253051606 adidas-case-study-marketing

1. BUSINESS 478
Section D300
CASE SYNOPSIS FOR:
NIKE
Student Names: Navesh Babooram
Kevin Block
Marko Gordic
Christopher Hoe
Lloyd Kim
Date: March 17, 2014

2. 1
FIRM HISTORY
Nike began operating under the name Blue Ribbon Sports in 1964. University of Oregon
track athlete Phil Knight and his coach Bill Bowerman founded Blue Ribbon Sports. Bowerman
and Knight began distributing Onitsuka Tiger footwear out of their cars. In 1971, Blue Ribbon
outgrew its partnership with Onitsuka and cut ties with the company. (Nike Inc., 2014).
Bowerman and Knight began to manufacture their own designs and launched a new line of
footwear for the US track and field trials in late 1971. In 1972, Blue Ribbon Sports changed its
name to Nike and the “swoosh” logo was created (Nike Repository, 2010). In 1978, Nike became
a publicly traded called Nike, Inc. By 1980, Nike had become global market leader in footwear,
holding about half of the athletic footwear market (Nike Inc., 2014). This success was related to
Nike’s strategic professional athlete endorsements.
In the early-1980s, Nike misjudged the aerobics boom, which opened up the market for
competitors and as a result Nike lost their position as market leader (Nike Repository, 2010). The
1980s marked a transition period for Nike where they began developing footwear for Michael
Jordan, the rising basketball star of the era. The Air Jordan footwear line boosted Nike’s bottom
line and paved the way for product innovation (Nike Repository, 2010). In 1987, Nike released a
marketing campaign with the slogan “Just Do It,” which helped propel revenue to nearly $1
billion the next year (Nike Repository, 2010). Through successful television and print advertising,
Nike regained their market lead by 1989, and has maintained this position ever since. In 1990,
Nike opened its new world headquarters in Portland, Oregon and introduced the state of the art
retail-stores, Niketown, across North America (Nike Inc., 2014).
To strengthen brand loyalty and improve their understanding of customer behavior, Nike
began to explore social media opportunities on Facebook and Twitter as well as on their own
network, Nike + (Euromonitor International, 2013). Nike has also implemented cost and
environment saving initiatives focused on developing alternative raw material sources. For
example, their latest soccer boot is made from beans and over 70% recycled material

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(Euromonitor International, 2013). Nike has been able to protect their brand value through
continuous innovation, tight retail control, and strategic sports endorsements (Euromonitor
International, 2013).
EXTERNAL ENVIRONMENT
General Environment
Since Nike is an international company that distributes its products globally, it must consider
local demographic, economic, political/legal, sociocultural, and technological segments. Although local
market segments are important, Nike’s focus remains on the global market as a whole.
Socio-cultural Segment
In general, recognized sportswear brands enjoy a high degree of price protection in global
markets. Since branding is particularly visible on sportswear, fashion-conscious consumers find it
difficult to trade down even during economic downturns (Euromonitor International, 2013). Since
sportswear brands continue to add new functions and features to their offerings, fashion-
conscious consumers are willing pay higher prices for known sportswear brands. The current
global trend towards health and exercise is has been adopted in mature markets. However,
consumers in emerging markets have not yet fully adopted the concept of exercise, and therefore,
are more price sensitive to paying a premium price for sportswear brands (Euromonitor
International, 2013).
Sportswear brands rely on professional athletes for their marketing strategies. However,
firms put their reputation at risk because they cannot directly control the actions and views of the
athletes that they sponsor. Over the last two years, Nike athletes, Tiger Woods and Lance
Armstrong, have been involved in major controversial scandals. In 2009, golfer Tiger Woods was
involved in a highly publicised sex scandal (Euromonitor International, 2013). Nike continued its
partnership with Tiger Woods, which, in turn, aggravated some of Nike’s female customers. In
2012, Lance Armstrong was stripped of 7 Tour de France titles and lost his contract with Nike.

