How Did Phil Knight Build Nike’s Sustainable Competitive Advantage? -The Key Success Factors
In the 1950s and in the early 1960s, One German company dominated the American shoe market. They had no challenging competitor. Yet, athletes were not getting shoes what they wanted and they were buying what was available in the market. Giant shoe manufacturers dictated the market. None of the big companies was willing to solve the problems faced by athletes.
In that scenario, in the year 1964, Phil Knight, a track athlete, who had just graduated out of college, started a company called ‘Blue Ribbon Sports’ in partnership with his track field coach ‘Bill Bowerman’, with an initial investment of $1000 and began to sell ‘Tiger’ brand sports shoes, imported from a Japanese manufacturer Onitsuka & co, with an aim to improve the lives of people.
The Tiger’s sales continued to rise rapidly every year. At the same time, Phil began to face problems with the Japanese manufacturer. Finally, he was forced to start manufacturing his own brand of shoes in the year 1971 under the name ‘Nike’. By 2017, the company became the world’s largest supplier of athletic shoes and sports apparel and a major manufacturer of sports equipment with revenue of US$34.35 billion and 74,000 people employed worldwide.
How did Phil Knight build Nike’s competitive advantage? What are those success factors? What lessons could we learn?
The first and foremost factor for sustainable competitive advantage is to position your brand inside a consumer’s mind. The ways to enter their mind is
a) Becoming a leader in an existing product/service category(It would need huge investments in money, effort & time and not a practical option)
b) Becoming first in any new product/service category. In other words, you need to create a new category.
If you plan to create a new category, then the conventional wisdom is to look for a niche market.
Finding a Niche Market. The general rule is to start small. Focus on a particular need, work on it, make your product distinctive and dominate the niche market. Smaller the segment, it is easier for the entire company to focus and meet the customer needs, wants and desires. Once you become a leader in the niche market, you could grow your market.
Phil Knight’s Niche Market and Value Propositions
Bill Bowerman, Nike’s co-founder was a famous track and field coach in the 1950s and 1960s. He had constantly motivated his wards to develop a winning attitude. For winning, ‘speed’ is the defining factor and he believed that shoes played a major role. Unfortunately, he was not happy with the shoes available in the market. He often lamented that none of the American shoemakers was interested in understanding the requirements of track athletes. The best shoes in the market at that time were from German manufacturers but they also had poor sole material.
To increase speed, Bowerman took upon himself to redesign the existing shoes to make them lighter. Lightness meant less burden while running and the athlete could devote all those extra energies into increasing the speed.
At the same time, long-distance running was also becoming popular and shoes that could last the race was hard to find.
“A shoe must be three things, It must be light, comfortable and it’s got to go the distance.” -Bill Bowerman.
Being a runner himself, Phil Knight’s target segment was consumers like him -The runners. For them, he had to find a shoe that would be lighter, comfortable, that would help in longer-distance running and at a price lower than the German brands in the market.
TARGET HOPE, NOT FEAR
After graduation, Phil Knight got a job where he had to sell encyclopedias door to door. He struggled to sell them. Being an introvert, he felt extreme discomfort in striking a conversation with strangers. Though he was given specialised training, he could not sell. He faced continuous rejection. He began to hate marketing.
But how did he Sell Shoes as an owner of ‘Blue Ribbon’? In the initial years of Blue Ribbon, Phil Knight didn’t have money to hire any salesperson. He had to do the selling. He went to track meets, met coaches, runners, fans and showed them the shoes. He could sell the shoes faster. Phil himself was surprised. He was in a ‘flow state’ while selling shoes.
The Reason -Earlier, Phil tried to sell encyclopedias whereas, in the case of shoes, he was not selling but offering help. He was caring for his customers.
If you care about your people, they would care about your product or service.
Help Your Customers To Help Yourselves -From the writings of Phil Knight, we could see that he was not calling his customers as consumers. A consumer is defined as a person who purchases goods and services for personal use. This definition prompts us to think “How to sell our product or services to them?” — It reduces people to mere objects. It diminishes empathy.
Phil considered his customers as humans or fellow people or importantly, runners. This thought prompted him to think “How to improve their lives?”. He firmly believed that if people got out and ran a few miles every day, they would be healthier, could live a longer life and the world would be a better place. He believed that his shoes were the better shoes available in the market that could help people to run better.
Every product manufacturer was promoting their product by targeting the ‘Fear Psychology’ of consumers at that time. On the other hand, Phil Knight motivated the consumers to use the product, not through ‘fear’ factor but through ‘Hope’.
BEING HUNGRY FOR BUSINESS KNOWLEDGE
Building a business empire without an iota of business experience is not an easy task. It would be tough to anticipate potential problems. Seventy percent of those problems might be common for most businesses. A closer look at other businesses(failure and success stories) would help an entrepreneur to be better prepared to face some of those common challenges.
While studying his MBA course, Phil Knight became interested in grabbing as much as business knowledge. He began to research a lot.
Accountant -In the initial years of his entrepreneurship journey at ‘Blue Ribbon’, Phil was struggling financially. To make ends meet, he joined a full-time job. His first job was as an accountant in Lybrand, Ross Bros & Montgomery. Being a small firm, he was fully responsible for his clients. He spent quality time with CEOs of his client companies as he had to get an in-depth understanding of their businesses which led him to gain useful business knowledge.
Pricewaterhouse -After finishing his CPA, Phil joined Pricewaterhouse, who had clients from startups to well-established giants. Auditing those companies granted Phil, a golden opportunity to learn about them. He observed how those companies survived, how they grew, how they sold things, how they built the culture, how they got into trouble and how some of them got out of financial problems. He took careful notes of essential details. He focussed more on the factors that lead to business failures.
