SLMT2 ASSIGNMENT 1- GRP G4

A comprehensive report on qualitative evaluation of the value chain adopted by Nike

INTERNET AS ONLINE SALES CHANNEL

with special focus on the online sales channel strategies.

INTERNET AS
ONLINE SALES
CHANNEL
EXECUTIVE SUMMARY

CONTENTS
Executive summary
NIKE
The company2
Distribution & Sales Model3
Sales Fulfillment Process4
Internet Sales
5
Areas of Differentiation6
Value-add by internet channel6
Advertising/Promotion Strategy 7
Advantages / Limitations
12
Internet Portal & Operations
14
Competitive Benchmarking
14
References

If you do build a great experience, customers tell each other about

that
Jeff Bezos, Founder & CEO, Amazon

Few years back, companies would decide whether to sell

their products or service directly or indirectly. But today,
they try and figure out the best way or combination of ways
to sell directly to consumers. They swing between the
dilemma of retailing or e-tailing; even in e-tailing they
ponder whether to go website only or take help of ecommerce channels. With growing digitization, no company
wants to miss out on any probable customer and hence, we
find most products or brands existing across varied sales
channels.
This report talks about one of the best companies in
sportswear segment- NIKE. The sales model, order
fulfillment process and use of internet as sales channel has

Prepared by

been elaborately discussed. Further comparison with its

competitor Adidas has also been made.

Group G4
SLMT, Section 2,
PGP-2, TAPMI, Manipal

21st Nov 2015

NIKE
THE COMPANY
Nike (since 1968) is the largest seller of athletic apparel and footwear in the world with presence in
190 countries. Nikes products are mainly available in the sporting categories- Running, Soccer,
Basketball, Mens Training, Womens Training, Action Sports, Sportswear and Golf. NIKE brand also
focusses on kids and other sports, including cricket, lacrosse, tennis, volleyball, and wrestling, among
others.
Nike has its strategy to grow in running category. It has been in India since 1995 and enjoys a large
market share in sports industry. During design and development phase, products are evaluated and
wear tested by athletes.[5] Nike has copyright protection in its design and graphics.
Nike practices the Form Follows Value strategy where structure of function, resources, assets and
people is determined based on winning value proposition for specific customer segment.

NIKEs Target Market is mostly professional athletes. In categories of soccer, basketball and running,
young athletes are major part of their sales strategy. Women have been another target and womens
training segment has higher sales than mens training. In order to connect more with its consumers
Nike has entered digital sport category and e-commerce in recent years. It introduced the Nike+

running sensor in collaboration with Apple Inc., the FuelBand and NIKEid for capturing and engaging

consumers.

DISTRIBUTION & SALES MODEL

Objective of Nike is to1.
2.
3.
4.
5.

Improve profit margins

Reduce inventories
Minimise price markdowns
Right product to right customer
Availability of assortment on time

NIKE has five primary distribution centers in the and16 distribution centers outside the US at the end of
fiscal year 2014. All of which follow Lean manufacturing, Material Consolidation and Waste reduction
through manufacturing innovation and modernization.
Nike distribution channelsNikes sales have grown at a CAGR of ~10% over the past five years. In fiscal year 2014, DTC
revenues accounted for ~20% of total NIKE Brand revenues as compared to 18% in fiscal year
2013. The company is attempting to grow the DTC category at an annual compounded growth rate of
14.7%.

Wholesalers
in U.S.
international
market wholesalers

Direct to
Consumer (DTC)

Brand divisions

factory retail outlet

online website
e-commerce 3rd
party websites

Multi-branded
outlets
catgory specific
retailers- JD Sports

Under its DTC strategy, Nike include both retailing and e-tailing sales to consumers. Nikes brand
experience stores offers consumer the full brick and mortar retail proposition with higher price latitudes.
Example each NIKETOWN features 6 to 7 brands with most innovative products in those categories for
walk-ins to experience. Its a hub for both premium services and a premium experience. Whereas the
factory stores provide premium products for a value price thereby attracting high shopper volumes.

