Nike, a Brief Historical Perspective
The Nike Corporation really got its start in 1957 when Bill Bowerman and Phil Knight met at the University of Oregon. Bowerman was the technical innovator and Knight the driving force behind the marketing of an entirely new kind of athletic shoe. In 1962, with the help of the Onitsuka Tiger Shoe Company in Japan, Knight and Bowerman began the process of marketing athletic shoes under the Nike name.
The initial marketing effort was simple in its scope. Knight sold the company's shoes out of the trunk of his car. The initial market was collegiate, distance runners, who Knight accessed by driving around the country from university to university. From these humble beginnings Nike has developed into the dominant force in athletic apparel on a world-wide scope.
There are several reasons for the success Nike has enjoyed over its brief corporate history. First and foremost is the company's dedication to technical innovation. The first of these innovations was Bowerman's design for the waffle-soled running shoe. This simple design became a favorite of competitive runners, Nike's initial target market. In 1977 Frank Rudy, a NASA engineer, brought his design for an athletic shoe with an air insole to Nike. The idea was that the compressed air would alleviate much of the shock encountered as athletes trained. Subsequent refinements and aggressive marketing of the Nike Air, line of shoes to the general public proved enormously successful. A further design refinement was introduced in 1994. The multi-chambered, multi-volume air sole was developed to compensate for different load levels associated with different areas of the foot. These technological innovations as well as new material and manufacturing techniques have allowed Nike to stay at the top of the athletic shoe market.
From a marketing perspective Nike has been equally innovative. The initial marketing of its shoes to competitive distance runners laid the foundation for Nike's acceptance by the general public as a manufacturer of quality athletic apparel. The spokespeople Nike has gotten to endorse their products has had an enormous effect on their ability to effectively market to the masses. Michael Jordan's affiliation with Nike is the most obvious example of how a celebrity endorsement carries with it positive market results. Nike has also signed various athletes from other sports to endorse their products. Tiger Woods, Jerry Rice, Andre Agassi, and Jackie Joyner-Kersee are but a few of the well-known athletes that Nike currently has under contract for the purpose of product endorsement.
Perhaps the single greatest area of potential growth for Nike rests in the marketing of its non-footwear related apparel. The clothing line has rapidly expanded from running shorts and shirts into well over 200 different styles. The genius in this approach is related to Nike's ability to reach a broader market through the marketing of what was once a non-traditional product line for athletic shoe companies. By focussing on its apparel line Nike has enabled itself to branch out into a market that is not necessarily sports related thus broadening its market access.
As stated in the annual report Nike's corporate mission statement reads, "Through the adoption of sustainable business practices Nike is committed to securing intergenerational quality of life, restoring the environment, and increasing value for our customers, shareholders, and business partners". The single best way to get a good look at any company's overall relevance in the market is through a SWOT analysis. By looking at Nike's strengths, weaknesses, opportunities, and threats, a clearer picture can be make of where it has come from and potentially where it is headed. The remainder of this case analysis will be to outline this SWOT analysis.
Historical Timeline for Nike
In order to understand how Nike got to be the successful athletic apparel company that it is, a brief overview of some of the significant events in its history and that of its co-founders Phil Knight and Bill Bowerman is useful.1
1957- Bill Bowerman and Phil Knight meet at the University of Oregon
1962- Knight writes a paper discussing Germany's domination of the U.S. Athletic Footwear Industry. After Knight graduated he traveled to Japan, where Germany imported their shoes from and told people he represented "Blue Ribbon Sports" thus was the birth of Nike Co.
1966- The company's first retail store is open
1968- The Cortez running shoe becomes their first big hit
1971- Carolyn Davidson, a student, designs the Swoosh symbol for a fee of $35.
1972- Nike is launched at the U.S. Olympic trials
1974- The Waffle Trainer becomes America's best selling training shoe. Nike also opens their first American factory in Exeter, NH
1978- Tennis great John McEnroe signs with company, now officially Nike, Inc.
