INTERNET MARKETING STARTEGY OF NIKE

Description
INTERNET MARKETING STARTEGY OF NIKE

Internet Marketing Strategy: Nike Corporation Andrew Olsen University of Maryland University College

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Executive Summary The purpose of this paper is to develop an Internet marketing strategy for Nike and its sneakers. I will give a brief history of Nike and then elaborate on its dominant market share. This section will also discuss Nike’s footwear and what makes Nike, Nike. Nike’s target market is far-reaching, yet very specific. The average age of a Nike consumer is 25, but they have been concentrating more on the teen market because of the growth potential. This paper will provide proof to why this is and elaborate on its other demographics, such as its adult and female market. This paper will touch on Nike's business model and its various pricing strategies, such as premium pricing, target-costing/pricing and dual pricing and why it uses these strategies. Then I will discuss the only payment mechanism at Nike’s online stores. Nike has a very extensive and complex value chain system. It has to monitor the distribution of its footwear from its production centers in Asia to their main distribution centers in the US and Europe. From there they have to ship their products to all of their retailers. In this paper I will explain how Nike does this and how it handles the logistics of a complicated distribution system. Nike is no stranger to promoting its products. It shells out about $1 billion a year on creating demand for its products through marketing. Nike has never been one to use traditional online promotions and I will explain why that is and why Nike has used sophisticated, unique and interactive ways to promote its footwear online. Finally, I elaborate on Nike’s potential sales over the next three years, which appear to be very good, and determine the viability of Nike’s market strategy for promoting and advertising Nike’s footwear on its online stores.

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Company and Product Overview Nike has a storied history that goes back to a long-lived business partnership between Bill Bowerman and Phil Knight that began all the way back in 1962 when the two opened Blue Ribbon Sports (BRS). In 1972 BRS changed its name to Nike, which is named for the Greek winged goddess of victory. (Further history: see Exhibit 1 & 2) The Nike Corporation went public in 1981, and in its first year as a public company, it led the industry and was sold in more than forty countries worldwide. It has evolved from a traditional brick and mortar company to a click and mortar company, as a number of other companies have also done. Nike employs 22,000 people worldwide, and including the manufacturers, shippers, retailers and service providers, nearly 1 million people help bring Nike to “athletes” everywhere (www.NikeBiz.com). Nike is primarily engaged in the design, development and worldwide marketing of footwear, apparel, equipment and accessory products. They sell athletic footwear and apparel worldwide. Nike sells its products to approximately 18,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries in approximately 140 countries worldwide (Nike, Inc. profile). Each month, Nike will assess the factory's performance and licenses may be withdrawn if something goes wrong or gets a poor assessment. Nike will also assist its subcontractors in finding better production sites. In addition, Nike operates Niketown shoe and sportswear stores and has opened two Nikegoddess stores, which caters to women. Nike does not have a single sneaker factory in the U.S. because independent contractors manufacture virtually all of its products. All footwear products are produced outside the U.S., while apparel products

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are produced both in and out of the United States. At the moment, Indonesia is Nike's biggest production center, with about 17 footwear factories that employ 90,000 workers and produce about 7 million pairs of shoes each month (www.NikeBiz.com). The athletic shoe industry is one of the largest markets in the U.S. today and Nike’s largest concentration is on the sneaker market itself. They also sell all kinds of athletic apparel and equipment, from warm-up pants to soccer balls and football pads. The three major corporations that dominate the industry are Nike, Reebok, and Adidas. Nike controls roughly 40% of the entire market, while Reebok maintains about 12%, and Adidas owns about 10% (Herzog, 2003). Its market share is more than Reebok and Adidas’s market share combined. (Exhibit 4) There are many other competitors such as New Balance, Puma, Champion, and Fila, but these companies do not run the market like the big three. They just own much smaller segments. (Exhibit 5) Nike is the world’s most popular brand, hence making it the world's top shoe company. The $10 billion company still has just over 39% of the U.S. athletic footwear market and sold six of the top 10 styles in 2002 (McCarthy, 2003). (Exhibit 6) The Company's athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. Nike designs and sells shoes for a variety of sports, including baseball, cheerleading, golf, volleyball, wrestling, and so forth. (Exhibit 3 & *) They also sell Cole Haan dress and casual shoes and a line of athletic apparel and equipment. Almost every American has at least one or two pairs of Nike shoes, which is due directly to the quality and popularity of the sneakers they sell. It is those sneakers that

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have been its foundation and they have been Nike’s money makers. Nike may have diversified its product line, but it will always be associated the shoe industry. Nike has been able to remain a dominant market player for a majority of their existence because of their innovative technology and diverse and ever changing product line. They also have a reputation for fancy footwork, especially in the arena of marketing. Nike is not only the biggest producer of sports shoes, but also spends the largest amount of money on advertising and promotion. It was Michael Jordan, a fivetime MVP, whose endorsement of Nike and their marketing of the superstar that helped turn the company into the industry's dominant maker of athletic shoes and apparel. Now, Nike is hoping that the endorsements of LeBron James, Kobe Bryant (Exhibit 9), and other international stars like Ronaldo and the Brazilian Nationals will continue its dominance as a maker of athletic shoes and apparel. Nike's presence in soccer, which is the world's biggest sport, became stronger after entering into new partnerships with top European club teams such as FC Barcelona and Inter-Milan. During the 1998 World Cup, six teams: Brazil, Holland, Italy, Nigeria, South Korea, and the United States, competed in uniforms designed by Nike. Furthermore, in 1999 Nike negotiated a new contract with the Dutch soccer association, KNVB, and the Dutch team will be playing with the Nike swoosh on their uniforms until 2006. Nike shoes have become the gold standard of sports. The Nike swoosh has been omni present on sports products and in many sports venues and will continue to be for years to come. Its Swoosh trademark is as recognizable as the Stars and Stripes and may be better known than the McDonalds’ Golden Arches or even Jell-O (Reilly, 1997).

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Sneakers are not a necessity, but they are not a luxury either. Almost everyone has at least two pairs of sneakers, but the only possible difference would be the brand of the sneakers and one pair is usually Nike. Nike has been able to sustain a competitive advantage since their beginning. They have established their name through advertisements, endorsements, quality, and innovation. What Nike has done is create a link between a solid product and a solid company. Consumers trust the products that Nike Inc. sell. This has been the key to Nike’s success and is one of the main reasons why they are able to charge what can be viewed as very exorbitant prices that they do for their sneakers. However, this is the way Nike sneakers make their revenue. The fact is consumers are not just buying the shoe they are also investing in the label. Target Market Nike has done a remarkable job of positioning itself. They have had to reinvent themselves many times in order to reach its target market. Nike has gone through a running craze when consumers wanted the best running shoe. There was the coming of Michael Jordan where basketball shoes ruled the footwear market. Then athletic urban wear became king when consumers started buy Nike just for a fashion purpose. Nike has been able to create an emotional link with their customers, and more specifically their target market. It is extremely important to clearly define your target market and to think about how the product fits into their life (de Asis, 2002). Nike has been able to do this. Nike considers its customers as any and every athlete and more specifically, they target those who endeavor to do their best in sports. For that reason, Nike markets to those who desire

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to become “champions” in whatever they do. Nike currently sells about 300 models of athletic shoes in 900 styles for 25 different sports (www.Nike.com). (Exhibit 2) Running shoes take the greatest share of consumer spending composing of 29% of the total market (Werth, 2002), while basketball shoes account for 18.3% of total consumer spending for sport shoes (Lenetz, 2002). (Exhibit 8) In addition, in a bold move to continue its market dominance, Nike is spending more marketing dollars on soccer than basketball in a concerted bid to become the No. 1 soccer brand by 2006 (Nike Heats…, 2002). However, Nike also sells more casual shoes to those who do not consider themselves as “die hard” athletes. In its goal to diversify its footwear line, this has given Nike a very broad customer base. (Exhibit 8) Even with its broad customer base, Nike is not really considered a Gen-X or baby boomer brand. The average age of a Nike consumer is 25 and their main target market for their shoes are males and females between 15 and 35 years old. More specifically, Nike concentrates on the fashion-conscious 18- to 24-year-olds with cash to burn (Markiewicz, 2002). Nike has been concentrating more so on the affluent teen demographic. The growth opportunities in the teen market are enormous. Young adults 12-24 represent the fastest growing market segment since the baby boom and are estimated to exceed 40 million by next year (Fusient Media, 2001). In addition, there are currently 56 million boys and girls between the ages of 10 and 24 in the U.S and it is growing 19.5% faster than the overall U.S. population and accounts for more than $250 billion of annual disposable income (Silverstar Holdings…, 2001). There are also more than six million teens involved in sports. Nike understands that there is an extraordinary opportunity exists in this valuable market.

