Trigger ID: 101120

PUNE

Case Study

Nike Getting Into Subsidiary Brands – Will It Work?

By

Ms. Aakruti Mulye

Research Associate

ICFAI Business School, Pune

aakrutimulye@gmail.com
 Nike Getting Into Subsidiary Brands – Will It Work?

“We‟re fundamentally changing the way we organize the company. Nike is as hungry and as driven as
we've ever been before and becoming more focused and more competitive.”1
Mark Parker, CEO, Nike.

Nike Inc., based near Beaverton, Oregon, US, is the world's leading designer, marketer and distributor of
athletic footwear, apparel, equipment and accessories for a variety of sports and fitness activities. More
than half of the revenue in the company comes from international sales from more than 160 countries.
Primarily a wholesaler, Nike also operates approximately 400 retail stores domestically and abroad.

Nike has maintained a firm place in the market for many years and has an iconic brand image. Nike‟s
subsidiaries have also shown promising results from the past few years and as a part of growth strategy
Nike in 2006 has stared concentrating on its subsidiary business also. It remains to be seen how Nike‟s
subsidiaries impact on the brand.

Nike over the years

Established in 1958, Nike Inc. was then called Blue Ribbon Sports (BRS) and was an importer and
distributor of Japanese specialty running shoes. It was started by Phil Knight, an athlete, and his coach Bill
Bowerman who played a key role in the company‟s growth. Realising the need for good quality running
shoes, in 1964 they signed a contract with a Japanese shoe manufacturer to produce „Tiger‟, a low-cost,
high quality shoe. By the end of 1965 the company had made a profit of $3,240 by selling shoes worth
$20,000.2 Knight and Bowerman decided to build a distinctive brand image for their company. In 1971, they
hired Carolyn Davidson, a student from Portland State University for $35, to create the Nike symbol of
„Swoosh‟. In the same year, the company was renamed as Nike. The name Nike was inspired by ancient
Greek goddess of victory. The name helped Nike build a strong association and image in its advertising
campaigns. It represented a symbol of the winged goddess of victory and is the most recognisable symbol
among sports wear manufacturing companies. The company launched the first Nike shoes, „Moon‟ in the
1972 U.S. Olympic trials in Eugene, Oregon. The shoe featured the Waffle outsole which revolutionised
running by offering better traction in a lighter weight, more durable shoe. The company also capitalised by
publicising that the Nike shoes were worn by „four of the top seven finishers‟.

Nike‟s sale grew from $10 million to $270 million during the early 1970s.3 The company‟s innovative
products and product durabilty became a major growth driver. As the market for running shoes expanded,
the company improved its line of running shoes which helped it to become a leading player in the industry.
In the early 1980s, Nike replaced Adidas as the leading athletic shoe company in the US.4 In 1985, Nike‟s
US revenues dropped to $730 million, by 6% from the year 1983 as the jogging craze subsided and the
market for fashion-oriented aerobics shoes gained momentum.5

1 Holmes Stanley, “Can Nike Do It?”,

http://www.businessweek.com/bwdaily/dnflash/content/feb2007/db20070206_233170.htm, February 7th 2007
2 Verma Mridu, “Nike’s Tryst with Succession Strategy”(Case Study), Icfai Business School, 2006, page 3 (Ref No. 406-058-

1)
3 Ibid
4 Ibid.
5 Ibid.
As a result, Phil Knight took some steps to build Nike‟s leadership in the industry. Customer centric
approach to product innovation was adopted which improved Nike‟s position in the market in the late 1980s.
Nike launched new brands like Air Jordan, Cross-Trainer, Air Pressure, and Aqua Sock during late 1980s.
The company also expanded its product portfolio to include fashionable merchandise. Nike acquired Cole-
Haan Accessories Company, a distributor of premium quality belts, braces, and small leather goods, and
owner of several popular brands like Country, Sporting, Classic, Bragano, and Cole-Haan for $64 million in
1990.6 Nike introduced Tensile Air, a dress shoe with the Nike air-cushioning system in 1990. Nike
expanded its customer base by transforming the technology and design of its high performance sports gear
into high fashion. By acquiring Tetra Plastic Inc. in 1991 and Sports Specialties Inc. in 1993, Nike became
the world‟s first sports goods company to surpass sales of $3 billion.7 The company started the concept of
Nike Town a retail store format. The first Nike Town was opened in Portland, Oregon in early 1990s. The
concept provides a sports retail experience with approximately 20,000 sq. ft. of athlete-driven design. The
company surpassed its competitors Reebok and Adidas and controlled 40% of the US footwear market in
1995 and the revenue climbed to $ 4762 million.8