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Although cycling is a minority sport, the Livestrong brand within Nike was a successful and
raised millions of dollars for cancer survivors and their families. This is one of the primary
reasons why Nike decided to continue producing Livestrong apparel even after it terminated its
endorsement contract with Lance Armstrong. Although Tiger Woods and Livestrong are sub-
brands within Nike, they can play a role in the attitudes that consumers have of the brand as
whole.
Industry Environment
The industry rivalry is relatively high because it is subject to slow growth, high storage
costs, and low switching costs. Slow growth industries are frequently characterized by intense
competition. Firms in the sportswear industry are constantly competing for strategic positions in
mature and emerging markets. Although Nike is the leading sportswear brand globally, adidas is
gaining market traction emerging markets. The adidas Group has a strong company-owned retail
division, which allows the company to develop in emerging markets and remain in control of
their brand (Euromonitor International, 2013). Specifically, adidas is capturing Nike’s market
share in China. Another area of intense competition within the sportswear industry is related to
sponsorships with professional athletes, teams, and leagues. Nike and adidas both use
professional athletes in their advertising campaigns to promote new product innovations. With
respect to product innovations, there is a considerable amount of imitation. For example after
Nike released their Free footwear line, adidas, Reebok, Under Armour, and New Balance all
released their own versions of the footwear line.
Sportswear firms are subject to high storage costs associated with their footwear and
apparel. However, inventory levels are being reduced as the sportswear e-commerce business is
gaining popularity (Euromonitor International, 2013). Consumers are provided with more
information allowing them to compare and contrast brands, styles, and prices online. Despite
strong brand loyalty in the sportswear industry, consumers are able to switch between brands at

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little to no cost. However, fashion-conscious consumers may argue that switching brands comes
at a social cost (Euromonitor International, 2013). The sportswear industry indirectly competes
with the weight-loss, workout, and food industries. Consumers who are looking to live a healthy
lifestyle have other options to satisfy their needs. This further increases intensity of the
competition within sportswear industry.
CURRENT INTERNAL SITUATION
Product Categories
Nike offers a wide range of athletic products, which can be separated into seven key
categories: action sports, basketball, football, men’s training, sportswear, running, and women’s
training. Nike also sells performance and professional equipment including golf clubs, sport
accessories, eyewear, and other equipment designed for specific sporting activities. Wholly
owned subsidiaries of Nike, Hurley International LLC and Converse Inc., diversified their
product line, and thus decreased their risk. Furthermore, Nike considers research and
development to be a key factor in their success.
Market Share
Nike’s core markets are in North America and Western Europe. In 2012, the North
American market generated 39% revenue while the Western Europe 22% of revenue for Nike
(Euromonitor International, 2013). Nike remained the market leader in the global apparel market
with a market share of approximately 2.1 percent in 2012, followed by the Adidas Group with 1.6
percent (Euromonitor International). Furthermore, in the sports apparel segment, Nike
experienced a 4.9% market share in 2012 and this share is expected to increase to 6.5% by 2019
(Forbes, 2013). However, increased competition from rivals as well as counterfeit products may
complicate Nike’s ability for future growth. Nevertheless, the compound annual growth rate of
Nike’s sales from 2010 to 2012 was 12.3%, which was greater than their main competitors,
Adidas and Puma. Coupled with steady expansion into Asia and South America, this growth

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suggests that Nike is situated to maintain its position as market leader (Euromonitor International,
2013).
Financial Performance
Building on previous years growth, Nike experienced its most financially prosperous year
to date in 2012. According to the Securities and Exchange Commission (SEC), Nike’s earnings
per share (EPS) increased from 2.37 to 2.68 (SEC, 2013). The EPS measures the portion of a
firm’s profit allocated to each outstanding share, which indicates increasing profitability.
In Nike’s 2013 consolidated financial statement, Nike reported their revenues as $25,313
million, which was a $1,982 million increase from 2012. Profit margins have remained steady at
approximately 10% the past four years (Nasdaq, 2014). Nike’s current and cash ratios, which
measure a companies’ ability to pay short-term debt and liquidity respectively, are high
suggesting financial health and their capability to cover short-term financial obligations.
CURRENT STRATEGY
Nike has been able to solidify its position in the athletic apparel industry through creative
designs and engagement in product development (Dass et al). Nike’s product line includes:
apparel, footwear, equipment and accessories for consumers of all ages (Dass et al). This section
will identify Nike’s Business-, Corporate-, Cooperative-, and International-Level strategies.
Business-Level Strategy
Don Blair, Nike’s CFO, stresses that innovation is at the heart of Nike’s business growth
strategy. Particularly, Nike’s business-level strategy follows an integrated cost-leadership and
differentiation strategy. The cost-leadership component can be exemplified through Nike’s
production facilities. Nike is headquartered in Beaverton, Oregon, however, almost all of the
company’s footwear and clothing is produced by third party contractors outside the US
(Euromonitor International, 2013). For example, at the end of 2012, contract factories in Vietnam,
China and Indonesia manufactured 41%, 32% and 25% of total Nike brand footwear, respectively