-At Pricewaterhouse, Phil spent a lot of time with a senior accountant Delbert J Hayes, a senior, passionate accountant. Every other employee avoided Hayes, as he drank a lot. But Phil spent hours with him. Hayes told a lot of business stories about his clients and every story contained an important lesson.
All those lessons helped Phil Knight to build the Nike business empire.
GROW YOUR MARKET THROUGH CUSTOMER EDUCATION
Despite having better shoe than any other brand, Nike would have remained a very small niche player or would have vanished from the market if it had not invested in consumer education.
Red Ocean or Blue Ocean? -For Phil, if he was looking to increase the market share in the existing market, he would have to try to attract the customers away from the sports giants. In that case, he would be spending his scarce valuable resources in fighting those competitors. He would have vanished from the market. To avoid this, the best option was to look for a Strategy to grow the market rather than just aiming to grow the company’s market share in the existing market.
Non-Customers -The first step to expanding your market boundary is to shift your focus from “Customers” to “Non-Customers”. When you are targeting new customers who had never thought about your product or service, you are no more fighting any incumbent or your present competitor, you are fighting against “Non-Consumption”.
As Michael Porter pointed out that the first step for “Competitive Advantage” is to look at a market segment where competitive forces are weak.
Fighting Non-Consumption -To overcome the ‘Non-Consumption’, the first step was to educate them the benefits they would derive from your product or service.
A brand has to build relationships in order to extend the loyal customer base. One of the ways to build relationships is not to talk about our product or service but talk about what is best for the customer, teach them the best practices for the customer.
Nike’s Customer Education
In the early 1960s, running for fitness wasn’t popular. It was believed that only weirdos or crazy people would run for pleasure or exercise. Runners were mocked at that time. People threw soda or beers at runners. Not a pleasant time.
Nike’s original founders Bowerman and Phil Knight firmly believed that people could live a healthier and longer life if they could run for a few miles every day. Their mission was not to earn profits but to educate customers about the joy of running.
Bowerman thought that people mistake that only elite Olympians are athletes. For him, everyone’s an athlete. He firmly believed that if a person has a body then he is an athlete.
Phil and his colleagues talked about sports at every opportunity. They loved to spend hours with anyone who had a genuine interest in learning about the world of running. They allayed the fears the customers had regarding athletic sports. This attitude spread to others in the company.
Jogging Culture -Bowerman promoted the concept of running as a fitness routine, including people of an advanced age through writing articles in magazines. He also created a running program in Eugene that became a national model for fitness programs. In 1966, he wrote a book titled ‘Jogging’, which preached the benefits of jogging and the techniques. The book became a massive hit and millions of copies were sold. The concept of running for fitness spread like wildfire. In that book, Bowerman never spoke about ‘Blue Ribbon’ or its shoes. He spoke what was important for the readers. But the book brought enough publicity for the company. Because of the book, ‘running’ was no longer just for weirdos or crazy people but for everyone. It became trendy and cool. The market for shoes expanded beyond athletes.
Jeff Johnson -One of Phil’s earlier hires, Johnson was also a runner. He believed that runners are God’s chosen people and that running if done right, in the right spirit and proper form would be a mystical exercise, similar to the spiritual experience a person would get in meditation or in prayer. He kept inviting many people to take up running.
Knowledge Of Injuries -In the 1960s, it was tough to find information about sports injuries. Johnson bought so many books, learnt a lot and shared that knowledge about injuries with every runner. He offered advises regarding ways to avoid injuries, the ways to take rest and recuperate.
“To mean something to customers, you should assume intelligence and sophistication and inform those who are eager to learn, If you do, what may seem to be a niche market could very well appeal to far more people than you imagine” -Howard Schultz
Phil Knight’s company was not just teaching customers about running but also showing them how to enjoy it.
By educating customers, Nike created a new market where competition was literally non-existent. By the time, the competitor entered the market, Nike had already laid a strong foundation in the minds of people.
Phil and his first sales partner Johnson could meet only a limited number of people in a day. How to reach more people to sell shoes? How to grow the business?.
In the beginning, Phil approached sporting goods stores to sell those shoes but they rejected him saying that there was no need for another track shoe. Phil never believed in advertisements and moreover, he had no money for them. He felt that the best option would be to spread the brand’s value through word of mouth and build an expectation.
A business idea can spread rapidly among its potential customers only if the brand lets the interested consumers market to each other. The way forward is, to design and deliver communication targeting ‘Opinion Leaders’ in a community.
Opinion leaders are the people in a community who have enough ability to influence other individuals’ behaviour frequently in the desired way. They have better exposure, have sound knowledge in a particular domain, more cosmopolitan and open to exploring & experimenting. They have earned their reputation among the early majority. They have greater interpersonal networks which allow them to serve as a social model. People look forward to them for opinions, suggestions, and feedback.
Who were the early ‘opinion Leaders’ for Nike? Phil Knight and Johnson went to track meets, met coaches and runners between races and explained the science behind the shoes. The runners and coaches could understand the value of the shoes easily unlike general users. They also had already got sufficient fan followers who imitate them. They were the perfect initial opinion leaders for Blue Ribbon’s Tiger brand shoes. Moreover, Phil and Johnson loved interacting with them due to their shared interests. Phil also hired fellow runners as salespersons who believed in his idea.
Design For Observation -As runners went for a run with ‘Tiger’ brand shoes in the roads, people kept stopping them and pointing their feet and asked where they could get such neat shoes like those. Word of mouth spread like a wild-fire. People began to call Blue Ribbon’s office for shoes. These opinion leaders were spreading the awareness of ‘Tiger’ brand shoes. Many new customers started to write postal mails enquiring shoes. Before Phil realised, mail-order business began without many efforts.