ONLINE SALES FULFILLMENT PROCESS

Sales process for order through Nike website

Sales process for order through e-commerce website- ex. e-bay

Nikes e-commerce business is profitable and plans to provide a mobile and seamless omni-channel
experience to its consumers. Nike has entered the customised product market through NikeiD and
its SNKRS application. It provides a premium and unique experience to customers.

2 INTERNET SALES
Nikes retail strategy focusses highly on online sales through the company website and third part ecommerce sites. Online sales through www.nike.com made up 15% of total NIKE brand DTC revenues
in fiscal year 2014, compared to 12% in fiscal year 2013. The category grew by 42% in fiscal year
2014, and was up by 70% year-over-year in 1Q15. The company plans to grow online sales almost
fourfoldfrom $540 million in fiscal year 2013, to $2 billion by 2017.

Nike.com is expected to be a key driver for DTC sales, with $7 billion in e-commerce sales expected by
fiscal 2020. In fiscal year 2015, Online sales was at $1.2 billion. The e-commerce accounted for bout
15% of total sales compared to 10.7% of last year. By fiscal 2017, Nike plans to post annual web sales
of at least $2 billion.

3 AREAS OF DIFFERENTIATION
Nike has successfully created a marked difference between its internet as sales medium and retail
stores. Experience offered in both the channels have been uniquely defined. The following are the
strategically different methods adopted by Nike1. Mass to ME- there is no single best shoe and everyone has different expectation. Nike
created the NIKEid webpage in its website www.nike.com that allowed customers to order
customized shoes and accessories.

2. Community building through website and social media

3. International e-commerce expansion is part of Nikes growth plan.

4 VALUE ADD
1. Real time Communication with value chain playersQuickly relay information to customers and suppliers to confirm orders, dispatch and pick-up
payments and so on.
2. Metrics of Consumers easily availableNike uses its NIKEid to capture personal details of customers in order to predict future trends.
online retail website integrates analytic softwares that track customer behavior.
3. Use of online marketing toolsSEO and social media marketing is enhanced
4. Ease of product search through filters and sorting tools used in the website.

5 ADVERTISING & PROMOTION STRATEGY

Offline Promotion StrategyNike has leveraged on its in-store promotion via Window display, shelf talkers, mannequins, category
demarcation and retail ambience that extensively show the spirit of athletes and sports.
1. Nike Factory Outlet more concentrated on value pricing and volume based sales. We can see
products being displayed traditionally without much differentiation or appeal. 50% off sales
promotion banners and hangers can also be seen. The images below are of a factory store in
Bangalore, India.

2. Nike Brand Store- the promotion and pricing strategy followed in brand outlets are very premium
and uniquely defined. More concentration is given on providing experience to customers with
exposure to all innovative products.

Online Promotion StrategyMajor differences that can be seen for online sales strategy is in terms of use of Mobile Application and
NIKEid product customization website. This was not possible in case of retail store. Further, Nike had
used its own website to promote its Gift card package and other innovations and used e-commerce
websites to declare sales promotions. Thus Nikes strategy in online sales has been to advertise its
premiumness through nike.com and mobile apps and adopt sales promotion in third party e-commerce
websites.

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Further, Nike has

created sub-brand webpages under its parent website to showcase its premium brandsJordan and
Hurley. This has been done with least investment in terms of setting up a dedicated retail store for each
sub-brand.

Nike uses sponsored ads for its e-commerce partners- Jabong, Amazon and Snapdeal.

1
1

6 ADVANTAGES/
LIMITATIONS OF
INTERNET CHANNEL
Nike has its increased its focus on

Direct

to Customer sales channel in which

the

revenue is growing at the rate of 30% annually. Nikes DTC channel includes Factory outlet and
Ecommerce (www.nike.com). DTC channels growth is driven by the strong online sales which is
growing at the rate of 50% quarterly. Nikes online sales channel is creating positive disruption for
companys overall revenue growth.
The Ecommerce platform is giving more cost advantage to the Nike as there is no middleman involve
and it is able to generate higher margins compared to other channels. This channel also involve direct
involvement of the customers to the companys new innovative products. By increasing the use of
Ecommerce, company is able to penetrate into the wider range of territories and achieving width as well
as depth of the sales. One of the biggest advantage of increasing focus on online sales as it requires
less capital expenditure than the opening of new Brick Mortar store.
1. Disruptions to other channels:
As a part of bringing disruptions in DTC channel, Nike launched NIKEiD, an online service
that will allow customers to create its own gear by customizing colour, design and
performance features. Customers have to pay $170 extra to avail the facility. The launch of
NIKEiD is in line with Nikes overall strategy to focus more on DTC and bring more profits to

