What Can We Learn From Nike’s Business Model

Most successful businesses begin with just an abstract idea, but it takes courage, persistence, and a lot of right decisions to make it to a multinational corporation. Phil Knight and Bill Bowerman did precisely this and together built an excellent Nike value proposition.

But how?

The Unbelievable Story Behind the Top Shoe Brand in the World

Early beginnings

Phil Knight, known as Nike’s creator, was just another graduate distance runner from Stanford. Phil was very eager to start a business. He was very well aware of Japanese production benefits, so he had an idea to explore the Japanese market with his own eyes.

He saw a company with high-quality shoes named Onitsuka tiger. He proposed a contract to them as a shoe distributor and began distributing the Onitsuka shoes to the USA, selling them off from the back of his car to every running track there was. After a while, he contacted his university coach Bill Bowerman. Bill was one of the best coaches in the USA at the time, training multiple athletes, and with the help of his connections, they both managed to reach unbelievable sales.

As the business got more significant, they started hiring salespeople, and their revenue went up. They started changing their design and bettering their materials by adding cushions and using lightweight materials. However, Onitsuka tiger could not keep up with this rise in sales, which eventually led to not renewing the contract. NIKE co-founders managed to wire with a network of subcontractors in Japan and started working on branding. They got the NIKE’s logo for 35$ from a graphic design student and called the brand NIKE after the Greek goddess of victory. Telling their story is essential for learning the basics of the Nike value proposition.

Where Are They Now?

NIKE has more than 1000 stores worldwide. They sell their products through a mix of independent subsidiaries and licensees in over 120 countries worldwide. NIKE sells not only footwear products designed for specific sports and athletic use but also athlete apparel for casual and leisure purposes for men, women, and children. Nike includes accessories designed to complement the footwear products to inform collections with similar designs and specific purposes.

Nike’s licensees produce and sell Nike brand Swimwear, maternity exercise wear, school supplies, electronic media devices, performance equipment, and all kinds of other lifestyle apparel associated with sports. They also have subsidiaries like Bauer NIKE Hockey, offering product selection for street hockey. The Hurley International LLC design distributing sports apparel for snowboarding, surfing, skateboarding. They are selling many athlete apparel lines under different brand names like Cole Haan, Series, Bragan.

What Is the Nike Value Proposition?

A value proposition is a critical foundation that underpins a particular business model and an essential tool for testing your business hypothesis in the world. It’s a value promise to get delivered and communicated to the customer during a long-term expectation of the product. Now, how does the Nike value proposition do better than its competitors?

The Nike value proposition focuses on satisfying its customers with a superior product made out of the best available materials and latest technologies, which is also fashionable and worn by supreme athletes and sports stars and accessible to anyone.

The four main segments of Nike value proposition

  1.  Accessibility : Nike is spreading out to different locations globally, in both official stores and outlets, including online stores and shipment. By acquiring multiple other footwear and clothing firms – its easy access is almost inevitable. Customers can easily reach out to their products in their everyday life.
  2.  Customization : NikeID or Nike By You is a service that allows customers to personalize and customize their merchandise through online use. They also have physical studios in countries like the United Kingdom, Italy, France, Japan, Canada, Germany, Spain, China, and the USA.
  3.  Innovation : This Nike value proposition tends to explore innovation from various aspects. Nike’s team includes research labs like Explore Team Sport Research Lab, focusing on designing cutting-edge products and Nike Advanced Product Creation Center incorporating technology in their products.
  4.  Brand/Status  – Partnering up with rookie athletes was just the beginning of this company’s success. Today, Nike has signed contracts with the top three leagues in the USA – MBL, NFL, and NBA. Many others have also signed deals with this brand, sports stars like Cristiano Ronaldo, Micheal Jordan, and Tiger Woods, which puts this value as a core of the Nike value proposition.

You can check the Adidas Value proposition here.

What About Their Revenue Model?

The Nike revenue model consists of selling all of its footwear and sportswear products through its independent manufacturers. This company divides their financial measures through the three brand it owns – NIKE brand, Converse, and Corporate. The Nike brand contains 94.6% of total revenue and into further geographical segments:

  • Europe
  • North America
  • The Middle East and Africa
  • China
  • Latin America
  • Asia Pacific
  • Global Brand Divisions

Another characteristic of Nike’s revenue model is that it reports its revenues into product lines:

  • Footwear 68.7% Categories include Running, Basketball, Football, Women Training, Men’s training, Golf sportswear.
  • Apparel 27.3% covers most of the already mentioned categories through the same marketing distribution channels.
  • Equipment 3.5% Includes performance equipment and accessories like eyewear and gloves, digital devices, bags, socks, and other plastic products through its wholly-owned subsidiary NIKE IHM Inc.

