Nike

I. Key Revenue Streams of Nike:

Nike generates its revenue through the sale of various athletic products, with footwear being
the main driver. Here's a breakdown of their key revenue streams:
1. Footwear: This category makes up the lion's share of Nike's revenue, accounting for
over 68% in 2023. This includes a wide range of athletic shoes for different sports and
activities, as well as lifestyle footwear.
2. Apparel: Nike also generates significant revenue from selling apparel, including
clothing and accessories like jerseys, shorts, t-shirts, hats, and bags. This segment
contributed around 29% of their total revenue in 2023.
3. Equipment: While smaller than the other two categories, Nike also sells athletic
equipment like balls, gloves, and protective gear. This segment makes up a smaller
portion of their revenue, around 1.73 billion USD in 2023.
4. Converse: Additionally, Nike owns the well-known brand Converse, known for its
iconic Chuck Taylor All-Stars shoes and other casual footwear and apparel. Converse
contributed around 2.43 billion USD in revenue in 2023.
It's interesting to note that while Nike traditionally relied on wholesale distribution through
third-party retailers, they are increasingly focusing on direct-to-consumer sales through their
own stores and online platforms like SNKRS. This shift is aimed at capturing a larger share
of the profits and building stronger customer relationships.

II. Buying Behaviour of Nike:

Nike has cultivated a loyal customer base through various factors influencing their
purchasing decisions. Here's a breakdown of key aspects of Nike's buying behaviour:

Motivations:
 Performance: Many consumers seek high-quality, innovative products that enhance
their athletic performance or provide a comfortable experience during physical
activity.
 Brand Image: Nike has established a strong brand identity associated with athletic
excellence, inspiration, and a sense of belonging. This emotional connection
motivates purchase decisions.
  Social Influence: Celebrity endorsements, influencer marketing, and peer
recommendations on social media significantly impact buying behavior, especially
among younger demographics.
 Sustainability: Nike's efforts towards sustainable practices resonate with
environmentally conscious consumers, influencing their purchasing decisions.
Factors Influencing Purchase:
 Product Features: Consumers consider durability, comfort, technology, and design
when choosing Nike products.
 Price: While brand loyalty exists, price remains a significant factor, especially for
budget-conscious consumers. Discounts, promotions, and loyalty programs can
influence purchase decisions.
 Availability: Consumers prefer convenient access to Nike products, driving sales
through omnichannel strategies like online stores, physical stores, and mobile apps.
 Customer Reviews: Online reviews and recommendations from other customers
significantly influence buying decisions, especially for new product launches.
Additional Points:
 Emotional Connection: Nike cultivates an emotional connection with its customers
through inspiring stories, campaigns, and athlete collaborations, influencing their
desire to own Nike products.
 Sense of Community: Nike fosters a sense of community around its brand,
encouraging engagement and loyalty among its customer base.

III. Operational Expenses and Cost Optimization of Nike:

Operational Expenses:
Nike, like any large corporation, incurs various operational expenses throughout its business
cycle. Here are some key categories:
 Cost of Goods Sold (COGS): This includes the direct costs associated with
producing or acquiring the products Nike sells, including raw materials, labour, and
manufacturing overhead.
 Selling, General & Administrative (SG&A) Expenses: These costs encompass
various activities supporting the core business, like marketing, advertising,
distribution, selling, and administrative functions.
  Research & Development (R&D) Expenses: These costs are associated with
developing new products, technologies, and innovative materials.
Recent Trends:
 Rising Costs: Nike, like many companies, has experienced increases in various
operational expenses in recent years. These include higher costs for raw materials,
transportation (freight and logistics), and labour.
 Impact on Profitability: Rising operational expenses can squeeze profit margins if
not effectively managed. This was evident in Nike's FY23 results, where net income
decreased due to significant cost increases.
Cost Optimization Strategies:
Nike constantly seeks ways to optimize costs and maintain profitability. Here are some
strategies they employ:
 Supply Chain Optimization: Improving efficiency in sourcing raw materials,
negotiating with suppliers, and optimizing production processes can help control
COGS.
 Marketing and Advertising Efficiency: Utilizing data-driven marketing strategies,
targeted advertising campaigns, and exploring cost-effective marketing channels can
optimize SG&A expenses.
 Product Innovation and Differentiation: Focusing on innovative products that
command premium pricing can help offset rising costs and maintain profit margins.
 Automation and Technology Integration: Utilizing automation in manufacturing
and logistics can improve efficiency and reduce labour costs.
 Direct-to-Consumer (DTC) Strategy: Expanding their DTC channels allows Nike to
capture a larger share of the profits and potentially improve pricing power.
Challenges and Considerations:
 Balancing Cost and Quality: While cost optimization is crucial, it's equally
important to maintain product quality and brand reputation.
 Maintaining Innovation: Balancing cost reduction with continued investment in
R&D is essential for long-term growth and competitiveness.
 Ethical Sourcing: Optimizing costs should not come at the expense of ethical labour
practices and sustainable sourcing of materials.
By implementing these strategies and carefully considering the associated challenges, Nike
can navigate the dynamic business environment, optimize costs, and maintain its position as a
leading athletic brand.