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The teen market is as fickle and bewildering, but teenagers have money and are willing to spend it, whether it is theirs or their parent’s. Teens are spending an average of $135 per month on apparel and related products, an increase of 23% over last spring's $110 total and are looking for more brand names, such as Nike (Teens…, 2002). (Exhibit 10) Over a 30-day period teens shop at a supermarket 5.3 times, at a convenience store 4.7 times and in a mall setting 4.3 times and 36% of teens also claim to have at one time or another purchased something online (teen shopping…, 2002). This is why the emphasis remains on the young. They represent the future life-blood of the market. Even though Nike is concentrating on their younger demographic, they have not forgotten the more steady adult market. Nike likes to stress their shoes' general trendy styling and superior performance in a given sport, which is more important to adult shoppers. Nike is a strong example of a company that markets to both adults and children with equal impact, and without dilution of the brand image. (Baby Steps: 2003). The adult market, specifically baby boomers, are only getting bigger in numbers and are probably the wealthiest component of our society that currently account for nearly 30% of the $15.7 billion in annual sneaker sales, second only to the teen market (Yen, 2003). Nike has also made a dramatic push in recent years at the long forgotten female market. A lot of this is directly due to the fact that spending for women's sports apparel and related products has grown at a greater clip than spending for men's. Women also make about 60% of all sports apparel purchases and the women's category accounts for about 45% of total spending (D'Innocenzio, 2002). In response to these trends, Nike has signed prominent female athletes, such as Sheryl Swoopes and Gabrielle Reece in hopes of attracting more female shoppers. Nike

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has also developed more versatile sneakers because women definitely want a product that looks good, but also has key performance benefits (Buss, 2002). It is looking to meet all the athletic needs the female shopper. Nike has also gone a step further than any other athletic footwear company to attract more female shoppers by opening any all-female store, Nikegoddess. The hope here is to make the retail experience more meaningful to their female demographic while providing a concentrated consumer input and feedback loop. It provides a very intimate setting with a unique look and feel in terms of the environment of the store that is designed to address the needs of the female shopper. Nike will use Nikegoddess as a way of determining how to approach the women's business (D'Innocenzio, 2002). Nike has realized that their brand does not have to exactly represent their target market's description or lifestyle. However, Nike also realized that it must at least be compatible with the company’s target market and it must match their consumer's profile and expectations. Nike has built its brand around star athletes, such as Tiger Woods, Ronaldo, Martina Hingis, and Kobe Bryant, to name a few. However, Nike does not just sell shoes, but an image. It is selling the mythology of sport, and the surrounding philosophy of youth, health, fitness, and the sort of in-your-face rebellion that appeals to the adolescent in all of us. Nike works because their product, icon, and target market are all seamlessly integrated into one ideology. All this has allowed Nike to make their brand more relevant and familiar to their target market. Nike may have a specific target market, but the way Nike has been marketed allows everyone to think of the Nike brand as "my kind of product."

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Pricing Nike's business model is based on the total revenue equation, TR=P*Q, which means that in order for them to make a profit they must maintain high margins while expanding sales. This business model is normally consistent with demand curve pricing, which means that if you raise prices, demand will decrease and vise versa. However, in the case of prestige goods, the demand curve sometimes slopes upward. Some consumers believe that they getting a better shoe at a higher price, but that all depends on the perceived value of the brand, which will be discussed next. Nike practices a premium pricing policy. (Exhibit 11) Prices range on the high end from $200 for a pair of Gary Payton Basketball sneakers to $175 for either a pair of Tiger Woods golf shoes or the new Air Jordans. A pair of women’s running shoes will run you as much as much as $150, $140 for a pair of lifestyle shoes, or $130 for a pair of soccer sneakers. On the low range prices range from $30 for a pair of men’s sandals or $50-$65 for a pair of casual sneakers and $20 for a pair of women’s sandals and $30-$45 for a pair of casual/leisure sneakers. You are not only paying for the “best product,” you are also paying for the Nike brand. (Exhibit 12) Nike is able to charge a premium for its sneakers because of the strength of their brand. Its brand recognition is very high and it has a strong international base. Because Nike is an established premium brand, the pricing strategy should clearly demonstrate the high quality and style of the brand, if the product is to meet the consumers' needs for image and social status. This pricing strategy is based on the consumer's perceptions of value and a strong brand such as Nike usually equals a higher perception of value. A

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strong brand allows you to maintain a certain amount of pricing premium and consumer interest, which is beneficial to the sales and margin growth the product should generate. Nike may have a premium pricing policy and it may be able to do so because it is a premium and established brand, but it is very important to remember that the consumer decides whether a product’s price is right. That is why, pricing decisions are buyer oriented like the other marketing mix decisions. The willingness to pay is the maximum price a customer will pay for a specific product at a certain performance level and the higher the perceived value of a product, such as sneaker, the more the customer is willing to pay for it (Butscher & Laker, 2000). However, effective buyer-oriented pricing involves understanding how much value consumers give to the product and setting a price that fits this value. If consumers perceive that the price is greater than the product’s value, they do not buy the product. In addition, if consumers perceive that the price is below the product’s value, they buy but then the seller loses from its profit opportunities. This is where target-costing/pricing approach becomes very important. (Exhibit 13a&b) Target-costing/pricing approach can help maximize return on products with short life cycles while determining the value consumers give to the product. Nike also incorporates a dual-pricing strategy, which means that after a new sneaker ($90+) is introduced, Nike will sell off the rest of the “old product” at a lower price corresponding to its relative market values. Nike displays its latest shoe models first at premium retailers like Footlocker or Niketown and sells its older shoe models at discounters and outlets (Billington, Lee, & Tang, 1998). Nike’s target-costing approach plays an important role here also because as mentioned earlier, it can help maximize

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return on products with short life cycles while determining the value consumers give to the product. Finally, Nike does not offer a price-matching program because as the manufacturer, they can only suggest a retail-selling price. If Nike were to do so, they would be "price-fixing," which is against business law. A retailer can determine if they want to lower the price for competitiveness and keep in with the selling costs of the current market (www.NikeTown.com). Nike footwear can be bought online from any retailer that has a website. There are a variety of ways a person could pay for their Nike’s online, like online check, debit card, or credit card. At Nike the only payment mechanism that is used is a credit card because it is the safest and most secure way to guarantee payment for the product. It is also a way of protecting the consumer. Nike footwear is available at a number of local retailers so if you do not have a credit card they can be purchased at your local retailer. Purchasing footwear through NikeTown.com or NikeGoddess.com is not necessary it is just another added service Nike provides for purchasing their footwear. Distribution Nike has a very extensive and complex value chain system. Tens of thousands of sneakers get piled onto cargo ships from Asia and sent to distribution centers in the US. Nike is a manufacturer without factories, meaning that they separate the physical production of goods from the design and marketing stages of the production process (Gereffi, 2001). Since all Nike footwear products are produced outside the U.S., Nike has to monitor the distribution of its footwear from its production centers in Indonesia, China, and so forth to their two main distribution centers in the U.S. in Memphis,

