Business Growth strategy of Nike: A case study

Nike (NASDAQ: NKE) is the industry-leading global brand of sports shoes and apparel. It is the most popular brand of sports shoes and apparel and the favorite of millions of customers and fans from around the world. Apart from the several other things, Nike is well known for its great marketing strategy that has turned it into a well-recognized brand name worldwide. Nike’s global popularity and growth have resulted from its focus on product quality and innovation. The company sells its products globally through a large network of distributors, resellers, and company-owned stores as well as its e-commerce channels. Its products are highly popular among the millennial consumers because of their style and attraction.

With time, Nike’s popularity and market position have continued to strengthen, driven by a growing focus on quality and customer experience. The Swoosh logo is recognized easily around the world and differentiates Nike from the crowd of sports shoes and apparel brands. While the nearest rival of Nike is Adidas, the shoe industry is marked by intense competition and there are several more brands like Puma, Reebok, New Balance, and Fila competing with Nike.

Due to the intense competition in the industry, companies also need to invest heavily in marketing as well as product development. To maintain sales and growth momentum, companies focus on marketing as well as customer engagement apart from product innovation. However, Nike’s identity and brand image are very different from its rivals. An outstanding marketing strategy has helped the company acquire higher visibility and find faster growth compared to rivals. Now, the company is also investing in being more sustainable. 

In 2019, the company generated a net revenue of $39.1 billion compared to $36.4 billion in 2018. Nike has enjoyed consistent growth in  revenue over the past several years. It also enjoys one of the best margins in the industry. In 2019, its gross margin stood at 44.7% compared to 43.8% in the previous year. Nike is a highly profitable brand. Now, the company is focusing on growing its direct to consumer sales using its own e-commerce channels. 

In this post, we will analyze the core pillars of Nike’s business growth strategy. However, prior to that, we will analyze the target audience of Nike and who are the main customer segments that buy  Nike products.

Target market of Nike:

Nike targets the athletes mainly.  Its products are made for athletes and for everyone interested in sports. However, sports and sportswear have not remained limited just to the field but have become a part of the modern lifestyle and fashion. Athleisure trends have brought athletics products to mainstream fashion. However, it is mainly the millennial generation and Gen Z that are the biggest fan of athleisure products. Nike’s target audience lies mainly in the 15-45 age group. However, it is not just men but women are also big fans of Nike products, which has been evident in the growing sales of Nike products for women.

Overall, it is mainly the urban affluent consumers that are in the age group 15-45 that are Nike’s main target market. Nike makes mainly premium products and targets affluent consumers living in large cities. The company has introduced a nice product range for Kids also but the core audience of Nike is between 15 and 45 years of age. Nike is actively targeting millennial consumers in the digital space. Apart from digital promotions and through social media, the company is also using its own digital sales channels to engage the tech-savvy millennial consumers.

Core Pillars of Nike’s Business Growth Strategy:

Marketing:

Marketing is one of the core pillars of Nike’s business growth strategy. Since its early days, the company is known for its focus on marketing. It has always followed a unique and outstanding marketing strategy. Its focus has remained on sports and how people around the world connect with sports. It is why a large number of video ads created by Nike focus on motivating athletes. Its Swoosh logo sets it apart from the crowd of brands in the market. However, the key lies in how Nike creates and executes its marketing campaigns.

The company has run several iconic advertising campaigns in its history including the Just Do It campaign that came in 1988. Nike has established itself as an athletic brand that makes products related to sports. However, it has created a distinct image and that was made possible by striking the right tone in terms of marketing.

Nike is a great storyteller and instead of promoting specific products or trying to increase sales by using seasonal promotional techniques, the company connects with its fans and followers around the world through sports. It does not create ads but instead, it creates stories. While other brands try to grow sales by promoting their products and brand, Nike does it differently. It creates stories that its audience can love and in this way it has struck a stronger emotional bond with its audience worldwide.

However, the company also invests a large sum each year in marketing. In fiscal 2019, the company spent around $3.75 billion on marketing activities compared to $3.6 billion in the previous year.  Another important marketing technique that Nike has been successfully utilizing for years is sponsorship. It has sponsored many well-known athletes including Cristiano Ronaldo who first signed with the company in 2003 and then entered into a lifetime agreement in 2016. The company continues to place a heavy focus on marketing and uses a mix of digital channels with other channels for running global campaigns. Marketing will remain a key driver of growth for the company and also a leading differentiator that has helped it retain its leadership position in the industry and as a great brand.