Expanding into other markets -The runners and the mail-order customers became loyal to the brand. For expansion to other territories, Phil chose initial markets where these loyal customers were clustered. He leveraged every loyal customer’s network to spread the product’s value.
In the movie ‘Jerry Maguire’, a fictional character named Dicky Fox advises, “The key to business success is building personal relationships’.
“Everyone is interested in themselves, every customer needs special attention. They need preference — They need a special assurance that they are also one of the preferred customers. Preference brings trust. Trust brings loyalty. Preference makes the sale” -Marc Gobe.
Today, in this hypercompetitive market, great brands no longer depend only on innovation, creativity to attract a new market or to maintain existing markets — They need to satisfy the emotional desires, cultural-orientation and needs of their clients. Even customers expect the same. To understand their emotional desires, needs, we need to establish personal relations with our consumers — Need to engage a deeper, lasting connection with consumers.
Jeff Johnson, Phil’s first sales partner, would listen patiently to all his customers. He practised sympathy and empathy. He built customer data files from the beginning. He created an index card for each and every individual where he entered customer’s personal information, shoe size, shoe preferences and their individual likings(relevant ones). This database enabled Johnson to keep in touch with all his customers at all times. He sent them Christmas cards, birthday cards, notes of congratulations after they completed a big race or marathon or reached the goals of running specific miles.
Johnson wrote hundreds and hundreds of letters every month to his customers. He was an avid reader and he shared essential information(The information that was difficult to find in those times) about health, running techniques in his letters to customers. Most customers eagerly waited for Johnson’s letters and they started sharing about their lives, interests.
When Johnson opened Blue Ribbon’s first-ever small retail store on Pico Boulevard, he filled the shelves with books that every runner should read. He converted the retail space into a sanctuary for runners.
Co-creation -Many of Johnson’s customers voluntarily shared their feedback about the shoes with suggestions, which helped Johnson to tweak the shoe designs. It was Co-creation at its best -an active, creative, collaborative process between Blue Ribbon and its customers which helped to enhance the customer experience from the product. As their feedback was implemented, the customers felt happy and became enthusiastic partners in promoting the brand and also offered help in finding solutions to other problems. The customer’s active participation improved empathy, made Johnson and Phil Knight understand the realities of ‘consumer emotions’ and the motivations behind those emotions. Co-creation was one of the important reasons for Nike’s success as their shoes became better than any other competitor.
Market Expansion -When Johnson planned to sell shoes in Boston, he went and met his existing customers who helped him to connect to all local coaches, potential customers and other possible influencers. His customers spread the brand’s name far and wide.
Loyalty and Trust -In 1972 Chicago National Sporting Goods Association Show, Phil and Johnson were introducing the Nike brand for the first time to the world. That was the first time, they were selling shoes manufactured by another vendor other than Onitsuka. For every shoe manufacturer, it was an important show to grow the business. Unfortunately, the new shoes received by Nike were of poor quality and did not meet the standards set by the Tiger brand. Both of them got upset and did not want to push low-quality shoes. But after some time, consumers slowly trickled in and asked a lot of questions. To Phil’s surprise, the shoes were selling quicker than he had imagined. Johnson and Phil checked with the people the reason behind buying Nike’s shoes. The answer was that they trusted Blue Ribbon’s products. Trust comes through building personal relationships. It has to be earned.
Phil and his first team’s work motivated other employees to develop deep knowledge about sports. Every sales guy’s vital role was not to sell the shoes but to help consumers make decisions on shoes, running, running gear and injury management. It was about building a long-term relationship.
BE YOUR OWN CUSTOMER
The more you stay closer to the customer, the more successful the business would be. It is important to understand the needs, desires, fears, wants, and limitations of customers. One way to understand them is to observe them in the natural context. But the best way to understand the customer’s needs and desires is to become them. You are your customer. You are them and they are you.
Phil Knight himself was a runner. He loved sports. He knew the problems faced by the runners. Bowerman had been running for years and was a successful coach. He had trained many runners and some of them were acclaimed international runners. He not only lived like one of his customers but also observed many potential customers very closely. Initially, Phil hired fellow runners or sportspersons as his employees. His first sales partner Jeff Johnson, a runner, went on to become a successful shoe designer.
For Phil, Bowerman and Johnson, running was their stress buster. It was the drug to distract themselves from the everyday grind. They would go for a run if they had to think a new concept or analyse an idea or need to take a potentially risky decision. They lived like their own consumers.
Being the customer themselves, it was easy for them to understand the needs, desires and also could test any new designs and validate it. Whenever a new design was made, Johnson and Phil would wear and run for miles to test it. When Air max shoe concept was proposed, both Johnson and Phil fitted the concept in existing shoes, went for a jog and tested how it felt.
If you become your own customer, you would be making business decisions from your consumer’s perspective or user’s perspective and that would help your business grow rapidly.
The heart of Nike’s sustainable competitive strategy or success is its ‘Ability to Innovate’ and this was possible through their integrated process of experimentation. Through literally thousands of small experiments, Nike came out with innovative products that transformed the lives of consumers.
“The most important and visible outcropping of the action bias in the excellent companies is their willingness to try things out, to experiment.” — From the book ‘In Search Of Excellence’.
Bowerman -In the 1940s, being a track field coach, Bowerman was passionate about winning and he began experimenting with footwear. Frustrated with the available shoe models, he began to learn how to make shoes with the help of a local cobbler. He cross-sectioned existing racing shoes with his band saw and examined their anatomy. Then, he toyed with metal and plastic spike plates. He also learnt and experimented the crafting of shoe patterns.
