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Nike is a champion brand builder. Its athletic footwear and clothing have become a piece of Americana. Its brand name is as well-known around the world as IBM and Coke. So it may come as a surprise […]. After more than a decade of meteoric growth, Nike misjudged the aerobics market, outgrew its own capacity to manage, and made a disastrous move into casual shoes. All of those problems forced the company into a period of intense self-examination.
Ultimately, says founder, chairman, and CEO Phil Knight, the company realized that the way forward was to expand its focus from the design and manufacture of the product, where Nike had always excelled, to the consumer and the brand.
Blue Ribbon Sports started out distributing running shoes for a Japanese company, then shifted to designing its own shoes and outsourcing them from Asia. And then jogging emerged as a new national pastime. Bynike case study harvard business review, the year Blue Ribbon Sports changed its corporate name to Nike, Jon Anderson had won the Boston Marathon wearing Nike shoes, Jimmy Conners had won Wimbledon and the U.
Open wearing Nike shoes, Henry Rono had set four track and field records in Nikes, and members of the Boston Celtics and Los Angeles Lakers basketball teams were wearing them, nike case study harvard business review. Sales and profits were doubling every year. Then in the mids, Nike lost its footing, and the company was forced to make a subtle but important shift.
Instead of putting the product on center stage, it put the consumer in the spotlight and the brand under a microscope—in short, it learned to be marketing oriented. Since then, Nike has resumed its domination of the athletic shoe industry. Here Phil Knight explains how Nike discovered the importance of marketing and what difference that discovery has made.
This interview was conducted at Nike, Inc. HBR: Nike transformed the athletic shoe industry with technological innovations, but today many people know the company by its flashy ads and sports celebrities. Nike case study harvard business review Nike a technology company or a marketing company? For years, nike case study harvard business review thought of ourselves as a production-oriented company, meaning we put all our emphasis on designing and manufacturing the product, nike case study harvard business review.
But now we understand that the most important thing we do is market the product. What I mean is that marketing knits the whole organization together. The design elements and functional characteristics of the product nike case study harvard business review are just part of the overall marketing process. We used to think that everything started in the lab. Now we realize that everything spins off the consumer.
And while technology is still important, the consumer has to lead innovation. We have to innovate for a specific reason, and that nike case study harvard business review comes from the market.
Our success. In the early days, anybody with a glue pot and a pair of scissors could get into the shoe business, so the way to stay ahead was through product innovation.
We happened to be great at it. Bill Bowerman, my former track coach at the University of Oregon and cofounder of the company that became Nike, had always customized off-the-shelf shoes for his runners. Over the years, he and some other employees came up with lots of great ideas that we incorporated. The Waffle Trainer later became the best-selling training shoe in the United States. We were also good at keeping our manufacturing costs nike case study harvard business review. The big, established players like Puma and Adidas were still manufacturing in high-wage European countries.
But we knew that wages were lower in Asia, and we knew how to get around in that environment, so we funneled all our most promising managers there to supervise production. Not formally. We just tried to get our shoes on the feet of runners. And we were able to get a lot of great ones under contract—people like Steve Prefontaine and Alberto Salazar—because we spent a lot of time at track events and had relationships with the runners, but mostly because we were doing interesting things with our shoes.
Naturally, we thought the world stopped and started in the lab and everything revolved around the product. For one thing, Reebok came out of nowhere to dominate the aerobics market, which we completely miscalculated. By the time we developed a leather that was nike case study harvard business review strong and soft, Reebok had established a brand, won a huge chunk of sales, and gained the momentum to go right by us. And on top of that, we made a disastrous move into casual shoes.
Practically the same as what happened in aerobics, and at about the same time. We went into casual shoes in the early s when we saw that the running shoe business, which was about one-third of our revenues at the time, was slowing down. We knew that a lot of people were buying our shoes and wearing them to the grocery store and for walking to and from work.
Since we happened to be good at shoes, we thought we could be successful with casual shoes. But we got our brains beat out. By the mids, the financial signals were coming through loud and clear. Nike had been profitable throughout the s. Then all of a sudden in fiscal yearthe company was in the red for two quarters. We lost some very good people that year. We reasoned it out. The problems forced us to take a hard look at what we were doing, what was going wrong, what we were good at, and where we wanted to go.
We had to fill in the blanks. We had to learn to do well all the things involved in getting to the consumer, starting with understanding who the consumer is and what the brand represents.
The switch was easier than you might think. I learned long ago that a building is not purely functional; it means something to people and evokes an emotional response.
A Huarache running shoe or an Air Jordan basketball shoe is not just a combination of price and performance. Inspiration for a design can come from anywhere—from a cartoon, a poster, the environment.
But the design process almost always involves the athletes who use our product. Take Bo Jackson. When I was designing the first cross-training shoe for Bo, I watched him play sports, I read about him, I absorbed everything I could about him. Bo reminded me of a cartoon character. Not a goofy one, but a powerful one. Nike case study harvard business review me, he was like Mighty Mouse.
So we designed a shoe called the Air Trainer that embodied characteristics of Bo Jackson and Mighty Mouse. So the shoe needed to look like it was in motion, it had to be kind of inflated looking and brightly colored, and its features had to be exaggerated. Working with Michael Jordan is a little different. He has his own ideas about how he wants the shoe to look and perform.
When we were designing the Air Jordan 7, for instance, he said he wanted a little more support across the forefoot, and he wanted more color. The Air Jordans had been getting more conservative over the years, so what I think he was telling me—without really telling me—is that he wanted to feel a little more youthful and aggressive. Michael has become more mature and contemplative in recent years, but he still plays very exciting basketball, so the shoe had to incorporate those traits as well.
It all came together for me in a poster I had seen advertising an Afro Pop music series on National Public Radio. The imagery in the poster was very exciting and strong and slightly ethnic, nike case study harvard business review. I showed Michael the poster, and he thought it elicited the right emotion, so I drew from that. We came up with a shoe that used very rich, sophisticated colors but in a jazzy way. So I kept thinking about the outdoors, and that led to Native Americans, who did everything outdoors—from their tribal rituals to their daily chores.
What did they wear? Moccasins, which are typically comfortable and pliable. And that led to the idea of a high-tech, high-performance moccasin. The soles are flexible so you can pad down the trail, the leather is thin and lightweight, the outsole has a low profile, and the colors are earthy. Stories about how we arrived at particular designs may be entertaining, but the storytelling also helps us explain the shoes to retailers, sales reps, consumers, and other people in the company, nike case study harvard business review.
In the early days, when we were just a running shoe company and almost all our employees were runners, we understood the consumer very well. There is no shoe school, nike case study harvard business review, so where do you recruit people for a company that develops and markets running shoes?
The running track. It made sense, and it worked. We and the consumer were one and the same. When we started making shoes for basketball, tennis, and football, we did essentially the same thing we had done in running. We got to know the players at the top of the game and did everything we nike case study harvard business review to understand what they needed, both from a technological and a design perspective.
Our engineers and designers spent a lot of time talking to the athletes about what they needed both functionally and aesthetically. It was effective—to a point.
But we were missing something. Despite great products and great ad campaigns, sales just stayed flat. We were missing an immense group.
We saw them as being at the top of a pyramid, with weekend jocks in the middle of the pyramid, and everybody else who wore athletic shoes at the bottom, nike case study harvard business review. But that was an oversimplification. Just take something simple like the color of the shoe, nike case study harvard business review. One of our great racing shoes, the Sock Racer, failed for exactly that reason: we made it bright bumble-bee yellow, and it turned everybody off.
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