Nike's Business Strategy: How Nike Rose to Market Dominance

Introduction

In the 1970s, Nike developed a strategy that broadened its base from specialized athletic footwear to popular consumer-based fashion footwear. By the 1980s, Nike footwear had dominated the market, appearing on the feet of everyone from American youths to Olympic runners. Nike's strategy was to combine serious technology with the popular taste for casual wear and comfort. As David C. Rikert and C. Roland Christensen report, "Running was never the lifeblood of running shoe sales. Comfort was" (Rikert & Christensen, 1990, p. 3). This paper analyzes Nike's strategy and explains why it proved so successful.

The Nike Strategy

Nike's strategic rise in the 1970s from 1960s obscurity was based on the emergence of a new market in American culture. That market had precise parameters: "comfort and appearance formed the basis of the 'ath-leisure' segment of the market" (Rikert & Christensen, 1990, p. 3), and Nike produced a product that appealed to consumers who wanted to be sporty, casual, comfortable, and fashionable all at once. Nike sneakers met this demand — and even helped "to stimulate" it (Rikert & Christensen, 1990, p. 1) — by paying for visibility. Nike's self-promotion in the new market arena of fashionable leisure and sport footwear helped fuel the company straight to the top. Nike developed brand loyalty by catching on to a changing tide in cultural style and then paying "athletes and organizers of sporting events" to wear its product (Rikert & Christensen, 1990, p. 4). Nike's strategy was to appeal to a mass market by hiring the best advertising money could buy: the very athletes themselves, like whom millions of Americans wanted to be.

Nike was also able to appeal to submarkets within the branded athletic footwear industry. By 1982, Nike had captured a majority of shares in the racquet and running shoe markets as well as a significant portion of the basketball shoe market. Nike's competitors, Adidas and Puma, had left the door open for another major player — Adidas by being heavy-handed with dealers and distributors, and Puma by simply failing to "keep up with the expansion of the U.S. market" (Rikert & Christensen, 1990, p. 5). New Balance, developed by professional runner Jim Davis, produced a premium shoe at a premium price in 1982, illustrating the company's emphasis on "performance and function," but at such an exorbitant price point that New Balance could not appeal to the mass-market, middle-income families to whom Nike appealed. New Balance also failed to secure the ath-leisure apparel market, instead choosing "to supply only authentic performance clothing" (Rikert & Christensen, 1990, p. 7). Nike, on the other hand, "sold a full line that included both performance and ath-leisure items" (Rikert & Christensen, 1990, p. 7). Again, Nike was positioning itself to appeal to a broad base whose changing cultural preferences were well served by the ath-leisure manufacturer.

The Beginning Strategy

Nike's visionary founder Phil Knight — a runner himself — wanted to create a product that was high in quality and low in price and that could compete with Adidas, a German-based company. He saw no reason to rely on German manufacturing. Rather, he looked to Asia: "I thought it might be possible to take over the market with low-priced but high-quality and smartly merchandised imports from Japan, as had already happened with cameras and other optical equipment" (Knight, qtd. in Rikert & Christensen, 1990, p. 8). Knight responded to the shift in global manufacturing practices and saw the potential for building a company capable of rivaling the dominant Adidas.

That company was originally called Blue Ribbon Sports (BRS), and it made its first entry into the footwear market when Knight struck a deal with Tiger shoes in Japan to import the Tiger brand. The business strategy in these early days was to elevate the shoe through design — Knight's partner Bill Bowerman designed "the first midsole, which Tiger agreed to incorporate in several of its models" — and to get athletes to wear the shoes by "getting out to the tracks, to the locker rooms, showing the coaches and athletes our shoes, putting on clinics" (Rikert & Christensen, 1990, pp. 8–9). Knight was, in effect, comparable to a traveling salesman. But he and his team were successful salesmen, and when Tiger threatened to break their deal unless BRS handed over 51% of its shares, Knight and his team decided to take their business strategy to the next level.

Reaching that level depended on finding another Asian source to finance, manufacture, and export the shoes that BRS would sell. Knight's employee Jeff Johnson came up with the name Nike, and a small fee purchased the now-iconic swoosh design from a graphic design student. Knight then found "Japan's sixth-largest trading company," Nissho-Iwai (Rikert & Christensen, 1990, p. 9). Knight supplied the design and Nissho provided the shoes. Those shoes were then brought to the 1972 Olympic trials, an event that served as a catalyst for Nike's rise to the top of the market: "The company proudly noted that 'four of the first seven finishers' in the marathon event at the trials (actually, numbers 4, 5, 6, and 7) wore the NIKEs" (Rikert & Christensen, 1990, p. 9). The Nike brand was born, and the company had placed the proper spin on its product — using product placement effectively — to secure a meaningful share in the athletic footwear market.

Not only was Nike now positioned to work its way into an already established market, but a new market was also emerging. Nike began to develop a product line that could meet the needs of this new demand for ath-leisure wear, whether in leisure shoes, leisure apparel, shoes for amateur joggers and non-athletes, or footwear for specialized sports such as soccer, basketball, football, and tennis. Nike products offered comfort, style, and technology — including motion control, cushioning, and variable-width lacing.

Conclusion

Nike's business strategy was built on know-how and appeal. Its founders knew enough about business, running, and shoes to get a high-quality product manufactured at a low cost — and then they made that product appealing to professional athletes by paying them to wear a shoe that was both comfortable and protective. Seeing their sports heroes wearing Nikes, consumers across America became enamored of a brand that was fashionable, comfortable, and above all technologically advanced. The combination of mass-market positioning, athlete endorsement, Asian manufacturing efficiency, and genuine technological investment formed the core of a strategy that carried Nike from a small import operation to one of the dominant forces in global athletic footwear.

Reference List

Rikert, D. C., & Christensen, C. R. (1990). Nike (A). Harvard Business School, pp. 1–31.