Nike Case Analysis
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Nike Case Analysis
With the increased monitoring and enforcement of labour practices; Nike being in the public spotlight and subject to negative publicity on their subcontracted factories is forced to readjust the working conditions of their cross ocean factory workers to abide with proper regulations. This has caused Nike to modify their factory standards and employee working conditions by; limiting the maximum hours worked a week, implementing proper ventilation systems to filter out toxic fumes, increase worker access to protective equipment, and increase the capacity of medical facilities and medical staff for their workers.
Another area of concern is the discrepancy of differences in East Asian worker regulations and wages compared to the North American standards. Much speculation has gone toward attacking Nike for their blatant disregard of American labour ethics, but Nike is having difficulty explaining their justification of meeting offshore requirements. For example, the legal age in Indonesia was 14, an age at which compulsory Schooling has ended. Nike was criticized for apparently having girls at this age working in their factories (which wasn’t true), and was shunned for inhuman labour practices according to American standards.
Nike’s Asian operations had previously continued to soar generating US$300 million in 1994 in revenues to a whopping US$1.2 billion in 1997. However based on the Asian economic crisis, this had adversely affected revenues, while regional layoffs were inevitable. Nike also performed well in the European market generating about US$2 billion in sales and a good growth momentum was expected, however, some parts of Europe were only slowly recovering from an economic downturn. In the Americas (Canada and the U.S.A.), Nike experienced a growth rate for several quarters. The U.S. alone generated approximately US$5 billion in sales. The Latin American market at this point was exposed to economic volatility; however Nike still saw them as a market with “great potential for the future”.
With the increasing awareness and publicity of poor working conditions in subcontracted factories in East Asia, Nike has stimulated an uprising of activist and watchdog groups working toward seeing these conditions changed. With Nike in the negative spotlight, various organizations have revolved around generating a negative outlook on Nike’s practices of social irresponsibility. Certain campaigns such as the “National Days of Consciousness” and “International Day of Protest” were organized to educate people on the deplorable working conditions in Nike’s Asian manufacturing plants, and were designed to get more people involved in global employment issues.
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Whether or not this factor is directly related to Nike’s experienced decline in revenues, it has definitely hurt the company image, and may possibly affect the loyalty of future generations.
As a company, Nike has been the dominant presence in the athletic apparel industry globally. Although they were not the only company known to practice unethical manufacturing processes, they were the major target of criticism because of their leadership role. To fight back against the negative publicity, Nike changed many working conditions and practices, arranged for independent audits by very reputable individuals in the industry to rate these improvements and grade the working conditions, they created a corporate responsibility division within their company, and they even implemented an open door policy for activist groups to see firsthand of their commitments to improve the quality of the work environments in these factories. Unfortunately, these changes have proven to be unsuccessful as of late.
Nike, knowing their company image and reputation were at stake worked day in and day out to solve this problem. Although they had already directly resolved the issue of the unfair labour practices, the matter of educating the general public or winning over their trust was the main concern. After much analysis however, researchers reported that the controversy of their labour practices was not directly related to their revenue slump. Nike had established very strong brand loyalty amongst consumers and was still strong at the head of the athletic apparel industry. Therefore, the first strategic option would be to ignore the claims and to not waste anymore time addressing any more issues not affecting their sales and profits at the current time. The advantages of this strategy would be that Nike can avoid spending unnecessary resources to fund the campaigns of making changes to their manufacturing process. This would save them much time and resources and allow them to keep their system the way it had always been, already proven efficient and cost effective. The disadvantages of this option however are the chances of it stunting brand loyalty of future generations. As the stigma of their company image continuously grew, if left unattended, Nike may have trouble establishing the same level of brand loyalty for future generations taught to turn against them.
The next option Nike has is to continue addressing the concerns of the public but improving their already existent campaign for change. Nike had already improved working conditions significantly within these factories but they had trouble gaining the public’s trust and favour for their actions. Nike needs to invest in a marketing scheme to educate the public in regards to their plan of action. Nike also has to change their approach by discontinuing their efforts of denying the public’s claims of unfair labour practices and accept the responsibility for change openly. This way they acknowledge the crowds concerns and their action towards change will serve a greater purpose. If they take responsibility rather than work around it, it will give an unselfish perspective toward Nike’s efforts if the public believe they are doing it for the greater good rather than to just avoid and negate negative publicity. The advantage of this would be the chance of winning over the trust of these activist groups as well as new consumers. Many companies make mistakes and need to perform mass recalls or implement massive changes, and they do so to maintain their customers trust. This is Nike’s way of taking responsibility and winning trust. The disadvantage of this option is the possibility that the public may not respond favourably or even respond at all. This will also cost much time and resources which may hurt Nike during this time of economic downturn.