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the brand. These customization also helping Nike to collect the customer preference data
which can further be incorporated into the product designing and product innovations.
2. Competition With other Channel:
Nikes recent focus on digital initiatives suggest that, its revenue growth will tilt towards the
DTC sales channel and particularly from the online sales. So there will be direct competition
to the other distribution channel i.e. selling products to the wholesalers and global brand
divisions but the impact will not be that high due to higher margin and better pricing involved
in the online sales channel.
3. Sales Contribution by Internet Channel over a period of time:
Online sales has the tremendous opportunity to contribute companys growth story in
emerging market. Nike is planning to invest heavily in developing the necessary
infrastructure to support the online sales. It plans to grow its DTC segment sales by alloys
2.5 times in the next five years from $6.6 Billion in FY 2015 to $16 Billion in FY 2020. These
growth will mainly come from the companys penetration into the emerging market and here
Ecommerce will play vital role. Nike.com sales is expected to be key growth driver for DTC
sales channel with $7 billion revenue coming from the Ecommerce in FY 2016.

The company is planning to open more websites in various countries across the globe to provide
Omni channel experience to their customer. Product customization through its NIKEiD and its
SNKRS app are providing unique experience to its customers and also helping Nike to stay
ahead of its competitor.

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(SNKRS App, Source: nike.com)

7,8 INTERNET PORTAL AND ITS OPERATION

Nike has the dedicated own internet portal www.nike.com . It doesnt have dedicated third party
portal but Nikes products are being sold on various ecommerce websites like Amazon.com,
Ebay.com, and Flipkart.com etc. Nike also launched NIKEiD and Nike + to expand is digital
space and build online communities.
The only difference in the operation here is the order fulfilment process done by a vendor who
has listed the product on respective website. Here Nike is not the direct point of contact for the
customer. But recently according to their expansion plan, Nike is planning to launch websites in
other countries also across the globe.

9 COMPETITIVE BENCHMARKING: NIKE VS ADIDAS

1
Sales through online
4

$ 1.2 Billion ( 4% of Total

$ 651 Million (1.1 % of total

Internet Portal

Sales)
Own dedicated portal plus

Sales)
Own dedicated portal and

Online Communities

third party portal

NIKEiD and Nike +

third party portal

Digital Newsroom strategy

Mobile App
Growth Plans

SNKRS App
Make $ 7 Billion revenue

Adidas Confirmed App

Make $3 Billion Revenue

Opportunities
Communication to

Emerging Markets
All the sports website is

Emerging Market
Individual sport has different

Customer

integrated to nike.com (E.g.

website which is co-branded

Nike Golf)

with other brands (Adidas

Distinctive identity for each

Golf)
Every sport has different URL

sport on website

so customer cannot access

Brand Identity

different sports website from

Adidas.com

REFERENCES
1. http://marketrealist.com/2015/10/nikes-projecting-explosive-growth-retail-web-sales/
2. https://www.internetretailer.com/2014/12/19/web-sales-grow-65-nike
3. http://www.forbes.com/sites/greatspeculations/2015/07/09/how-nikeid-is-helping-nikes-push-forgreater-profits/
4. https://www.internetretailer.com/2013/10/21/nike-envisions-2-billion-web-sales-four-years
5. https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-online-retail
6. http://www.businesstoday.in/magazine/lbs-case-study/nike-marketing-strategies-globalbrand/story/207237.html
7. http://www.siegelgale.com/nike-and-adidas-different-strategies-for-telling-their-brand-stories/
8. http://www.thedrum.com/news/2015/03/28/how-adidas-creating-new-recapture-its-winningstreak
9. http://www.fool.com/investing/general/2015/11/20/nike-plans-to-increase-online-sales-sixfoldwhy-th.aspx