1979- Nike-Air cushioning is introduced, the first apparel line appears, Nike holds 50% of the U.S. market, Nike is #1 in running shoes...
1980- Nike offers 3 million common stock shares to the public. Revenues top $269 million
1981- Nike joins with Nissho Iwai to form Nike-Japan, revenues reach $457.7 million
1982- The apparel line grows to 200 styles and $70 million
1984- At the summer Olympics 58 Nike supported athletes take home 65 medals, and international sales of Nike products explode...Overall revenue reaches $919.8 million
1985- The birth of Michael Jordan, he endorses his first set of Air Jordan's...A long profitable partnership has begun for Nike and MJ
1986- Nike goes over $1 billion
1988- Nike acquires Cole-Haan. The Just Do It campaign is launched.
1990- Nike World Campus opens in Beaverton, Oregon. And the first NikeTown opens in Portland, Ore.
1991- Nike is the first world company to top the 3 billion dollar mark in total revenue. MJ leads the Bulls to their first National Championships
1992- International revenues increase 32%. NikeTown Chicago opens
1993- The Nike Environmental Action team forms. Revenues reach $39.9 billion in Nike's sixth consecutive record year
1994- Nike Launches P.L.A.Y(Participate in the Lives of America's Youth). Nike acquires Canstar Sports Inc (Bauer)
1995- Nike reports $4.8 billion in revenues. Zoom-Air footwear ushers in a new era for Nike-Air cushioning: sleek, low-profile and very, very fast.
1996- Brazil teams with Nike for the World Cup '98. NikeTown New York opens. Nike launches In-Line skates and all the necessary equipment and accesories.
1997- Nike Asia takes off increasing revenues by 500 million. Two major Customer Service centers open one in Japan, the other in Korea. Industry analysts predict Nike revenues will soar by $9 billion.
There are several important factors that help to distinguish Nike from its competition in the athletic footwear and apparel industries. None are more important than Nike's emphasis on technological innovations in both product design and manufacturing. Nike has maintained its lead in this critical field, through a commitment to innovation and constant research in conjunction with some of the world's greatest athletes. The process of innovation begins with the type of people Nike employs. Nike's designers have a solid background in engineering which gives them and advantage over other designers who may emphasize style over functional performance. The designers are driven to be the best in the business. This devotion allows them the freedom to explore radical design that other athletic apparel companies like Reebok, Fila or Adidas seem to overlook in favor of fashionable trendy products. A good example of this is the case of the original Air insole design. In 1977 Frank Rudy, a NASA engineer had an idea to use air in athletic shoes to reduce the impact. Nike was the only company that saw the wisdom of Rudy's design idea, and brought the concept to the market. The idea was revolutionary in the athletic footwear marketplace and Nike reaped the reward of its forward thinking. The technology itself sophisticated, consisting of little bags filled with pressurized gases that responded to the movements of the athlete's feet. When the athlete moved the air bags responded to the movement, cushioning the athlete and absorbing a great deal of the shock that had previously been transmitted through the wearer's leg. The net results were that athletes could train longer in more comfort, and reduce injury at the same time. In 1994, Nike introduced a new version of its air insole to the market. The multi-chamber, multi-volume air-sole unit improved on the original air insole in a big way. Nike again beat the competition to the punch by introducing technological improvements that were designed with the athlete in mind. The design for this new shoe involved a system of pressurized airbags that responded independently to the movement of the athlete. Wherever the foot took the hardest blow, the units were inflated to a low volume and wherever more stability was needed, the air bags were inflated to higher volumes. The result of this innovation was that the shoe was able to be customized to a certain extent to the individual needs of the athlete. This is another example of where Nike has taken its strength in engineering and applied it to the design of a completely new product. The strength of this practice lies in Nike's ability to tailor the products it offers to the performance needs of its customer base. Nike's research and development facility in Beaverton, Oregon is pivotal in the continued development of innovations in athletic footwear. The company has invested huge amounts of money into R&D and in conjunction with the design engineers Nike spends a great deal of time testing new product ideas on athletes from many disciplines. This real world testing helps to ensure that the design for the shoe or athletic apparel will deliver the benefits in actual use. This attention to detail helps engender as greater sense of confidence on the part of the average consumer because Nike realizes that most of their market is buying their shoes for purposes other than athletics.
