yum brands situational analysis

Shoes On Nike

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Executive Summary:

Situational analysis

▪ Background data on sales & costs.……………………………………………....Pg. 2

▪ Competitors………………………………………………………………………....Pg. 4

▪ Customers…………………………………………………………………………..Pg. 5

▪ Company …………………………………………………………………………...Pg. 6

▪ Community …………………………………………………………………………Pg. 8

Marketing strategy

▪ Mission ……………………………………………………………………………..Pg. 9

▪ Marketing and financial objectives ……………………………………………...Pg.10

▪ Target Market & Positioning ……………………………………………………..Pg.10

Marketing tactics

▪ Product Offering…………………………………………………………………..Pg. 11

▪ Distribution………………………………………………………………………...Pg. 13

▪ Promotion………………………………………………………………………….Pg. 15

▪ Pricing ……………………………………………………………………………..Pg. 17

Financial projections

▪ Break Even Analysis ……………………………………………………………..Pg. 18

▪ Cost Forecast……………………………………………………………………...Pg. 18

▪ Sales Forecast………………………………………………………………….....Pg. 18

References

▪ References………… ……………………………………………………………..Pg. 20

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Part 1: Situational Analysis

1.1 Background data on

sales and cost

Nike was founded in the

State of Oregon in January

1996, by a track athlete, Phil

Knight and his coach, Bill

Bowerman (Nike 2017 10-K

Form, 2017).

Being the leader in the

athletic industry, Nike is the world’s largest supplier of athletic wear. Nike’s products are

divided into footwear, clothing, and training accessories. There are eight main

categories of Nike’s brand products. They are: running, soccer, basketball, action

sports, sports-inspired lifestyle products, golf, men’s and women’s training (Nike 2017

10-K Form, 2017).

Comparing Nike’s and

Adidas’ market capitalization

provides evidence of how Nike

grew as a company in athletic

wear during the past 17 years.

In 2001, both Nike and Adidas

started with a market

capitalization of close to 4

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billion. In 2005, Nike, Inc. gained its lead in the industry, with its market capitalization

grew at a faster rate than Adidas. By 2010, Nike gained a market capitalization of 63.45

billion, and an annual revenue of 19 billion. In 2015, Nike’s market capitalization was

82.6 billion, while market capitalization of Adidas lagged behind at 17.1 billion (image

and text, Leach, 2015). During the 2017 fiscal year, the annual revenue for Nike, Inc. is

$34.4 billion, which rose 8% from the previous year on a currency-neutral basis (Nike

news, 2017).

Nike’s “swoosh” symbol was developed in 1971, and was registered with the

United States Patent and Trademark Office in 1974. Over the years, the Nike brand

became one of the strongest brand in the world. Currently, the Nike brand ranks as the

18th strongest in the world, estimated to be worth 27.0 billion dollars (Interbrand, 2017).

Along with its long-stand slogan “Just Do it,” the Nike brand became the face of the

company. Consumers associate the Nike brand with “superior quality, style, and

reliability” (Deng, 2009).

Besides the NIKE brand, Nike Inc. owns several other well-known brands

(Interbrand, 2017). The three noteworthy bands are: (1) Brand Jordan, which is named

after the famous basketball player, Michael Jordan; (2) Brand Hurley, which was

acquired by Nike Inc. in 2002 focusing on action sport appeals such like surfing,

skateboarding, and etc.; and (3) Brand Converse, which was purchased in 2003 by Nike

Inc. focusing on casual footwear (Soni, 2014).

Nike bought Converse for of 309 million in 2003. The brand has become one of

the top generators for Nike, Inc. Nike’s revenue analysis is based on its geographical

segment, except for Converse. Converse serves as a reportable segment, which has

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estimated to generate a revenue of $2.0 billion for Nike, Inc. during 2017. The converse

brand targets a premium market of casual footwear products, which can have an

athletic look but not necessary high performance.

1.2 Competitors

Even though Nike’s footwear products are primarily designed for athletic use, a

large percentage of Nike’s footwear products are purchased for casual wear or leisure

use (Nike 2017 10-K Form, 2017). However, Nike is not a leader in the casual shoe

wear market, as the company did not make to the top 5 brands in this category. Adidas

took the lead in the casual footwear market with a market share of 23 percent, followed

by Sketchers and Converse with 20 and 12 percent market share respectively (Leech,

2015).

