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Abstract
Market segmentation is an important marketing strategy that many organizations have tried to implement. Organizations have grouped their markets based on a number of variables such as demographics, operating variables, purchasing approaches, personal characteristics, and situational factors among others.
The two companies discussed in this case study are Nike and Adidas. They operate mainly in the sports footwear industry, with Nike having the upper edge in competition. They both utilize the market segmentation concept to delineate their markets. Some of their ways of applying this concept are discussed in this case study.
Introduction
Nike and Adidas are organizations in the sports footwear industry. They have engaged in fierce competition. An important concept in marketing is market segmentation, which refers to the grouping of markets into unique segments that organizations can devise a specific marketing strategy that targets the segments (Choi, Jungwoo, & Jongsu, 2013).
Companies are able to segment the market based on demographics, operating variables, purchasing approaches, personal characteristics, and situational factors among others (Quinn, & Dibb, 2010; Quinn, 2009, p. 254). One of the marketing concepts that the two organizations have used is market segmentation. This case study looks at the historical background and marketing environment in the two organizations. The case compares the use of market segmentation in the companies’ marketing strategies.
Nike
Brief background and History
Phil Knight and Bill Bowerman founded Nike, Inc. in 1962 with the aim of importing Japanese-made shoes to America, with the two partners working under the name Blue Ribbon Sports (Carbasho, 2010). The company has grown to a global market share of over 30%, which is the biggest market share for any company in the footwear industry, with over 22,000 retail outlets in the US alone. Its products are sold in over 165 countries in the world (Larson, 2011).
It also ranks the top shoemaker in the world, with the main market products being the athletic footwear, equipment, and other wears (Carbasho, 2010). In 2008, the distribution of revenue in the segments above was 52% for footwear, 28% for apparel, 6% for equipment, and 14% for the other products (Carbasho, 2010).
The company uses its name as the main brand name, with some of the other names used being Nike Pro, Nike+, Nike Golf, Air Jordan, and Nike Skateboarding (Nunez, 2012). The company has a trademark titled “Just do it” that has been a favorite element for many people. This trademark is one of the marketing strategies that it applies. It also uses a recognized logo that has evolved over the last few years to the level of being recognized by many people (Levin, & Behrens, 2003).
Market Segmentation
Demographics
The aspect of demographics refers to the segmentation of the market based on the industry, company size, and location. Nike serves small and medium-sized companies as a strategy in its demographic market segmentation. For example, the company serves small outlet shops with its products.
It has a series of stores that it owns such as the ‘NIKE Sydney City’ that is located in Westfield Sydney along Pitt Street. In the location aspect of the demographic segmentation, Nike serves markets mainly in the US since most of the industries are in this region, with other markets around the world only taking secondary priority such as in Dubai.
It also collaborates with many companies in the United States and around the world as a means of ensuring a strong presence in this economically important area. Examples of these companies include FC Barcelona and Chelsea Football Club. The company’s contract with these organizations is renewed yearly, with the football companies making billions of dollars out of the sponsorship.
Personal Characteristics
As part of the market segmentation, the personal characteristics include the consideration of buyer-seller similarities, attitude towards risk, and the loyalty of companies that the organization engages in. Nike only sells to companies whose values are similar to its principles such as companies whose customers take risks and/or those who exhibit loyalty to their suppliers. In the use of technology, the company has developed smart shoes that are about to be marketed as an example of the commitment that it places on technology.
The company is also developing special gadgets such as training watches to complement the sports shoes (Nunez, 2013). Nike is among the global American companies that are recognized for the use of technology in their supply chains. The company is in the process of developing technologically advanced design methods at its factories and in the delivery and sale of its products online. For this purpose, the company has collaborated with Amazon and Microsoft companies.
Situational Factors
Situational factors refer to the elements that organizations apply when they wish to take advantage of situations to market their products. The use of situational factors as a market segmentation strategy includes consideration of urgency, specific application of the provided products, and the size of orders. Nike mainly does business with organizations that have no urgency in demand. However, in situations where these organizations require services urgently, the company is able to provide at the same rate.