A third option would be to try to sway attention among their competitors who are known to perform similar practices. Nike has taken most of the blame of unfair labour conditions, but they are not the only culprits. Nike can take a stand and defend their plan of action in regards to the changes already made, and in turn sway interests towards those of their competitors in regards to what they have or haven’t done. Until this point, their competition has faced significantly less negative publicity and because of this, there may have been no reason for them to invest the same resources Nike did to improve the working conditions of their offshore factories. The advantage of this approach is the potential of bringing down their competitors to the same situation not allowing them to use Nike’s condition as an advantage to take from their market share. In turn the publicity won’t target Nike individually but the industry lessening the strain and pressure on Nike’s brand alone. The disadvantage of this however, is the fact that it doesn’t solve the negative perspectives on the Nike brand. It only extends the publicity to the rest of the industry. Nike may still suffer the inability to establish strong brand loyalty amongst future generations of consumers.
The best plan of action for Nike would be to address the concerns of the public directly. Although previous attempts have failed, Nike should try an approach that shows the public they acknowledge their mistakes and are planning to work toward them for the greater good. Marketing campaigns focused on the happiness of offshore workers based on the changes Nike has implemented should be released portraying Nike’s strong newfound ethical code. More attention should be put on the implementation of their Corporate Responsibility Division and its purpose within the company. Nike should also continue to promote their open door policy (allowing activists to visit their factories) signifying their pride in their improvements, persistently sending off the signals of their confidence in their plan of action. One major change in their marketing approach, should be to direct their information on their changes more to the general public rather than to the activists. Although the activists will be targeted, their views will be harder to shape whereas more general less involved participants will be easier to educate on the matter. Nike rather than focus on defending poor wages, should bring focus on their improvement of ventilation systems and medical facilities. They can announce their new minimum age limit of 16 where legal age limits in some of these countries is 14. This focus facilitates similarities with North American work conditions in regards to health and safety so the general public can compare and relate. Although attention may eventually fall upon the low wages, Nike can only try their best to educate on the varying economies and standard of living. This will most likely only address the activists groups as Nike would want to avoid overcomplicating the matter with too much information and political/economical jargon. If this marketing campaign is successful, Nike may be able to establish a more personal agreement with the public on the issues and their efforts. Nike can establish this relationship by taking responsibility and effectively showing change. In addition this campaign may win Nike favour and indirectly cause the negative publicity to now move on to their competitors once the public are satisfied with Nike’s conformation.
For years, NIKE, Inc. has been the worldwide leader of athletic shoe sales. The company’s successful brand image united competition and empowerment for the competitive, athletic user. However, NIKE is losing their grasp of the urban, casual runner. These runners exercise and run for fitness or enjoyment, avoiding the competitive atmosphere many of NIKE’s current brand statements are aligned with. Nike needs to reposition their brand towards a focus on fun and functionality. By compiling and examining a variety of information we will be able to interpret where NIKE currently stands in the athletic shoe industry and how they will be able to adapt their brand position to be more successful in the future. These adaptations will allow NIKE to reach a more casual group of urban runners and consequently increase sales forecasts, while maintaining a dominating portion of the market for athletic shoes.
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NIKE Inc. was established in 1971 by Bill Bowerman, a former track and field coach at the University of Oregon, and Phil Knight, a student-athlete at the University of Oregon. After several years of distribution under the name Blue Ribbon Sports, the duo decided to enter the athletic shoe manufacturing business. With the help of Jeff Johnson, the first employee of the company, the brand Nike was born. One year later, in 1972, a graphic design student at Portland State University developed a brand symbol that would one day be recognized globally: the Nike Swoosh. The company later adjusted its official name to NIKE, Inc.
The main headquarters of NIKE Inc. have been located in Beaverton, Oregon since 1990. Leading the executive team of NIKE Inc. is Mark Parker. According to the official NIKE website, “Parker joined Nike as one of our first footwear designers back in 1979, and he’s been at the center of Nike innovation ever since,” (About NIKE, Inc.). He is now President and CEO of the company. Alongside him are co-founder Philip H Knight, who serves as the Chairman of the Board of Directors, and Charlie Denson, who holds the position of NIKE brand president.
