materials $9.00 Sales, general & $5.00 Other expenses $12.50 administrative & profit costsFactory Overhead $3.00 Advertising, $4.00 Rent $9.00 promotions & endorsementsOther Operating $5.25 R&D $2.00 Other cost $7.00expenses and net incomeTOTAL $20.00 Taxes $1.82 Personnel $9.50 Interest Expense $.33 Average Retail $74.48 SP Net Income $3.33 TOTAL SP $36.48 None of these figures are representative of Nike’s actual pricing structure. Its purpose is to give a generic example of Nike’s marketing channel and how it would determine a price for their sneakers. Nike has to incorporate product-mix, pricing strategies because there are more than one Nike product. In product-line pricing, Nike must decide on the price steps, such as cost differences between the products, customer evaluations of their different features, and competitors’ prices, to set between the various products in the line. From there, Nike must establish perceived quality differences that support the price differences. Those “premium sneakers” such as the Air Jordans, Air Paytons, or any shoe that is endorsed by a sports celebrity would have a higher cost because the name attached to the Nike sneaker. However, Nike considers all of its footwear as a “premium shoe” whether it is endorse by a sports celebrity or not. Nike goal is to provide a competitive edge to anyone who wears their shoes and by doing so they have enhanced performance by reducing weight, developing new sizing and fit concepts, rethinking the traditional mix of outsole, midsole and upper, new materials and closure systems, sustainability in production (www.NikeBiz.com). This means that you are also paying for the technological innovation that goes into the development and manufacturing of their shoes. Basically, you are paying for the Nike brand, any endorsements, and the technology involved in the shoe. You must also take into consideration the target margin and the dealer’s margin. A pair of Nike running shoes for example may cost only $15 to $20 to produce, however, they retail for four times the factory cost in the U.S. (Larson, 1996). All of these factors must be taken into consideration when Nike prices their shoes.
41 Exhibit 13a: Source: (Butscher & Laker, 2000). Exhibit 13b:This shows the example of a new basketball sneaker from JUMP that had several advanced features and amodified cushioning technology. The cost of the sneaker was $40, dealer price $80 (target margin of100%), and a market price of $120 (dealers margin of 50%). Sales projections were thin so JUMP decidedto reevaluate the new shoe using the target-costing approach and it was discovered that the target segmentspreferred a less elaborate shoe. The maximum acceptable price for such a shoe was determined to be $99.
42Deducting the 50% dealer margin-subtracting 33% from the $99-led to a price to the dealer of $66($66+50%=$99). Deducting the 100% target margin from that price-subtracting 50% from the $66-resultedin a target cost for the sneaker of $33 ($33+100%=$66), $7 lower than the current cost. JUMP was able toslash the cost to $33 by slightly redesigning the sneaker to lower the production cost and by optimizingtransportation from the Asian production plant to the distribution centers globally. It launched the sneakernine months after the original target date (Butscher & Laker, 2000). Exhibit 14: 2002 Average Retail Price per Pair - 1997 Average Retail Price per Pair 5-Year Percentage Change Shoe Type 2002 1997 Price Change 1.) Hunting $64.79 $58.46 10.8% Hunting boots carried the highest price tag of all sports footwear in 2002, mainly because of their expensive components, which often include Thinsulate Insulation and a Gore-Tex bootie. These boots are designed to keep feet warm and dry in all weather conditions. 2.) Golf $62.12 $60.11 3.3% Its not just the pricey clubs that makes golf an expensive sport. The components incorporated into most golf shoes can also drive up price points. In addition to featuring typically soft-grain leather and a soft, cushioned footbed, most golf shoes also employ sophisticated outsole technology that includes spike systems. 3.) Basketball $56.12 $55.57 1.0% Todays court-conscious consumer considers performance as well as street fashion when it comes to basketball shoes. Industry watchers tie the categorys recent success to the popularity of more mid-priced shoes from brands such as Nike, Adidas and New Balance that now incorporate better technology and more fashionable styling. 4.) Cycling $53.67 N/A N/A Cycling shoes are a study in striking a balance between weight and stiffness. The goal is to ensure less rotational weight on the feet to help the rider accelerate faster, while providing hard soles for pedaling efficiency. Other typical design features include ultralow stack height and uppers using mixes of synthetic leather and mesh to provide breathability. 5.) Volleyball $53.28 $50.88 4.7% Built for maximum shock absorption and stability, volleyball shoes often contain a combination leather and mesh upper, with a compression-molded EVA midsole containing foam in the heel. 6.) Jogging/Running $50.99 $48.71 4.7% Running has been a growing athletic shoe category during the past few years, due mainly to the categorys constant technological innovations and the popularity of the running silhouette as casual footwear. For spring 2003, running shoe vendors addressed the needs of both serious and casual runners by launching product that focuses on various aspects of motion control.