Adidas was the most significant competitor of Nike during the 2016 to 2017 fiscal

year. Specifically, Adidas’ sales increased by 31% in the U.S. market during 2nd quarter

of 2017. Adidas’ CEO, Kasper Rorsted, promised that Adidas would take the lead in the

U.S. market again in 2017 (Kell, 2017). Most experts think that the reason that Adidas is

taking the lead in the causal shoewear market because they are targeting “casual sport

wear,” which is also known as “street wear.” Matt Powell, NPD Group’s sports industry

analyst, believes that the current fashion cycle acts as an advantage to Adidas’

products, which is described as “casual” and “retro” (Kell, 2017). Furthermore, while

Nike uses pro-athletes to endorse their products, Adidas uses athletes but also focuses

on popular culture. For example, when Adidas marketed the “Ultra Boost” as one of the

greatest “athleisure” shoes on the market, product sell was increased significantly by

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the endorsement of popular hip-hop musicians such as Kanye West (Kell, 2017).

1.3 Consumers

Nike currently aims to target a couple different types of consumers. Their main

target consumers are serious young athletes both men and women who typically fall

between the ages of 13 to 35. Nike excels in this category through the sale of

expensive, high quality, and sport specific footwear. Nike is able to sell at high prices to

this group because the pricing is related to high quality that consumers associate with

Nike’s brand. The running category is especially important for Nike because of the

company’s rich running heritage. Running is Nike’s largest performance category and is

the place where the majority of its innovation occurs. Nike’s running category spans a

much wider age range than the rest of their performance categories.

Nike’s second market target is women. With the rising trend of “athleisure” in

women in their 20’s and 30’s, Nike effectively gains the sales of women who wear

running shoes out to run errands and in everyday life. These consumers are looking for

comfort with an athletic appeal, although they are not going to play sports in the shoes

they still want to carry the connotation (Lutz, 2015).

Nike then targets the casual shoe wearers who are on a budget and don’t care

for style. Nike achieves this audience because Nike is a trusted brand with value, high

quality shoes that sell for about $50. A model like Nike Air Monarch successfully targets

the consumer segment that is comprised of males 40 and older.

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Nike’s main focus is to appeal to consumers who are athletic or want to appear

athletic. Currently, Nike has definity to break into this segment of consumers, as the

market has been increasingly dominated by Adidas’ combination of comfort and style.

Converse, which is owned by Nike, appeals to a different kind of consumer. The

roots of this brand are ingrained in music, art and popular culture. Converse’s chief

marketing officer had been quoted in saying “Converse prefers to work with individuals

who are ‘daring’” and that Converse prefers to endorse people who other companies

see as too dangerous (Rath, 2017). Converse believes that lesser known talents

provide a more engaged audience. Converse’s consumers are millennials who value

their self-expression and individuality. Converse successfully captures these consumers

by encouraging individuality seen in their ‘made by you’ campaign and by defying

stereotypes through supporting and promoting a diversity of lifestyles. Converse looks

to celebrate the unique differences between each of their consumers and uses

consumers’ individualities to create a new, modern image.

1.4 Company (SWOT analysis)

Nike Inc. has many advantages as a company. First of all, Nike is the world

leader in the athletic footwear industry. Over the years, the company developed a broad

distribution network both nationally and internationally. Because the company’s “make

to stock” customer order framework, Nike is able to deliver their products fast (Beach,

2017). Furthermore, Nike placed tremendous efforts in its innovative research and

development. Finally, Nike has a strong global brand name (Interbrand, 2017).

Nike as a company also has many disadvantages. Nike’s strong athletic image

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could deter casual-shoe buyers from purchasing Nike shoes because consumer’s belief

in Nike shoes’ expertise in athletic shoes. Furthermore, Nike has many intermediate

retailers, which could result in the further narrowing of an already small profit margin.

Finally, Nike’s footwear is mostly manufactured outside of the United State. In 2014,

Nike Inc. was supplied by ~130 factories in 15 countries, with Vietnam, China and

Indonesia being the largest supplier (Soni, 2014). However, there have been many

controversies over producing shoes in the third world countries and Nike’s utilization of

child labor over the past several years. Nike’s social image could have been tinted as a

result of these controversies (Beach, 2017).

As a company, Nike has many opportunities to expand its market share. For

example, even though it is an athletic company, many consumers who wear Nike shoes

do not always buy athletic shoes to participate in sports (Nike 2017 10-K Form, 2017).

In addition, over the years, Nike has purchased many subsidiary brands, such as

Converse, that could allow Nike the possibility to expand to other markets. Finally,

although Nike has a broad distribution of their product already, there are still many

global marketing opportunities that could be explored further (Beach, 2017).

