Why Nike Fielded Kobe as China Second-Stringer
Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The marketing reasons better be solid if mega-buck product endorser Kobe Bryant is cast only as a co-star with barely three seconds exposure in a video commercial. This was what Nike (NYSE: NKE) exactly did in its recent pitch “Give Me the Ball” which starred an unknown sandlot player trying to win China’s young consumers.
This latest ad from the Oregon-based sports gear manufacturer forms part of its marketing campaign to assert leadership in China where it has been operating for over 30 years and is now the company’s second largest market outside the U.S. Based on reported Euromonitor data, Nike has a 12.1% share of Chinese mainland’s sportswear market. Said hot on the Swoosh’s heels is the German sports gear icon Adidas AG (NASDAQOTH: ADDYY) with an 11.2% slice of the Chinese market estimated at close to $24 billion.
Huge youth market
As in other China business opportunities, the earnings potential for Nike and Adidas are immense. In one market assessment, it was estimated that the youth market segment of China (16–30 age bracket) totals some 300 million potential consumers. Monetized, their purchasing power would amount to $136 billion.
Bull factors for China’s consumer market this year have been identified by Citi analysts who recently rated Nike a buy, given the company’s commanding China presence and an expected surge of consumer spending in the country, particularly in this year's fourth quarter. One primer for this advance is the political stability fostered by the recent assumption of a new government in Beijing, they said.
Coping with segmentation
Taking a cue from the latest Nike ad in China, this company has adapted its sales and marketing efforts very well to the reality that China isn’t just one huge market. By and large, the country is composed of several highly segmented markets with distinctive characteristics, as elucidated in the book China Beyond – Change & Continuity.
In a nutshell, the apparent rationale of Nike’s new “Give Me the Ball” ad is to latch on the desire of the youth in the potent emerging city markets of China to be identified as having the individuality uniquely their own. Kobe’s image thus comes only as a second-stringer.
It is this marketing nuance that Adidas appears to have missed as it still has been relying largely on local celebrity endorsers (e.g. actress Fan Bingbing and singer Eason Chan) to promote its products in China. What the Chinese youth now look for aren’t just the celebrity role models, be it Oriental or Western, marketing pundits say.
Adidas shifts to fashion
Having said these, it looks like Adidas still has lots of ground to cover before it could topple Nike’s dominance in China. While it posted a 12% sales gain in the country for the 2012 fourth quarter, problems with Adidas’s Reebok brand resulting in a quarterly loss equivalent to about $350 million could hobble its progress in the Chinese market.
Significantly, Adidas too has already shed whatever gains it may have achieved last year when it won the bid as a 2012 London Olympics official partner. Another obstacle is the company’s shift on having its brands marketed as fashion labels which in effect puts them in competition with fashion makers already with distinct following and time-tested growth strategies.
Moreover, the issue on product quality is a possibility as Adidas last year closed its company-owned factory in China because of reported disputes with some of its subcontractors. Adidas now relies on some 300 subcontractors which, by sheer number and geographical distribution, could become unwieldy to manage in terms of quality control as volumes advance further.
Shanghai Nike campus
Nike, on the other hand, broke ground last July for a 600,000-square-foot campus in Shanghai for its Greater China headquarters, in support of its long-term strategy in the country. It also opened this January its first Nike Action Sports in China at Beijing’s Xidan district, a hotbed for local skateboarding which is a growing sports subculture in China.
In the foreseeable future, what Adidas can hope to achieve is eat more into the market share of another Germany-based company, Puma SE, acknowledged as a distant third among foreign sports gear manufacturers in China. Notably, Puma which had 2012 fourth quarter net sales 246.7 of million euros for the Asia/Pacific region, like Adidas has shifted its marketing strategy on having its products sold more as fashion labels and less as sports brands.
Buy tag sticks
Hence, even with Kobe demoted as a benchwarmer in Nike’s China marketing campaigns, expect the company to successfully deflect Adidas’s efforts to gain inroads on the Swoosh label. This success will not only help enable Nike meet its double-digit revenue growth rate guidance for the 2013 third quarter due for release late this March.
More gains can also be seen moving forward as Nike, which posted fiscal 2012 revenue of $25.3 billion, has a firmer and sharper focus on the market for sports performance products. This, coupled with the company’s continued product innovation, should even make stronger the buy tag that stock analysts recently pinned on the Nike jersey
Arturo Cuevas has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!