Nikes International Marketing Strategy - Essay Example

S.A.Ferozie Order # 161683 Nike’s International Marketing Strategy Summary “Nike is a manufacturer, but really its just a marketing company." (Shanley in 2003)1 This quote really sums it up all. Nike is all about marketing. It uses its product more as a marketing tool than a sellable commodity. Ever since Philip Knight, the founder, started selling shoes out of the trunk of his car in 1964, marketing has been his forte. "For years, we thought of ourselves as a production-oriented company, meaning we put all our emphasis on designing and manufacturing the product. But now we understand that the most important thing we do is market the product. Weve come around to saying that Nike is a marketing oriented company and the product is our most important marketing tool." -Phil Knight, CEO of Nike in the late 1980s,2 Over the years Nike has adopted various marketing strategies but from 1990 onwards the thrust has been really powerful with many new themes launched annually. There have been large initiatives, like the IT thrust by introducing supply chain management to ensure regular deliveries, to introducing new strategies like focusing on the new found power and wealth of women in sports. The latest is to tie up with new technologies, that are loved by the new generations the world over like iPod. The new Nike+iPod is going to be a wild move but is sure to succeed. Introduction Nike has a worldwide market share of 32% that is almost double of Addidas, its nearest rival. It also has a market cap of $ 20 billion which is more than the combined market cap of all competition. For the past 30 years the marketing strategy was dependant on the make to sell model. Products were made in anticipation of sales and cross fingers became a habit as the mysteries of the unknown were omnipresent. Every manufacturer likes to evolve into make to order market. That is a segment that spells stability and a certain level of recognition in the market. It becomes more pronounced when the market is global, across geographies and cultures. Nike too had this vision. They wanted to cross frontiers with a common approach. It was like wanting a clan, not just a family, which followed common principles, yet had identity of its own respecting their environment and circumstances, but adhering to the common fundamental principle. It was a huge call and needed people to understand the conglomerate of which they were a part. It required a merger of thought, not just action, and the very vision became their clarion call, Just do it. The International Marketing Strategy Before a company decides to go “global,” it must first show “an ability to appreciate the degree of globalization that exists in a given industry, or sector, and to provide the required strategic response. ”Jeannet, Jean-Pierre,3 Centralization is the basic format of Nike’s plan. Not only product designing, but the contracting out of manufacturing at different factories and delivery schedules are all carried out at the Head Office. In response to highly chaotic running shoes market in 1975 a plan named Futures Program was developed.4 The intention was to force the Retailers to order nine months in advance by placing non-cancellable orders. This assured cash upfront for the company as well as predictability necessary for continuous production. However within a decade the Retailers felt it was too arrogant a programme but Nike just turned the situation to its advantage. It applied this scheme it to its suppliers instead. This was the new turn in marketing strategy. Its central theme was to have a supply chain built around a six month order to delivery schedule. Back then the Far Eastern market was in disarray and deliveries were sporadic. Inflation was high in these parts and in absence of brand consciousness athletes bought just any thing easily available. In came Nike, with an inflation proof and guaranteed delivery schedule. They promised rates that held and supplies that were on time and Retailers went along happily because until then athletes did not really care about looks, style or brand. All they wanted was style and comfort. The retailers were also confident that due to shortages Nike would sell anyway. The IT Thrust As the company began its global quest, both in creation of manufacturing capabilities as well as retail outlets, it began to face problems of fragmentation. In fact, by 1998, Nike had as many as 27 order management systems around the globe. While they were all highly customized individually, they had very poor links with Beaverton Head Office. Back then there was a nine month cycle from manufacturing to delivery to Retail. It was then decided that Nike needed centralized IT systems for its planning processes. SAP R/3 ERP was chosen to be the foundation on which other systems will be integrated to look after the mammoth supply and demand. The others were i2’s Predictive Demand Supply Application and Siebel’s CRM suite. Eventually all were to be integrated along with middleware from SeeBeyond (then known as STC). Here Nike made a sound business decision. At the initial stage it did not attempt