Bowerman used to add some feature in instep or midsole or some other place in the existing shoes and stitch them back up and then he would ask his wards to run wearing those shoes. He had constantly used his runners as his test subjects. He continuously monitored the performance of his shoes along with his runner’s performance. He would note how arches held up, how the soles gripped the cinders, how the toes pinched and how much the instep flexed. He experimented many materials like animal oil, hides, vegetable oils, minerals to improve the shoe material’s properties. He had better knowledge than anybody else in the field at that time.
In the initial years of Blue Ribbon Inc., he kept making new designs and sent those prototypes, sketches & drawings to the Japanese manufacturer, Onitsuka. He also experimented with sports elixirs, magic potions, energy drinks, electrolytes to improve the energy and stamina of athletes.
Jeff Johnson -Jeff Johnson too experimented with shoe designs. He observed that the flats of ‘Tiger’ brand shoes didn’t have enough cushion to last longer races like Marathon. He wanted to help his customers to win the marathon race. He hired a local cobbler, grafted rubber soles from a pair of shower shoes and fitted them inside the Tiger flats and gave it to his customers, who went on to win the marathon races. His design of full-length, midsole cushioning became standard in all training shoes for runners. He had also collected a lot of feedback from his customers and implemented those suggestions in the other shoes.
Johnson constantly requested Phil to open a retail store until he agreed. He then experimented with the design and layout of the retail stores.
Johnson was the first guy at Nike to experiment with advertisements though Phil was against it. He continued to place ads, made his own visuals for advertisements. Slowly he learnt what kind of ads would work with his customers. Now, Nike spends billions of dollars on advertisements every year. Their ads had created a massive revolution and a loyal customer base.
By experimentation, Johnson and Bowerman gained a lot of new insights and knowledge.
Fail Quick, Fail Cheap -Failing is part of innovation and big failures can cost time and money. But Bowerman, Phil Knight and Johnson believed in failing quickly and cheaply without spending too much money and time. It was one major reason why they moved forward with small incremental experiments.
Freedom -Phil never interfered with Bowerman or Johnson’s work. They were free to explore and implement their ideas which allowed them to be creative and also be responsible. This freedom empowered them to make their own decisions.
Businesses are operating in an uncertain environment. Unless we experiment on a small scale and figure out what works, what doesn’t work, we may not make progress and both the results are important. Companies could innovate only when they allow experimentation as part of their culture.
Cortez was one of the results of Bowerman’s experiments.
In 1965, one of Bowerman’s athletes’ foot got injured when he unknowingly misstepped into the path of a passing teammate, in a long-distance race. That injury led to a stress fracture in one of the metatarsal bones. Bowerman ripped apart the athlete’s shoe and saw that the shoe had spongy cushioning in the heel and forefoot but zero arch support. Moreover, the outer sole was wearing faster, forcing the metatarsals to bend until it snaps.
Bowerman began experimenting. He noticed that the midsole remained solid on one of the Tiger’s sports shoes. He took that midsole and fused it with athlete shoe’s outsole. He then further cushioned the innersole, added a soft sponge rubber in the forefoot & the top of the heel and then a hard sponge rubber in the middle of the heel. Bowerman then sent the prototype to Onitsuka. The Japanese team had reservations against inserting rubber sponge at the heel but Bowerman prevailed, insisting that it would be the first shoe to take off the pressure from Achilles. The new design was manufactured and launched. Thus, Cortez was born -the finest long-distance shoe in the world at that time. Soft sponge midsole through ball and heel absorbs road shock; high-density outer sole for extra miles of wear.
Cortez was the first product that became too popular, catapulting Nike into the minds of people. Customers loved the product. It was launched at a time when the ‘Jogging’(popularised by Bowerman) movement was catching up. The shoe appeared cool and trendy. The consumers began to wear along with their casual attire. Many US athletes in the 1972 Olympics wore Nike Cortez shoes. Cortez shoes were featured in movies, TV shows. Popular singers, actors, actresses wore Nike Cortez publicly. The sales grew exponentially. Fans began to buy and refer to others. Nike brand name spread far and wide. A loyal fan base sprang into action.
Bowerman helped Oregan University in transitioning from a crushed cinder track to a synthetic track that would be spongy(similar to the track surface used in Olympics). But he faced a problem. The available shoes were not gripping well enough on the new surface hampering the runners from gaining the full benefits of the new advanced surface. The outer sole of the training shoes hadn’t changed for a very long time. The common bottom-tread was still just waves or grooves.
Bowerman began to search for a shoe that would be suitable for multiple surfaces. He began experimenting. One day, while having breakfast, his eyes caught the waffle iron’s grided pattern and a thought struck in his mind -“What if you reversed the pattern and formed the material with raised waffle-grid nubs?”.
Bowerman went on to use the waffle iron part as a pattern and began moulding process. After multiple setbacks, he got a workable prototype of outer sole with hard rubber projections in the form of gridded pattern and he then sewed it to one of his runner’s shoes. He made the athlete run in those shoes. The runner raced like a rabbit(According to Phil Knight) against uneven surfaces as well as over the synthetic turf. The new design vastly improved traction. Nike gave the shoes for trial during U.S Olympic’s track and field trials held at Eugene. Both athletes and everyday runners liked the product and concept spread like a wildfire. The Waffle Trainer went on to revolutionise the athletic shoe industry.
From Nike’s website, “The shoes, as Time magazine wrote, were ‘’grabbed by the army of weekend jocks suffering from bruised feet.’’ The Waffle Trainer placed Nike on the global athletic footwear map, setting the stage for unparalleled growth.
Waffle trainer not only felt different but was unique in aesthetics because of pillowy mid-sole cushion and the unique outer sole. It was considered a trendsetter in the styling of shoes. The visual appeal of the shoe drew customers in thousands to the stores. It was becoming a cultural artefact. Phil had a hunch that soon people might wear this shoe to classrooms, grocery stores. The shoe might become everyday wear. Adidas tried converting its athletic shoes to everyday wear but had only limited success. They never had a distinctive and popular shoe like waffle trainer.