43 7.) Trail-Running $49.68 N/A N/A Performance-enhancing components such as waterproofing systems, Kevlar lacing and mesh detailing have become key purchase points for the trail-running consumer. But while technology is pivotal, developers need to be careful not to let it overwhelm the shoe. 8.) Track $47.28 $39.40 20.0% Most outdoor track-shoe styles contain removable spike plates, which are designed to give the racer greater power and efficiency. For athletes in multiple events, track shoes often contain extra heel cushioning and a rubber outsole for flexibility and protection. 9.) Hiking Shoes/Boots $46.42 $45.59 1.8 % Hiking shoes vary greatly in price depending on the terrain and distance theyre designed to cover and the amount of waterproof protection offered. Many longer hiking trips require higher-topped, stiffer boots, often waterproofed and containing a hard plastic or steel shank designed to keep the boot and ankle from twisting during hiking. 10.) Cross-Training $46.10 $49.96 -7.7% Cross-training shoes were actually the only sport shoe category in the top 10 to see a decrease in average price. The categorys popularity has deteriorated due to rising demand for more specialized athletic categories such as running and basketball. Whats more, vendors have been slow to introduce innovative product specific to the multisport concept.Source: (Sports Nut: Top Ten Priciest Sport Shoe Categories, 2003) Exhibit 15:
50 Exhibit 20: Summarizes some of the media characteristics. TV Radio News- Magazine Posters Direct Web site paper mail banner ads (Sunday and dailyAudience Some National Large and Mostly National Large No nationalsize wastage, coverage mostly national coverage national coverage but large and possible national and difficult and global national (also internation internat segments 100 international al ional million+Audience Few 15-14 Many Socioecon Lifestyle/ Commu- Any Beyondtype years old housewives omic Demograph ters, car target techies. and ic drivers availabl middle class, commuters e educatedCost of High Low Low- Low- Medium Low Low but likedproduction medium medium web site may be highExtra Adds Transportable Quality Inexpensiveadvantage credibility to medium method of product and gaining web company presence (without having to build)Message Sight, sound, Sound and Now 4-colour 4- 4-colour, 3-D,elements color, time mostly colour movement, movementti constraint colored and 3- sound, me constraint with some D interactive black and possibil white itySerial ad Viewed Serially, less Must compete with Non-linearsequence serially, no zapping the other ads and medium can competition editorial on same jump back from other page and forward ads or editorial but zapTransition Highly transitory since one Can keep clippings Can refer Can Non-linear can not refer back to ad once or refer back if back, walk refer shown (unless taped) desired back or drive back/ke past ep coupon
51Demonstrat Ideal for usage Difficult Benefits or results Only short Yes Yesion and impulse can be shown but image benefit purchase not product usage demonstrationDetail/ Viewer can not Urgency Yes Yes No Yes yestechnical absorb detail and topicalityEase of Flexible Inflexible Inflexible Flexibl Yesmedia ebuyingLead times Long Short Short Mediu Long Short Short m long mediu mHigh Hourly and daily Hourly Yes Weekly ? Yes Yesfrequency and daily /facility monthlyNational Yes Yes Yes Yes Yes Yes No but globalcoverage segments (Smith, P.R., 2002) Exhibit 21: Source: http://www.pg.dk/advertising/thomsen.pdf
52 Exhibit 22:Source: http://www.pg.dk/advertising/thomsen.pdf Exhibit 23: Top 25 Search Engines 1.) Google - Google UK - Google Image 2.) Ask Jeeves - Jeeves For Kids - Ask Search Jeeves UK Google is a search engine that makes heavy Innovative online search service that use of link popularity as a primary way to rank processes plain-language queries with web sites. Users across the web have in surprising accuracy. essence voted for good sites by linking to them. 3.) Lycos - Lycos UK 4.) Alta Vista - Alta Vista UK - babelfish translator