But by 2000, Nike‟s revenues dropped to $9 billion.8 Nike was unable to identify the shift of trend from white-
shoe, athletic to urban, brown-shoe. Teenage buyers shifted to casual leather shoes and hiking boots from
Nike Air Jordan. The company also neglected the „kill-zone‟ of $60-to-$90-a-pair that accounted for most
domestic sales. As an aftermath, Phil Knight restructured the management and the new team emphasised
on controlling expenses, overhauling its supply-chain which enabled the company in reducing the lead time
between designing and launching a new product in the market. At the same time Nike also strengthened its
overseas markets and emerged as a market leader. Nike started managing its other business more
effectively and added more brands to its portfolio as a part of its growth strategy. From 2001-2004, the
group‟s sale grew by 51% to reach $1.4 billion9. The company also focused on the purchase of
complimentary brands as it reduced its dependence on the shoes market and helped the company to
perform consistently. In the year 2003-2004, the company reported a profit of $1 billion and a turnover of
$12.3 billion.10

Nike projected its products as high performance shoes designed with high technology features. Its products
cater to men and women aged between 18 and 34 years. In its early years, Nike mainly advertised through
cooperative arrangements with retailers who inserted ads in local newspapers. But the ads did not help Nike
in enhancing its image as a quality shoe manufacturer among general consumers. However, in 1976 Nike
hired an advertising agency, Weiden and Kennedy, based in Portland, which came up with the tagline:
“Keeping your feet in touch with what‟s new.”11 The print ads mainly occupied the back cover of sports
magazines and were ineffective in communicating company‟s product quality and design innovation. Weiden
and Kennedy an advertising agency later developed ads that emphasised on the technical advantage of the
product and Nike positioned itself as a brand for serious athletes. The products were purchased by
Recreational runners, sportsmen and women, as they were comfortable and projected the knowledge of
buyers in a particular sport.

Nike has collaborated with a number of celebrity athletes and professional teams to focus attention on their
products as well as for product innovation. Nike has always promoted its products by sponsorship
agreements with celebrity athletes, professional teams and college athletic teams. Nike has signed top

6 “Nike’s Tryst with Succession Strategy” op.cit., page 4

7 Ibid.
8 Ibid.
8 Ibid.
9 Ibid. page 6
10 Ibid.
11 Khan Arun, “ Nike: Evolution of marketing strategy”(Case Study), Icfai Knowledge Center, 2005, page 8 (Ref. No. 505-

016-1)
athletes in many different sports such as the Brazilian Soccer Team, pro-basketball players like Michael
Jordan, Lebron James, Jermaine O'Neal, Kobe Bryant and Vince Carter, cyclist Lance Armstrong,
skateboarder Paul Rodriguez Jr., golfer Tiger Woods and motor sport racer Felipe Massa and Michael
Schumacher. It also included tennis celebrities like Pete Sampras, Andre Agassi, Jim Courier, Roger
Federer, Rafael Nadal, John McEnroe and Maria Sharapova as well as football (soccer) players like Bo
Jackson, Cristiano, Ronaldo, Wayne Rooney, Robinho, and Ronaldinho. One of the most rewarding
endorsement contracts was that of Michael Jordan to market the „Air Jordan‟ basketball shoe. The contract
with Michael Jordan helped Nike achieve new heights in the athletic footwear market. Nike also used Bo
Jackson in cross-training advertisements. Nike offered Agassi a beneficial contract to endorse the
company‟s athletic shoes and apparel, including the „Challenge Court‟tennis shoe. The positioning of Nike
was based on real sporting credentials. They aimed at „in the Know‟ consumers and were a stylish piece of
communication rather than a sales pitch. Nike believed in its knowledgeable consumers and projected an
athletic spirit, which was inline with the preference of Nike‟s customer. Nike signed a contract with Bo
Jackson in a series of successful humorous ads with the theme “Bo Knows”12.

Rather than detailed market research, Nike depended more on intuition to understand its consumers. During
professional and college sporting events, prime time programs and late night programs, Nike inserted TV
ads to reach a broad range of consumers. Nike also used Sports Illustrated, People, Runner’s World,
Glamour, Self, Tennis, Money, Bicycling and Weight Watchers, as advertising modes in print form. Nike has
been one of the organisations which have come up with eye-catching campaigns as is visible from a
commercial which showed Michael Jordan soaring through the air on the way to dunking the ball, with the
tagline „Who says man was not meant to fly?‟ and was one of the most popular posters. One of the most
successful ad campaign ever launched by Nike was „Just Do It‟ and was named fourth best ad campaign of
the century by Advertising Age13. The first „Just Do It‟ ad illustrated Craig Blanchette, wheelchair racer and
the slogan in white letters on a black background. The ad didn‟t speak the tagline but connected well with
men, women, busy executives, and people of all types who had unfulfilled dreams. The slogan represented
the key ingredient –determination, which is needed for reaching a desired mark in their sporting activities. It
enunciated victory, which was also the part of the brand image and corporate culture at Nike. It symbolised
the persistence to achieve which was one of the essential parts of American culture.