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Tennessee and Wilsonville, Oregon. Nike also owns or leases several other U.S. distribution centers. (Exhibit 15) When Nike footwear is shipped from Asia to the Wilsonville, Oregon distribution center is one of the first stops it makes before being sent off to their various retailers. It ships out 26.6 million pairs of footwear each year (www.NikeBiz.com). The Memphis, Tennessee distribution center (Exhibit 16) serves as the other main distribution centers in the U.S. for Nike footwear. It is a major force in the U.S. making sure Nike’s footwear gets to their retailers. Nike operates 19 distribution centers in Europe, Asia, Australia, Latin America and Canada. They have had more distribution centers in the past, but because of EU policies Nike closed around 20 distribution centers throughout Europe and replaced it with a main center in Belgium for all of Europe. (Exhibit 15) Nike markets its products in approximately 140 foreign countries through a number of independent distributors, licensees, subsidiaries and branch offices. It also operates 162 retail outlets outside the U.S., which are comprised of NikeTowns, factory stores, employee stores and Cole Haan stores. In the U.S. Nike sells its products to approximately 18,000 retail accounts, which include main retailers such as Champ's, Eurostar, Finish Line, Footaction, Footlocker, Hibbett's to name a few. Recently, Hibbett cut a deal with Nike that lets the company import goods directly from the Far East instead of going through Nike's distribution center, which cut their freight costs quite a bit (Reeves, 2002). Many of Nike’s retailers also include various department stores and smaller local “athletic stores.” Finally, there are a number of Nike retailers. Nike runs 13 NikeTowns in major cities, over 70 Nike

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Factory Stores featuring healthy discounts on recent inventory and a few Nikegoddess stores. This is not to mention the Nike’s online retailer, www.Nike.com or www.NikeTown.com. Nike has 17 regional sales offices throughout the U.S., which are responsible to taking orders from retailers and maintain inventory. (Exhibit 17) Nike has recognized the importance in monitoring value chains and its distribution is as about as tight as you can make a consumer goods-oriented business. It is actively working with their many logistics vendors. They are incorporating the latest warehouse management software with Nike’s system in order to manage their shipping, inventory, distribution, etc… Toll’s integrated logistics solution has consolidated three Nike distribution centers into one in Altona, Victoria (Rennie, 2002). Last year Menlo customized and staffed Nike’s distribution center in Memphis (Menlo in…, 2002). In addition, Emery Forwarding, which is part of the Menlo Worldwide group, provides Nike with its integrated "QuickSource" logistics program that combines inbound/outbound transportation, storage, inventory management and order fulfillment 24 hours a day, seven days a week. Mallory Distribution Centers (MDC) is the logistics and warehousing arm of The Mallory Group and provides warehouse logistics services, including inspection and packaging for Nike (www.mallorygroup.com). FKI Logistex is the world’s secondlargest materials handling systems company and provides Nike with an automated logistic system for handling parcels and packages, particularly in the overnight courier market (www.fkilogistex.com). Another of Nike’s vendors, Island Pacific, provides them with fully integrated suite of software to manage the entire range of their merchandising

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activities assuring that merchandise desired by customers is in retailers' stores priced competitively (Island Pacific…, 2003). Finally, the UPS Logistics Group has tailored shipping information for Nike’s online retail store www.NikeTown.com. If you place an order for sneakers online from Nike, a UPS Logistics Group company has had its hands all over your order. UPS stores, packs, and ships all goods ordered through the Nike Web site. It stocks shoes and warmups in their warehouse and fulfills orders hourly, loading goods into trucks headed to the hub (Eskew, 2000). Nike prides itself on its ability it effectively and efficiently manage its value chain system. By effectively and efficiently managing its value chain, Nike’s goal is to reduce its cycle time, reduce its inventory costs and lower its overall spending on transportation, and so forth. Nike believes that they have been able to achieve this goal with their various logistics vendors. With its core logistics vendors, Nike has been able to better server all of its consumers by being able to cut costs and improve shipment time and inventory turnover. Satisfied customers and an effective and efficient distribution system is a key aspect of Nike’s marketing strategy. Promotion Nike shells out about $1 billion a year, or a tenth of its annual revenues, on creating demand for its products through marketing (Herzog, 2003). It uses a product oriented advertising campaign meaning Nike is trying to convince the consumer to purchase their product. Nike has been able to develop successful advertising campaigns and effectively market their footwear through the hard work of their many ad agencies. Throughout the years Nike has had many different advertising campaigns, some

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more successful than others, but were always created to reflect public opinion. Some of the major strategies used to achieve this goal are the use of television, magazine/newspaper, and online promotion. (Exhibit 20 & 21) Nike has been successfully using traditional promotion tools since its inception. However, Nike was slow to respond to the e-commerce market and online promotion methods and it did not fully embrace them until well into the new millennium. Nike finally realized that the Internet can leverage and enhance the other vehicles such as media advertising, promotions, sponsorships and publicity (Narisetti, 1998). Nike has never been one to use traditional online promotions. It has not invested much in banner ads or search engines because anyone that knows Nike knows that they also have a website. They do not need to use a search engine to find NikeTown.com or Nike.com. In addition, almost all of their TV ads have their website address on it. Furthermore, Nike products are sold by hundreds of retailers and any number of them can have a website so it is the responsibility of that retailer to promote their site. If you type in Nike in a search engine any number of retailers that sell Nike’s will pop up along with Nike.com and the NikeTown site. Even if you type in Nike sneakers the Nike websites do not even make it into the top 100 search returns. Nike does however, promote their website and use banners on top online malls, such as 24HourMall.com. Because of clutter caused by pop-ups, banner ads and many other online annoyances, Nike has pushed the envelope to develop unusually sophisticated and engaging Web offerings (Elkin, 2003). When Nike first wanted to generate traffic towards its website in 2000, it used the combination of rich media Web advertising, a cliffhanger TV spot, and an engaging e-commerce-enabled site (Jackson, 2001). Part one

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of the advertisement was a normal TV commercial. However, in order to see the conclusion of the commercial, the individual would have to sign on to the Nike website. It was the first time traditional advertising was used to send its viewers directly to the Internet. This not only increased Nike’s already high brand awareness, but also increased website traffic and sales. The fact is the future of online advertising is more about applications than ads because those applications involve the user in new, unique, and most importantly interactive experience (Carton, 2003). An application such as rich media allows you to create so much more of an emotional experience for people compared with a banner ad (Rewick, 2000). By inviting a consumer to participate in something interactive will reward them for their participation, often in the form of more/specific information that matches their needs or some degree of entertainment (Jaffe, 2003). In keeping with the style and philosophy of their TV ads: sports as selfrealization, Nike’s online ads and promotions place a lot of emphasis on athletic potential. They utilize limited video-like images as icons/links to additional pages to showcase their products. Nike called upon several companies for its online branding and advertising solutions. Viewpoint worked directly with Nike to provide a complete rich media solution for an interactive product presentation at the Nike Shox website. Customers were able to look at all of the shoes in the Shox line from any point of view and could also take the shoe apart and examine its separate components (Nike Shox). Traffic to Nike’s online store dramatically increased along with sales. The Nike Shox site received an estimated 540,000 hits and NikeTown.com sold out all three Shox line

