Nike is the largest Footwear and Athletic apparel brand in the world. Their total revenue in 2018 reached $36.5 Billion Dollars, nearly $12 Billion Dollars more than their nearest competitor Adidas.
Nike’s market capitalization is twice that of Adidas, coming in at $110 Billion Dollars indicating investors are far more receptive to the sporting giant’s outlook and marketing strategy than the competition.
But why is that? What is Nike doing that Adidas isn’t?
Well in summer 2017, Nike announced its triple-double plan. It outline their desire to double innovation, speed to market, and their direct connections with consumers.
Nike is transforming its business towards a direct to consumer marketing strategy. But what is a DTC marketing strategy?
Well first you need to understand what the traditional business model is. To give an example: let’s say you want to start a business that makes custom t-shirts. After spending hours and hours making all your t-shirts, you are finally ready to sell them at $10 a piece.
In this case, you will need to sell your shirts to a wholesale distributor. The distributor will then sell, ship and deliver their shirts they bought to a retailer who will then sell to the public.
However, instead of selling the shirts for $10, the retailer prices are at $16. That’s because both the distributor and the retailer need to raise price to make money.
The inflated price also means you will sell fewer shirts than you would have if the shirts had been sold to the consumer at $10 due to the laws of supply and demand.
If a direct-to-consumer strategy was used however, the shirt will be sold to the consumer at $10 because your product would have avoided the markups from both the distributor and the retailer, thus lowering the total supply chain cost. But how do companies form a direct connection with the consumer and why is it the ideal business model.
Well selling your products online and shipping directly to customers is by far the most popular way. However, it doesn’t have to end there. With the increasing presence of social media in people’s day-to-day lives, DTC companies can simply pay for ads and easily access their target market.
Buying ads on social media gets people talking about your product and helps to create a community centered around it. Companies can now collect more consumer data giving them more information on how to provide exactly what people want and new features like Instagram Checkout option which allows people to buy a product that shows up in their feed is making it easier for companies to make a connection with their consumer.
Not only does the DTC strategy allow companies to access new markets, but also to form more meaningful connections with their consumers and strengthening the company’s perception and brand.
So how is Nike implementing the DTC marketing strategy? As for now, Nike has invested more than $2 Billion Dollars in Nike Direct, the DTC division of their business. Currently however, 70% of Nike’s business is done through wholesale distribution with their near 30,000 partners.
Nike plans to reduce those 30,000 partners to a mere 40. Why? Because the fewer the partners, the easier it is to monitor the customers experience and quality of service.
Nike isn’t trying to get rid of wholesale distribution, they are trying to get rid of the retailers that don’t have the resources to differentiate Nike’s product and brand from others.
These select retailers have agreed to hand Nike their own department and the ability to hire their own employees, people who know about Nike’s products. Nike is also in the process of opening a series of pop-up stores in areas where sales are high.
For instance, a Nike store was opened in Los Angeles, focusing on bringing the physical and digital retailing spaces together. The products the store carries is determined by what is popular in the area, learned via online sales. For example, in Los Angeles the retro-style sneakers are featured because a lot of people bought those styles online.
And if you are Nike plus member, your instore experience will be that much better as customers can request fitting rooms, shoe sizes, and reserve a pair to try on later. You can also checkout and skip the line and receive special offers all through the Nike app.
All these efforts seem to be paying off as Nike’s digital sales rose 36% in the first quarter of 2019 and reached $1 Billion Dollars of net income for the first time in the company’s history.
Rather than continuing with the traditional business model, Nike decided to be proactive and switch their marketing strategy – a move that was necessary to stay relevant for years to come.
To rephrase Charles Darwin’s famous words, it’s not the strongest of companies that survives but the ones most responsive to change.