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(Euromonitor International, 2013). In addition, independent contract manufacturers of apparel are
spread across approximately 28 countries, although the bulk of manufacturing is in China,
Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey, Cambodia and El Salvador
(Euromonitor International, 2013). Complementary to its cost-leadership, Nike also pursues a
performance-based differentiation strategy. This performance-based strategy is aimed at reducing
weight while maximize performance (Euromonitor International, 2013). To further establish their
differentiation strategy, Nike stresses the importance of their logo, which recognized is around
the world (Dass et al). Nike’s brand is associated with professional athletes, which directly
reflects quality footwear, apparel and equipment (Dass et al). As Nike posses a quality brand
image, it allows them to have higher price points for increased profit margins per unit (Dass et
al). Consumers are not prepared to trade down when it comes to sportswear. Since brand
operators regularly add new functions to their offerings, Nike has a high degree of price
protection in wealthy markets. (Euromonitor International, 2013).
Corporate-Level Strategy
Nike focuses on innovation to provide quality products to consumers globally (Dass et
al). Nike intends to achieve this goal by through their Nike Sport Research Lab (NSRL). The
NSRL is where athletes, scientists, engineers and designers converge to develop the key
performance insights that drive Nike’s innovation (Nike, 2014). In the NSRL, the focus is on
performance across their product portfolio, which allows Nike to follow a constrained
diversification strategy. This identifies that Nike’s businesses share product resources,
technology, and knowledge as well as distribution networks. Nike’s corporate-level strategy can
be highlighted through its wholly-owned affiliates, including Converse Inc. and Hurley
International LLC, Nike Golf as well as Air Jordan.

8. 7
Figure 1, to the
left, identifies
the contributed
revenues from
Nike’s
subsidiaries. For
fiscal 2012,
revenues for Nike’s other business increased by 11%, reflecting growth across most of their
businesses (Nike Inc., 2014). The revenue growth at converse was primarily driven by increased
sales in North America and China, as well as increased revenues in the U.K. (Nike Inc., 2014).
Moreover, excluding exchange rates, revenues for Nike Golf increased 9%, driven by double-
digit growth in their apparel business, partially offset by a single-digit percentage decline in their
club business (Nike Inc., 2014). On May 31, 2012, Nike announced their intention to divest of the
Cole Haan and Umbro. Nike’s intention for divesting Cole Haan and Umbro was ultimately to
focus their resources on driving growth in the Nike, Jordan, Converse and Hurley Brands (Nike
Inc., 2014). Nike’s decision to divest Cole Haan and Umbro was triggered following revenues of
$797 million and $745 million, respectively, in revenues to the Other Businesses portfolio, and
losses before interest and taxes of $43 million and $18 million respectively. This emphasizes that
Nike concentrates on the firm’s ability to focus on particular businesses that maximize the long-
run profitability of the organization.
FY12 vs.
FY11
(Dollars in millions) Fiscal 2012 Fiscal 2011 % Change
Revenues
Converse $1,324 $1,131 17%
Nike Golf 726 658 10%
Cole Haan 535 521 3%
Hurley 248 252 -2%
Umbro 262 224 17%
TOTAL REVENUES $3,095 $2,786 11%
EBIT $341 $335 2%
Table 1: Revenue Breakdown

