Nike is the world’s largest sports apparel and shoe manufacturing company with subsidiaries in multiple countries in Asia, Europe, Australia, and Africa (SEC, 2022). While the success of the company may be construed to mean the company has had an easy ride to the top, the opposite is true. Nike was founded by athlete Phillip Knight and his coach named Bill Bowerman in 1964 (Gao et al., 2022). At the time, Phillip was a track and field athlete and the company made money by distributing sporting shoes made by a Japanese shoemaker named Onitsuka. However, a falling out with the company gave Nike the impetus it needed to innovate, manufacture, and distribute its products (Eyada, 2020). Even then, the company’s sales were still low because it had to compete with giants such as Adidas and Puma which were well-established and their brand names were well-known in the sports industry. A year after launching its first products, the company adopted its signature name “Nike” as its official trading name and developed the iconic swoosh trademark which is synonymous with all Nike products.
To penetrate the market and improves its sales, Nike adopted a strategy of endorsing young and promising athletes who would then wear Nike products exclusively. This strategy was an instant hit in the market as the company generated sales of over 1$ billion in the first year of implanting this strategy (Eyada, 2020). By the third year, the company’s profits quadrupled setting the stage for one of the most rapid profit growth rates. The strategy of co-opting young and promising athletes into the company’s marketing facilitated the company’s brand awareness, visibility, and popularity efforts so much so that the company still uses this strategy in its marketing efforts today (Gao et al., 2022). Nike has also recently incorporated some of the most widely known celebrities such as Beyonce Knowles in its marketing efforts (Gao et al., 2022). However, while these efforts often pay off for the company no single effort has surpassed a partnership with Michal Jordan entered in 1984.
The partnership between Michael Jordan and Nike started as an endorsement of a young and upcoming artist but evolved over the years. Michael Jeffrey Jordan’s incredible basketball career propelled Nike’s sales revenues and profitability to levels that would have been unimaginable when the founders were building the company. By 1991, Nike had sales revenue of more than $3 billion which was previously unheard of for a sports apparel and shoe manufacturing company (Wu, 2022). In the fiscal year 2022, the company’s revenues exceeded $46 billion for the first time in the history of the company (SEC, 2022). These revenues are full by among other products, the Air Jordan brand. Air Jordans can be credited with transforming the sneakers industry and creating a sub-culture that served Nike well into the 2000s. Initially, Air Jordans were positioned as performance shoes because of the perception by some consumers that wearing the shoe would make them faster, stronger, or enable them to jump higher. Like any good company, Nike was there to take advantage of the situation and sell Air Jordans to consumer athletes.
Over the years and as Air Jordans gained in popularity among the youths in many parts of the world, Nike switched its approach to their manufacturing. Instead of producing millions of Air Jordans each year, the company reduced the numbers produced each year and hiked their prices. This strategy did not hurt the company despite the emergence of a resale market. Instead, the company is making more money now than it ever did. For example, in the fiscal year ended 2022, the Jordan brand generated $5.122 billion in revenues against total sales revenues of $36.151 billion representing more than 14% of the total sales (SEC, 2022). Air Jordan’s popularity to this day is so high that an entire year’s production is sold in a single day and the company has to release new Jordans each year. Air Jordan as a brand is known throughout the world for its success in inspiring shoe companies to come up with their brands of sneakers. However, Air Jordan has a core market that hinders any attempt to dislodge Nike in the sneakers market and will ensure the company’s profitability in the foreseeable future.
Innovation and particular attention to its core market have sustained Nike’s sales for most of its life. The company’s growth and marketing strategies are co-joined at the hip by Nike’s focus on innovation. It is the spirit of innovation that allowed Nike to come up with AirJordan and is propelling the company to come up with new products each year. The company has received several recognitions for its innovative spirit and commits billions of dollars each year for research and development. For example, the company’s operating overhead which includes money spent on research and development for the fiscal year 2022 amounted to $10.95 billion (SEC, 2022). This was an increase of $1 billion compared to the previous year. In addition, the company utilizes its highly professional and qualified staff and research committees composed of athletes, equipment managers, coaches, and other stakeholders in the sports industry. The essence of incorporating as many stakeholders as possible is to ensure that the product is well received by the market when it is finally unveiled. The outside stakeholders also serve as ambassadors and wellwishers who spread the good of the company helping gain more loyal customers.
As the Air Jordan marketing story has revealed, Nike first identifies its target market coupled with the sponsorship of athletes and celebrities to market its products. The company does this with all its products and has perfected this process over the years. Endorsements, partnerships, and sponsorships are the major tools that Nike has used over the years and continues to use in its effort to win more customers and maintain its existing customers (Eyada, 2020). These celebrities and athletes participate in marketing activities such as the famous #Believe in more campaign or #Just do it campaign that attracts global audiences. Such powerful campaigns raise issues pertinent to society and increase global reach and Nike brand awareness (Wu, 2022). The campaigns and advertisements that ensue consume material and financial resources and require a multimedia approach to be successful. Over the years, Nike has perfected this marketing approach where they first make a powerful advert for a company which is then distributed to traditional and social media before embarking on campaigns that last several months.
