From Harvest Capita

The historical context of the movie

The movie "AIR" dramatizes how NIKE, in the years 1984-1985, achieved rapid growth and became the largest and most influential sportswear brand in the United States and globally by successfully signing Michael Jordan as the company's spokesperson.

In 1984, various sports began to gain popularity in the United States, leading to the flourishing development of the sports industry. However, NIKE faced several challenges at that time:

- The company's performance was stagnating, and the main market for running shoes reached a bottleneck, necessitating the exploration of new markets.
- Stock prices fell to single digits.
- Cash flow was precarious.
- The brand's influence was primarily limited to the track and field market in the United States, with minimal impact in other markets.

During this unprecedented operational crisis, despite being a publicly listed company, NIKE's performance and profits were not optimistic. The running shoe market, where NIKE originated, had reached a bottleneck, prompting the company to seek new growth points in other segmented markets. However, NIKE's influence beyond track and field and running markets was extremely limited. When the company sought a breakthrough in the NBA market, it faced the dominance of two major players, Converse and Adidas, with a combined 83% market share in basketball shoe sales, leaving NIKE with a mere 17% share in the basketball market.

Endorsing through sports stars is the most effective marketing strategy for sportswear brands, and the annual NBA draft is the window for various sports brands to secure future endorsers. At that time, the majority of top sports stars were divided between the first two picks, leaving NIKE to seek some second-tier stars with limited market budget. However, the actual situation at that time was more severe than depicted in the movie. After going public at the end of 1980, NIKE experienced rapid growth in the track and field sector, reaching a brief peak in stock prices by 1983. However, due to sluggish performance, the stock prices continuously fell to single digits. In 1984, the company faced its first quarterly loss since going public, and it even owed the federal government $25 million in unpaid taxes (as described in Phil Knight's autobiography), leading to a tight cash flow situation.

Faced with the challenges of the company's development at that time, founder Phil Knight returned to the company as CEO. Upon his return, Knight significantly cut unnecessary costs to maintain healthy cash flow and profits. However, the most crucial aspect was market development, with the marketing department taking on the responsibility of exploring new markets. The marketing director at that time, Rob, and his subordinate Sonny were specifically in charge of the basketball department. Sonny was particularly optimistic about Michael Jordan, who had not yet confirmed participation in the draft that year. Despite not being the hottest prospect (Jordan was the third overall pick, and the market was more focused on big-bodied interior players at that time), Sonny had high hopes for him. However, even though Jordan was not the top pick, he showed little interest in NIKE's endorsement invitation. Jordan personally revealed that he preferred to sign with Adidas at that time. He even mentioned later that before signing with NIKE, he had never worn any NIKE products, indicating NIKE's minimal influence in the basketball market at that time.

The storyline has deviated somewhat but is not detrimental.

"The AIR" is a typical inspirational story centered around the theme of the "American Dream," depicting how the protagonist Sonny, a scout, and the NIKE company, in the face of adversity, break conventions and bet on Jordan. They ultimately succeed by moving Jordan's family through a heartfelt speech rather than focusing solely on commercial interests. However, the real situation is far less dramatic and humanistic than portrayed in the movie. For example:

- Neither the protagonist Sonny nor his boss Rob approached Jordan's parents without going through Jordan's agent. Sonny himself met Jordan's mother for the first time at the premiere of the "Air" movie, and it was Jordan's agent, David Falk, who persuaded Jordan's parents.

- The terms of the endorsement contract were discussed throughout the contact process, with marketing director Rob primarily handling the negotiations, while Sonny, as a scout, did not play a significant role in the contract talks.

- The impassioned off-script speech in the movie, credited to Sonny, was actually delivered by NIKE's co-founder Howard White. During the event, Jordan's main point of contact was Rob, not Sonny.

Jordan's decision to accept NIKE's endorsement was influenced by two main factors:

1. NIKE did offer the most favorable conditions and terms in the market. Adidas did not prioritize the U.S. market and Jordan, refusing to create a personal shoe line. Converse, the official NBA footwear sponsor at the time, also rejected designing an exclusive signature series for Jordan.

2. George Raveling, Jordan's coach and life mentor in the U.S. basketball team, played a significant role in persuading Jordan (a role downplayed in the movie).

"The AIR" is a commercial film rather than a documentary. The narrative accuracy takes a back seat to the story's dramatization and the conveying of NIKE's brand culture. The movie's values of "breaking conventions, daring to take risks, taking action, and forging ahead" align with NIKE's desired brand culture. Consequently, the film received widespread acclaim after its release, both offline and online, even earning praise from NIKE's co-founder Phil Knight, who commented, "It's a good movie, even though it doesn't entirely stick to the facts."