To encourage everyday wear, Phil manufactured shoes in different colours that could go with different coloured jeans. The sales exploded and transformed the shoe industry completely. Nike became a household name.
As Cortez and Waffle Trainer was transforming the shoe aesthetics, more and more influencers began using it as everyday wear. Elton John, NWA and Snoop Dog wore Cortez in all their programmes. Cortez played a major role in the iconic movie Forrest Gump. When actress Farah Fawcett wore Nike shoes in Charlie’s Angels, people thronged the stores. Many Hollywood celebrities were wearing Cortez in public places. In the TV shows of the 1970s and 1980s, many of the main characters were wearing Nike shoes all the time. Phil Knight understood the value of style markers and influencers who guaranteed visibility and brand loyalty. He began to sign deals with influencers which further firmly positioned the Nike in the minds of people.
Phil Knight, a runner himself, always followed the careers of other runners in Oregon. For him, sports are like books, letting every fan to live other’s lives and take part in other people’s victories. He felt that his spirit merges itself with the athlete when the game is on. This oneness helped him to live in the shoes of the athlete.
Phil observed that many athletes did not make enough money to help them to compete at a higher level as well as to live a comfortable life in the later years. The bigger brands like Adidas, Puma were sponsoring only famous athletes. Phil began to support young athletes financially and also through offering other resources like people, equipment, facilities etc.. so that the athlete could pursue his or her dream. It started as a noble act.
Steve Prefontaine -One of the young athletes who impressed Phil Knight and Bowerman was Steve Prefontaine(Pre), a passionate, fastest middle-distance runner in America. Phil admired Prefontaine as once in a generation phenomenon. He had been watching pre for the last few years. He personally liked him. As pre was struggling financially, Blue Ribbon offered him a job for $5000 annually. The company supported him with other facilities too.
Prefontaine grew into a superstar. Most of the runners were introverts at that time but Pre was an extrovert, contagiously enthusiastic, joyous person. He was doing the races in Nike gear and was also winning.
Pre took cross-country road trips, visited all the track meets, state fairs, high schools, colleges and introduced Nike to everyone he met. Wherever he went, he wore Nike’s T-Shirt and Shoes. He personally advised some of his fans to try Nike shoes. Prefontaine truly felt that Nike was the best authentic product in the market and his fans deserved a better life. During the tours, he answered questions related to sports, running and offered health tips. He thought everything from his fan’s perspective and recommended things only if it was beneficial to his fans. So people loved him and thronged wherever he stopped. He allowed his foot to be experimented by Bowerman. He involved himself in the design process. The shoes were getting better. Being associated with the image of the Prefontaine helped Nike to differentiate itself from the competition. Brand awareness increased exponentially. It was an unexpected success for Nike. For Phil Knight, it showed a way to increase brand awareness and how to target a specific audience.
Phil observed that fans saw athletes as great role models for someone strong and successful and a product’s sales would be boosted among passionate supporters if the brand promised quality, reliability and integrity. Nike was all of those qualities. Moreover, the supporters were becoming loyal to the brand. Endorsing young players also gave Nike brand an image of being responsible for community growth and social development.
After observing the sponsorship benefits, Phil Knight extended the endorsement strategy to other local and national runners as well as their coaches. As the performances of athletes are easily understandable for everyone, linking the product to their performance drastically helped in spreading the brand name through word of mouth.
Phil Knight also looked for a long-term relationship with athletes. Michael Jordan’s association was so much beneficial for Nike that it owns 75% of the basketball shoe market.
Next Generation Of Customers -Phil Knight targeted players from college teams, school teams and their coaches-an area where bigger brands failed to explore. Nike was on the way to target the next generation of customers through them -a sure way of sustainable success. One day, a shoe inventor Sonny Vaccaro met Phil Knight to show his inventions. Sonny was in contact with every college basketball coach in the country. Like Johnson, he had built long-term relationships with his customers. He helped Nike to crack the college basketball market. This further helped the company to become a leader in the sales of basketball shoes.
Tennis -Initially, in Tennis, Phil struggled to get celebrity tennis players. He went and met some tennis officials and they suggested some young players but they warned against endorsing another young guy as he was hot-headed. They advised Phil to avoid that young guy. But Phil went against the advice and signed him. That young guy went on to play passionate tennis, win grand-slams and at the same time created controversies. He was John McEnroe and helped to popularise the Nike brand. Even Indian cricket icon, Sachin Tendulkar used to copy John McEnroe’s mannerisms in his childhood. Nike had hit a jackpot here.
The athletes' endorsement strategy has become one of the main drivers of Nike’s growth. Over the years, they signed deals with celebrity athletes such as Kobe Bryant, Michael Jordan and Tiger Woods. Some of the athletes have become synonymous with the Nike brand. In 2016, Nike has spent $9.4 billion in endorsements. A bigger budget than any other sports brand.
THE RESEARCH LAB
In the 1970s, Nike leased a dilapidated building at Exeter to manufacture rubber soles on their own. Johnson, who was in charge of the same, began to build a small research lab in that facility where he could experiment with his design concepts. Soon, the lab began to expand and kept adding high-tech research facilities. The lab became a place where athletes, scientists, engineers and designers converge to drive Nike’s innovation.
The Needs -Business success depends on how well the company has understood the customer. Nike’s Sports Research Lab helps the company to understand the athletes' needs in order to make the best products. The lab focuses on biomechanics, physiology, perception and athletic performance to understand the athletes’ needs.
Biomechanics -Nike was a pioneer in setting up a biomechanics lab in the 1980s. The lab quantifies athletes’ movements, the environments they play in and the products they use. The lab has state-of-the-art equipment such as 3D motion capture camera. Then they analyze the data from athletes and understand their movements, performance and when and how they feel fatigued.