The main threats that Nike currently faces in the shoe industry is the

competitiveness of the market itself. There are many alternative brands that are

competing for market share.

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1.5 Community

Nike has developed multiple innovative technologies to boost athletic

performance with their athletes as well as style with their consumers. As a result, many

technological communities exit.

NikeID is a service created by the company in 2012 to allow customers to design

their own merchandise. The program is available in select stores as well as online and

has been expanded to countries over the world (Team, 2015). The alterations focused

mainly on their shoe line and allowed for thirty-one customizable parts. Nike wanted to

allow their followers to become the designers. This concept was the first of its kind in

this industry and opened a gateway of individuality while also retaining the community

within the brand name.

Nike also other technological communities. For example, Nike offers programs

such as the Nike Running Club and Nike+ Training Club which are phone applications

designed to coach users through their workouts. Nike also recently collaborated with

Apple to integrate softwares into their apple watch and released a new line of Nike+

Apple Watches. Many cities have organized Nike Plus Running clubs consisting of local

like-minded runners (Skwarecki, 2016). Over the years, Nike has built a strong

community for aspiring athletes. However, these community organizations are poorly

advertised and do not surmount to their potential.

Over the years, with the release of popular shoes such as Air Jordans and

Yeezys, a community of sneaker collectors was born. These ‘sneakerheads’ consist of

the early adopters and early majority of casual-athletic shoes. These groups began

appearing in the late 1980s with the appearance of basketball-endorsed shoe lines as

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well as the growth of hip-hop music. However, there is a similar culture of shoe

collection development in Adidas, as the demand in exclusive Adidas shoes have grown

in popularity. Because Nike is not in the lead for the casual-wear sneakers, the

company loses out to the community that collect signature casual-wear sneakers.

Part 2: Marketing Strategy

2.1 Mission

Nike's mission statement is "to bring inspiration and innovation to every athlete*

in the world." There is an asterisk behind “every athlete,” and a following footnote

stating that everyone who has a body is an athlete. However, most people associate

Nike with their specialization in athletic wear. As a matter of fact, Nike also fiercely

protects its brand image as an athletic brand.

As stated in the SWOT analysis, one of Nike’s biggest threats is that Nike is in a

competitive market facing many competitors who hope to gain a larger market share.

According to the concept introduced in the Marketing Myopia, Nike should have a far-

sighted vision acting on customers’ needs and desire to further its growth (Levitt, 1975).

In order words, Nike Inc. should not limited its production to athletic shoes, the company

should expand its product line so that Nike could become an “everyday everyone’s”

shoe company.

By taking some of Nike’s casual-wear shoe models, making minor alterations

and bringing them to market under the Converse brand name we are looking solve

Nike’s image and popularity issues in the casual shoe segment. The introduction of

these shoes would create the Converse Elite and Converse Elite Signature Series shoe

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lines, merging Nike’s technology and comfort with Converse’s edgy and artistic style.

2.2 Financial & Marketing Objectives

2.2a Financial Objectives

According to the growth-share

matrix, Nike is currently a “cash cow,” with

relative high market share and low growth

rate. We hope to institute a new product in

Nike so that the company could find a new

area of growth, and again become a “star”

in the growth-share matrix with relative high

market share and high market share and

high market growth rate (Image retrieved

from: http://www.milnerltd.com).

2.2b Marketing Objectives

We would like to make Nike a leader of casual-shoe market in the North America

by introducing new products through the Converse brand, a subsidiary brand Nike. As

mentioned in an early section, Converse is currently ranked Number 3 in the Casual

shoe market in North America, estimated to have a 12% of market share. We hope to

develop a product that would allow Converse market share to grow from 12% to 28%,

making Converse market share to surpass Adidas’ 25% marketing share, making

Converse the new leader in the casual shoe market in North America.

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2.3 Target marketing & positioning

Through this marketing plan we look to target casual shoe wearers between the

ages of 14 and 35. This market is filled with millennials who start to earn some income

and look for comfortable, stylish shoes they can wear in any situation. This plan is also

appealing to the millennials desire to belong to a group while holding onto their

individuality.

The positioning of the Converse Elite line will be a high priced and high quality

shoe. The Converse Elite shoes will utilize Nike’s current state of the art comfort

technology used in their running shoes. This line will also be largely focused on the total

customization of the different models for no extra cost and also the addition of the

interchangeable logo badge.