Product innovation:

Another key driver of popularity and sales growth for Nike is its focus on product innovation. Nike products are in demand because they are outstanding. Apart from the quality of raw materials used, the company also invests in developing technologies and methods that help it create better products that provide superior performance compared to the rivals. It has also established a research lab that employs more than 40 researchers with doctorates from various scientific disciplines.

The Nike Explore Team Sport Research Lab started as a small lab more than 30 years ago. The lab is located at Nike headquarters in Beaverton, Oregon.  It is an integral part of the Nike Explore Team that strives to create innovations for athletes globally. Nike’s research lab has entered into strategic partnerships with major universities and institutions throughout Asia, Europe and North America. These strategic partnerships provide Nike access to the world’s best talent, tools and athletes, and allow the lab to maintain cutting-edge science.

Nike has created several game-changing technologies in its history. Apart from helping the company acquire a higher popularity and grow its sales, these technologies have helped Nike establish itself as the leading innovator in the sports shoe industry. Several leading innovations introduced by Nike like the NIke Flywire support system, lunarlite foam cushioning,  Hyoerdunk basketball show, new generations of free footwear, and the Trainer 1 shoe continue to set new standards for the industry. The sports shoe industry is experiencing intense competition and to maintain its leadership position, the company will have to maintain its focus on product innovation in the future also.

Focus on customer experience:

Great brands do not just create great products. Instead, they create great experiences. Now, the focus has shifted from product quality to the entire customer journey. Companies are using data and analytics to create great customer experiences to offer the customers the best experience at every touchpoint. Nike’s focus also remains on providing its customers the best experience so that they remain loyal and engaged. Superior customer experience also leads to a stronger brand image and higher brand equity.

Nike has always focused on customer experience and whichever channel customers are buying from including the online and offline channels. The focus is on providing customers with the best experience. Apart from other things, brands are relying on higher personalization to offer their customers the best. For this purpose, brands like Nike use data and analytics to design exclusive experiences for their customers and engage them on all channels. Nike’s growth in sales along its direct sales channel is also a result of the consistent focus of the company on customer experience. Nike Direct has experienced enormous growth over the previous few years and it is also why the company is not relying on other e-commerce channels but developing its own and deepening its relationship with its customers. Nike has always been a customer-centric company.

The Nike App brings the best of Nike to its customers, personalized for each one of them. Apart from providing early access to new products, the app also lets customers shop for exclusive collections and get invitations to member-only events and experiences. However, things do not stop just there because when it comes to customer satisfaction Nike cannot stop at anything. For example, Nike is using Machine learning, AI, and recommendation algorithms to serve its customers better. Using the Nike Fit app, customers can just snap a picture of their feet and find the right fit. Since a large number of customers are shopping or checking out new products online, Nike is focusing more on digitalization. In 2018, it acquired Zodiac, a data and analytics company, to speed up digitalization. It has also helped Nike grow the level of personalization it offers its customers. In fact, Nike’s customer-centricity has continued to grow with time. It is one of the central pillars of its business strategy.

Establishing and growing own e-commerce channel:

Nike has created an omnichannel experience for its customers. Apart from the physical channels that include the Nike company owned stores and wholesales, it is also selling to its customers through its own website and app. While the company can extend its reach by using the other e-commerce channels too like Amazon and other local online shopping websites in various corners of the world, it decided to develop its own e-commerce channel. The main reason was to avoid brand dilution. Initially, Nike had also taken the regular way, where it would sell its products online on Amazon.

It started a pilot program with Amazon in 2017 as  part of which it was going to sell its shoes and apparel on Amazon. However, the pilot program ended in 2019 with Nike dropping off Amazon. It was when Nike gave its retail strategy an enormous overhaul. It had hired ex-E-Bay Inc. Chief Executive Officer John Donahoe as its next CEO which signaled Nike’s aggressive movement towards ecommerce. The company stated that it had decided to complete its pilot program with Amazon as a part of its focus on elevating consumer experiences through more direct and personal relationships with its customers.