53Lycos has been around since the early days of An awesome site from Digital, it maintainsthe net and is still one of the most popular a HUGE index with powerful and FASTsearch engines. The service employs human search functions. Coverage is excellent so iteditors for some of its listings, complemented is good for broad searching and for offbeatby crawler-based results. The name Lycos subjects but you can be overwhelmed by toocomes from the Latin for "wolf spider." many hits. The Advanced Search is useful for finding images, MP3/audio and video files, and theres the useful Babelfish Translator.5.) LookSmart - Looksmart UK 6.) Yahoo! - Yahoo UKLookSmart is the closest rival Yahoo has, in Yahoo is the webs most popular searchterms of being a human-compiled directory of service and has a well-deserved reputationthe web. The high quality of the directory is for helping people find information easily.thanks to a team of nearly 200 full-time The secret to Yahoos success is humanprofessional editors. beings. It is the largest human-compiled guide to the web, employing 80 or more editors in an effort to categorize the web. Yahoo has at least 1 million sites listed.7.) MSN (Microsoft) 8.) BBC - Search The Web 5.02Microsofts MSN service features both The BBCs "family friendly" search engine,directory listings and search engine results. based on Google search technology. ResultsPowered by Inktomi, this is now one of the are clear, uncluttered, relevant, andmost powerful search engines. commercial free. "Our results are the ones that best match your search words - not the ones advertisers want you to see." Excellent!9.) GigaBlast3.02 10.) GO NetworkGigablast is a new search-engine that looks set Go is the reincarnation of Infoseek, a newlyto challenge Google. Its been set up by a New designed site claiming to have enhancedMexican Software Engineer, and already capabilities, with a 50% larger search indexproducing great search results. and search results pages that are 30% faster. It offers portal features such as personalization and free e-mail.11.) HotBot 12.) Open DirectoryThis search engine has a great many loyal NetScapes Open Directory Project aims tofans. It very often comes up with the goods build the most comprehensive human-where other engines fail. reviewed directory of the web, by relying on a vast army of volunteer editors.13.) Teoma Search4.02 14.) FAST SearchTeoma, which means "expert" in Gaelic, One of the new generation of searchdetermines the authority or quality of a sites services, armed with next-generationcontent, by using Subject-Specific Popularity. technology. FAST aims to be bigger,
54Subject-Specific Popularity ranks a site based speedier and more accurate than the existingon the number of same-subject pages that major search engines.reference it, not just general popularity.15.) Multi Search8.02 16.) WebcrawlerMulti Search is a powerful tool which will One of the first and biggest search engines,search all the top search engines with one and it still produces highly relevant results.click.17.) REX 18.) HandiLinksThis is a VERY nice site - a little sense of This is a great directory. HandiLinkshumour, very professionally done. listings are all organized into a hierarchical index and its fast and easy-to-use. It has extensive categorization, and uses a frame design that aids rather than getting in the way of searches.19.) Snap.com 20.) Scour.NetSnap.com is a human-compiled directory of A useful multimedia search engine. Use itweb sites, supplemented by search results. It to find