Description
MANAGEMENT DECISION CASE
“Taking the Nike Experience Direct to Consumers”
Please provide a summary of the case, identify the problem or problems, discuss potential consequences of the problem/s, answer the questions, suggest recommendations, and include references and citations according to APA guidelines.
Taking the Nike Experience Direct to Consumers
Let’s say you are upping your game and want to exercise more. Maybe that means walking in the mornings, playing a pickup game after work, or running a marathon. Whatever your goal is, you need some new shoes, and Nike is your favored brand. If you are like the majority of consumers, you head to a retail store to purchase a pair. A few years ago, this was your only choice. If you tried to connect to Nike directly, you would find yourself squarely in a system focused on B2B (business-to-business) marketing channels. While Nike is no stranger to B2C (business-to-consumer) marketing—it opened its first NikeTown retail store in 1990—these stores were as much museums as retail outlets and more about brand promotion than retail sales.
In 2014, with more than 700 Nike-contracted factories moving shoes and apparel through 57 distribution centers to 140,000 retail stores, Nike garnered 82 percent of its revenue through B2B channels and just 18 percent from B2C.53 Five years later, the B2C segment had grown to 32 percent of the total with a 35 percent increase in digital commerce sales in 2019 alone.54 How did Nike “Just Do It” in B2C?
As discussed in this chapter, demographic trends plus changes in consumers’ motivations and behaviors guided Nike’s decision to expand its target markets and channels. For example, broad consumer trends suggest e-commerce B2C sales will continue to grow, from $2.9 trillion in 2018 (1.2 percent of total worldwide retail sales) to $6.5 trillion by 2023.55 More specifically, consumers’ desire to have healthier lifestyles suggests an increase in Nike’s overall business. But the continued rise in the number of working women, who have less time to shop, suggests more spending power in the women’s sector and a greater need for access to online purchasing. In addition, demographic trends show younger cohorts, who are very comfortable with online shopping, are now the largest consumer segment. Nike, intent on serving customers in ways that meet their needs, addressed these trends by increasing its attention to its women’s line of training footwear and apparel and expanding its e-commerce presence.
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But trends in B2B also suggested that Nike should target more of its business with direct-to-consumer models. Threatening the traditional B2B distribution model in the eyeglass, razor, and shoe industries, companies such as Warby Parker, the Dollar Shave Club, and TOMS Shoes are selling products directly to the consumer instead of through wholesale distribution channels.56 This has placed traditional manufacturers, those who make the product but rely on a distribution channel to reach consumers, on the defensive.
Nike’s response to these trends was their Triple Double Strategy in which the company sought to double its “cadence and impact of innovation,” double its speed to market, and double its “direct connections with consumers.” The key component of the strategy is the Nike Consumer Experience (NCX) that includes Nike’s direct-to-consumer network along with a streamlined set of wholesale distribution partners—moving from 30,000 retailers to as few as 40 who management believed could offer the best access to their target customers and deliver the kind of customer experience Nike expects.57 This focus led them to even take the radical step of “firing” ecommerce powerhouse Amazon!58
A new Nike app enhances the consumer experience both online and in retail stores, giving access to the NikePlus rewards program. This program gives loyal customers exclusive offers, access to Nike experts, free shipping, and 30-day wear tests. The initiative seems to be working, with members spending three times more in the app than non-members on Nike.com. It is no wonder that Nike aims to have 300 million customers signed up in the program by 2023.59 Consumers often like the direct model, too. Disappointments encountered in retail shopping, where limited inventory may mean the right size, color, or quantity is out of stock, are almost never a problem when shopping directly with the manufacturer, where inventory is largest and the ability to make more units quickly is right at hand. Likewise, consumers are often pleased when they get to interact directly with a brand by providing input into product design or sharing feedback on their experience with the product. Manufacturers are also perceived as being the truest experts on the product and a better place to get advice or help.60 Such interactions can lead to improved brand loyalty.
Manufacturers are recognizing this disruption in the marketplace, so much so that Unilever, one of the world’s largest consumer goods conglomerates, paid $1 billion for the Dollar Shave Club. And the reason? Not the excellent e-commerce site operated by Dollar Shave Club, but the firm’s ability to build a relationship directly with consumers.61 For manufacturers, the opportunity to own the relationship with the customer, and to be able to define their own brand without intermediaries, is an attractive reason to go direct. And for Nike, one of the world’s top 20 most valuable brands, owning the relationship as trends move toward B2C will be important.62
Questions for Consideration
This chapter highlights how marketing efforts are different for B2B and B2C firms. As Nike and other manufacturers continue to expand into B2C channels, what are some differences in B2C and B2B behavior that might affect Nike’s approach to these channels?
What are some hurdles Nike may face as it expands its B2C business? Consider this question both internally, with new skills Nike needs to amass, and externally, with challenges it may face from its B2B channel partners.
What would be some negative consequences to consumers if all manufacturers sold only B2C and eliminated wholesaler distributors who supply retail stores?