to install it until SAP began working on the second, more stable version of the software implement SAP’s AFS (Apparel and Footwear Solution),5 Although Nike purchased AFS in 1998, the people who were supervising the purchase did not like the first version and waited till they saw and approved of the second versioned developed around 1999. They waited patiently for it while many others like Reebok burnt their fingers with the first one. Supply Chain Management But Nike failed to apply that same patience in case of i2. Rather than wait to deploy i2 as part of its SAP ERP project, Nike decided to install i2 beginning in 1999, while it was still implementing AFS. They choose to implement i2 while the legacy systems were still in place. This resulted in disaster. By 2000 it was agreed that they went too fast and the slow pace at which the supply chain system reacted, there was a feeling that they had hit a roadblock. The i2 software needed to be so heavily customized to operate with Nike’s legacy systems that it took as much as a minute for a single entry to be recorded by the software. And, the system frequently crashed as it was overwhelmed by the tens of millions of product numbers that were in use. Hardly anything went right before June 2000. i2’s predictive demand application and its supply chain planner (which maps out the manufacturing of specific products) used different business rules and stored data in different formats, making it difficult to integrate the two applications.6 These problems got highlighted as they started to effect factory orders. While some orders were duplicated others were ignored altogether. Orders were automatically deleted after six to eight weeks and recall was not possible. This left the demand planners in the dark. They had no idea what they had planned for production at each factory. As a result Air Garnett Orders were going to the Asian locations in place of Air Jordans deleting the earlier entries. When the problems were discovered, Nike had to develop alternatives. Nike claims the issues were ironed out by November 2000, but the damage was done, affecting sales and inventory deep into Nike’s next quarter. When the company’s SAP system arrived, short- and medium-range planning had already moved out of i2 altogether and into SAP. Nike has now decided to extend this schedule and now expect that the entire supply chain management will be in place globally by 2008. This cannot be abandoned altogether as this is the backbone for all the marketing initiatives they have planned for long term future. Building Markets on Women Power During the last decade another focus of marketing strategy for Nike has been its steady built-up of product lines for women. It has signed on a number of celebrity sportswomen, particularly in the West, but with a fair sprinkling from Asian nations as well, to fire the imagination of this upcoming new segment of buyers. But a line for women by a predominantly male oriented company had to be something different. Nike thought of this too and with Nike Goddess stores the emphasis is more on fitness than sports. The modern woman, its women executives argue is a combination of many roles all rolled into one and Nike had to rise above is one focus line to many sided products. The resounding success story of the stores is ample proof that Nike has hit a jackpot once again.7 Some see a sinister design in this move and a leading critic Cole charges as under: “using sports, these corporations have found new arenas for profit in ways that range from using Third World Labor to creating new forms of feel-good consumption. Representations of women’s sports as more enlightened, authentic, and pure than men’s sports make it difficult to imagine the connections between women’s sports and multinational capitalism. Women athletes, like America’s most beloved sport icon Michael Jordan, are represented as “real athletes” dedicated to sport’s mythic norms. Never mind that these representations of women’ sports, touted as victories, are enabled by and help justify the gendered remuneration in sports, as they cultivate a particular fantasy of political efficacy through consumption.” Cole (p. 5)8 She reiterates that profit is the sole motive and not promotion of sport as such. But then this criticism has to be taken in its stride. Every one works for a profit and Nike alone cannot be blamed for having captured this market while it was in its infancy. Like elsewhere they roped in celebrity sportswomen like they had cornered the celebrity sportsmen. They believed, and rightly so, that it is the common perception that athletes or sportspersons are ideals both for younger as well as the older generations. They are dependable icons and people can relate to them easily. They have signed up a number of sportswomen and project them as independent as well as the new aspirants to fame and wealth.9 New Partnerships Nike has also commenced a new marketing strategy by entering into technical collaboration with Apple to use iPod as a launch pad for its new market push. Both Nike and Apple announced a new partnership for Nike+iPod related products. 