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products within 24 hours of their release. They continued to be top sellers daily in the NikeTown with almost 4,000 units sold in the first 4 weeks after launch (Nike Shox). Nike is also actively using Macromedia Flash and Director and Shockwave on its various websites, like NikeBasketball.com. Macromedia, the maker of the popular Flash tool for Web animations, actively works with YaYa, Radius Inc., and Zendo Studios to provide Nike with additional interactive applications on its various websites. Flash is one of the most widely used development applications for Web sites, advertisements and games. YaYa worked with Nike to design a Vince Carter slam-dunk game. The game, which launches from an email sent by Nike to a targeted audience, begins by letting players choose their own shoe color of Nike Shox basketball sneakers (Vitzloff, 2001). Players can then email their high scores to their friends, which they can try to beat. This is email advertisement with an interactive twist. Zendo Studios created the Nike Freestyle Remixer, which is an innovative online entertainment piece featured on NikeBasketball.com. This is an interactive online extension of Nike’s Freestyle TV ad that features pro basketball players and streetballers showing off their hottest ball-handling skills (Chu, 2001). Nike and Zendo have given users the ability to create their own re-mix of the video and send it to their friends via email. The Freestyle Remixer is one of the most-visited features of NikeBasketball.com and it has allowed users to simultaneously create and consume a video experience (“Zendo Studios: 2001). Nike has just used this as another interactive email advertisement. Another important interactive feature that Nike has added to its website is NikeiD.com. NikeiD lets customers design their own shoes. They can select from 1,000

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or more possible design combinations, which are basic style, colors, size and a brief phrase of your own creation that appears on the back of the shoes. Customers can then view their personal designs from a variety of angles, as discussed earlier. Nike spent six months working with suppliers in Asia to rejigger its manufacturing for custom-made sneakers (Keenan, 2002). NikeiD has been able to draw steady traffic and 20% of sneaker sales at the site are customized (Swartz, 2002). This is just another hands-on interactive tool that wraps Nike products in an engaging, relevant brand experience, while also being able to recreate Niketown's intensity and popularity (Fleming & Shiple, 2001). Finally, NikeTown.com provides customers the opportunity to locate a store near them that sells Nike products, if you do not or cannot shop online. The store locator is powered by Vicinity and it provides customers with locations, directions, distance, and contact information to Nike retailers' up to 500 miles of your location. Vicinity has more than 280 clients with an aggregate of more than three million real world store locations (Christopher, 2000). Basically, Nike realizes that different consumers are going to connect with them in different ways and they want the consumer to have a brand experience that's relevant to them (Elkin, 2003). It has been through these interactive and engaging promotions that have helped generate all the traffic and sales on Nike’s websites. Nike was even named Advertiser of the Year at this year’s One Show Interactive (Creative; 2003). (Exhibit 24) Nike has a number of ad agencies, such as Wieden & Kennedy, R/GA and DoubleYou, which have created a number of e-commerce sites for Nike. The uniform mind-set among them has been to resonate with the consumer in as many ways as possible and that has been to through deep interaction with the Nike brand (Taylor,

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2003). Nike is continuing to look for ways to do more with online advertising as a brand communication medium, such as leveraging their TV creative and giving it impact online (Hayes, 2003). They also continue to do a lot more with services and tools that enhance the Nike brand from a value-added service point (Hayes, 2003), which should continue to increase traffic to the Nike sites, while quite possibly increasing sales. Pro Forma Financials The sneaker market is an elastic one and is dependent on the economy and the health of the retail market. As the economy and/or the retail market goes so does the sneaker market. Since consumer confidence and spending is increasing and the economy continues to improve, Nike has great growth potential and should continue its dominance well into the future. Most recently Nike’s sales grew 8% to it over $10 billion mark for the first time. In addition, last year sales grew by almost 7% to just under $9.9 billion. (Exhibit 25) What has made this growth so impressive is that it has come on the heels of the Footlocker Nike feud. This has been a battle that has gone on for over a year and it started when Footlocker cut the number of Nike sneakers priced above $100. In response, Nike cut its sneaker shipments to Footlocker by roughly 40%. Footlocker has been their most profitable strategic alliance, until now. It has and will continue to effect US sales the longer the dispute goes on. However, even though Nike’s US footwear sales have fallen around 1% from last year and by almost 5% since 2001, Nike’s sales have increased significantly because of a greater reliance on non-U.S. markets. (Exhibit 25) Nike is still dependent on the US footwear market and cannot allow this dispute with Footlocker to continue. However, there is still greater growth potential

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internationally and Nike has learned to develop that market since their dispute with Footlocker. If and when this dispute resolves itself, nothing should hinder Nike’s sales potential. Nike spends on average over $1 billion on advertising and promoting their products and three-quarters of that is spent just on their footwear. Advertising production costs are expensed the first time the advertisement is run. TV and print placement costs are expensed in the month the advertising appears. The majority of Nike's promotional expenses result from payments under endorsement contracts. Accounting for endorsement payments is based upon specific contract provisions. Generally, endorsement payments are expensed uniformly over the term of the contract after giving recognition to periodic performance compliance provisions of the contracts. Total advertising and promotion expenses have continued to increase each and every year. They will continue to increase, especially with the recent signing of Lebron James to a $90 million endorsement contract and Kobe Bryant to a $40 million one. Nike has seven of the top ten most expensive endorsement contracts. (Exhibit 9) Nike’s advertising and promotion expenses have increased almost $50 million since 1999. (Exhibit 26) Nike has made a name for itself through its advertising and promotion. It does not hold back when advertising and promoting their products. When expenses need to be cut the advertising and promotion budget is usually left untouched. As was already mention, Nike uses a variety of traditional and Internet advertising and promotion techniques. They are looking to increase the brand identity and consumers value perception. The stronger the brand, the higher the perception of value, which leads to an

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increase in sales. With Nike’s goal to continue to dominate the global athletic product market, they will continue to increase their advertising and promotion budget. It is expected that by 2006 Nike will be spending over $125 million more then they do now to advertise and promote their products. (Exhibit 26)

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Studios’ website on the World Wide Web:http://www.zendostudios.com/remixer_press.html Christopher, Alistair (2000, April 1). “IPOs/Recent Issues: VICINITY.” Venture Capital Journal. Retrieved July 2, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. “Creative; Dan Wieden; On the Spot.” (2003, June 16). ADWEEK. Retrieved July 9, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. de Asis, Karen V. (2002, March 1). “CHARACTERIZE YOUR BRAND'S PERSONALITY.” Philippine Daily Inquirer, Section 1. Retrieved June 30, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. D'Innocenzio, Anne. (2002, May 1). ”Sporting goods manufacturers and retailers aggressively pitch to women.” The Associated Press State & Local Wire, Section: Business News. Retrieved July 3, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Elkin, Tobi. (2003, March 10). “Marketing beyond the pop-up.” Advertising Age, Volume 74, Issue 10. Retrieved July 7, 2003 from MdUSA database Academic Search Premier on the World Wide Web:http://www.umuc.edu/library/. Eskew, Mike. (2000, June/July). “Forever young: Managing the forces of discontinuous change.” Executive Speeches, Volume: 14, Issue: 6, pg. 10-15. Retrieved July 5,