NIKE's Developmental Phases

If we break down the evolution of NIKE's brand empire into three stages—early, middle, and late— we can outline the following three phases:

1. 1970-1985: Rapidly capturing the mainstream market with geek-like expertise and high cost-effectiveness in niche segments.

2. 1985-2008: Precisely investing in brand ambassadors and growing together, building brand value, aggressively expanding into the Asian market, and continuously diversifying product categories.

3. 2009-present: Leveraging digital technology to enhance reach and efficiency with consumers (C-end) and backend operations, efficiently balancing personalized consumer preferences with broad coverage.

NIKE如何塑造品牌价值

NIKE's Brand Value Creation

NIKE propagates a typical American culture of "individual heroism, freedom, equality, and striving for ideals." The strong cultural output of NIKE constructs its powerful brand value. The competitive factors behind this can be summarized into two main aspects: the frontend and the backend.

Frontend: Market Insights, Brand Promotion, and Marketing

1. Exploration of Young Athletes

Despite being a late entrant in the basketball market, NIKE, through precise insights, identified young talents like Jordan. Establishing a scouting team in 1980, NIKE scouted potential young athletes nationally and later globally. Sonny, as portrayed in the movie, played a significant role in this process. The approach involved paying monthly activity funds to college basketball teams and providing free shoes to players, creating early brand awareness.

In Jordan's case, NIKE conducted extensive tracking and research on the target group, gaining insights that helped them penetrate the market effectively. Sonny's continuous study of NCAA player footage contributed to the identification of Jordan's potential.

 2. Incubation and Co-Growth of Young Athletes

Following the success with Jordan in 1985, NIKE expanded its strategy to incubate young athletes in various sports, signing long-term contracts for mutual growth. This strategy included golf (Tiger Woods at 15), tennis (Federer at 17, Nadal at 13, Li Na at 15), athletics (Liu Xiang at 18), soccer (Neymar at 19), and basketball (LeBron James at 18).

NIKE provided comprehensive professional services to these athletes, offering support even in times of controversies or injuries. The company emphasized sustaining the relationship rather than terminating contracts based on commercial interests.

 3. Athlete IP Development and Integration with NIKE Brand

NIKE, particularly with its Air Jordan series, strategically developed exclusive product lines based on the athlete's characteristics. Before signing contracts, NIKE had already crafted unique lines for athletes and helped them build personal IPs. This not only elevated the athletes' influence but also boosted the NIKE brand or its specific product lines.

### Backend: Strong R&D, Efficient Supply Chain, and Digital Capabilities

NIKE's backend capabilities involve robust professional R&D, an efficient supply chain, and effective use of digital technology.

 1. R&D Capability

NIKE boasts strong research and development capabilities, ensuring innovative and high-quality products. This contributes to the brand's reputation for performance and technology in sportswear.

 2. Supply Chain Efficiency

The company maintains an efficient supply chain, ensuring timely delivery of products to meet consumer demands. This enables NIKE to stay competitive in the market.

 3. Digital Technology Integration

NIKE leverages digital technology to enhance consumer engagement and backend efficiency. This includes personalized consumer interactions and extensive coverage.

In summary, NIKE's brand value creation involves a combination of insightful frontend strategies, including athlete exploration, incubation, and athlete IP development, and backend strengths in R&D, supply chain efficiency, and digital integration. The brand's emphasis on cultural values, personal growth, and overcoming challenges has been a key element in its success.

An exemplary case is the branding of Jordan during his entry into the NBA. Jordan's remarkable physical attributes, including unprecedented jumping and hang-time abilities, created a sensation on the court, often giving the audience a feeling of the athlete "flying" in the air. NIKE strategically named his personal brand line "Air Jordan" and introduced two exclusive logos: the "Air Wing" and "Jumpman." These logos emphasized his distinctive features on the court.

In advertising, NIKE consistently showcased Jordan's breathtaking dunks and airborne maneuvers. The branding effort contributed to the creation of the "Basketball Deity" and "Diligent Genius" images, featuring serious and intense tones. Advertisements often portrayed Jordan engaging in rigorous solo training and self-confrontation, highlighting his leadership qualities and determination for victory. The color schemes of the shoes predominantly reflected the black, red, and white colors of his team, the Chicago Bulls, adding a serious and bold tone.

Moreover, NIKE spared no effort in shaping Jordan's personal image, portraying him as an unbeatable leader. The advertising style was characterized by minimal humor, mostly featuring black-and-white footage. The focus was on Jordan's relentless training and self-discipline, emphasizing his unique leadership qualities. The color palette of the basketball shoes aligned with the team colors, reinforcing a serious, bold, and dignified tone.