The adherence to strict production quality standards is another of Nike's strengths. This is a direct response to consumer demands that quality of the products be sufficiently high to compensate for the higher retail prices demanded. Nike's superior customer responsiveness has positioned them at the top of the market. Nike has always guaranteed its products to be free of defects from the manufacturing process due to poor materials and craftsmanship. The company encourages retailers to take defective returns so to eliminate any inconvenience to the consumer. Even if an individual store policy restricts returns the consumer can send the item to the nearest corporate office for replacement if there is any defect either in material or production. These practices have helped Nike build a trust with the consumer and reap the benefits of in the form of increasing sales and corporate profit on a yearly basis.
International marketing of the Nike product line has proved to be an ever increasingly important part of the corporate success of Nike. Around the world Nike has place a greater emphasis on foreign markets as an obvious solution to an already saturated domestic market. This emphasis has proven successful considering the substantial and growing percentage that foreign markets occupy in Nike's revenue composition (see revenue composition chart). The aggressive international marketing strategy has benefited Nike in ways other than sales and revenues. Their presence in foreign countries with manufacturing and distribution facilities provides logistical benefits when compared with the rest of the industry. In order to deal with some of the bad press that Nike has received regarding its foreign labor practices the company has taken steps to deal with what some see as the inequitable treatment of their labor in foreign manufacturing facilities. Improved wages, educational opportunities, and a more sensitive approach to local governmental influences have improved what could have been a public relations disaster. This is another good example of how Nike shapes its strategy to deal most effectively with a changing environment.
Another strength for Nike is their large internal structure and financial strength. Nike has six corporate facilities in three different states and had nine billion dollars in sales last year. Because of their large size and the utilization of both economies of scale and diversified labor supplies Nike has been able to keep production cost down while maintaining the overall quality of the product line. This fact coupled with the relatively high retail price for most of their product line produces a recipe for financial stability. Nike's has established a market share of 43% in the athletic apparel industry and this allows them the freedom to experiment with projects that are riskier than most of their competitors can take on. This ability to assume risk has paid handsome benefits in the case of some of the non-traditional product lines Nike has offered such as their hiking boots and clothing lines. Nike position as an industry leader allows them to exert leverage on their suppliers thus garnering favorable raw material costs and higher profits.
One of Nike's main weaknesses would seem to be that they are trying to do too much. Nike has made a concerted effort to market to every sport that is being played anywhere on Earth. The risk here is that by trying to be all things for all people Nike may not be able to retain its dominance in any one specific area. Especially relevant to this point is that by spreading R&D and design resources too thin Nike could lose customers that are looking for innovative design concepts in the more popular athletic shoes. It seems that as a result of this distribution of corporate resources Nike has been offering fewer new models of shoes with fewer technological innovations. Nike, instead, is bringing different styles of the same shoe in different color schemes. This practice may prove to drive current customers to other companies that offer the specific sport-related features they want. Continuing this trend toward differentiation by style instead of functional features may serve to develop coverage gaps in critical market niches that Nike once dominated. The competition for Nike is surely watching there every move and waiting for an opportunity to grab market share from wherever possible.
Another potential weakness for Nike might exist in its choice of athletes as spokespeople. With the retirement of Michael Jordan, Nike is left for the first time in years without a primary spokesperson. Nike has moved to ease this transition by the signing of Tiger Woods but no one can replace Jordan's mass appeal and influence. Nike's main thrust these days, at least domestically, seems to be related to professional basketball. In light of the recent labor strike and the many reports of negative behavior on the part of some NBA athletes this narrow emphasis may put Nike in the position of being tarred with the same brush as the athletes who wear their shoes.