25

2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. Fitzloff, Emily. (2001, April 4). “Advertising Plays: In the latest digital marketing trend, advertisers piggyback on the success of online gaming by transforming games into branded, interactive commercials. It may be just the thing to breathe life back into online advertising.” Business 2.0. Retrived July 6, 2003 from Business 2.0 website on the World Wide Web:http://www.business2.com/articles/web/0,1653,15676,FF.html Fleming, Jennifer & Shiple, John. (2001, July 1). “Nike.com.” Internet World, Volume 7, Issue 13, pg. 64. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “Fusient Media Ventures Creates Transfusion I.P; Integrated Properties Company Targets Young Adults Through Sports and Entertainment.” (2001, October 16). PR Newswire, Section: Financial News. Retrieved July 5, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Hatfield, Stefano. (2003, June 17). “What makes Nike's advertising tick Phil Knight is prepared to take risks to give his company a sporting chance.” The Guardian. Retrieved July 1, 2003 from BusinessWeek.com on the World Wide Web:http://www.businessweek.com/bwdaily/dnflash/jul2003/nf2003079_2949_db014. htm Hays, Scott. (2003, February 3). “Nike’s Bryan Finke; The Director of U.S. Digital Marketing explains what it will take to increase Nike’s online budget, and

26

provides a glimpse of the company’s innovative new work.” iMedia Features. Retrieved online July 9, 2003 from iMediaConnections.com on the World Wide Web:http://www.imediaconnection.com/content/features/020303b.asp Herzog, Boaz. (2003, June 24). “Nike Scores Endorsement Deal with Lakers' Kobe Bryant.” The Oregonian. Retrieved June 13, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “HIGH SCORERS: TOP SHOE ENDORSEMENT DEALS FOR ATHLETES.” (2003, June 30). FN, Section: pg. 66. Retrieved July 2, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “Island Pacific Announces Marketing License Agreement with KMG Solutions.” (2003, January 13). Business Wire. Retrieved July 1, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Jackson, Adam. (2001, February 6). “Online Advertising: On the Brink of a New Era?” ClickZ Today. Retrieved July 7, 2003 from ClickZ on the World Wide Web:http://www.clickz.com/ad/online_ad/article.php/836611 Jaffe, Joseph. (2003, July 7). “Best Practice: Inviting Interaction; If “traditional” advertising is one extreme and involving experiences is the other end of the spectrum, then inviting consumers to interact fits neatly somewhere in the middle.” iMedia Features. Retrieved online July 9, 2003 from iMediaConnections.com on the World Wide Web:http://www.imediaconnection.com/content/features/070703.asp

27

Johnson, Lauren Keller. (Spring 2003). “Dueling Pricing Strategies.” MIT Sloan Management Review, Volume 44, Issue 3. Retrieved June 19, 2003 from MdUSA database Business Source Premier on the World Wide Web:http://www.umuc.edu/library/. Keenan, Faith, Holmes, Stanley, Greene, Jay, & Crockett, Roger O. (2002, December 2). “A Mass Market of One.” Business Week, Issue 3810. Retrieved July 8, 2003 from MdUSA database Academic Search Premier on the World Wide Web:http://www.umuc.edu/library/. Larson, Alexander C. (1996, September 1).“A price is not a formula.” Public Utilities Fortnightly, Volume:134, Issue: 16, pg. 13. Retrieved July 4, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. Lenetz, Dana. (2002, March 25). “Hoop Styles Gain Edge at Retail in Sport Sales Game.” FN, Volume 58, No. 12, pg. 1. Retrieved July 1, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Maloney, David. (2000, January). “Nike just does it.” Modern Materials Handling, Volume: 55, Issue: 1, pg. 41-47. Retrieved July 4, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. Markiewicz, David A. (2002, February 9). “Jordan flies on court, shoes fly off shelves; Local stores expect to sell out quickly.” The Atlanta Journal and Constitution , Section: Business, pg. 1E. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/.

28

McCarthy, Michael. (2003, April 3). “Rivals scramble to topple Nike's sneaker supremacy.” USA TODAY, Section: Money, pg. 1B. Retrieved June 13, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “Menlo in Nike Golf deal.” (2002, December 4). Journal of Commerce Online, Section: Logistics, pg. WP. Retrieved June 30, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Narisetti, Raju. (1998, November 16). “Technology (A Special Report): Pieces of the Puzzle --- New and Improved: Ad experts talk about how their business Will be transformed by technology.” Wall Street Journal. Retrieved July 1, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. “Nike Heats up Soccer.” (2002, October 21). FN, pg. 11. Retrieved July 3, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “NIKE HISTORY.” (Dec2002/Jan2003). The Ecologist, Section: Economics, Vol. 32, Issue 10. Retrieved June 19, 2003 from MdUSA database Academic Search Premier on the World Wide Web:http://www.umuc.edu/library/. Nike, Inc. Competitors. (2003). Yahoo! Finance: Retrieved June 19, 2003 from Yahoo! Finance on the World Wide Web:http://beta.finance.yahoo.com/q/co?s=NKE

29

Nike, Inc. profile. (2003). Hoover’s Online. Retrieved June 21, 2003 from MdUSA database Hoover’s Company Information on the World Wide Web:http://www.umuc.edu/library/. Nike Shox. “How Viewpoint Helped Shox Put the Boing in Nike’s Online Sales.” Viewpoint Case Studies. Retrieved July 5, 2003 from the Viewpoint website on the World Wide Web:http://www.viewpoint.com/index1.html?vp1&company/781.jsp “R/GA Takes the One Show Interactive by Storm Winning Five Awards: The Most of Any Agency.” (2003, May 8). Business Wire. Retrieved from Yahoo! Finance on the World Wide Web:http://biz.yahoo.com/bw/030508/85467_1.html Reeves, Amy.(2002, March 11). “Hibbertt Sporting Goods Birmingham, Ala. Retailer Learns Lesson After A Slight Misstep.” Investor's Business Daily, Section: A, pg. 12. Retrieved June 30, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Reilly, Rick. (1997, March 17). “THE SWOOSHIFICATION OF THE WORLD.” Time Australia, Issue#11. Retrieved June 25, 2003 from MdUSA database Business Source Premier on the World Wide Web:http://www.umuc.edu/library/. Rennie, Philip. (2002, June 20). “Trains, Planes And Profits.” Business Review Weekly (Australia), Section: News & Features, pg. 32. Retrieved July 5, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/.

30

Rewick, Jennifer. (2000, October 23). “E-Commerce (A Special Report): The Lessons We've Learned --- Advertising: Beyond Banners --- Net advertising is still young -- and still trying to find an approach that works.” Wall Street Journal. Retrieved July 8, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. Robson, Douglas. (2001, July 2). “Just Do...Something: Nike's insularity and footdragging have it running in place.” Business Week, Issue: 3739, pg. 70-71. Retrieved July 4, 2003 from MdUSA database ABI/Inform on the World Wide Web:http://www.umuc.edu/library/. “Silverstar Holdings Acquires Student Sports, Inc.; Acquisition Adds Leading High School Sports Media and Marketing Company to Silverstar's Portfolio.” (2001, September 25). Business Wire. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Smith, Paul R. & Taylor, Jonathan. (2002). Marketing communications: an integrated approach. 3rd edition. London; Milford: Kogan Page Ltd. “SPORTS NUT: TOP TEN PRICIEST SPORT SHOE CATEGORIES.” (2003, May 19). FN, Section: pg. 18. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Swartz, Jon. (2002, October 29). “Thanks to Net, Consumers Customizing More.” USA Today. Retrieved July 8, 2003 from Archetype: News on the World Wide Web:http://www.archetypesolutions.com/news-usatoday1.html

31

Taylor, Catharine P. (2003, May 12). “Creative; Beyond the Banner; Online ads have come a long way since the birth of the Web.” ADWEEK. Retrieved July 5, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “Teens spending more.” (2002, May). Chain Store Age Executive, Volume 78, No. 5, pg. 35. Copyright 2002 Lebhar-Friedman Inc. Retrieved June 15, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. “Teen shopping patterns revealed.” (2002, April 1). DNR, Section: Volume 32, No. 13, pg. 13, Copyright 2002 Fairchild Publications, Inc. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Werth, Brian. (2002, March 6). “Rising Athletic Footwear Sales Please Bloomington, Ind., Vendors.” Herald-Times. Retrieved July 4, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/. Wyner, Gordon A. (Winter 2002). “Get Serious About Pricing.” Marketing Research, Volume 14, Issue 4. Retrieved June 25, 2003 from MdUSA database Business Source Premier on the World Wide Web:http://www.umuc.edu/library/. Yen, Hope. (2003, June 3). “Boomers push sales of sneakers, retro styling.” The Associated Press State & Local Wire, Section: Business News. Retrieved July 6, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/.