Simultaneously, the Air Jordan series consistently incorporated NIKE's most advanced technologies, positioning itself as a high-end professional line. This absolute commitment to technological innovation supported the superlative image associated with Jordan's personal brand. The virtuous cycle created by this synergy has not only contributed to the success of Jordan and the NIKE brand but has also allowed the Air Jordan independent line to thrive even after Jordan's retirement. The line has continued its independent operation, recruiting other NBA superstars like Carmelo Anthony and Chris Paul, maintaining a reputation as a high-performance and exclusive collection.

NIKE places tremendous emphasis on crafting a personal-heroic style for athletes, assisting them in significantly enhancing their individual intellectual property (IP) commercial value. This approach has become a distinctive feature of NIKE's "value-added service" for endorsers, indirectly elevating NIKE's brand value substantially. When athletes choose a sponsorship brand, the brand's ability to help enhance their commercial value becomes one of the criteria for accepting endorsement contracts. For instance, when signing the NBA rookie Zion Williamson in 2019, other competitors offered significantly higher bids than NIKE. Li-Ning proposed a 10-year, $250 million deal, and Anta offered a short-term $100 million deal. However, Zion ultimately signed a 7-year, $75 million contract with NIKE, underscoring the brand value of NIKE itself.

4.2Back-end: Strong Professional R&D Capabilities, Efficient Supply Chain, and Digitalization

（1）Geek-Like R&D Capabilities

### NIKE's Technological Innovation in Sportswear

In the emerging 1970s, the American athletic shoe market was dominated by the triad of Adidas, Puma, and Onitsuka Tiger. Choosing to enter the running shoe market, which the founder was more familiar with, NIKE formed a large-scale product development team in 1980. The team comprised professionals from various backgrounds, including biomechanics, chemistry, physics, ergonomics, and design, with over 40 scientists alone. Their research focused on enhancing athletic performance, reducing sports injuries, and improving the overall wearing experience.

NIKE's geeky professionalism allowed them to successfully penetrate the running shoe market. By the 1980s, they held over 50% market share in the U.S. running shoe market, becoming synonymous with running shoes, with 80% of the company's revenue coming from running shoes. When NIKE entered the basketball shoe market, some of its running shoe technology was also transferred to basketball shoes. While Converse and Adidas almost monopolized the basketball shoe market, their shoes lacked significant technological content, relying more on differentiation in design and endorsements. In contrast, NIKE's Air Jordan 1, designed for Jordan, introduced air sole cushioning technology into basketball shoes, a highly innovative breakthrough at the time, significantly enhancing the shock absorption and protection for athletes.

NIKE's technological innovation in the footwear market was unparalleled at the time. They nearly monopolized the cushioning technology in sneakers, continuously iterating and updating. The company holds over 500 Air Max patents. After achieving remarkable success through air cushioning technology, NIKE continued to invest in research and development in areas such as shoe fabrics and sole technology. As early as 1980, NIKE established a Sports Research Lab at its headquarters. Currently, NIKE's Innovation Kitchen and Sports Research Lab in the United States have specialized production equipment covering over 700,000 square meters. In terms of patent applications, in 2016 alone, NIKE obtained 5,060 patents in the U.S. and applied for over 19,000 patents worldwide, while Adidas had only around 2,400 patents during the same period. NIKE not only invests heavily in product design and development but also requires suppliers to enhance their research and development capabilities to ensure a leading position in fabric technology. For example, when its core supplier, Shenzhou International, went public, all the funds raised were allocated to upgrading equipment and reinforcing the fabric research and development team (which now has over a thousand researchers). The robust research and development capabilities of suppliers have become an indispensable factor for NIKE's leadership in product technology.

The dual emphasis on "professionalism" in both fabric and product ends has been deeply embedded in NIKE's brand identity, consistently upheld over more than 50 years of development.

(2) Efficient Supply Chain Capability



NIKE strongly controls both ends of the smile curve (design and sales) in its supply chain, completely outsourcing central production to third-party suppliers while exercising robust control over them.

Global Supply Chain Layout:
In terms of factory layout, NIKE adopts a global supply chain model, continually shifting production capacity to low-cost regions benefiting from demographic advantages. Factories are sequentially established in various countries in East Asia and Southeast Asia, including Japan, South Korea, Taiwan, mainland China, Vietnam, and Indonesia.

