Value System of Nike - Case Study Example

Nike Table of Contents Introduction 3 Question 3 Question-2 4 Question-3 5 Question-4 6 Question-5 6 Question-6 8 Question-7 8 Conclusion 9 References 10 Introduction Nike had began its rather modest journey in Oregon in the late 1960s, as an enterprise run by two sports enthusiasts – Phil Knight and Bill Bowerman. Even though the company was known as Blue Ribbon Sports (BRS) in the beginning, it was Knight’s wish to rechristen it as Dimension Six. However, the third employee of the company, Jeff Johnson, suggested a different name that he came across in his dream. More than a dream, it was perhaps a divine intervention, as the name was Nike – “the winged Greek Goddess of victory” (Keller, 2008, p.126). Over the years, Nike has not only augmented its technological expertise as well as marketing know-how to develop into the world’s biggest footwear and apparel business, but has also outperformed potential players like Adidas and Reebok (Keller, 2008, p.125). Being a colossal corporation it towers above every competitor in its sector with such a stupendous effect that regardless of the sport, it is likely that Nike along with its ‘swoosh’ logo will be there (Frisch, 2008, p.5). Taking into consideration Nike’s astounding track record, this report will aim at shedding light on various branding issues associated with it. Question-1 Nike’s headquarters, located in Portland, provides a snippet view of the company’s strong brand image. The World Campus of the sports and apparel powerhouse that sprawls over an area of 75 acres does not have a nameplate on its entrance. The occupants of the site can be identified by the red ‘swoosh’ – Nike’s globally renowned logo – which also appears on all the physical entities within the premises (Stonehouse, Campbell, Hamill & Purdie, 2004, p.440). However, Nike’s outstanding stature may be justified by the fact that out of a strong sense of loyalty to this company, some of the employees have tattooed a ‘swoosh’ on their bodies. It goes without saying that Nike has a robust brand image which is bolstered further due to the company’s reputation for innovation as well as unmatched quality. Constant product development, which takes place at Nike because Knight considers that the industry has 7 year brand cycles, makes the company outstanding (Stonehouse et al., 2004, p.441). Question-2 Figure 1: Value System of Nike (Source: Stonehouse et al., 2004, p.442) The figure appended above illustrates the value chain of Nike in terms of its production and supply chain. While the research and development (R&D) functions of the organisation are centralised, most of its production facilities are located in Europe and Asia. However, during late 1990s, dubious employment practices coupled with low wages as well as poor working environment at Nike’s contract factories located in different parts of Asia had garnered sizeable negative press at the international level (McDonald & London, 2002, p.3). The turn of events synonymised Nike with sweatshops that employ inexpensive overseas labour with the intention of gratifying their capitalistic objectives. The report of a 1996 audit conducted by Ernst & Young (E&Y) showed that working conditions were unsafe in one of Nike’s factories in Vietnam. In addition, it was found that “workers were forced to work 65-hour weeks and improperly compensated for overtime labour, worked in areas with poor ventilation, exposed to dangerous levels of carcinogens, and earned little more than ten dollars a week” (Keller, 2008, p.138). All these factors, taken together, were significantly detrimental to the brand image of Nike on an international level. Question-3 Sponsorships as well as endorsements are definitely vital for the success of any brand that aims at undergoing significant expansions and penetrate diverse markets. Nike is obviously not an exception. It is interesting to note that after the American basketball legend Michael Jordan signed a highly expensive sponsorship deal with Nike, the market share of the latter shot up by twenty percent over the preceding quarter (Lancaster & Massingham, 2010, p.267). This phenomenon can be justified by the fact that the sports and apparel sector is characteristically associated with a market that depends heavily on large sums of advertising revenues as well as athlete endorsements, and identifies with the athletic spirit that is radiated by Nike (Rein, Kotler & Shields, 2006, p.138). According to Tripp & Jensen (1993), huge investments are generally made on endorsements contracts with celebrities, because “the use of such promotion is based on the premise that source effects (i.e. the celebrity her- or himself) play an important role in persuasive communication” (Lancaster & Massingham, 2010, p.267). Thus, it is easy to infer that Nike will definitely be successful in augmenting its relationship with the customers if it becomes the official sponsor of a sports extravaganza like the Olympics, which has global importance. Question-4 The primary reason why Nike’s attempts to globalise its operations were criticised was that the corporation was employing cheap labour in its overseas production facilities. Furthermore the working conditions that prevailed in most of these workshops were below par, which made the workers prone to various health hazards. However, Nike was prompt enough to adopt corrective measures, and it has been reported that by virtue of different audits, inspections, and internal research, it has succeeded in virtually eliminating the usage of harmful petroleum-based chemicals from its footwear manufacturing facilities (Locke, 2003, p.19). In addition, the global behemoth has been striving to bring about holistic improvements within its production system as well as supply network through various initiatives. It is quite praiseworthy a fact that every Nike employee who is responsible for compliance or production receives extensive training in “Nike’s Code of Conduct, Labor Practices, Cross Cultural Awareness, and in the company’s Safety, Health, Attitudes of Management, People Investment and Environment (SHAPE) program” (Locke, 2003, p.16). Although all the critics are yet to be convinced about Nike’s efforts, the elimination of harmful chemicals from footwear production is an achievement that is acknowledged by some of them (Locke, 2003, p.19). Question-5 Since its inception, Nike hasn’t made regular