IV. Customer Response of Nike:

Nike generally receives positive customer responses, with many praising the brand for:
 High-quality products: Many customers report satisfaction with the durability,
comfort, and performance of Nike products, especially athletic footwear and apparel.
 Brand image: Nike's association with athletic excellence, inspiration, and a sense of
belonging resonates with many customers, fostering brand loyalty and positive
sentiment.
 Innovation: Customers often appreciate Nike's commitment to innovation,
introducing new technologies and features that enhance their athletic experience.
 Style: Many customers find Nike products stylish and appealing, not just for athletic
activities but also for everyday wear.
However, there are also some areas where customers express dissatisfaction:
 Price: While some customers appreciate the premium quality associated with Nike
products, others find them expensive, especially compared to competitors.
 Limited availability: Some customers express frustration with the limited availability
of certain popular styles or sizes, particularly through exclusive releases or
collaborations.
 Customer service: While Nike has improved its customer service efforts, some
customers still report negative experiences regarding response times, resolution
processes, or product returns.
 Sustainability concerns: A growing segment of customers raises concerns about
Nike's environmental impact and labour practices in the supply chain.
It's important to note that customer response is diverse and varies depending on individual
experiences, product lines, and purchase channels. While Nike enjoys a strong brand image
and loyal customer base, they also face challenges in managing customer expectations and
addressing concerns.
Here are some additional points to consider:

 Social media: Customer reviews, comments, and complaints on social media

platforms play a significant role in shaping public perception and influencing other
potential customers.
 Online review platforms: Websites like Trustpilot and Google reviews offer
valuable insights into customer sentiment and specific areas for improvement.
 Direct customer feedback: Nike actively collects customer feedback through
surveys, polls, and customer service interactions to understand their needs and
concerns.

By actively listening to customer feedback and implementing improvements based on their

needs, Nike can strengthen its customer relationships and maintain its position as a leading
athletic brand.

V. Steps Towards Sustainability by Nike:

Nike has acknowledged the environmental impact of its operations and is taking several steps
towards a more sustainable future. Their initiative, Move to Zero, outlines their goals and
strategies for reducing their environmental footprint across four key areas: carbon, waste,
water, and chemistry. Here's a look at some of their key initiatives:

1. Reducing Carbon Emissions:

 Setting ambitious targets: Nike aims to achieve net zero carbon emissions across
their entire global supply chain by 2050. This includes both their own operations and
those of their suppliers.
 Investing in renewable energy: Nike is increasing its use of renewable energy
sources to power its facilities, reducing reliance on fossil fuels.
 Improving product efficiency: Nike is researching and developing ways to design
and manufacture products that use fewer resources and create less carbon emissions
throughout their lifecycle.
2. Minimizing Waste:
  "Reuse-A-Shoe" program: This program allows customers to donate their worn-out
Nike shoes which are then recycled and repurposed into new products like
playgrounds, running tracks, and even new shoes.
 Nike Grind: This program collects manufacturing scraps and used shoes and grinds
them down into a material used to create new products like athletic surfaces and
equipment.
 Diverting waste from landfills: Nike aims to divert 100% of waste from landfills
across their extended supply chain by 2025. This involves finding ways to reuse,
recycle, or compost waste materials.
3. Conserving Water:
 Setting water reduction targets: Nike has set ambitious targets for reducing water
usage in their dyeing and finishing processes.
 Investing in water-efficient technologies: Nike is implementing new technologies
and processes to minimize water consumption throughout their manufacturing
operations.
 Collaborating with suppliers: Nike is working with its suppliers to improve their
water management practices.
4. Using Safer Chemicals:
 Eliminating harmful chemicals: Nike is committed to phasing out the use of
harmful chemicals in their products and manufacturing processes.
 Developing safer alternatives: Nike is actively researching and developing safer
alternatives to harmful chemicals used in their products.
 Promoting transparency: Nike is committed to transparency regarding the
chemicals used in their products and providing consumers with information about
their environmental impact.
These are just some of the steps Nike is taking towards becoming a more sustainable
company. While challenges remain, Nike's Move to Zero initiative demonstrates its
commitment to environmental responsibility and creating a more sustainable future for the
planet.