Energy Conservation -The lab has facilities(environmental chambers) to accurately replicate the environment in which an athlete would be playing so that a product’s performance could be determined at extreme temperatures and humidity. Nike physiologists conduct thermoregulation research by testing athletes and the specially designed sweating mannequin(a life-sized anatomical model) in these chambers. Nike’s aim is to create footwear and apparel solutions that could lower an athlete’s body temperature, help him to conserve energy so that he or she could train longer and harder.
Agility -Agility refers to an athlete’s ability to move quickly and easily, whether in reaction to an opponent or as a pre-planned manoeuvre. It is a complex and critical skill that requires physical strength and mental quickness. Nike’s research lab devotes special attention to study agility in order to make a shoe that could impact an athlete’s agility performance.
Traction -Traction also affects agility and one of the important design element in the making of the shoes. Nike’s research lab keeps researching and testing various methods to improve grip but at the same time boosting agility.
Materials -The lab also experiments various new materials and their construction in order to improve the cushion and the athlete’s performance.
When Blue Ribbon Inc. was successfully selling ‘Tiger’ brand shoes and making it popular, Phil Knight constantly faced problems from the Japanese manufacturer, Onitsuka and Co.
- The Japanese team was looking for a financially sound partner to sell Tiger shoes in America. They might ditch Phil at any moment.
- Though Tiger shoes were of good quality, their shipments were always delayed and the orders were mixed up almost all the time. It created a lot of difficulties for Phil Knight in meeting customer demands and repaying the money to banks.
- Bill Bowerman and Johnson were constantly sending the new design requirements based on the understanding of the customer needs to Onitsuka’s team. But the Japanese manufacturer often refused to listen and never implemented many of the requirements. Bowerman and Johnson were frustrated by the lack of responsiveness. Phil felt uncomfortable being at the mercy of Onitsuka’s team.
Crisis or Opportunity -As Blue Ribbon had been selling shoes for more than seven years, Phil felt confident about the market and thought that it was about time to hunt for a manufacturing company that would deliver good quality shoes on time and would be willing to implement his team’s design and quality requirements. Phil saw the problem as an opportunity rather than a crisis. An opportunity to sell your own brand of shoes than selling for somebody.
Shoe Dogs -Phil came across people who were called ‘Shoe Dogs’ who devoted themselves wholly to the making, selling, buying or designing of shoes. They lived and breathed shoes. They were helping companies to make knock-offs of Adidas and Puma shoes. By just looking at the shoes, they could tell what kind of material was used and what construction methods were followed. Being a shoe-dog himself, Phil could understand their values and could connect with them easily. Those shoe-dogs were in touch with many quality sports shoe manufacturers. They connected Phil to those manufacturing facilities. Wherever possible, Phil put one of the shoe-dogs in charge of production and supply in each factory which ensured quality deliveries and on time.
Embrace and Drive Change
Phil did not want to depend only on one country for production as it may pose challenges at a later time. In 1968, he outsourced some of his production to a company in Mexico and U.K.
In the early 1970s, the Japanese Yen was fluctuating and the labour costs were on the rise. At the same time, demand for Cortez and Waffle Trainers were growing rapidly. Running for fitness concept was spreading wildly. The concept of ‘everyday wear’ was just emerging. In that scenario, Phil realised that Supply would be a major problem for business. He had to find more shoe manufacturers. Relying on Japan would be a riskier idea. The giants Adidas and Puma were already facing supply and demand problems.
Taiwan -At the same time, Taiwan was building factories rapidly and was capable of manufacturing low-priced footwear. Adidas and Puma had been manufacturing shoes in giant factories in Korea. Phil preferred smaller factories than giant manufacturers as he could dominate them and easily influence them to implement Nike’s quality standards and design ideas. In Taiwan, he connected with a shoe-dog who helped him to sign deals with hundreds of small Taiwanese factories. Phil also chose some shoe companies whose owners were real shoe dogs. As expected, in a few years, the Japanese Yen’s value further increased and the labour costs rose dramatically. Every shoe manufacturer suffered including the German giants but Nike remained unscathed.
Entry Into China -Attracted by the potential market opportunities, Phil had been following up China’s economic developments for some time. -One billion people, Two billion feet.
Phil strongly felt that the first brand which enters the China market would soon establish a strong global competitive edge due to the economics of scale. Moreover, the production sector of China would be cheaper than any other place in the world due to the lower labour costs. He was determined to enter China as soon as it opens its economy to the outside world. He kept in touch with people from the Chinese government. No other shoe brands had given a thought about investing in China at that time.
In the 1980s, When China opened its economy, Nike was the first American shoe company to enter its market and also the first one to sign production deals with local manufacturing companies.
Nike went on to secure endorsement deals for all Chinese athletes as the government was the sole negotiator. In the following Olympics, every Chinese athlete walked into the stadium wearing Nike shoes. Being first to China market helped Nike to make a huge stride in building sustainable competitive advantage.
Automation -To reduce the dependency on cheap labour, with the support of its manufacturing partners, Nike began to automate many of its production processes. As the percentage of automation increased, Nike further widened the distance between the next rival brand.
Today, Nike’s contracted factories employ more than a million workers in forty-plus countries. Vietnam and China dominate production. Nike has been one of the pioneers in outsourcing production to the developing world. Nike is no more dependent on one country for its manufacturing and better suited to manage political problems in any one of the countries.
ADVERTISING AND EMOTIONAL BRANDING
Brand Loyalty is not about selling an essential or a desirable product at a good price to the consumer but about establishing unconscious, emotional connections with them.
