Executive summary
NIKE Company that deals in the designing and manufacture of sportswear sports items evolved from the BRS Company, which was established in 1964 by Phil Knight. He decided to establish the company after recognizing that the U.S. market was too much dependant on imported footwear items.
Since then, the company has grown to become a global market leader in supplying sports shoes to its customers. Despite of its wonderful growth, the company experienced channel conflict when it decided to launch its products to be available for online retail in 1999.
This channel conflict was mainly due to the clashing objectives of the channel members, its traditional channel members declined to keep pace with the changing times, and channel members failed to accomplish their obligations. This led to negative impacts on the effectiveness of the channel, reduced partner loyalty to principals, and erosion of customer satisfaction.
Therefore, to avoid undesirable outcomes, the problem can be addressed adequately by engaging the services of an external consultant to come up with a number of proposed solutions that can benefit the organization in the long run.
The success of the proposed solutions can be evaluated through analyzing the behavioral performance of the channels and distinguishing forewarning signs of unacceptable performance within the channels.
Introduction
In 1964, Phil Knight, a Stanford MBA student, started the BRS (Blue Ribbon Sports) Company with the intention of manufacturing high-quality shoes for the people in America. He recognized that the U.S. market was too much dependant on footwear imports; therefore, he started trading in these imported shoes.
Eventually, the company evolved into NIKE. Over the next thirty-five years, the company expanded tremendously. Its fast growth was based on a consistent and a logical strategy: “to capitalize on the importance of sports in people’s lives and to be identified with competition and victory in consumer minds” (Stanford University, 2000, p. 1).
Situated in Oregon, NIKE, was distinguishing itself as an outstanding apparel company that aimed at fulfilling the varied needs and requirements of its customers throughout the whole world. The company embraced internal collegiality and outward competitiveness in its organization culture. This initiative was largely due to the contribution of his founder, Phil Knight.
Headquartered in Beaverton, Oregon, NIKE, was distinguishing itself as an outstanding apparel company that aimed at fulfilling the varied needs and requirements of its customers throughout the whole world. The company embraced internal collegiality and outward competitiveness in its organization culture.
This initiative was largely due to the contribution of his founder, Phil Knight. The company’s marketing strategy focuses on portraying it as a premium-brand that trades in stylish and luxurious sports equipment. It attracts it worldwide clients by embracing a marketing strategy based on its brand image.
This is realized by having a distinguishing logo as well as the advertising slogan: “Just do it,” and it lures customers to purchase its sports equipment by establishing long-term relationships with mega stars such as Michael Jordan and Tiger Woods, and other distinguished teams around the world.
In addition, its marketing mix consists of advertising, sponsoring sports events, and sponsoring celebrity athletes to use their products. Besides the controversies that surrounded its advertising campaigns, the company has proved that it is highly focused since it has paid more attention on building core corporate functions and expanding to other newer markets around the world.
Problem Diagnosis
Similar to other consumer products, the trade in sports equipment attracted several business persons who wanted to engage in ecommerce. Therefore, they wanted to make adequate use of the available opportunity in order to benefit from the advance in technology. Nike was not left behind in this new development. Originally, the nike.com website was established in late 1996 for the sole purpose of interacting with NIKE clients; there were no intentions of starting internet trading.
However, in the following years, the company’s internet strategy transformed drastically. By early 1999, the company started to engage in e-commerce by launching some of its test products online and by the mid of the same year, the company had entered full-scale in e-commerce. However, as the year drew to a close, the company found itself at crossroads concerning the ambitious e-commerce initiative that it had launched at the beginning of the year.
The company was experiencing a severe crisis of inequitable channel relationships that resulted in channel conflict (Lamb et al., 2009).The members within its distribution network were not agreeing in goals and methods to use for them to reach the global network of NIKE’s customers (Cullorta, & Lynn, n.d.)
This situation that faced the designer and manufacturer of sports equipment resulted when its traditional channel members declined to keep pace with the changing times. The advent of e-commerce had forced NIKE to make some of its products available online.
The destructive horizontal channel conflict that nike.com was facing can be attributed to a variety of conditions and factors. Usually, the crisis is seen when the different channel members have clashing objectives. For instance, in this case, the online retailers wanted to reach as many consumers as possible with the products they were advertising on their websites.
However, they were not paying attention whether the products are manufactured by NIKE or its ardent competitors. Nevertheless, Mary Kate Buckley, the general manager of nike.com, wanted the company to realize a targeted sales volume and market share within each market segment.
As a result of coming up with an online strategy, NIKE embraced e-commerce which has made its chain of business relationships with other traditional retailers to scramble and become confused. Part of the reason why NOKIA is experiencing this problem can be traced to the overproduction of its products (Dahui et al., 2006; Rosenberg & Stern, 1970).
As the company invents newer versions of its sports equipment and transforms its marketing trend, channel clash is an inevitable consequence. Channel conflict arises when individual channel members do not accomplish their obligations so as to meet the expectations of other channel members (Hardy & Magrath, 1989).