NIKE Inc. is a publicly traded company that sells athletic products under the NIKE brandname and affiliate brands. At the end of fiscal 2011, NIKE Inc. earned a $20.9 billion in revenue. The brand carries products for men and women and covers a range of products from cross-training shoes to the NIKE+ technology platform. Action sports, athletic training, basketball,football, soccer, running, and tennis are only a few of the many activities NIKE manufactures products for. Several NIKE affiliates specialize in one of these sports, such as NIKE Golf, a sub-branch that designs golf equipment, balls, footwear, bags, and other accessories for the global market. NIKE golf is not the only affiliate contributing to NIKE Inc. Cole Haan, a luxury brand with more than 180 retail location and a fiscal 2011 sales total of $518 million. Converse, known as “America’s Original Sports Company” realized $1.1 billion in sales in fiscal 2011. Hurley International, an action sports apparel company earned $252 million in sales that same year. Nike claims, “As part of our growth strategy, we continue to invest in opportunities that will generatethe highest possible long-term returns,” (About NIKE, Inc.). Altogether, the affiliate brands contributed $2.7 billion in Nike Inc. revenue last year.
The athletic shoe industry is segmented into more than fifteen specific groups. Among those categories, running shoes is the largest. According to American Time Use Survey, between the yeras of 2003 and 2006, 7.1 percent of people over the age of 15 engaged in running as a daily activity (https://www.bls.gov/spotlight/2008/sports/). Other activities include basketball, dancing, and hiking but have a lower participation rate. From the year 2005 to 2007 every retail channel, with the exception of department stores, has experienced an increase in athletic shoe sales. Shoe stores sales have increased 3.5% to $10,059 million, sporting good stores have increased 13.7% to $3,546 million, superstores have increased 7.1% to $2,072 million, and clothing stores have increased 3.9% to $1,323 million (Mintel, 2008).
Sales have consistently increased within the industry. From 2002 to 2007 there has been a steady growth of about 2.8% per year . This pattern is forecast to continue through the year 2012.Although the growth rate of the industry is low, sports participation rates have never been static. There are also outside sales from users who are not looking to purchase the shoe for athletic use. According to a 2008 survey, only 19% of people purchase athletic shoes solely for sports orexercise (Mintel, 2008).
Other factors that affect the purchase of athletic shoes are comfort, price, performance, style, brand, technology, and endorsement. In the same 2008 survey, users revealed they rate comfort at 99% importance and price at 94% importance. It is important to realize that, even though the respondents in the survey indicated only 13% importance to celebrity endorsement, there has been research that shows this is inaccurate. Mintel believes “respondents may be understating the importance of celebrity endorsement. Mintel’s Sports Enthusiasts-U.S., July 2007, found that 38% of obsessed sports enthusiasts purchased licensed sports clothing in the past months” (Mintel, 2008).
Like many industries, the athletic shoe industry is facing difficulaty due to the state of our economny. While there has been steady growth in the industry, inflated prices are causing sales to remain static (Mintel, 2008). The competition for market share in the athletic shoe industry is a thre at because of innovative brands in the industry. On the other hand, technological advancements in terms of promotion and product pose exciting opportunities. There are also opportunities to reach the consumers at department stores, where sales are currently down 21.8%(Mintel, 2008).
Many companies that vie to capture the purchases of consumers across the nation in the market of athletic shoes. However, NIKE dominates a majority of the market share for athletic shoes This fact is clearly evident from the pie chart located in Appendix A, Figure 1. According to the data from Market Share Reporter, the NIKE brand alone owns a 35.21 percent market share, a giant portion of the total market (Ed. Robert S. Lazich and Virgil L. Burton, III). Additionally, the same report notes that two NIKE subsidiary companies own marginal portions of the market, with Jordan brand shoes having a 10.83 percent market share and Converse owning 2.83 percent of the market. Jordan and Converse offer niche-specific athletic shoes. Jordan offers shoes tailored for basketball players and Converse aims towards style over function. These brands would not take away sales from NIKE if the company chose to market towards urban, casual runners.