32

“Zendo Studios: Zendo Studios creates new form of online entertainment for Nike.” (2001, May 9). M2 Presswire. Retrieved July 6, 2003 from MdUSA database LexisNexis on the World Wide Web:http://www.umuc.edu/library/.http://nike.jp/nikebiz/global/pdf/repo/vision.pdf www.24hourmall.com www.emeryworld.com www.fkilogistex.com www.islandpacific.com www.mallorygroup.com www.Nike.com www.NikeBiz.com www.NikeTown.com www.pg.dk/advertising/thomsen.pdf www.pointroll.com www.theproduct.com/6m147/solutions/nike.pdf www.ups.com www.viewpoint.com www.wisecat.verywise.co.uk/search-engines.htm

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Appendices: Exhibit 1: Nike Timeline: Year 1938 1959 1962 1964 1971 Phil Knight: Born, Portland, USA Graduates from the University of Oregon where he met coach Bill Bowerman Graduates from Stanford University where his MBA paper was on trainer manufacturing Sets up Blue Ribbon Sports with Bowerman to import trainers from Japan Nike, named after the Greek goddess of winged victory, is founded. The swoosh is designed by Portland University design student Carolyn Davidson, who is later paid in shares Bowerman invents the waffle trainer sole Jimmy Connors wins Wimbledon wearing waffle Nikes Nike lists on the New York stock exchange Carl Lewis and Nike dominate the LA Olympics Knight signs unknown basketball rookie Michael Jordan Nike launches Air Max Nike ad man Dan Wieden says "you guys just do it" at a meeting. A company slogan is born. “Just Do It” Nike's rookie golfer Tiger Woods wins the Masters by a record 12 strokes Signs $17m (£11m) annual deal with Brazilian football team. Nike signs £300m deal with Manchester United giving it rights to all of United's merchandise Nike announces third quarter results with sales up 6% to $2.4bn (£1.4bn) and profits of $125m. Annual sales are forecast to be $10.6bn

1972 1974 1980 1984 1985 1987 1988 1997 1998 2000 2003

Source: (Hatfield, 2003)

Exhibit 2: Nike History:

34

Source: (NIKE HISTORY, Dec2002/Jan2003).

Exhibit 3: Nike Sneakers:

Cross-Trainers $85.00

Nike Shox’s $95.00

35

Air Resolve – Tennis $75.00

Air Jordan’s $175.00

Air Payton’s $200.00

Tiger Wood’s Golf Shoe $175.00

Air Max Griffey – Cross-Training $140.00

Nike Shox TL – Running $150.00

36

Air Zoom Total 90 II F.G. – Soccer $150.00

Air Rift Leather B (unisex) – Lifestyle $100.00

Air Vos – Walking $75.00

Air Zoom Talac – Outdoor $140.00

Exhibit 4: Nike Competitors DIRECT COMPETITOR COMPARISON NKE Market Cap: Employees: Revenue Growth (ttm): 14.12 B 22,700 4.30% FLH 106.16 M 2,099 RBK 1.99 B 7,400 4.50% ADDDY.PK Industry 206.25 M 2.40 K 3.50%

37

Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Operating Margins (ttm): Net Income (ttm): EPS (ttm): PE (ttm): PEG (ttm): PS (ttm):

9.89 B 40.98% 1.17 B 10.50% 740.10 M 2.77 19.16 1.23 1.31 38.95% 66.69 M 2.81% -63.65 M -1.42

3.13 B 37.44% 248.63 M 6.30% 135.29 M 2.09 16.11 1.02 0.63 0

471.55 M 35.28% 38.04 M 3.66% 10.60 M 0.606 14.813 0.930 0.452

0.11

FLH = Fila Holdings SpA RBK = Reebok International Ltd ADDDY.PK = Adidas-Salomon AG Industry = Apparel, Shoes & Accessories Industry Nike, Inc. Competitors. Yahoo! Finance:http://beta.finance.yahoo.com/q/co?s=NKE

Exhibit 5: Nike Athletic/Casual Footwear Competitors Adidas Salomon, Inc. Kenneth Cole Productions, Inc. New Balance Saucony, Inc. Steven Madden Ltd. Vans Inc. Fila K-Swiss, Inc. Reebok International Ltd. Skechers U S A Inc. The Timberland Company

Exhibit 6: Market share 2002 market share of U.S. athlete shoe market based on wholesale value of retail shipments Brand Market Share Nike 39.1% Reebok 12.0% New Balance 11.6% Adidas 9.6%
(McCarthy, 2003)

Exhibit 7: Sneaker sales: 1998 – 2003

38

1998 1999 2000 2001 2002 2003 (estimate)
(McCarthy, 2003)

-3.3% -1.4% 2.7% 2.7% 2.5% 4.4%

Exhibit 8: Athletic footwear U.S. retail dollar sales by classification: Shoe Type Running Basketball Cross training Walking Low performance Hiking Tennis Skateboard Sport sandals Other Exhibit 9: Athlete Tiger Woods LeBron James Allen Iverson Michael Jordan Kobe Bryant Venus Williams Martina Hingis Lleyton Hewitt Tracy McGrady David Duval Top 10 endorsement contracts Contract $100 million $90 million $50 million $47 million $40 million $40 million $30 million $30 million $12 million $8 million Company Nike Nike Reebok Nike, Others Nike Reebok Nike Nike Adidas Nike Sales Percentage 27.9% 15.6% 10.9% 9.1% 6.3% 6.3% 4.8% 2.7% 2.6% 14.3%

Source: (McCarthy, 2003)

39 Source: (Top Shoe Endorsement Deals for Athletes, 2003)

Exhibit 10: The Coolest Brands According to consumers 13 - 18 years old BRAND NIKE SONY ADIDAS A&F OLD NAVY TOTAL 23% 13% 13% 10% 9% MALES 28% 22% 12% 8% 6% FEMALES 18% 5% 13% 12% 12%

Source: (Teen Shopping…, 2002)

Exhibit 11:

Source: (http://www.theproduct.com/6m147/solutions/nike.pdf)

Exhibit 12: Nike Marketing Channel Manufacturer Labor $2.75 Wholesaler Nike's payment to $20.00 Retailer Retailer CGS $36.48

40

factory (CGS) Materials Factory Overhead $9.00 $3.00 Sales, general & administrative costs Advertising, promotions & endorsements R&D Taxes Interest Expense Net Income TOTAL SP $5.00 $4.00 $2.00 $1.82 $.33 $3.33 $36.48

(from Nike's SP) Other expenses & profit Rent Other cost Personnel Average Retail SP

$12.50 $9.00 $7.00 $9.50 $74.48

Other Operating $5.25 expenses and net income TOTAL $20.00

None of these figures are representative of Nike’s actual pricing structure. Its purpose is to give a generic example of Nike’s marketing channel and how it would determine a price for their sneakers. Nike has to incorporate product-mix, pricing strategies because there are more than one Nike product. In product-line pricing, Nike must decide on the price steps, such as cost differences between the products, customer evaluations of their different features, and competitors’ prices, to set between the various products in the line. From there, Nike must establish perceived quality differences that support the price differences. Those “premium sneakers” such as the Air Jordans, Air Paytons, or any shoe that is endorsed by a sports celebrity would have a higher cost because the name attached to the Nike sneaker. However, Nike considers all of its footwear as a “premium shoe” whether it is endorse by a sports celebrity or not. Nike goal is to provide a competitive edge to anyone who wears their shoes and by doing so they have enhanced performance by reducing weight, developing new sizing and fit concepts, rethinking the traditional mix of outsole, midsole and upper, new materials and closure systems, sustainability in production (www.NikeBiz.com). This means that you are also paying for the technological innovation that goes into the development and manufacturing of their shoes. Basically, you are paying for the Nike brand, any endorsements, and the technology involved in the shoe. You must also take into consideration the target margin and the dealer’s margin. A pair of Nike running shoes for example may cost only $15 to $20 to produce, however, they retail for four times the factory cost in the U.S. (Larson, 1996). All of these factors must be taken into consideration when Nike prices their shoes.