The company has also focused on specific use of its products by engaging mainly in the production of sports shoes and appliances. It also focuses on large orders as opposed to small ones since it has the capacity to provide such orders. Some of the examples of companies that Nike supplies large orders include outlets such as Wal-Mart.
Operating Variable
This form of market segmentation involves the application of technology, customer capabilities, and the use or non-use of the products being provided by the company. The company serves medium and heavy users of its products, with sporting teams such as those in the NBA being large users of its products.
In terms of customer capability, Nike provides services to organizations and individuals who need only the services that it provides. Clients who need many services including different brands of shoes are also served although they are fewer. In the use of technology, the major companies that Nike has collaborated with include the Apple Computer Company and Fuel band.
Purchasing Approaches
This refers to the categorization of markets to be approached by an organization based on the power structure of client organizations, their purchasing policies, and the purchasing function. In the purchasing function organization, Nike serves organizations with a centralized purchasing structure such as Barcelona FC, Liverpool FC, and a number of retail stores such as Wal-Mart. In power structure, Nike serves organizations that are mainly financially dominated as opposed to being engineering dominated.
Examples of the organizations that are financially dominated in the relationship with Nike include Chelsea FC. In the nature of existing relationships, Nike has established relationships with a number of organizations with which it does business including those mentioned above such as Barcelona FC. However, the company also goes for the most desirable organizations to engage with without mostly having to consider the existing relationship.
An example is its engagement in e-marketing in collaboration with Google and Microsoft organizations. These two organizations also prefer working with Nike under service contracts instead of leasing. This link is a good example of the general purchasing policies that Nike applies. In terms of purchasing criteria, Nike markets itself as a company that is dedicated to quality. Hence, it approaches companies seeking quality including basketball teams such as The Lakers of Florida.
Adidas
Brief Background and History
The German Adolf Dassler founded Adidas after the end of World War I. He used scarce materials at the time to achieve his dream of equipping sportsmen with the right shoes for their respective ports.
The company grew to employ over 100 people by 1930. It was able to withstand the effects of the Second World War with the reputation of making the best sports shoes. Dassler later renamed the company as Adidas after the war. He proceeded to make shoes that made his country win the World Cup in 1954. Currently, the corporation has beyond 30,000 employees throughout the globe, with approximately 2500 of them being stationed at its main offices in Herzogenaurach, Germany.
Market Segmentation
Demographics
Just like Nike, Adidas serves customers in the sports footwear industry, with limited services to other industries. It also serves companies in these industries, with the main companies served being the sporting organizations. One of the strategies that Adidas uses in market segmentation is geographic marketing where it is able to market specific products to some prioritized geographical areas. For instance, the company marketed the soccer shoes in Europe because the sports industry is popular there as compared to North America.
Operating Variables
In terms of technology, user-non user status, and customer capability, Adidas has managed to put in place several measures. Some of these measures include the introduction of technology that is related to sportswear. An example on the use of technology is the smart watch that the company is in the process of developing to match the sports footwear it makes. Adidas also serves heavy and medium users of its products.
Unlike Nike, Adidas serves customers who require many services although they are related to the sporting industry. An example of psychographic segmentation as an operating variable is the brand marketed by Adidas under the brand name ‘Rebook Original’ that is meant for enthusiastic Rebook fans.
Personal Characteristics
Adidas has applied a number of personal characteristics of its customers to develop market segments (Adidas Industries, 2011). Adidas only serves organizations that have similar services and products together with customers who have the risk-taker element such that even if they are new to Adidas, they are not afraid of purchasing from it since they are assured of quality products at the end of the day. The companies that Adidas focuses on are those that show loyalty to suppliers.
These companies can be found in the sporting arena, and hence the reason why most of the clients are sports enthusiasts as evidenced in the interests that Adidas shows in sports teams. It also supports several soccer clubs in the various football confederations around the world including “Chelsea FC, FC Bayern Muenchen, and Liverpool FC” (Quinn & Dibb, 2010, p. 1245).