Over the years of implementing essentially the same advertising strategy, Nike has drawn valuable lessons which have increased the effectiveness of its marketing messages on its target audience. Additionally, most of the company’s campaigns have shifted from traditional media to social media. This shift to social media has enabled the company to reduce the money spent on marketing and advertising while at the same time enabling the company to reach a wider audience and potential customers. For example, the “Play New” campaign by Nike in 2021 was lauded for its honesty and effort to challenge the company’s customers. The most unique thing about the 2021 campaign was its use of regular people rather than famous athletes and celebrities. The campaign’s theme also emphasized failing rather the concurring and winning. This way, the message resonated with the company’s target audience. Thus, while Nike essentially does the same campaign each year, they have learned to capture their audience’s attention every time making their messaging effective.
This section will utilize Nike’s annual financial statements for the period ending May 31, 2022. As a publicly traded company, Nike files an annual SEC-10K form at the end of each fiscal year that captures financial and other information about the company for the ending year. Particular attention will be paid to money paid during the year for sales and marketing, research and development, and the resulting sales figures. For the fiscal year ending 2022, Nike’s revenues stood at $46.71 billion (SEC, 2022). This was a year-on-year growth of $2.172 billion compared to 2021 when the company’s revenues stood at $44,538 (SEC, 2022). Revenues in 2021 grew by $7.135 compared to 2020 revenues of $37.403 billion (SEC, 2022). This disparity between the growth registered in 2021 and 2022 was because of the pandemic. In 2020, sports were essentially banned to limit the spread of the virus. This affected sales in that year but a rebound and stabilization of the market occurred in 2021 and 2022 respectively. With the resumption of all sporting activities, the company is likely to continue on its growth trajectory as it continues to sell to its major customers and reach new ones through a robust marketing strategy.
Nike’s massive sales represent the company’s efforts of making sure that the company is popular, has more visibility, and is reputable in the eyes of its customers. This entails committing massive amounts of money to sales, marketing, and administration. For example, the company incurred $14.804 billion, $13.025 billion, and $13.126 billion in sales and administrative costs in 2022, 2021, and 2020 (SEC, 2022). The sales and administrative costs represent 31.69%, 29.24%, and 35.09% of revenues generated by the company (see Table 1). Generally, Nike spends as much as 30% of its sales revenues on sales and administrative costs. For a company will tens of billions in sales, this is an enormous amount.
Table1: Sales and administrative costs as a percentage of total revenues (See Appendix 1)
Other than the sales and administrative costs, the company also incurs heavy costs on an expense they have dubbed as demand creation expense on the company’s annual financial statements. For example, in 2022, 2021, and 2020, the demand creation expense amounted to 3.85 billion, 3.114 billion, and 3.592 billion respectively (SEC, 2022). According to the company’s notes in the financial statements, these expenses include advertising and promotion costs. These costs include money paid to athletes and celebrities for endorsement contracts and money paid to traditional and social media for advertising and retail brand representation. Combined with the sales and administrative costs, this means that Nike spends as much as a third of its revenues to generate revenues. This also means that Nike is able to adequately fund its marketing campaigns and other marketing initiatives to enable the company to reach more people, increase brand visibility, and out-compete competitors.
As a major manufacturing company that uses huge amounts of plastic, Nike and other companies in other industries have been under pressure to find alternatives to plastics and chemicals that pollute the environment. As a responsive partner, Nike responded by increasing its research and development funding to find alternatives to plastic. The company has also made major commitments to reduce greenhouse gas emissions and transform into a net zero company soon. The company’s financial statements provide information on research and development funding which is classified as an operating overhead expense. According to the 2022 financial statements, Nike’s operating overhead expense amounted to $10.584 billion. In 2021 and 2020, the figures were $9.991 billion and $9.534 billion respectively (SEC, 2022). These huge amounts in this category of expenses, underscore the company’s commitment to be innovative and respond to issues with its products by reducing their harmful effects.
Nike’s marketing strategy involves the identification of a target audience, designing an appropriate product for the market, endorsement of the product by a celebrity or athlete, and conducting a multimedia campaign to introduce the product to the market. This marketing approach has served the company well leading to the success of brands such as Air Jordan which contributed a significant amount to the company’s revenues. In addition, Nike spends about a third of the company’s annual revenues to fund marketing, sales, and research and development efforts. This allows the company to stay ahead of its major competitors such as Puma, Adidas, and others. By using the same approach and strategies to market its products, Nike has mastered how to capture its audience with great effect as can be seen by its ever-increasing revenues which have risen more than ten folds since the beginning of the 21st century. Nike outcompetes and outsells all of its competitors despite being relatively younger in the industry due to its focus on innovation and a marketing strategy optimized and well-funded to realize the maximum gains.
Reference List
Eyada, B. (2020) “Brand activism, the relation, and impact on consumer perception: A case study on Nike advertising,” International Journal of Marketing Studies, 12(4), pp. 30–46.
Gao, X. et al. (2022) “Cross-cultural advertising marketing strategies of multinational companies — Nike for example,” Journal of Economics, Business and Management, 10(2), pp. 133–139.
SEC. (2022) SEC-10K Form – Nike 2022 Annual Financial Statements.
Wu, G. (2022) “The brand analysis of Nike based on its emotional branding and marketing strategies,” BCP Business & Management, 19, pp. 278–284.
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