Supplier Management:

NIKE implements a highly explicit supplier classification management system, categorizing manufacturing plants into six levels – "Gold, Silver, Copper, Yellow, Red, and Ungraded" – based on supplier innovation, operational production capacity, and environmental consciousness. This tiered approach involves natural selection, with in-depth binding of suppliers throughout the entire process of raw material supply and production. Simultaneously, NIKE draws lessons from Japan's Uniqlo by dispatching technical personnel to guide suppliers, connecting them with manufacturers through information systems to enhance supply chain efficiency. The company strategically collaborates only with top-tier suppliers, continuously reducing and consolidating supplier numbers to simplify supply chain management complexities.

Digital Transformation:
Notably, in 2000, NIKE initiated a digital transformation of its supply chain, completing the upgrade in 2006. Through this system, NIKE has covered supply chain information in all global regions. Research, supply, production, and sales information are interconnected through this system, significantly improving supply chain efficiency.

In 2017, NIKE introduced the CDO (Consumer Direct Offense) plan, aiming to better serve consumers through the "Double Double Strategy" (achieving double targets in three areas): Double R&D (accelerate research and development speed), Double Speed (increase product production efficiency), and Double Consumer Connection (enhance interaction frequency and touchpoints with consumers).

The core objective of the plan is to enhance supply chain efficiency through the analysis of more consumer data. NIKE's transformation of the supply chain is comprehensive. By obtaining more data support from consumers, improving R&D speed, and collaborating with suppliers to utilize upgraded automated production equipment, NIKE has achieved significant efficiency improvements in production. This includes near-sourcing production based on real-time channel data, adjusting production plans according to feedback on the sales performance of new products, establishing local design teams to expedite response to new product development, utilizing RFID chips to obtain real-time inventory data, and precision planning for replenishment. These initiatives have reduced NIKE's production efficiency from 60 days to 20 days, significantly improving inventory turnover efficiency and reducing supply chain costs.

(3) Robust Digital Capability

NIKE established the Digital Sport department in 2010, placing it on par with core departments like R&D and marketing, showcasing its emphasis on digitization. In 2013, NIKE initiated digital transformation in China, expanding the penetration rate of online channels. This transformation is evident in wearables, proprietary shopping platforms (SNKRS), online sports communities (Nike Running Club), WeChat Mini Programs (Member Store, Trend Information), and digital stores (flagship stores in Shanghai and New York), focusing on digitization across the "People, Products, and Places" dimensions.

China is a key focus for NIKE's digital transformation, investing over 1.3 billion RMB to establish the NIKE China Technology Center, officially launched in the second half of 2021. In 2020, NIKE upgraded the CDO plan to CDA (Consumer Direct Acceleration plan), building an online ecosystem based on four major apps covering sports, shopping, socializing, and leisure scenarios. The company collects consumer data comprehensively across various channels. With accumulated members from different channels, NIKE's global online membership reached 300 million in 2022, equivalent to the sum of two Adidas, two Lululemon, and two ANTA memberships. NIKE's membership system is seamlessly integrated across different channels, enhancing the shopping experience and giving the company greater control in omnichannel sales.

The digital upgrade has provided NIKE with the confidence to transform and upgrade the channel side. In the past, NIKE primarily relied on wholesale sales through dispersed global distributors. With improved digital infrastructure, the company can reach end consumers more efficiently. After initiating the CDO plan in 2017, NIKE simultaneously began DTC (Direct-to-Consumer) transformation. After three years of transformation, NIKE's DTC business proportion increased from around 28% in 2017 to 38.7% in 2021, with an increasing share in online sales.

Although NIKE increased its investment in digitization after formulating the DTC transformation strategy in 2017, leading to a rise in operating expenses, the strong brand power and improved marketing efficiency post-DTC transformation gradually lowered the marketing expense ratio. From 12.3% in 2008, it decreased to 9.6% in 2018. Despite the enhancement in comprehensive gross profit margin, operating costs (management + sales expense ratios) did not significantly increase. The shift in cost structure allows NIKE, with the continuous expansion of revenue, to achieve higher economies of scale and better profit growth performance in the future.

Implications for the Domestic Consumer Industry in China

In summary, the analysis of NIKE's development journey and core competencies, triggered by the movie "AIR," reveals its evolution from a relatively unknown small brand to the world's most valuable sports brand.

In the early stages, NIKE was product-driven; in the middle stages, it gradually evolved into a marketing + product-driven entity. In the later stages, after reinforcing and upgrading in backend supply chain and digitization, NIKE transformed into a comprehensive brand group with both frontend and backend capabilities. This evolution has been the core driving force behind its steady growth over more than 50 years. Whether in the supply chain, digitization, or the creation of IP and brand, NIKE has consistently iterated with the consumer at the center. As a classic case in brand building in the consumer goods industry, NIKE's development experience is highly valuable for numerous domestic consumer goods enterprises to study and emulate.