When founder Phil Knight began selling shoes from the back of his Plymouth Valiant in 1964, few (including Knight himself) could have predicted the meteoric rise of Nike over the ensuing decades. The sports apparel and equipment company’s brand alone is worth around $30.44 billion, which by some estimates makes it the most valuable in the world.
Price
Nike uses a mixture of value and premium-based pricing for its products. Value-based pricing means the company considers the current market conditions when determining how to price its products.
In other words, what price are Nike customers ultimately willing to pay?
While Nike has multiple competitors, some consumers are willing to pay more for Nike products because of the perceived value of the brand.
Premium-based pricing is also used by the company to recoup costs associated with research and development or where products have been endorsed by celebrities or sports stars.
Here, Nike uses the same brand equity to charge premium prices for certain products, with some products part of a limited edition or collectible series that appeal to fans.
Product
In the early days of the company, Nike’s running shoes addressed needs for athletes which until that point had not been met by any other company.
Over the years, Nike has leveraged its innovative success to offer apparel and equipment for other sports such as basketball, tennis, football, cricket, and baseball.
However, it also continues to draw on its history of research and innovation to improve its core shoe range.
Today, Nike offers products for men, women, and children and is constantly adding new products to its mix via superior design, innovation, and material sourcing.
The company has also added new products via several acquisitions, including Converse, Hurley, and Cole Haan.
Place
Nike operates over 1,000 branded retail stores around the world, with thousands more stocking its products.
The reason for its significant bricks-and-mortar presence is obvious: Nike sells many products that benefit from being tried-on before purchase.
However, this is not to say that Nike has neglected eCommerce.
While some consumers enjoy the experience of visiting a physical Nike store, others are more than content ordering their products online.
To solve the problem of an individual ordering the wrong size shoes from its store, the company introduced Nike Fit.
This is a feature within the Nike app that uses data science, machine learning, artificial intelligence, and recommendation algorithms to provide a complete and accurate measurement of both feet.
Promotion
To some extent, Nike’s brand equity means many of its products do not need to be promoted in order to sell.
Nevertheless, the company is an astute employer of high-profile sponsorships and endorsements with sports figures such as Michael Jordan, Tiger Woods, Lebron James, Serena Williams, and Rafael Nadal, among others.
The company also performs direct marketing in conjunction with schools, universities, sports organizations, and local sports teams.
Nike’s “Just Do It” campaign is one example of the company’s marketing ability.
Launched in 1988, the campaign has become the de facto slogan of Nike because it inspired positive emotions in consumers and resonated with their values and desires.
Key takeaways:
Nike uses a mixture of value and premium-based pricing for its products. High brand equity means the company can charge higher prices than competitors to boost profits or recoup R&D costs.
Nike’s original product was a running shoe that met the needs of athletes at a time when no such product existed. Today, the company has leveraged its heritage and expertise to branch out into other sports and associated apparel and equipment.
Nike uses sponsorships and celebrity endorsements to promote its products to younger generations of consumers on social media and at related events at schools, universities, and sports organizations. The company has also found a way to sell its shoes and apparel online with technology that provides accurate sizing.
The Knight family owns Nike. Indeed, the top individual shareholder is Travis A. Knight, son of Philip Knight, co-founder of Nike, with a 7% stake in Class A stocks and a 2.7% stake in Class B stocks. On the other hand, the Knight family also controls the company tightly through their Trusts and an LLC called Swoosh (the Nike logo’s shape is a “swoosh”). Through individual shares, Swoosh LLC, and Travis Knight’s irrevocable trust, the Knight family controls over 97.1% of Class A and 21.4% of Class B stocks.
Nike follows a wholesale strategy combined with a very strong direct distribution. The company makes money primarily from footwear. As of 2022, over 62% of revenues came from footwear and 29% from apparel. The most successful Nike brand is the Jordan Brand, which in 2022 generated $5.2 billion in revenue. Nike is the master of demand creation and generation through its influencer campaigns, where athletes become an inspiration for everyday people.
Nike leverages both a wholesale and direct distributionstrategy. Indeed, while still in 2022, most sales come from wholesale distribution, in reality, since 2020, Nike has been ramping up its direct distribution through its NIKE stores and e-commerce platform (SNKRS).
Nike generated most of its revenue from footwear. Indeed, in 2022, Nike generated over $29 billion in revenue from footwear, over $13.5 billion in apparel, $2.35 billion in equipment, and over $1.6 billion from the Converse brand.
Nike generated over $47.7 billion in revenue and over $6 billion in net profits in 2022, compared to over $44.5 billion in revenue and almost $5.8 billion in 2021.
Nike’s vision is “To bring inspiration and innovation to every athlete in the world.” At the same time, its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sports innovations, by making our products more sustainably, by building a creative and diverse global team, and by making a positive impact in communities where we live and work.”
Jordan follows a demand generation businessmodel, where its iconic brand works as a propeller for the sale of its footwear and apparel, that in 2022 generated more than $5 billion in revenue for Nike or more than 10% of its total revenue.
Converse is an independent brand part of Nike’s family of brands. Indeed, Converse generated $2.35 billion in revenue in 2022. And like Nike, it follows an heave Wholesale distributionstrategy, where most of its sales are made, through footwear. However, Converse follows also a direct distribution approach where it sells directly via its monobrand stores.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