NIKE has a few clear-cut competitors in the market for athletic shoes.Adidas stands as NIKE’s top competitor. Adidas has the marketing power to expand its brand and positive brand standing within the industry: the company will sponsor the 2012 Olympics in London (London 2012 Olympic Partners). Adidas can steal casual, urban runners who have preconceived notions of NIKE as a brand strictly for “the competitor”. Adidas’s brand owns 32 percent of the market for athletic shoes (Ed. Robert S. Lazich and Virgil L. Burton, III). The Reebok brand is a subsidiary of Adidas that also owns a decent portion of the market. While much of Reebok’s 6 income is from apparel and cleat sales, its athletic shoes own about 2.58 percent of the market for athletic shoes (Ed. Robert S. Lazich and Virgil L.Burton, III). Reebok, however, is aggressively moving to increase its market share this year. Their updated line of “Zigtech” shoes position the brand as a fitness shoe instead of a competitive shoe (Reebok Zigactive: Ochocinco vs. Annie). Reebok has also upped its social media efforts to cater to the interactivity consumers gravitate towards.
Skechers, with their shape up brand, own 4.61 percent of the market for athletic shoes (Ed. Robert S. Lazich and Virgil L. Burton, III). Skechers has built their brand’s image around the casual runner. Their shape-ups product has attracted some casual runners, especially women,
due to its combination of fashion and comfort in an athletic shoe.
Finally, Japanese company Asics owns a 2.83 percent share of the athletic shoe market (Ed. Robert S. Lazich and Virgil L. Burton, III). Asics has gained ground steadily in recent years after being virtually unknown in the past. They do not stand as much of a threat to NIKE in their current position.
Looking at all of NIKE’s competition this year, the two companies that pose the largest threat to NIKE are Adidas and Reebok. Adidas controls the largest portion of the athletic shoe market outside of NIKE and its subsidiaries. Their newer “Adidas is All In” advertisements seek to position their brand as an exciting product that can make any person feel like a rock star (Adidas Is All In). Reebok, though they do not control the largest portion of the shoe market outside of NIKE, is making a push to promote their products as catering to the lifestyles of the consumers. The company has recently launched an improved line, “zigtech”, that helps the consumer enjoy “the sport of fitness” with their innovative design and responsive cushioning (Reebok Zigactive: Ochocinco vs. Annie). In the coming sales year, Adidas and Reebok have the potential to steal urban, casual runners from NIKE’s current market holding.
NIKE currently positions its brand towards the competitive athlete. For years, the company’s motto has been “Just Do It”, embodying the spirit of athletes who perform well under any circumstances. On NIKE’s corporate website, the company states its mission is, “to bring inspiration and innovation to every athlete in the world...if you have a body, you are an athlete.” (About NIKE, Inc.) NIKE makes a statement by saying everyone can be an athlete by wearing their shoes, creating emotional attachments that connect consumers with feelings of empowerment; this gives NIKE the advantage of reaching the “self-expressive” level of benefits with its consumers. The idea that NIKE can give you a leg up on the competition is a heavy emotional benefit that drives the current brand image of NIKE’s athletic shoes. Consumers around the world also trust NIKE as a dependable brand (Mintel, 2011).
In its advertising campaigns today, NIKE attempts to capture consumers through functional and emotional benefits. In its “Make it count” campaign, NIKE shows people all across the country performing a variety of athletic activities in the NIKE shoes, showing the functional benefit of the shoes to be that they allow the owner to participate in any activity to their fullest (NIKE, #makeitcount). The ad then moves into the company’s new slogan, “Make it count”, creating the emotional appeal that NIKE shoes will help the consumers to create a difference in their lifestyles through their actions. Overall, the ad campaign creates a brand personality that marvels NIKE as both an exciting and successful product which gives consumers the ability to perform at a greater level while feeling important in their new shoes.
NIKE’s main competitor, Adidas, also attempts to reach the more active athletes who strive to defeat their competition. Adidas tries to prove that their shoe will make athletes more prepared to face the competition through the use of their shoes. On the company’s website, Adidas lists two of its goals in its mission. They say, “We are innovation and design leaders who seek to help athletes of all skill levels achieve peak performance with every product we bring to market. We are consumer focused,” (About Us, Adidas-group.com). This is where Adidas differentiates themselves from NIKE’s strategies. Adidas tries to create top-of-mind brandpresence while associating shoes with innovation and change. They help consumers see that they can live a life of glory with the brand’s shoes.