acquisitions. Up till 1995, the company had acquired just two organisations – Cole Haan (1988), and Bauer (1995). However, since 2002, it has been making frequent acquisitions and has purchased companies such as Hurley (2002), Converse (2003), and Exeter Brands Group (2004). Whether these acquisitions make sense for Nike or not, is a pretty debatable question because of the fact that the company has constantly focussed on augmenting its core brand, and the income generated through the acquired brands formed a part of other revenues (Keller, 2008, p.141). Figure 2: Region-wise Revenues of Nike (2006) (Source: Keller, 2008, p.149) However, it has been observed that on a whole the portfolio of acquired brands proved to be profitable for Nike as they had an almost instantaneous impact on its financial performance. More recently, the company has taken the prominent British sportswear maker Umbro into its folds; the company has justified its move by saying that this particular move has illustrated how other brands can benefit from its product design, marketing expertise, and operations (Monaghan, 2007). Figure 3: Product Revenue of Nike (Source: Keller, 2008, p.150) Furthermore, it has been argued that the said acquisition will radically enhance the global leadership of Nike in the field of football, which has always been a major growth area for the organisation (Nike, 2010). With an arsenal of strong brands in its kitty, it would be logical if Nike tones down its acquisition spree for the time being, and focuses on augmenting the presence of each of these brands in diverse markets. Question-6 Nike is predominantly a performance apparel company. However, that its general manager in China has observed that unlike in the past, the company is forced to change its models almost every week (Goldman & Papson, 1998, p.5), points at the fact that even a corporation of Nike’s stature has to bow before the trends of fashion that are highly volatile in the contemporary scenario. It might have been possible that the one-child policy followed by the Chinese had accounted for Nike’s initial success in China, because of the higher volumes of disposable income that the Chinese couples can afford to spend on expensive brands. However, it is an equally strong argument that Nike may have “realised the new middle class in China desired Western culture and brought many aspects of American culture to its marketing efforts in China” (Keller, 2008, p.145). Considering the fact that China is one of the fastest growing Asian economies, it may be suggested that the primary focus should be on fashion, while Nike attempts to penetrate its markets. Question-7 Nike already has an assortment of brands in its portfolio, which makes it the undisputed industry leader. In consideration of the fact that Adidas has acquired Reebok, it is obvious that Nike is going to face an even stronger competition. However, Nike should realise that, just like all strong brands that have successfully established firm and distinctive brand relations with their consumers, it has been successful in becoming synonymous with superlative athletic performance and innovative products (Keller, 2001, p.13). The company should concentrate on augmenting its core competencies through rigorous as well as creative R&D activities, and make certain that the brand awareness among its target audience is sufficiently pervasive. The company should also invest strategically in celebrity endorsements to ingrain its message into the consumers’ psyche. These would definitely help Nike to stay ahead of competition However, in the long run; it may need to make acquisitions to widen the gap between itself and the competing brands. Conclusion Nike is a strong player in the immensely lucrative sportswear and apparel sector. Although two of its most prominent rivals – Adidas and Reebok have merged into a single entity, Nike has the potential to stay ahead of competition, because it is an established brand which is so successful that its logo – the ‘swoosh’ is ubiquitous. Having taken a host of prominent companies into its folds, Nike has augmented its brand portfolio over the years and has associated itself closely with sports, and especially football. Furthermore, its attempts to enter the emerging markets of China have also been successful. On a closing note, it may be said that, despite being a growth company, Nike should continuously improvise new products to meet the changing trends of fashion and outperform its rivals in the highly competitive market. References Frisch, A. (2005). The Story of Nike. Creative Education. Goldman, R. & Papson, S. (1998). Nike Culture: The Sign of the Swoosh. SAGE Publications Ltd. Keller, L. K. (2001). Building Customer-Based Brand Equity: A Blueprint for Creating Strong Brands. Marketing Science Institute. [Pdf]. Available at: http://mktg.uni-svishtov.bg/ivm/resources/CustomerBasedbrandEquityModel.pdf [Accessed on October 27, 2010]. Keller, L. K. (2008). Best Practice Cases in Branding: Lessons from the Worlds Strongest Brands. 3rd ed. Pearson/Prentice-Hall. Lancaster, G. & Massingham, L. (2010). Essentials of Marketing Management. Taylor & Francis. Locke, M. R. (2003). The Promise and Perils of Globalization: The Case of Nike. [Pdf]. Available at: https://caseplace.org/pdfs/All-MIT-2003-Promise_and_Perils_Nike.pdf [Accessed on October 27, 2010]. McDonald, H. & London, T. (2002). Expanding the Playing Field: Nike’s World Shoe Project (A). World Resources Institute and Kenan-Flagler Business School at the University of North Carolina, Chapel Hill. [Pdf]. Available at: http://ptgmedia.pearsoncmg.com/imprint_downloads/wharton/pdf/hart_nike_case_a.pdf [Accessed on October 27, 2010]. Monaghan, A. (October 23, 2007). Nike Swoops on Umbro for £285m. Telegraph Media Group Limited. [Online]. Available at: http://www.telegraph.co.uk/finance/markets/2818146/Nike-swoops-on-Umbro-for-285m.html [Accessed on October 27, 2010]. Nike. (2010). NIKE, Inc. Reaches Agreement to Acquire Umbro. News Release. [Online]. Available at: http://invest.nike.com/phoenix.zhtml?c=100529&p=irol-newsArticle&ID=1065872&highlight= [Accessed on October 27, 2010]. Rein, J. I., Kotler, P. & Shields, B. (2006). The Elusive Fan: Reinventing Sports in a Crowded Marketplace. McGraw-Hill Professional. Stonehouse, Campbell, Hamill & Purdie. (2004). Global and Transnational Business: Strategy and Management. 2nd ed. John Wiley & Sons, Inc. Read More