41

Exhibit 13a:

Source: (Butscher & Laker, 2000).

Exhibit 13b:

This shows the example of a new basketball sneaker from JUMP that had several advanced features and a modified cushioning technology. The cost of the sneaker was $40, dealer price $80 (target margin of 100%), and a market price of $120 (dealer's margin of 50%). Sales projections were thin so JUMP decided to reevaluate the new shoe using the target-costing approach and it was discovered that the target segments preferred a less elaborate shoe. The maximum acceptable price for such a shoe was determined to be $99.

42 Deducting the 50% dealer margin-subtracting 33% from the $99-led to a price to the dealer of $66 ($66+50%=$99). Deducting the 100% target margin from that price-subtracting 50% from the $66-resulted in a target cost for the sneaker of $33 ($33+100%=$66), $7 lower than the current cost. JUMP was able to slash the cost to $33 by slightly redesigning the sneaker to lower the production cost and by optimizing transportation from the Asian production plant to the distribution centers globally. It launched the sneaker nine months after the original target date (Butscher & Laker, 2000).

Exhibit 14:
2002 Average Retail Price per Pair - 1997 Average Retail Price per Pair 5-Year Percentage Change Shoe Type 1.) Hunting 2002 $64.79 1997 $58.46 Price Change 10.8%

Hunting boots carried the highest price tag of all sports footwear in 2002, mainly because of their expensive components, which often include Thinsulate Insulation and a Gore-Tex bootie. These boots are designed to keep feet warm and dry in all weather conditions. It's not just the pricey clubs that makes golf an expensive sport. The components incorporated into most golf shoes can also drive up price points. In addition to featuring typically soft-grain leather and a soft, cushioned footbed, most golf shoes also employ sophisticated outsole technology that includes spike systems. Today's court-conscious consumer considers performance as well as street fashion when it comes to basketball shoes. Industry watchers tie the category's recent success to the popularity of more mid-priced shoes from brands such as Nike, Adidas and New Balance that now incorporate better technology and more fashionable styling. Cycling shoes are a study in striking a balance between weight and stiffness. The goal is to ensure less rotational weight on the feet to help the rider accelerate faster, while providing hard soles for pedaling efficiency. Other typical design features include ultralow stack height and uppers using mixes of synthetic leather and mesh to provide breathability. Built for maximum shock absorption and stability, volleyball shoes often contain a combination leather and mesh upper, with a compression-molded EVA midsole containing foam in the heel. Running has been a growing athletic shoe category during the past few years, due mainly to the category's constant technological innovations and the popularity of the running silhouette as casual footwear. For spring 2003, running shoe vendors addressed the needs of both serious and casual runners by launching product that focuses on various aspects of motion control.

2.) Golf

$62.12

$60.11

3.3%

3.) Basketball

$56.12

$55.57

1.0%

4.) Cycling

$53.67

N/A

N/A

5.) Volleyball

$53.28

$50.88

4.7%

6.) Jogging/Running

$50.99

$48.71

4.7%

43 Performance-enhancing components such as waterproofing systems, Kevlar lacing and mesh detailing have become key purchase points for the trail-running consumer. But while technology is pivotal, developers need to be careful not to let it overwhelm the shoe. 8.) Track $47.28 $39.40 20.0% Most outdoor track-shoe styles contain removable spike plates, which are designed to give the racer greater power and efficiency. For athletes in multiple events, track shoes often contain extra heel cushioning and a rubber outsole for flexibility and protection. 9.) Hiking Shoes/Boots $46.42 $45.59 1.8 % Hiking shoes vary greatly in price depending on the terrain and distance they're designed to cover and the amount of waterproof protection offered. Many longer hiking trips require higher-topped, stiffer boots, often waterproofed and containing a hard plastic or steel shank designed to keep the boot and ankle from twisting during hiking. 10.) Cross-Training $46.10 $49.96 -7.7% Cross-training shoes were actually the only sport shoe category in the top 10 to see a decrease in average price. The category's popularity has deteriorated due to rising demand for more specialized athletic categories such as running and basketball. What's more, vendors have been slow to introduce innovative product specific to the multisport concept. Source: (Sports Nut: Top Ten Priciest Sport Shoe Categories, 2003) 7.) Trail-Running $49.68 N/A N/A

Exhibit 15:

44

45

46

Source: (http://nike.jp/nikebiz/global/pdf/repo/vision.pdf)

47

Exhibit 16: Nike distribution center in Memphis, Tennessee

Source: (Maloney, 2000).

48

Exhibit 17: Nike Regional Sales Offices

Source: (www.NikeBiz.com)

Exhibit 18: Nike Locations in Europe, Middle East & Africa

Source: (www.NikeBiz.com)

49

Exhibit 19:

Source: (http://nike.jp/nikebiz/global/pdf/repo/vision.pdf)

50

Exhibit 20: Summarizes some of the media characteristics. TV Radio Newspaper (Sunday and daily Large and mostly national Socioecon omic Lowmedium Magazine Posters Direct mail Large national and internat ional Any target availabl e Low Web site banner ads No national coverage but global segments 100 million+ Beyond techies. middle class, educated Low but liked web site may be high Inexpensive method of gaining web presence (without having to build) 4-colour, 3-D, movement, sound, interactive Non-linear medium can jump back and forward

Audience size

Audience type Cost of production Extra advantage

Some wastage, large and national (also international Few 15-14 years old High Adds credibility to product and company

National coverage possible Many housewives and commuters Low Transportable medium

Mostly national and internation al Lifestyle/ Demograph ic Lowmedium Quality

National coverage difficult Commuters, car drivers Medium

Message elements

Sight, sound, Sound and color, time movementti constraint me constraint Viewed Serially, less serially, no zapping competition from other ads or editorial but zap Highly transitory since one can not refer back to ad once shown (unless taped)

Serial ad sequence

Now mostly colored with some black and white Must compete with the other ads and editorial on same page

4-colour

4colour and 3D possibil ity

Transition

Can keep clippings or refer back if desired

Can refer back, walk back or drive past

Can refer back/ke ep coupon

Non-linear

51

Demonstrat Ideal for usage ion and impulse purchase Detail/ technical Ease of media buying Lead times High frequency facility National coverage Viewer can not absorb detail Flexible Long Hourly and daily Yes (Smith, P.R., 2002)

Difficult

Urgency and topicality Inflexible Short Hourly and daily Yes

Benefits or results can be shown but not product usage demonstration Yes Yes

Only short image benefit No Inflexible

Yes

Yes

Yes Flexibl e Short mediu m Yes Yes

yes Yes Short Yes No but global segments

Short Yes Yes

Mediu m long

Long

Weekly ? / monthly Yes Yes

Exhibit 21:

Source:http://www.pg.dk/advertising/thomsen.pdf

52

Exhibit 22:

Source:http://www.pg.dk/advertising/thomsen.pdf

Exhibit 23: Top 25 Search Engines 1.) Google - Google UK - Google Image Search Google is a search engine that makes heavy use of link popularity as a primary way to rank web sites. Users across the web have in essence voted for good sites by linking to them. 3.) Lycos - Lycos UK 2.) Ask Jeeves - Jeeves For Kids - Ask Jeeves UK Innovative online search service that processes plain-language queries with surprising accuracy. 4.) Alta Vista - Alta Vista UK - babelfish translator

53

Lycos has been around since the early days of the net and is still one of the most popular search engines. The service employs human editors for some of its listings, complemented by crawler-based results. The name Lycos comes from the Latin for "wolf spider."