Proximo to Maximus in the ‘Gladiator’ Movie, “I was the best because the crowd loved me. Win the crowd. You will win your freedom”. To win the mob, Maximus had to touch the emotional minds of the crowd.
Through advertisements, Nike spoke to the emotional minds of consumers. It aimed at providing a deeper level of experience to the viewer. It targeted Hope than Fear.
A better way to motivate consumers was not through ‘fear’ factor but through ‘Hope’
Initially, Phil Knight was sceptical about advertising as he could not see any benefits but he never interfered with Johnson’s experimentation of promoting the brand through ads. Johnson soon learnt what was working and what was not working. He kept tweaking the ads. Johnson’s efforts bore results -Sales exploded in areas where ads were shown and brand awareness increased. Finally, Phil had agreed to invest in advertising as a part of Marketing strategy. From the 1980s Nike is known for making inspirational and cool videos that target the next generation of customers and athletes. It spends billions on advertising, three times more than the next competing brand. It utilizes several channels for advertising.
Just Do It
In 1987, NIKE’s ad agency made a new TV spot celebrating Nike’s early role in founding the jogging craze. People from Nike and the Ad Agency felt that the ad is striking and provocative. But when they previewed it to a group of consumers, the Ad met with silence. Nike’s founder Phil Knight was upset. He felt that the ad celebrated Nike Products, not the customers.
Next time, the Ad agency came out with revised ads showing all kind of athletes doing what athletes do. Every athlete spoke with ‘Emotion’ about what they do, what ‘Emotional’rewards they gain and why they do it in their own ‘Emotional’ words, followed by “Just Do It”.
The ad was not about sneakers, superior performance or breakthrough innovation of Nike products. It was about Emotional rewards -about “Just doing it” whatever he or she feels like doing.
Finally, the lightning bolt in the advertisement was ‘Tagline’ -If the tagline was “Get down and go jogging”, would it have resonated with users like “Just Do It”?. It’s “Just Do It” tagline and its accompanying advertisement challenged people to achieve their goals and aspirations. Many took up fitness, quit bad jobs, left bad relationships and took up their other long-pending aspirations.
Nike’s advertisement was about people and how their lives could be changed for the better of themselves. It was against conventional wisdom at that time. Every brand was talking about them or their products in their advertisements but Nike chose a different path.
Find Your Greatness
Nike’s competitor ADIDAS was one of the prime sponsors for the 2012 Olympics. The Adidas’s ads during the Olympics had fun quotient but highlighted it’s products and benefits. Their marketing communications were linked with style and innovation.
On the other hand, Nike’s Olympic commercials were quiet, moving and roused hearts. The voiceover says
Greatness does not reside in any special person or special place. Greatness is wherever somebody is trying to find it.
The ad was simple but made an emotional connection with users. It got 10 times more hits than Adidas’ ad on Youtube.
Stories -Nike’s ads told stories. The customer was the hero, not Nike products. The stories were about how a customer overcomes various challenges in life. Through stories, the brand indirectly sold the human experience its products would provide. It helped Nike to convert buyers into believers who went on to share the goals, values and meanings.
Be Emotional to Inspire Others Emotionally -Phil Knight, Jeff Johnson, Bowerman believed in changing the lives of people through running. They were emotionally attached to running and the lives of runners. They wanted to put their money where their emotions are attached — That was the reason why they invested in shoes, why they invested in player endorsements like Sponsoring Prefontaine. So, the goal of Nike’s ads was to inspire people to become an athlete and be healthier.
“If you can’t get emotional about what you believe in your heart, then you are in the wrong business.” -vince Lombardi.
Create New Meanings -Nike’s advertisement is focused more on fulfilling user’s aspirations, helping them to achieve their goals and celebrate their success(Yes, it is their success, not Nike’s). Wearing a pair of Nikes offered a self-identity, a distinct personality to its consumers. It is about consumers, not about the company.
People don’t buy what you do, they buy why you do it-Simon Sinek.
- Nike treated its consumers not as customers or buyers but as humans.
- The products provided an experience to consumers. Bowerman and Johnson worked hard to enhance the experience a consumer gains from their shoes.
- Nike inspired its consumers to have dreams through their ads and also helped them to accomplish those dreams.
- Johnson supported the formation of shared communities so that consumers could get support and knowledge.
- Nike helped consumers to create their personal success stories that revolved around its products and thus the brand became part of their memories and their social life.
Through Emotional Branding, Nike built loyalty and got a longer lifetime value from its Users.
INTERNAL BRAND CULTURE
Hire Right People -A founder alone cannot build a sustainable brand. He or she would build a great company if he or she could find a colleague who has ‘shared common interests’ and who could bring different strengths to the company.
“If you have the right people, then the problem of how to motivate and how to manage people properly goes away”-Jim Collins
Phil’s first sales partner was Jeff Johnson who himself was a runner and he loved sports. Woodall, who took care of operations was also a runner. Delbert J Hayes, the best accountant was passionate about numbers. He considered accounting as an art. Strausser, a lawyer was good at negotiation. He loved his work. None of them was motivated by money but by work challenges.
Phil’s first team had a kind of people who wanted work to be a meaningful play. He hired mostly known people from Oregon, from their network of athletes. They were misfits in other workplaces. They were dismissed, shunned by previous bosses. They were moulded by their previous failures.
Johnson could not fit into a regular 9–5 job. He was a divorcee, lost his job and got into a major accident before joining Blue Ribbon. Hayes’ physical appearance and demeanour played a role in blocking him from becoming a partner in his previous company. Strausser, an insurance lawyer hated insurance and could not fit himself into the previous company’s policies. Woodall, a track athlete himself, who transformed Nike’s operational management, had lost his legs in an accident and struggled to get a job. Phil’s dream was to become a baseball player. He worked hard but failed to get into the college team. He was gutted.