Despite the enormous reach of Amazon, the problem is that fakes also flourish on the platform and that can result in brand dilution for companies like Nike. So, Nike is back to its own e-retail platform. However, the company’s strategy has paid off and it enjoyed the results during the pandemic when people had stopped shopping  from physical stores. During the period, people turned to its website and app in record numbers to shop for sneakers and workout apparel. The company has also been strategically investing in its own  neighborhood stores called Nike Live that will serve as pickup hubs for the people shopping online from Nike. The changes that the pandemic has brought about are going to last for long and Nike’s strategy is to be a digital first organization. In the future, this could mean faster growth for the company.

Supply chain management:

Supply chain management is also a critical pillar of Nike’s business strategy. The company has managed its supply chain very well which allows it to save costs and grow its business faster. Nike has a global supply chain, a large part of which is located in the Asian region. The company has outsourced all its manufacturing to independent suppliers. It allows the company to focus exclusively on other things like marketing, product design and innovation, new technologies and distribution. Overall, Nike’s supply chain is one of its core strengths driving faster growth for the business. A large part of its entire product range, around 90% is produced by suppliers that have worked with the company for 15 years or more.

Independent contract manufacturers located outside the US manufacture virtually all of Nike products. Many of these contract manufacturers own several factories. 112 factories located in 12 countries supplied Nike shoes in 2019. Four leading contract manufacturers accounted for 61% of the company’s footwear production in 2019. All of them accounted for more than 10% of the company’s footwear production during the year.

However, none of the producing factories accounted for more than 10% of footwear production in the year; the largest factory accounted for only 9% of the total. Most of the Nike brand footwear production took place in Vietnam, China, and Indonesia. Together, the three countries accounted for 49%, 23%, and 21% of Nike brand footwear, respectively (NIKE Annual report, 2019).

334 factories in 36 countries produced Nike brand apparel in 2019. Most of Nike’s apparel production took place in China, Vietnam, and Thailand. Together, the three countries accounted for 27%, 22%, and 10% of Nike’s apparel production during the year. The top five apparel manufacturers together accounted for 49% of the company’s apparel production in 2019.

By outsourcing its supply chain to independent contractors, the company can derive cost savings and focus more on making its operating model more efficient. Nike’s supply chain is lean and agile. The company has established long term relationships with its suppliers and also takes care of how its suppliers operate. It has adopted rules and regulations as well as an ethical code of conduct for its suppliers.

Investing in technology strategically:

Nike made technology a strategic priority early enough. The company has been investing in being a digital-first organization for the past several years. While the benefits of being a highly digital company were strongly felt during the pandemic, its investment in technology can help it gain a substantial advantage in the longer run. Nike moved aggressively towards cloud-native, micro-service architecture to enable speed, scale, and stability across the enterprise.

The company had realized it years ago that the future lay in the clouds. The earlier the company adopted the technology, the faster its growth and its lead over the other brands. Using observability, security, reliability, availability, and performance as core principles for software development, it has reimagined its entire technology stack during the last five to six years. In 2019, while the company dropped its distribution partnership with Amazon, it has continued to use AWS to run its global website and apps. Years ago, Nike realized that several of its engineering processes routinely utilized off-the-shelf vendor software that did not really meet its strategic needs in terms of functionality, security, or scale. As a result, it directed its engineering teams to develop cloud-based software, and the result was that it developed cutting-edge applications and platforms serving on a global scale.

 While technology has evolved at a very fast pace, and new innovations just keep coming, Nike needed to move swiftly in order to keep pace with the fast-changing market dynamics that followed technological development. So, it turned to open source solutions to maintain its ability to innovate continually.  It started utilizing NoSQL, serverless, containers, AI/ML, GraphQL, and others as a part of its journey to becoming cloud-native.  However, this also required Nike to bring corresponding cultural changes within the organization. It actively created a culture of sharing all that Nike learned, both internally and externally. The company had recognized that accelerating its digital transformation was the one best option if it wanted to strengthen its connection with its customers through individually tailored content. It launched several new digital platforms including SNKRS app and NikePlus. 

The company relies on AWS to provide personalized apps, better features, up-to-date content and responsive shopping experience for its customers. Nike Retail has leveraged AWS to provide seamless, channel-agnostic consumer journeys that enable speed, stability, and scale to the business. These innovations are part of Nike’s most innovative retail concepts, like Nike’s House of Innovation where consumers can use the Nike app on their own devices to do self-checkout and more.  

NIKE Engineering.