Perhaps the greatest potential weakness Nike faces is related to the recent negative publicity it has received regarding its labor practices in third world countries. Reports of abusive labor practices in its overseas manufacturing facilities, has left Nike with a severe public relations crisis. It was reported that Nike forced laborers to work in unsafe factories for sub-standard wages. Further allegations stated that supervisors in these production facilities had regularly subjected workers, specifically young female workers, to both physical and sexual abuse. These allegations whether true or not place Nike in a position of being viewed as a corporate giant that does not care for its workers. The public's perception of these allegations could lead to a backlash felt by Nike in the from of decreased sales. Even though Nike moved quickly to investigate these allegations it is difficult to un-ring the bell. Without continual and vigorous efforts to address these problems Nike runs the risk of alienating the public thus affecting their ultimate buying patterns.
Nike's main opportunity exists in its ability to continue to broaden its product line into viable areas of growth. It seems that the clothing line offers the greatest potential for growth in the future. Simply continuing to emphasize athletic shoes would only limit Nike's ability to increase the size and scope of the market that it can sell to. Expanding the types and styles of clothing will help to establish Nike as a player in a related but not dependant market when compared to the athletic based product line currently offered.
Another opportunity for Nike exists because of their high level of brand loyalty. The Nike name and distinctive "swoosh" logo possess universal reccognizability. The opportunity to capitalize on this name recognition in relation to new products or expanded existing product lines gives Nike a distinct advantage for growth opportunities. Foreign market growth is especially relevant in terms of name recognition. Expansion into new countries will be made somewhat easier because potential consumers already are familiar with the Nike name. Since non-domestic markets have recently provided the largest percentage growth for Nike this advantage should prove especially useful (see percent revenue composition chart).
Nike's size also represents opportunities for continued success in the future. Because of their vast international manufacturing base Nike enjoys an advantage related to logistical as well as production based cost structure. Nike can spread its fixed costs over a larger internal structure and combined with their economies of scale in production and design can achieve cost savings over their competitors. Nike also employs advanced production techniques that allow them to manufacture high quality products at low costs. By applying their production expertise to other areas Nike can gain the same cost structure benefits.
Perhaps the greatest opportunity for Nike rests in its appeal to the younger generation of athletic apparel purchaser. Nike has strategically positioned itself toward this market. The fact that more young consumers are purchasing athletic apparel for themselves allows Nike to effectively target this market because of their existing position. While the younger market will play an important role in Nike's future success older generations provide a good opportunity for growth as well. The increasing understanding that individual health is an important factor in people's lives should present substantial growth opportunity for Nike in the non-teen market.
The main threat that Nike faces is internal in nature. An attitude of complacency with respect to their success and growth could derail Nike as quickly as the absence of that attitude propelled them to the top of the athletic apparel market. As the old saying goes its easier to scale the mountain than it is to stay on top. Without continual effort and diligence Nike runs the risk of losing what has worked so hard to achieve. As an industry leader, with over 40% of the market, Nike makes a good target for all of its competitors. Without a continued emphasis on innovation and aggressive marketing Nike could lose the edge which has enabled their prodigious growth in such a short period of time.
Another internally based threat for Nike is that it has to this point in time sufficiently diversified its corporate structure. Without diversification Nike could face a shift in comer preferences that they are ill-equipped to handle. The new non-traditional sports as represented in the X-games are a prime example of this. Activities such as in-line skating, skateboarding, snowboarding, and free-style BMX biking are gaining popularity with the 10-18 year old market. To this point in time, other than in-line skating, Nike has yet to address this market in the same manner as many of their competitors.