The Converse Elite Signature series line will be positioned as the Converse shoe

for collectors and enthusiasts. This will include higher prices than the Converse Elite

line to correspond with the limited supplies that will be made available. This line’s

designs will be inspired and created by designers, artists and pop culture icons.

Part 3: Marketing Tactics

3.1: Product

There will be two product lines added to converse’s brand name, the Converse

Elite line and the Converse Elite Signature Series. The shoes themselves will

incorporate Nike’s athletic comfort and customization technology along with the artistic

and edgy design Converse is known for. This shift will incorporate a Blue Ocean

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Strategy by creating an innovative product in an untouched market (customizable

casual-shoe wear).

The Converse Elite Line will be released as the main line, which includes three

different models of shoes (casual-formal, casual-street, casual-athlete). All of the

models will be available in stores in a select few different basic colorways. These

models will also be offered fully customizable to the individual through online

customization and in-store kiosks. This line of

shoes also includes the interchangeable social

action/accent badges. The customizations will

allow consumers to immerse in individuality while

also maintaining conformity in fashion. The

traditional star logo has been redesigned to

illustrate the new fashion line. The minimalistic

icon subtly incorporates Nike’s swoosh logo to

depict the collaboration between the two

brands. This new design retains the simplicity

of the old logo while also coming off as more

stylish. The logo will be placed in between the

sole and the heel contour. The strategic

placement of the newly-designed logo is to

draw attention to the logo and for consumers to distinguish the Converse Elite shoes

from other casual-athletic shoes.

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The Converse Elite Signature series is the collectable line. This line will be

comprised of unique models and designs by prominent designers (Virgil Abloh, Hiroshi

Fujiwara), artists, social media influencers and musicians (Tyler the Creator). These

shoes will be released in a limited quantity and on specific dates or events. The

Converse Elite shoes will also appeal towards local artists and designers as we will host

frequent contests for shoe designs. These collaborated shoes will be sold locally to

support the artists’ community. This higher model will be marketed towards the

sneakerhead community who are already willing to pay a higher price for these premium

shoes. Nike has had a large success in this field where they announce specific releases

and have overnight lines outside foot lockers just to purchase the

shoes.

Over the years Nike has been plagued with the poor

reputation of utilizing child labor in third world countries. To improve

the image, customers will be given the opportunity to purchase the

shoes in conjunction with a charity and Nike will donate a portion of

the proceeds to the selected organization. In return, the customers

will receive a social action badge that can be affixed onto the

sneakers to raise awareness for their cause. Nike will include

organizations such as the China Education Development

Foundation, UNICEF, and the Nike School Innovation Fund. Multiple

medical and social awareness campaigns will be part of the

collaboration including Breast Cancer Awareness and Aids awareness (Product Red).

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3.2: Distribution

Converse Elite will utilize Nike’s current distribution network. The line’s basic

colorways will be sold through stores similar to Dick’s Sporting Goods and Foot Locker

to be readily available to all consumers even though the focus will be on driving online

sales through customization. There will also be in-store design kiosks to customize

shoes after trying them on, these shoes would than be shipped directly to the

consumer's home. Nike’s self-designed shoes currently take three weeks to deliver due

to overseas manufacturing and assembly. The current issue is that Nike houses their

factories overseas and depend on scheduled bulk shipment to the United States. They

can appeal to the new trend of fast shipping by setting up assembly centers within the

country to shorten the wait time to under two weeks. The shoe is designed to be

modular so it will be quick to put together by trained professionals and can be send out

expeditiously. The separate parts will be still mass produced internationally but sent

over to the assembly centers.

The signature series line will be distributed more carefully. These products will be

limited to smaller amounts made and will be sold online through customer loyalty

program and will be available in person at select locations. Collaborations with rappers

would be made available in stores specializing in hip-hop/urban apparel. Collaborations

with artists would be sold locally out of their studio. Collaborations with other companies

will be sold across the nation through their select stores.

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3.3: Promotion

In order to gain a bigger margin from distributing its products, Nike is trying to

promote and sell its products online, shifting away from promoting and selling its

products through intermediate distributors.

Instagram is a social media platform that could be used to promote and sell our

products. We hope to build off of Converse’s previously successful ‘made by you’

campaign which resulted in a 71 percent rise in sales over five years (Blattberg, 2015),

to portrait Converse’s diverse consumers wearing Converse Elite shoes doing their

everyday activities whether it is going out with friends, enjoying the outdoors or

skateboarding. We hope to give Converse Elite the image of an “everyday for everyone”

shoe. Photos can be taken through smart phones and are encouraged to be submitted

on Instagram under the hashtag of “#ConverseElite”. Photo submitters will be

automatically entered into a random drawing of a pair of Converse shoes. Furthermore,

Converse will select the best photo, to be used on on urban billboards with credit given

to it’s creator. Finally, because Instagram designs its platform to “from inspiration to

information to purchased in just a few steps” (Instagram Business Blog., 2017). Through

photo submission on Instagram, we also create the opportunity for consumers to

purchase the product through the application.