For instance, some athletic footwear retailers were not abiding by the rules established by NIKE. Consequently, the quality of NIKE products was not adequately meeting the requirements of its customers. In some other situations, there was communication breakdown between the channel members, which hindered the viability of the distribution network.
Even though some minimal levels of horizontal channel conflict is beneficial for an organization, when it is managed adequately, if this problem that NIKE is facing is not sufficiently addressed, it can lead to a number undesirable outcomes (Bucklin et al., 1997; Shavit, 2007). This problem can lead to severe negative impacts on the effectiveness of the channel (Hopkinson, 1997).
The different channel partners and principals’ proceeds can also feel the pinch of this problem. These undesirable outcomes may make channel partners to stir up. When the conflict is very much pronounced, it can result in reduced partner loyalty to principals. Since in this case, the delicate balance between market coverage and conflict has been lost, the resulting undesirable conflict is able to erode the satisfaction of the customers concerning the products of NIKE.
This is because clients will begin experiencing unnecessary purchasing costs in a situation when they are compelled to deal with multiple channels which are providing basically similar solutions concerning sales solutions, and as the competing channels commence on concentrating on simple methods of winning sales in a conflict situation, they would ignore other important obligations. If the problem is not addressed sufficiently, it can back into the organization.
Therefore, it can begin to affect some internal measures of operating effectiveness and the ultimate success of nike.com. In a situation in which a clash affects a direct sales force resulting in decreased productivity, an organization can experience increased management costs since the sales managers will be compelled to manage by exception and their will be increased turnover since the sales representatives will start reacting to conflict (Goldkuhl, 2007).
To solve this problem amicably, NIKE needs to engage the services of an external consultant. This is because the consultant will be compensated only for the work or time taken when solving the problem. This will reduce the expenses of the company since it will not have to cater for other benefits that employees enjoy such as sick leave and paid holidays.
Since the consultant will not be an employee of NIKE per se, the contract can be ended any time without dire consequences like facing the feared Employment Tribunal. More so, since the consultant has adequate expertise in solving channel conflict issues, he or she will be better placed to handle the situation as compared to an ordinary employee of the company.
Proposed solution for the client
After discovering that destructive channel conflict poses a potential threat to the existence of NIKE, the next question appertains to the solutions that can be implemented to avert the disaster from taking place. However, before the solutions can be implemented, NIKE must take drastic action to identify which particular conflicts poses a threat to its online retailing business.
This involves identifying if the channels are actually making efforts to serve the interests of its customers, and distinguishing whether the channels are in conflict or they are deriving benefits from one another (Hopkinson, 1997; Lynn & Kaarst, 1999). Others are identifying the exact cause of reduction in profits since poor operations in a channel can also be a factor, and lastly assessing if the decline in one channel is able reduce its overall proceeds.
Distinguishing whether channels are in conflict is important because in some situations they assist in expanding product usage or building the company’s corporate brand image. For example, NIKE’s creation of NIKETown superstores is a forward-integrated strategy, which has improved its brand awareness and reputation.
Therefore, it has made the organization to have increased control over its brand image which took a lot of time and considerable effort to build. Despite the fact that the rivalry superstores initially drew back, the advent of the new store increased the returns of the company almost in every channel that it was established in.
After identifying the channels that threatens its existence, NIKE will be able to distinguish the dangerous channel conflicts and adopt appropriate solutions in order to avert the possibility of a channel disaster (Eliashberg & Michie, 1984; Digital River Inc., 2000).
In this instance, proposed solutions include redesigning the channel structure so as to concentrate on the sports equipment being sold and the varied client needs, instituting equally agreeable and focused business objectives with the channel partners, establishing effective communication within the channels, and developing particular channel products that are not easily accessible to other channels. These proposed solutions will ultimately benefit NIKE.
This is because they will ensure that its specific client’s requirements within particular channels are met, partner agreements are as clear as possible hence avoiding unnecessary clashes, and all partners will be included in all the business-planning events (Lee, Lee, & Larsen, 2003; Rosenbusch, 2008.).
In achieving the desired outcomes, the challenges that can be experienced include, but not limited to, and some partners may be unwilling to give up the practice of discounting, some sales representatives may not be happy of the changes due to the benefits they have been getting. Additionally, some customers may have been accustomed to particular channels; therefore, the change may not go well with them.
The implementation plan for these proposed solutions is scalable and flexible since it is long enough for NIKE’s clients to react positively but also short enough in order to establish some client urgency.
This involves outlining strategic actions to be undertaken, giving roles and responsibilities to different people, laying down the intended completion date, laying down the projected outcomes, and assessing the impact of the solutions to be implemented (Wheeler & Hirsh, 1999).
The success of the solutions can be gauged through analyzing behavioral performance by the use of appropriate role audits. In addition, the channels can be evaluated on a constant basis in order to single out forewarning signs of unacceptable performance within the channels.
References
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