audio, video, images and animationaims to challenge Yahoo as the champion of Scour.Net takes you directly to thecategorizing the web. multimedia you are searching for, quickly and easily.21.) AAA Matilda 22.) UK PlusThe most popular search engine outside of UK Plus features reviews of UK-relevantNorth America. Matilda is a very individual sites, prepared by a team of journalists.search engine from Australia, and growing Reviews are grouped into various channels,rapidly in popularity. covering everything from Arts and Business to Travel and Work. They are also searchable.23.) Direct Hit 24.) DogpileThis Popularity Engine tracks the sites that Sends a search to a customizable list ofpeople actually select from the search results search engines, directories and specialtylist. By analyzing the activity of millions of search sites.previous Internet searchers, Direct Hitdetermines the most popular and relevant sitesfor your search request. 25.) Britannica Internet GuideThis site strives to list only the highest quality sites on the Net. Its now integrated into theBritannicca.com website, so you get a high-quality search engine and encyclopaedia at thesame time
55Source: http://www.wisecat.verywise.co.uk/search-engines.htm Exhibit 24: Nike Ad agency: R/GA Got three of the four Pencils in the E-commerce Business to Consumer Website category Gold Pencil www.Nikegoddess.com Silver Pencil www.Nikebasketball.com & www.Nikerunning.com Gold Pencil www.nikelab.com: Corporate Image category Gold Pencil www.Nike-Presto.com: Promotional Advertising Website categoryNike Ad agency: R/GA received 3 Gold awards, the most of any agency & tied for the number of silverwinners with 2. The R/GA projects that were selected to be included in the traveling show and annual traveling exhibition in conjunction with the competition that will feature work published in One Show Annual Volume 25 include: Nike.com USA Homepage Corporate Image Business to Consumer Website Nike Basketball Corporate Image Business to Consumer Website Nike Basketball E-Commerce Business to Consumer Website Nike Goddess E-Commerce Business to Consumer Website Nike Goddess Corporate Image Business to Consumer Website Nike Lab Corporate Image Business to Consumer Website Nike Presto Promotional Advertising Website Nike Running E-Commerce Business to Consumer Website Nike Running Corporate Image Business to Consumer Website Source: (R/GA Takes the…, 2003)
56 Exhibit 25: Sales & Net Income 1993 – 2003 1993 1994 1995 1996 1997 1998 1999 Sales 3,931.0 3,789.7 4,760.8 6,470.6 9,186.5 9,553.1 8,776.9($ mil.) Net 365.0 298.8 399.7 553.2 795.8 399.6 451.4income($ mil.)Income 9.29% 7.88% 8.40% 8.55% 8.66% 4.18% 5.14%as % of sales Sales & Net Income continued: 1993 – 2003 2000 2001 2002 2003 Sales 8,995.1 9,488.8 9,893.0 10,684.4 ($ mil.) Net income 579.1 589.7 663.3 716.4 ($ mil.)Income as % of 6.44% 6.21% 6.70% 6.71% sales 2002 Footwear Sales $ mil. % of total Sales 5,753.7 58
57 2002 Total Sales Americas $ mil. % of total US 5,258.8 53 Other 691.0 7 Europe 2,731.5 28 Asia/Pacific 1,211.7 12 Total 9,893.0 100 The breakdown of Footwear revenue per region: Fiscal 2002 Fiscal 2001 FY02 vs. Fiscal 2000 FY01 vs. FY01 % FY00 % CHG CHG (In millions)USA Region $3,185.0 $3,208.9 (0.7)% $3,351.2 (4.2)% Footwear EMEA 1,551.8 1,422.8 9.1% 1,309.4 8.7% Region FootwearAsia Pacific 657.7 632.4 4.0% 557.0 13.5% Region Footwear Americas 359.2 355.2 1.1% 343.9 3.3% Region Footwear Total 5,753.7 5,619.3 2.4% 5,561.5 1.03% Footwear Revenue Exhibit 26: Advertising and Promotion Expenses: 1999-2002 1998 1999 2000 2001 2002$978.2 million $978.6 million $998.2 million $1,000.5 million $1,027.9 million Estimated Advertising and Promotion Expenses: 2003 – 2006 2003 2004 2005 2006 $1,056.1 million $1,088.4 million $1,125.1 million $1,171.5 million