Nike also built successful relations and brand loyalty by licensing its gear to college sports teams. University
of Miami, Pennsylvania State University, University of Michigan, and the University of Nevada- Las Vegas
are few of the institutions sponsored by Nike. Nike registers its presence in many countries through its
products and controls about one-third of the global footwear market. The Group manages distribution of its
products through 21 centers situated in Europe, Asia, Australia, Latin America, Africa and Canada. Nike
used four main growth strategies namely market penetration, development Strategy, market development
strategy - implemented globalization, diversification strategy. Nike also sells its line of dress, casual
apparels and accessory through subsidiary brands.

Nike's products are mainly premium priced and the company uses extensive advertising to price its brand
higher than competitor‟s products. Nike offered products for a wide range of sports and thus faced
competition from every sports and sports fashion brand. Main competitors include Adidas14, Reebok15 and

12 “Nike: Evolution of marketing strategy”, op.cit., page 9

13 Advertising Age is a magazine, delivering news, analysis and data on marketing and media and started as a broadsheet
newspaper in Chicago in 1930.
14 Adidas, the second largest sportswear manufacturer in the world is a German company. The company revenue for 2005

was at €6.6 billion, or about US $8.4 billion and that for 2006 was listed at €10.084 billion, or about $13.625 billion.
15 Reebok International Limited is a British producer of athletic footwear, apparel, and accessories and is a subsidiary of

Adidas AG. Reebok surged in popularity in 1982 after the introduction of the Freestyle athletic shoe, which was specifically
designed for women and came out when the aerobics fitness craze started.
Puma16 apart from Jones Apparel Group17, Brown Shoe Company18, Timberland Company19, Wolverine
World Wide20 and Sketchers USA21 (Exhibits I(a), I(b), I(c), I(d) and I(e)). In 2004, Adidas had just 9% of
market share in the athletic shoe sales in the US, whereas Nike had 40%, market share that constituted half
of all the athletic shoes sold in the entire world.22 In the start of 2006, it was found that consumers were
migrating from casual athletic sneakers to more fashionable sneakers and also were shifting to low cost
shoes. Consequently, the shoe giant faced slower sales growth and its profits declined in two consecutive
quarters in 2006.

But by 2006, Nike had achieved a status of world leader in the design, distribution and marketing of athletic
footwear. The company offered products to facilitate tennis, golf, soccer, baseball, football, bicycling,
volleyball, wrestling, cheerleading, aquatic activities, hiking and other athletic and recreational uses. Nike‟s
wholly owned subsidiaries included Converse Inc., which designs, markets and distributes athletic footwear,
apparel and accessories; NIKE Bauer Hockey Inc., a leading designer and distributor of hockey equipment;
Cole Haan, which designs, markets, and distributes fine dress and casual shoes and accessories; Hurley
International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel
and accessories and Exeter Brands Group LLC, which designs and markets athletic footwear and apparel
for the value retail channel. The company‟s leading brands in footwear and accessory included Cole Haan,
Jordan, Converse, Starter, Bauer, and Hurley.

16 Puma is the third largest sportswear manufacturer in the world behind Nike and Adidas. The company also offers lines
shoes and sports clothing. Puma AG Rudolf Dassler Sport is a large German-based multinational company and is best
known for its soccer shoes.
17 Jones Apparel Group, Inc., is an American designer, marketer and wholesaler of branded clothing, shoes and

accessories and was founded by Sidney Kimmel

18 Brown Shoe Company is a footwear company that owns a variety of popular footwear brands in the United States and

Canada.
19 Timberland Company, also known as Timbs is a trademark for a number of lines of outdoors wear, primarily boots

designed for hiking and mountain climbing.

20 Wolverine World Wide is a footwear manufacturer. They have their own brand, Wolverine Boots and Shoes, and also

make footwear for other companies, such as Caterpillar and Harley-Davidson. Wolverine also makes shoes and boots for
the military. The company is based in Rockford, Michigan, a town in north suburban Grand Rapids.
21 Sketchers USA is an American shoe company headquartered in Manhattan Beach, California, founded by LA Gear shoe

company founder Robert Greenberg.

22 McCall William, “Adidas-Reebok Deal Poses Challenge to Nike”, http://www.sfgate.com/cgi-

bin/article.cgi?f=/n/a/2006/01/25/financial/f123838S18.DTL&hw=nike&sn=001&sc=1000, January 25th 2006

 Exhibit I(a)
Company Wise Market Share in the Year 2004

Source: Eberhart Ryan, et al., “Impossible Is Nothing: A Look at How the

Adidas – Reebok Merger Will Achieve Sustainable Competitive Advantage
over Nike”,
oak.cats.ohiou.edu/~sp277403/esp/cluster_project_1_report.doc,
September 20th 2005

Exhibit I(b)
Price Point wise Market Share of Reebok and Nike in the year 2004

Source: Eberhart Ryan, et al., “Impossible Is Nothing: A Look at How the Adidas – Reebok Merger Will Achieve
Sustainable Competitive Advantage over Nike”, oak.cats.ohiou.edu/~sp277403/esp/cluster_project_1_report.doc,
September 20th 2005