In their recent “Adidas Is All In” campaign, Adidas has effectively brought about functional and emotional attributes relating to the brand (Adidas, Adidas Is All In Commercial). Their sixty-second spot aired over television and the Internet, showing a functional benefit of asleek, comfortable shoe that can help the consumer accomplish active tasks to the best of their ability. Adidas, however, separates from NIKE through their emotional appeals. In the sixty-second spot, everyone from athletes to citizens are HAVING FUN and creating lasting experiences. When Adidas says that they are “All In”, they create a brand personality geared towards those looking for excitement in their athletic and running experiences rather then just function.
Following the lead of Adidas, Reebok creates a brand that is based around the consumer. Their slogan, “I am what I am”, stresses the idea that Reebok’s shoes can serve many different purposes to different types of consumers. On their company website, Reebok has a box at the top of the screen that says, “I want” with the ability for the consumer to add information based upon their interests (Reebok.com).
Reebok has created a brand image and personality that puts the consumer first. Their shoes inspire the consumer to be whatever they wish, but be aided in their tasks by what they wear. This is important, because Reebok isn’t forcing their consumers to have a competitive athlete persona.
Reebok also largely differentiates from its competitive field through its innovation in functional benefits. Their new lines of “Zigtech” shoes promote comfort and performance in their unique design. The common human being works out and matches NFL star Chad Ochocinco in all activites during the course of the commercial, showing the functional benefits of the shoe by saying that it will help to better your workout performance (Reebok, Reebok Zigactive: Ochocinco vs. Annie). At the end of the commercial, text says “The Sport of Fitness hasArrived”. In separating sport from fitness, Reebok has created an emotional appeal towards the runners and workout experts that can create brand loyalty.
NIKE, for years, has put forth a tremendous amount of effort in order to preserve a large following of consumers who remain loyal to the brand and what it stands for. The current users of NIKE branded shoes come from a wide variety of demographic backgrounds. Among the many consumers who use NIKE’s athletic shoes, a clear split among male and female consumers exists, with males making up 50.7% sales to the 49.3% of sales from females (Mediamark,2010). Most of the consumers of NIKE products went off to college, with 58.6% of the consumers having either attended college or gone on past a four-year college to graduate school (Mediamark, 2010). Some age segments purchase more shoes then others. The largest purchasers to increase the sales of the brand’s products; consumers age 18-24 make up the market sector that could be receptive to new ads focusing on a casual running experience that would encourage
urban runners to buy NIKE shoes. Consumers within the ages of 18 to 24 years old are more likely to try out new athletic shoe brands on a more consistent basis then any other age group (Mintel, 2008). This age group also uses athletic shoes in a fairly consistent manner, exercising more then any other age group. Around 54% of this age group runs or jogs regularly as opposed to much lower numbers in older generations (Mintel, 2008). Additionally, New Balance and Reebok have created more brand loyalty among older consumers (Mintel, 2008). It would be difficult to change the perception of NIKE products to older generations who have already formulated their beliefs about running shoe brands. In marketing a casual, non-competitiveatmosphere associated with NIKE shoes to urban runners between the ages of 18-24, the products can become top-of-mind to this age group. The age group stands as a mix of emergent consumers. In creating positive associations related to a casual experience with the products, NIKE can make the 18-24 year old consumers brand loyal going into the future and increase the company’s total sales now and in the future.
NIKE, Inc.’s newest ad campaign is an international campaign titled “Make It Count”, which focuses on the new Nike Fuelband product. (NIKE Inc, 2012). The “#makeitcount” text is also included in many of the advertisements. The campaign focuses on the concept of making what a person does in life “count” or hold significance by inferring that life itself is a sport that must be won. This campaign’s American advertisements focus on a spectrum of bright red, yellow, and green often blending together, while many of the ads also use neutrals and dull backgrounds to make the main colors pop. The commercials contain a mash-up of different advertisements Overall the ad entices viewers by creating a desire to see what the advertisement is about, but there is no explanation other than brief but intense imagery of strength training. This campaign is functional, introducing the mash up of different athletes wearing NIKE products and excelling at the activities they are performing. These commercials also include shots of urban environments, such as a busy street, graffiti covered walls, skylines, and a busy flight of stairs. Upbeat alternative rock music is a prominent feature, and many of these ads include font, or a voice over explaining the new “Nike Fuel” product. (Youtube/Nike, 2012) Both the print and commercial advertisements use a strong bold font in all capital letters, and the font is usually black, white, red or green depending on the background of the image (Appendix A, Figure 2).