Nike Runs the Innovation Race Every Day
Nike, the long-time market leader in athletic shoes, apparel, and gear, has been racing into innovation for more than 50 years. Co-founders Phil Knight and Bill Bowerman met at the University of Oregon, where Knight was a student athlete and Bowerman was a veteran coach and trainer. For years, Bowerman had been experimenting with developing homemade running shoes, some of which Knight tested on the track. After Knight graduated, he decided the U.S. market needed an alternative to the high-priced German shoes that many athletes preferred at the time. He formed Blue Ribbon Sports with Bowerman as his partner and became the U.S. distributor for a Japanese sneaker firm, selling shoes from the trunk of his car.
While Knight handled business operations, Bowerman applied his knowledge of running to product development, testing, and improving one type of running shoe after another. The breakthrough came when he created an entirely new design by grafting a waffle-patterned rubber sole to a lightweight, cushioned sneaker. These shoes were the first of Bowermanâ€™s innovations to carry the now-iconic swoosh logo, and they burst into the marketplace just as running became a major fitness trend. By 1978, when the company was renamed Nike, after the Greek goddess of victory, it was marketing its shoes on the basis of performance and fashion.
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Athlete Endorsers Add Star Power
CEO Phil Knight believed that endorsements and product input from athletes were the key to attracting consumer attention and building credibility for Nikeâ€™s quality performance. He raised eyebrows in the 1980s by arranging a $250,000 endorsement deal with a two-time All-American North Carolina basketball player who went on to become NBA Rookie of the Year. It didnâ€™t take long for this deal with the now-legendary Michael Jordan to begin paying off in the form of publicity and profits. Nike introduced an entire sneaker line named after Jordan and, later, added Jordan-branded clothing. Today, the Nike Jordan brand rings up annual sales of $2 billion.
Following the strategy Knight pioneered, Nike now markets a number of product lines designed in collaboration with star athletes in key sports. For example, basketball endorsers such as Russell Westbrook and Chris Paul have their own shoe and clothing product lines within the Nike Jordan portfolio, with products influenced by their professional prowess and individual styles. Nike has a lifetime deal with the NBAâ€™s Lebron James, reflecting not only his basketball achievements but also his potential influence on sports, fashion, and entertainment in the coming years. Tennis champ Serena Williams has her own Nike shoe and clothing product lines, based on her ideas, aesthetic preferences, and performance requirements.
Aiming to Achieve Aggressive Growth
Co-founder Phil Knight relinquished the CEO position in 2006 and remained Nikeâ€™s chairman until 2016. Current CEO Mark Parker heads a $30 billion company that aims to achieve $50 billion in annual sales by 2020 by continuing its track record of innovation in branded goods and services. Nikeâ€™s brand portfolio includes Converse, Jordan, and Hurley, as well as brands that include the Nike name, such as NIKEiD (personalized versions of Nike products) and Nike+ (apps and online tools for tracking and improving personal athletic performance). The Nike+ product line originally included the FuelBand wristband for performance tracking, but the company dropped the hardware in favor of software as competitors such as FitBit entered the market. Looking ahead, digital services are a priority as Nike seeks to enhance connections with customers by enabling them to chart their progress, compare fitness statistics with friends, and connect with other performance-minded consumers.
In recent years, dozens of high-profile product introductions have fueled Nikeâ€™s growth and increased brand awareness throughout the 190 countries where it does business. Nike already offers many types of products for men, women, and children, in many variations of sizes, colors, and materials. Thatâ€™s why Nikeâ€™s CEO works closely with the product-development teams â€œto edit down our opportunities to the ones that will make the most impact for the company.â€ He challenges Nike marketers to be sure any new offering will represent an improvement, satisfy an actual need, inspire or motivate customers, and enhance the brand.
One lucrative market opportunity the company sees is increasing sales to women. Although Nike currently generates nearly $6 billion in yearly revenue from sales of products for women, this is a small fraction of the revenue generated from its sales of products for men. To appeal to women, Nike is offering new products designed by women athletes, free apps for athletic training, newsletters with advice and tips, and YouTube videos about workouts and motivation. With rivals like Under Armour and Lululemon also targeting women, Nike never stops running the innovation race, always looking for the next hit combination of performance and fashion.
Questions for Discussion
- How would you describe Nikeâ€™s product mix? Why would the CEO talk about editing down opportunities when heâ€™s aiming for aggressive growth?
- What is Nikeâ€™s branding strategy, and what are the implications for its investment in athlete endorsements?
- How is Nike using differentiation to distinguish its products in a crowded and competitive marketplace?