This Nike business model predominately focuses on design, marketing and development, and outsourcing of non-core activities like manufacturing to their independent contractors and building a global brand in its entirety, which makes Nike value proposition one worth considering.

Nike's revenue worldwide

But How Does All of This Work?

First of all, to have a profitable business, you have to have a good marketing strategy, that is – to let the customer connect with the product. The Nike value proposition does not allow its marketing strategy to slide.

When it comes to connecting to a product and choosing the right one, emotions override facts and logic. It’s widely known that the more emotionally involved we are in a particular thing, the less objective and critical we are of its mistakes and flaws.

The Nike strategy of marketing does this through one of the most effective ways – vivid storytelling. They tell inspiring stories about athletes and regular people going through hardships, even though they have nothing to do with the product. Their marketing will never tell you why their product is better than their competitor’s one, but you get the idea through honoring great athletes and athletics.

Nike strategy of doing marketing goes through two types of effects:

  • Halo effect – cognitive bias in which our overall impression of a person influences our message’s opinion. Customers are more receptive to ideas than they usually wouldn’t consider. It happens in politics where people vote for more attractive candidates, and in other areas in life. It seems like a conflict between emotion and reason, and the Nike value proposition to the customers manages to use this tool correctly.
  • Scarcity effect – products becoming more desirable when we feel there is a lack of them or are less available. This effect is usually showing limited supply (only five left in stock) or limited time (offering sales for only the weekend). People typically don’t want to miss opportunities, which is why this works so well.

What’s Their Primary Strategy?

In 2017 Nike business strategy changed into a triple-double plan, which means

  1. x2 innovation
  2. 2x speed to market
  3. 2x direct connections.

The successful Nike value proposition includes the perfect business model. The Nike business model is a little bit different than the regular business model. The typical business model goes like this:

Manufacturer -> Distributor -> Retailer -> Public – which makes the product price tag rise. 

Nike, on the other hand, tries to use the DTC strategy (Direct To Consumer):

 Manufacturer -> Consumer – lowering the total supply chain cost and, therefore, the product’s price.

This Nike value proposition shows its customers that they are the most integral part of the story.

Direct connection is the ideal business model shown as a great Nike value proposition, through:

  • Online selling and shipping
  • Paying for ads to the target market
  • Nike Direct – wholesale distribution with their partners, which they are trying to have less of, controls the customer experience more straightforward.

Nike objectives are focused not on profit, but add in the Nike value proposition with:

  • Minimizing environmental waste – using less and better energy, innovating new solutions for sustainable materials, and reuse/recycle of materials
  • Continuously transforming manufacturing, Nike focuses on creating technology-driven manufacturing by hiring valuable and highly skilled workers and building sustainable factories.
  • They are unleashing human potential– in both customers and employees. The company aims to inspire and challenge its employees each day.

Nike Key activities include marketing and selling athletic footwear, distribution and logistics, quality control, production, manufacturing, development, design, sponsoring, marketing, branding, apparel, equipment, accessories, and services.

What About the Nike Customer Relationship?

Nike knows how to serve its customers. In the retail stores Nike offers, there is not a lot of customers – seller contact. It’s more of a self-serving nature. Nike’s value proposition provides other ways to communicate.

  • FAQ on their website
  • Available personal assistance (through phone, live chat support, email)

Additional info- Find the best email marketing software for your company.

Nike manages their site in which offers various useful tools for their community. They provide catalogs for Nike’s apparel, which helps customers access the brand, including articles associated with its purpose.

Nike value proposition also offers an official app for runners to track their results, engage in content, and build community.

Probably the most effective tool of the Nike value proposition is customization. Customization can connect customers with the brand more closely. It helps companies attract fickle but lucrative young shoppers, membership (providing access to ultimate gear, expert guidance, incredible experiences, and endless motivation), cool brand, sustainable innovation, community impact, online experience, offline channels, gift cards, Free delivery + Free returns.

Relationship marketing is the key to grow the audience and increase company profits in long run.

In conclusion:

An incredible start of a business does not guarantee its long-term success. Maintaining a success rate is done not only through a profitable business model but enhancing quality, keeping good customer relationships, and creating innovative ideas of eliminating waste and increasing profit. Nike has managed to find its way to success, will you?

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