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STRATEGIC CHALLENGES
Direct to Consumer Retail Business
The retail industry is extremely
aggressive. The fast-cycle nature of the industry
requires organizations to produce innovative products
while attempting to meet the current demands of a
dynamic customer base. Globally recognized
companies, such as Nike, are faced with several
challenges, including retaining their current customer
base and trying to attract new customers. Nike
communicates its goals to foster organizational growth
and solidify its position as a global leader in athletic
footwear, apparel, and accessories. In order to
facilitate organizational growth, Nike may need to
expand the number of retail locations. Figure 1, as shown above, identifies the number of
company-owned stores. The figure highlights the difference between Nike, and its global
competitor, adidas. The difference in the number of store locations suggests that Nike is more
inclined to wholesale its products. In 2012, sales via third party retail channels remained the
largest part of Nike’s business (Euromonitor International, 2013). Although the wholesale
approach allows Nike to expand into new global markets, it offers lower profit margins and it
leads to less brand control (Euromonintor International, 2013). In 2012, Nike began to diverge
from its wholesale approach, and sought to expand its company-owned store network and its e-
commerce business (Euromonitor International, 2013). By referring to figure 1, the number of
Nike-owned operated stores in the U.S. increased from 363 to 384, and from 393 to 442 in non-
U.S. markets (Euromonitor International, 2013). In addition, Nike has reported a gradual decline
in the number of retail accounts, such as Coast Mountain Sports, that it sells through
Figure 1: Number of Company-Owned
Stores

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(Euromonitor International, 2013). While the number of Nike-owned stores increased, sales
revenue compared to adidas was substantially lower. In 2012, adidas Group reported sales of $4.2
billion in 2012 compared to $3.5 billion for Nike (Euromonitor International, 2012).
Global Market Opportunities
With the upcoming 2014 FIFA World Cup and the 2016 Summer Olympics, Nike has the
opportunity to further solidify its position as the global market leader in sportswear and
accessories. In addition, Nike has the opportunity to grow sales both, in the host country Brazil,
and globally (Euromonitor International, 2013). To solidify its global position, Nike intends to
use the strength of its brand name and logo moving forward (Euromonitor International, 2013).
An example of Nike’s brand use is there sponsorship with the host’s national soccer team
(Euromonitor International, 2013). Further market opportunities exist in the development of
online sales. E-commerce has become one of the cornerstones of Nike’s strong sales growth in
the US (Euromonitor International, 2013). The recent e-commerce push has resulted in Nike
allocating a larger portion of budget towards digital marketing and less on other channels
(Euromonitor International, 2013). Since the global digital network is developing rapidly, Nike
could strengthen its global share by having an effective e-commerce model to enter into new
markets (Euromonitor International, 2013).
Improving Consumer Experience with Social Media
Nike has exceptionally high levels of brand loyalty among its consumer base
(Euromonitor International, 2013). With the recent development in social media, Nike may be
able reach a larger customer base as well as gain broader and deeper information to better
understand their customers and their needs (Euromonitor International, 2013). Beginning in 2013,
Nike sought to cement its relationship with widespread use of social media (Euromonitor
International, 2013). Nike’s strategy was to use social media to gain a deeper understanding as to
how its customers interacted with the brand (Euromonitor International, 2013). Nike used its own
social networks such as Nike + as well as platforms such as Facebook, Twitter and Instagram

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(Euromonitor International, 2013). Since Nike perceives online channels to be more valuable to
their business strategy, they are investing a greater portion of their budget towards digital
marketing initiatives (Euromonitor International, 2013). For example, Nike has reduced its
spending on television and print advertising by 40% between 2009 and 2012 (Eurmonitor
International, 2013). Nike continues to remain as one of the few major sportswear apparel
companies to embrace these new technologies, which provides them with a competitive
advantage as well as being an innovator in their use (Euromonitor International, 2013).

12. 11
REFERENCES
Dass, B., Mertins, T., Nurre, J., & Riordan, S. (2013). Consumer Goods: Nike Inc. Krause Fund
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http://link.springer.com.proxy.lib.sfu.ca/article/10.1007%2Fs10551-011-0882-1
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Forbes. (2013, May 13). Why Nike Will Outpace The Sports Apparel Market's Growth.
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growth-will-outpace-the-sports-apparel-markets/
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http://www.nikeresponsibility.com/report/content/chapter/manufacturing
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