Situational Factors
The situational factors in the market segmentation including the manufacture of products for specific applications are practiced in Adidas. For example, the company embarks on the production of technologically advanced products such as the proposed ‘smart shoe’, which is developed based on the response that the development of similar products by Nike has had on its markets.
Purchasing Approaches
The organizations that Adidas serves are highly centralized and financially dominated. The organizations include outlets and large holding companies. The companies served are those that have strong relationships with Adidas, with all the purchasing policies such as leasing, contracting, and systems purchase being applied.
Adidas markets itself as a quality company whose policies include service to companies that seek the provision of quality products. The promotion of performance gear brands has been established as a way of reaching the youthful cohort that is more energetic compared to the grown-up folks.
Comparison
Similarities
The use of demographic segmentation is the most evident strategy in both Nike and Adidas. These companies have applied age as one of the demographics in their marketing (Quinn, & Dibb, 2010). Both companies market their products to the young generation, with a significant proportion of their sales taking place. Both companies have the American market as the prime target in many commercials.
These two companies have similar strategies in the use of personal characteristics and situational factors in their market segmentation strategy. In the use of personal characteristics as a factor in marketing segmentation, the companies have targeted the young by adopting technology as an important component in their products. The companies sell to other companies and individuals with similar values such as risk taking and/or one who show significant loyalty to suppliers.
The companies are also recognized as sponsors of the major sporting events in the world, with an example being the FIFA World Cup and the Olympics. They have several teams and sporting personalities under their sponsorship such as Ronaldo to ensure that they are able to compete with each other as they try to remain on top of the competition. Both companies have targeted the sports industry as their main market.
Both have applied market segmentation in this sector especially in soccer and basketball sports. For example, they have embarked on producing BB II High-Performance basketball footwear, which is a contemporary design for the modern sportsman, combining lightweight materials with more durable ones to ensure the best guarantee for their customers.
Differences
The two companies have a difference in their market segmentation in that when Nike applies the geographic segmentation to enter the developing markets in other parts of the world, Adidas focuses on the United States’ markets to improve its sales in the sports shoes sector.
Some of the markets that Nike has targeted include South America and the developing nations of Africa. On the other hand, Adidas has only started to approach and consolidate these markets. Nike is also known to apply contracts in the sales and purchase of its products, as opposed to Adidas that mostly applies leasing.
Conclusion and Recommendations
Market segmentation allows companies to group their markets into appropriate segments so that they are able to target them with specific measures that are aimed at improving their competitiveness and profit returns. Nike and Adidas have applied a number of strategies in their market segmentation.
However, Adidas has been slower in the implementation of measures to attract the specific targets, as evidenced in its market share, which is second to Nike. Some of the recommendations for these companies include that they should segment their markets more by targeting submarkets such as distance runners. They should also ensure that they put more measures to keep up with the latest trends in the fashion industry by providing products that match the trend.
Reference List
Adidas Industries. (2011, November). Ch. 8 Segmenting and Targeting Markets. Web.
Carbasho, T. (2010). Nike. Santa Barbara, Calif: Greenwood.
Choi, J., Jungwoo, S., & Jongsu, L. (2013). Strategic management of new products: Ex-ante simulation and market segmentation. International Journal of Market Research, 55(2), 289-314.
Larson, D. (2011). Global Brand Management – Nike’s Global Brand.ISM Journal of International Business, 1(3), 1-14.
Levin, A., & Behrens, J. (2003). From Swoosh to Swoon: Linguistic Analysis of Nike’s Changing Image. Business Communication Quarterly, 66(3), 52-65.
Nunez, D. (2012). Nike Inc.: Ch. 8 – Segmenting and Targeting Markets. Web.
Quinn, L. (2009). Market segmentation in managerial practice: a qualitative examination. Journal of Marketing Management, 25 (3/4), 253-272.
Quinn, L., & Dibb, S. (2010). Evaluating market-segmentation research priorities: Targeting re-emancipation. Journal of Marketing Management, 26(13/14), 1239-1255.
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