10 The Nike+iPod Sport Kit requires a Nike+ shoe and an iPod nano with a Mac® with a USB 2.0 port and Mac OS® X version 10.3.9 or later and iTunes 6.0.5; or a Windows PC with a USB 2.0 port and Windows 2000, XP Home or Professional (SP2) and iTunes 6.0.5.The new Nike+ Air Zoom Moire is the first footwear designed to talk to iPod. Nike plans to make many of its leading footwear styles Nike+ ready, connecting millions of consumers to the Nike+iPod experience. With the Nike+ footwear connected to iPod nano through the Nike+iPod Sport Kit, information on time, distance, calories burned and pace is stored on iPod and displayed on the screen; real-time audible feedback also is provided through headphones. The kit includes an in-shoe sensor and a receiver that attaches to iPod. A new Nike Sport Music section on the iTunes® Music Store and a new nikeplus. com personal service site help maximize the Nike+iPod experience.11 The Human Rights Roadblock To become a Global Player critical mass is a must for any multi-national company. This is the evaluation tool to find a company’s capability to survive both financially as well as exponentially. Global Distribution Network and economies of scale are the two key factors for ensuring success. Continuous availability of the product is a very important factor and this is possible by having a competent retail outlet set-up. Equally important is the supply chain and it must be geared up for local supplies at short notices. Lack of these facilities will result in loss of market and inhibit market penetration and dominance. In addition, achieving economies of scale through minimizing manufacturing costs is necessary for manufacturers to meet their financial goals and to erect a barrier for competition to encroach their markets via prices. Nike follows the offshore outsource manufacturing strategy. The basic idea is that Nike engages other firms to carry out its foreign manufacturing operations; thereby, utilizing the profusion of cheap labor in third world countries. This is a combination of the centralization and specialization strategy. The partners follow the common production pattern but apply their local laws for the process, They are typically independent companies located in various Asian countries but here is where a catch 22 situation arises. If these partner companies were to pay Global wages and to provide the Global amenities to the workers, then they will not remain competitive. Therefore Nike conveniently closes its eyes and makes a conscious effort only when it gets caught up in their mess. It then makes the right noises about local conditions and local laws but of late it has realized that a more comprehensive effort is required to meet the global protests by consumer forums and Human Rights watches. It has begun to be more transparent and has begum improving the lot of the global worker through special programmes.12 This forms an important aspect of its International Marketing strategy as otherwise it will loose many sympathizers back home. To this end it has made a Foundation which offers huge sums to underdeveloped countries where it operates for the benefit of the poor.13 It has the wherewithal to carry out these programmes. Its coffers are full of cash and short term investments and at any given time the tally is more than 2 billion dollars. Now that calls for comfort that can take care of all efforts at marketing. Conclusion Nike has always been a front runner – a very apt description, given its nature of business. It has been a market leader and trend setter. Ever since it too over Adidas in 1980 to become world number one in sports shoes and sport apparel, it has never looked back. As a true market leader it has always out performed and out thought every competitor. But there are niche segments like kids wear where it has yet to make a mark. But looking at its flexibility and its outlook, it will not be long before we hear about this too. The initiatives that Nike has undertaken in marketing themselves deserve a huge accolade. Despite the hiccups, glitches here and there, errors and mistakes, it had quickly rebounded from all and come back resoundingly. It can be said that Nike has a plan up its sleeves for every possibility and that it is the best believer in its own slogan Just Do It. References: 1 John Shanley, Securities analyst at Wells Fargos Shanley in 2000 http://www.icmr.icfai.org 2 Phil Knight, CEO of Nike in late 1980s – www.icmr.icfai.org 3 Jeannet, Jean-Pierre, Managing with Global Mindset, pg.44.Pearson Education Limited (2000) 4 www.cs.ucla.edu/gavin/Pub/IntlBusMgtNike.pdf 5 www.icafi.org/casr studies/catalouges/operations/OPEROM.htm 6 www.techweb.com/wire/story/TWB200103016009 7 www.fastcompany.com 8 Cole, Cheryl L. and Amy Hirbar. "Celebrity Feminism: Nike Style Post-Fordism, Transcendence, and Consumer Power."pg.5, Sociology of Sport Journal. 12 (1995) 347-369. 9 www.commondreams.org 10 www.apple.com 11 www.apple.com/ipod/nike 12 David M. Boje, Vietnam Labour Watch Nike Information http//business.nmsu.edu/mgt/handout/boje.htm 13 www.nikefoundation.org www.apple,com Cole pg. 51. http://www.nike.com/nikebiz/nikefoundation/home.jhtml Read More