5.) LookSmart - Looksmart UK LookSmart is the closest rival Yahoo has, in terms of being a human-compiled directory of the web. The high quality of the directory is thanks to a team of nearly 200 full-time professional editors.

An awesome site from Digital, it maintains a HUGE index with powerful and FAST search functions. Coverage is excellent so it is good for broad searching and for offbeat subjects but you can be overwhelmed by too many hits. The Advanced Search is useful for finding images, MP3/audio and video files, and there's the useful Babelfish Translator. 6.) Yahoo! - Yahoo UK Yahoo is the web's most popular search service and has a well-deserved reputation for helping people find information easily. The secret to Yahoo's success is human beings. It is the largest human-compiled guide to the web, employing 80 or more editors in an effort to categorize the web. Yahoo has at least 1 million sites listed. 8.) BBC - Search The Web 5.02 The BBC's "family friendly" search engine, based on Google search technology. Results are clear, uncluttered, relevant, and commercial free. "Our results are the ones that best match your search words - not the ones advertisers want you to see." Excellent! 10.) GO Network Go is the reincarnation of Infoseek, a newly designed site claiming to have enhanced capabilities, with a 50% larger search index and search results pages that are 30% faster. It offers portal features such as personalization and free e-mail. 12.) Open Directory NetScape's Open Directory Project aims to build the most comprehensive humanreviewed directory of the web, by relying on a vast army of volunteer editors. 14.) FAST Search One of the new generation of search services, armed with next-generation technology. FAST aims to be bigger,

7.) MSN (Microsoft) Microsoft's MSN service features both directory listings and search engine results. Powered by Inktomi, this is now one of the most powerful search engines.

9.) GigaBlast3.02 Gigablast is a new search-engine that looks set to challenge Google. It's been set up by a New Mexican Software Engineer, and already producing great search results. 11.) HotBot This search engine has a great many loyal fans. It very often comes up with the goods where other engines fail. 13.) Teoma Search4.02 Teoma, which means "expert" in Gaelic, determines the authority or quality of a site's content, by using Subject-Specific Popularity.

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Subject-Specific Popularity ranks a site based on the number of same-subject pages that reference it, not just general popularity. 15.) Multi Search8.02 Multi Search is a powerful tool which will search all the top search engines with one click. 17.) REX This is a VERY nice site - a little sense of humour, very professionally done.

speedier and more accurate than the existing major search engines. 16.) Webcrawler One of the first and biggest search engines, and it still produces highly relevant results. 18.) HandiLinks This is a great directory. HandiLinks listings are all organized into a hierarchical index and it's fast and easy-to-use. It has extensive categorization, and uses a frame design that aids rather than getting in the way of searches. 20.) Scour.Net A useful multimedia search engine. Use it to find audio, video, images and animation Scour.Net takes you directly to the multimedia you are searching for, quickly and easily. 22.) UK Plus UK Plus features reviews of UK-relevant sites, prepared by a team of journalists. Reviews are grouped into various channels, covering everything from Arts and Business to Travel and Work. They are also searchable. 24.) Dogpile

19.) Snap.com Snap.com is a human-compiled directory of web sites, supplemented by search results. It aims to challenge Yahoo as the champion of categorizing the web. 21.) AAA Matilda The most popular search engine outside of North America. Matilda is a very individual search engine from Australia, and growing rapidly in popularity. 23.) Direct Hit

This Popularity Engine tracks the sites that Sends a search to a customizable list of people actually select from the search results search engines, directories and specialty list. By analyzing the activity of millions of search sites. previous Internet searchers, Direct Hit determines the most popular and relevant sites for your search request. 25.) Britannica Internet Guide This site strives to list only the highest quality sites on the Net. It's now integrated into the Britannicca.com website, so you get a high-quality search engine and encyclopaedia at the same time

55 Source:http://www.wisecat.verywise.co.uk/search-engines.htm

Exhibit 24: Nike Ad agency: R/GA Got three of the four Pencils in the E-commerce Business to Consumer Website category Gold Pencil www.Nikegoddess.com Silver Pencil www.Nikebasketball.com & www.Nikerunning.com Gold Pencil www.nikelab.com: Corporate Image category Gold Pencil www.Nike-Presto.com: Promotional Advertising Website category The R/GA projects that were selected to be included in the traveling show and annual traveling exhibition in conjunction with the competition that will feature work published in One Show Annual Volume 25 include: Nike.com USA Homepage Corporate Image Business to Consumer Website Nike Basketball Nike Basketball Nike Goddess Nike Goddess Nike Lab Nike Presto Nike Running Nike Running
Source: (R/GA Takes the…, 2003)

Nike Ad agency: R/GA received 3 Gold awards, the most of any agency & tied for the number of silver winners with 2.

Corporate Image Business to Consumer Website E-Commerce Business to Consumer Website E-Commerce Business to Consumer Website Corporate Image Business to Consumer Website Corporate Image Business to Consumer Website Promotional Advertising Website E-Commerce Business to Consumer Website Corporate Image Business to Consumer Website

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Exhibit 25: Sales & Net Income 1993 – 2003 Sales ($ mil.) Net income ($ mil.) Income as % of sales 1993 3,931.0 365.0 9.29% 1994 3,789.7 298.8 7.88% 1995 4,760.8 399.7 8.40% 1996 6,470.6 553.2 8.55% 1997 9,186.5 795.8 8.66% 1998 9,553.1 399.6 4.18% 1999 8,776.9 451.4 5.14%

Sales & Net Income continued: 1993 – 2003 2000 8,995.1 579.1 6.44% 2001 9,488.8 589.7 6.21% 2002 9,893.0 663.3 6.70% 2003 10,684.4 716.4 6.71%

Sales ($ mil.) Net income ($ mil.) Income as % of sales

2002 Footwear Sales $ mil. % of total Sales 5,753.7 58

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2002 Total Sales Americas US Other Europe Asia/Pacific Total $ mil. 5,258.8 691.0 2,731.5 1,211.7 9,893.0 % of total 53 7 28 12 100

The breakdown of Footwear revenue per region: Fiscal 2002 Fiscal 2001 FY02 vs. FY01 % CHG (In millions) (0.7)% 9.1% 4.0% 1.1% 2.4% Fiscal 2000 FY01 vs. FY00 % CHG (4.2)% 8.7% 13.5% 3.3% 1.03%

USA Region Footwear EMEA Region Footwear Asia Pacific Region Footwear Americas Region Footwear Total Footwear Revenue

$3,185.0 1,551.8 657.7 359.2 5,753.7

$3,208.9 1,422.8 632.4 355.2 5,619.3

$3,351.2 1,309.4 557.0 343.9 5,561.5

Exhibit 26: Advertising and Promotion Expenses: 1999-2002 1998 $978.2 million 1999 $978.6 million 2000 $998.2 million 2001 $1,000.5 million 2002 $1,027.9 million

Estimated Advertising and Promotion Expenses: 2003 – 2006 2003 $1,056.1 million 2004 $1,088.4 million 2005 $1,125.1 million 2006 $1,171.5 million



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