On Instagram, we hope to create another submission place to encourage

Converse Elite users to submit photo wearing Converse shoes doing community

service. Photo submission could be done through another hashtag “#ConverseAction”.

Similarly to “#ConverseElite” photo submissions, photo submitters will be automatically

entered into a random drawing of a pair of Converse shoes. Best submission will be

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determined not only based on the photo quality but also based on the community

service conducted. The winner will be invited to meet designers and celebrities for a

photoshoot to promote the Converse Elite products and their specific cause on Urban

Billboards.

In addition to using online platform to promote Converse Elite series, we plan to

place design centers across the country in retails centers and hallways of large

shopping malls. Consumers are encouraged to use design centers to design a pair of

customized shoes without the obligation to purchase. Once the designs are finished,

designs can be submitted for a weekly-draw of a pair of free Converse shoes. If a

particular shopper is selected, a pair of their free Converse shoes will be automatically

shipped to their residents within 14 days. Once a shopper finished their design, if they

choose to purchase, they can directly purchase the shoes from the design center. They

can also save the design to purchase at a later time. Saved files can be found from

home computers and be purchased at any time. Widely-available designing centers

help to allow consumers to become more familiar with Converse Elite design centers.

Finally, the design center also holds a “donation function.” If a shopper hopes to make a

donation to his or her favorite foundation, with a total “to-date” donation amount

registered for tax-reduction purposes. Furthermore, a personalized Converse Elite

badge that could be placed on a keychain will be produced from the design center as a

“thank you” gift. Widely-distributed donation badge will help to build Converse Elite’s

brand image, as sale growth is positively related a brand’s image (Davies et al., 2010).

In addition to these social media focuses, Converse’s currently endorsed

celebrities fit perfectly with the current brand image as well as the slight changes we are

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looking to make to bring it further mainstream. From Tyler the Creator and Miley Cyrus

to Maisie Williams and Millie Bobby Brown, Converse is up to date with popular culture

and actively celebrates its diversity through these endorsements. This plan would

expand on the success of these celebrities by having them create their own styles

through the Converse Elite Signature Series to further connect them to the brand and

utilize their creativity.

3.4: Pricing

The Converse Elite series will be strategically priced at $180 to compete with

Adidas’ current Ultra Boost shoe line. However, our shoes will include full customization

of the shoe at the flat rate. The connotation with pricing in the shoe market is that the

higher the price the higher quality the product. According to Nike Financials, average

footwear sales follows a positive linear relationship with the average footwear selling

price because consumers’ perceived value of Nike (Zgonsalv, 2016). With this

information, it can be safely guaranteed that setting the high selling price will generate

more revenue. However, marketing the sneakers at too high of a price can also hurt the

image in the eyes of the consumers. Shoes above the $200 price line are normally

reserved for the signature style and collectible shoe category. For this we will segment

the Converse Elite line to also house a Signature series line. These shoes will be priced

at $250 which fits the market standards of high end exclusive sneakers.

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Part 4: Financial Projection

4.1 Break-Even analysis

More information must be given from Nike in order to complete an accurate

break-even analysis on this product. Based on our projections, we believe that the

break-even point will be achieved quickly because Converse Elite will only require

reallocation of Nike’s normal annual budget of advertising, research, and development.

4.2 Cost Forecast

We will run a $250 million advertising campaign (1/10th of Nike’s annual

advertising budget) to kick off and promote the Converse Elite lines. There will not be

any unbudgeted costs associated with this project because we hope to position Project

Converse Elite as a Nike’s priority project and reallocate funds from Nike’s annual

advertising costs (estimated to be 2.5 billion per year) and from Nike’s extensive

investment on research and development.

4.3 Sales Forecast

We hope to develop the Converse

Elite brand name over the next 2 years.

Specifically, we hope to increase

Converse’s total market share from 12%

to 28%. Total Nike Revenue will increase

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as a result exceeding its steady average annual growth of 8%. Furthermore, because

our product is designed to target Converse’s brand image, which will further increase its

total sales (Nike’s total sales).

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