From a financial perspective Nike has seemed to be financing more of its operations lately with long-term debt. In the years 1989-1996 Nike was relatively debt free. Over the last two years the amount of long term debt has risen to almost 400 million dollars (see long-term debt chart). Revenues and profit have not risen in response to this greater accumulation of debt and Nike might face some serious problems in the future if this trend continues. In 1994 the ratio of long-term debt to net income was 1.74%, by 1998 that ratio had jumped to 94.94%.
Some of Nike's competitors such as Tommy Hilfiger, Polo, Nautica, and Liz Claiborne pose a more serious market related threat to Nike. The athletic apparel that they manufacture, is of similar quality to that of Nike and the name brand appeal has a higher fashion related status attached to it.
An area where Nike has had traditional strength that of celebrity endorsement poses a serious threat if steps are not taken to rectify what is becoming a bad situation. When Michael Jordan was the primary spokesperson for Nike there was little concern regarding bad publicity related to his actions. Since his retirement from the NBA Nike has found itself with a large group of athletes with questionable behavior patterns. People like Latrelle Sprewell, Dennis Rodman, and Roberto Aolomar are but a few of the athletes that endorse Nike products. The personal and professional lives of these athletes project a negative image on the type of people Nike associates its product line with.
Recommendations for Nike
The first recommendation I would have for Nike is to put more effort into cleaning up its corporate image. With the negative publicity surrounding the labor controversies in third world countries and the shameful behavior of some their celebrity endorsers Nike needs to change the public's perception of it as a massive unfeeling corporate giant. The current stigma that Nike has acquired based on its foreign production facilities is the first place to start. More comprehensive control mechanisms need to be instituted to make sure that the criminal behavior on the part of some of its supervisors does not occur in the future. Further higher wages and better working conditions must be instituted and after implementation Nike should advertise these changes in whatever way possible. From a purely pragmatic standpoint it won't help if Nike makes the needed changes if no one else knows about them.
Another recommendation is that Nike should expand on its PLAY (participate in the lives of youth), program. This type of community outreach program develops good will and engenders support from the buying public. The image that Nike should try and project is one of a corporation with a conscience. By emphasizing this type of program and de-emphasizing the celebrity spokesperson method of developing name recognition Nike will insulate itself from the negative stereotype of just being concerned with superstar athletes. A further benefit of this strategy would be that the parents of children would be more likely to purchase products from a company that doesn't seem self-involved and focussed on only the bottom line. A large segment of the buying public wants the products that they purchase to be manufactured by corporations with a commitment to community and the values that help to enrich the lives of the youth of the world.
The overall marketing strategy of Nike is where I would next suggest change needs to be made. The average consumer is less likely to identify with the superstar athlete today than in past generations. Professional sports is filled with athletes that earning many millions of dollars per year for an activity that most people view as a pastime. The general perception of a factory worker making 30 thousand dollars a year is that Nike has to charge higher prices for its products because they are paying so much to their celebrity endorsers. Many people do not see the need to pay $150 for a pair of basketball shoes just so their children can wear the same brand as a professional star. Nike should put more emphasis on marketing to the average consumer. Emphasis on quality and innovation, concepts that served Nike well in the past have given way to style and brand appeal. What Nike needs to do is trim their roster of corporate endorsement contracts and limit the people they sign to the types of athletes that exemplify the values and ideals shared by the majority of the consumers they are trying to reach. Unfortunately for every Tiger Woods Nike also has ten Latrell Sprewells.
A greater focus on quality is perhaps most important for Nike's sustained growth in the future. In general people do not mind paying more for a product if they are convinced that they are getting quality in return. In recent years it seems that Nike has just taken the same basic models of shoes and other products, redesigned the color scheme, and increased the price. This strategy worked mainly because of the enormous brand loyalty that Nike enjoyed compared to its competitors. This technique however is not going to work forever as consumers switch to other athletic shoe manufacturers offering the type of innovations that made Nike the dominant name in the business.