Phil writes that one thing was common among everyone — they never faced a ‘winning’ moment in their life till they joined Nike. Nike is about ‘Winning’. Each person was willing to do whatever was necessary to win, even though most of the required activities fell outside their area of expertise. Johnson had no experience in selling any product, but he sold the shoes in loads; He had no experience in designing shoes but he successfully made revolutionary designs; He never knew about running a big factory but he successfully built a factory from scratch, managed it well. Phil’s initial team members were willing to learn, willing to stretch themselves for common shared interests.
Criticise idea, not people -In Nike team meetings, the ideas were criticised with disdain and abuses without bothering about or taking into account someone’s feelings. Even Phil Knight had to face it multiple times. It crushes the ego and status barriers. It helped people not to take anything personally so that they could concentrate on the idea.
“No idea is too sacred to be mocked, and no person is too important to be ridiculed. It summed up the company spirit” -Phil Knight.
Freedom and Responsibility -Phil Knight disliked micromanaging people. When Johnson was experimenting with various design improvements, client interactions, advertisements, Phil never interfered. He never gave feedback too. He let Johnson be on his own to decide on what to be done. He firmly believed that a leader should not be telling people how to do things but allow them to surprise him with results. It built trust. Johnson felt that Phil’s leadership style gave him more freedom to explore. It increased creativity and enthusiasm in the product design and selling. Phil considered everyone as a partner, not as an employee.
Transparency -Phil Knight shared every information about the business with all his associates. Transparency built trust. The information helped the employees to come with better solutions for business problems and made them more responsible.
EXPANSION INTO ADJACENT MARKETS
After being successful in building a brand in running shoes, Phil Knight began to explore whether Nike could export its core competencies, skills & capabilities to any adjacent market and create new value propositions with new customers.
From 1971, Nike began to rigorously observe and study requirements of football players. In 1978, Nike football boot was launched. Similar to the running shoe business, Phil signed deals with divisional college teams, schools, younger players and coaches. Soon, Nike began sponsoring top professional European football clubs like Aston Villa, which went on to clinch Europe’s top club prize wearing Nike boots. Then Nike began to sign top athletes to promote the brand. As Nike began to establish a leading position in the football shoe market, it launched an apparel line endorsed by the sport’s top athletes. Then later Nike got into equipment and accessories. Once it became successful in America, Nike began to sell its football products in other countries.
In Golf, Nike first established a leading position in Golf shoes. Then began sponsoring college teams, players and coaches. Then professional teams. Finally, professional athletes. Nike then launched a clothing line endorsed by top athletes like Tiger Woods. Then the company began to manufacture and sell higher-margin equipment like golf clubs etc… Later, they expanded beyond the USA to the global market.
Repeatability -Nike repeated the above formula to expand its business to other sports categories and it was fairly successful. The repeatability ensured few mistakes, less risk, faster expansion than competitors, clear communication and swifter execution. Before a competitor realises what’s happening, Nike had established leadership in baseball, football, cycling, volleyball, tennis, basketball, hiking and skateboarding. This helped the brand to become a leader in the sporting goods industry.
Chris Zook and James Allen wrote in their HBR article, “In 1987, Nike’s operating profits were $164 million to Reebok’s $309 million, and Nike’s market valuation was half the size of Reebok’s. By 2002, Nike had grown its profits to $1.1 billion, while Reebok’s had declined to $247 million. Both companies had started out in the same business with the same manufacturing technology and comparable brand names. Yet Nike found a formula for growth that it used successfully again and again, while Reebok seemed to pursue a different source of growth every year with uneven results”.
Expanding into new categories allowed Nike to build volume which helped the company to exploit the economies of scale.
In the 1960s, Adidas and Puma stagnated because there was no challenging competition. Nike grew fast because competition forced it. Phil Knight wrote that competition is always a good thing, that it always brings out the best in people, but that’s only true of people who can forget the competition. Phil Knight was lucky that he had two giant shoe manufacturers in the field who provoked him to grow the brand rapidly.
Nike’s Supply Chain System too had played a major role in establishing Nike’s competitive advantage. Similarly, continuous innovations like Air Max range of shoes had widened the gap between Nike and other brands. Many other factors have contributed to Nike’s success.
We could see that multiple activities have played a role in building a competitive advantage. And those activities are inter-related forming a complex multi-dimensional inter-linked chain. A competitor copying only a few activities would fail to compete and it would be tough for anyone to copy all the activities and their inter-relationship. Once, Reebok tried to duplicate Nike’s “Air Jordan” but failed. Before Nike built Air Jordan, it had built the support network among the schools, colleges, fans and popular athletes. Just copying one activity did not help Reebok.
And a final mention about Phil Knight -an average student, a failed basketball player, an average runner, with no business experience but made history by transforming the sports industry. He is an inspiration for every entrepreneur. Can any competitor copy him?
Phil Knight, “The cowards never started and the weak died along the way, that leaves us, ladies and gentleman, Us”.
References: Content predominantly from ‘Shoe Dog’ by Phil Knight, What Is Strategy-HBR article by Michael Porter, The Five Forces Of Competitive Strategy-HBR article by Michael Porter, articles from entrepreneur.com, retailwire.com, What Great Brands Do by Denise Lee, Good To Great by Jim Collins, HBR article by Chris Zook and James Allen, Article in Cheshnotes.com by Abhijeet Pratap, Positioning by Al Ries, History Of Nike Cortez in Sneakers-magazine, Magic Shoes by Daniel Sandison in Hypebeast.com, Businessinsider.com, Blue Ocean Strategy by W Chan Kim, Wired to Care by Dev Patnaik, Scientific Advertising By Claude Hopkins, Emotional Branding by Marc Gobe, Nike Website.
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