The Relationship Marketing of Nike

Table of Contents

1. Introduction
1.1 Relationship Marketing
1.2 Transaction Marketing vs. Relationship Marketing.
1.3 Company Background

2. Theoretical frameworks
2.1 The Four Broad Partnerships of Relationship Marketing
2.2 The 30Rs of Relationship Marketing

3. Customer Relationships (R1)
3.1 Ladder of Loyalty
3.2 Knowledge Relationship (R21)
3.3 Electronic Relationships (R12)
3.4.1 Viral Marketing

4. Supplier Relationships

5. External Relationships (Mega Relationships)
5.1 Corporate Social Responsibility
5.2 Celebrity Endorsement
5.3 Mass Media Relationships (R23)

6. Internal Relationships

7. Recommendations and Conclusions

8. References

1. Introduction

In this section the subject of relationship marketing is discussed and compared to transaction marketing. Moreover a company overview of Nike is given.

1.1 Relationship Marketing

According to Godson (2011), relationship marketing is a “marketing approach that is based on networks, interactions and relationships”. Morgan and Hunt (1994) propose that relationship marketing includes all marketing activities that aim at establishing, developing and maintaining successful relational exchanges. Gummesson (2008) defines relationship marketing as marketing that is “based on interactions within networks of relationships”. In line with the previous, Kotler (2011) delineates relationship marketing as having multifarious relationships with marketing partners.

Within the last two decades relationship marketing has become a widely accepted marketing paradigm (Finne and Grönroos, 2009) but It is debatable whether relationship marketing is a fundamentally new marketing approach or if it has been part of the traditional marketing theory all along (Payne, 1995).

Godson (2011) points out that the main aim of relationship marketing is the development and maintenance of long term relationships with all stakeholders of a business. The most important stakeholder for most businesses is the customer. Against the backdrop of an increasingly competitive business environment, companies are forced to keep their customers loyal, ensure their satisfaction and find out as much as possible about them (Kotler, 2011). Truly loyal customers are less price sensitive, more likely to give referrals and more responsive to promotion & communication campaigns (Godson, 2009). Hence, a company’s profitability and its ability to retain customers are positively linked (Reichheld, 1996). Instead of merely focusing their marketing activities on the acquisition of new customers, companies need to balance between customer retention and acquisition (Godson, 2011)

When applying Relationship Marketing it is important to add value for the customer, otherwise he would not have a reason to enter a relationship with an organization. This added customer value can occur in the form of more trust to a company, a more customized service, a personal touch and the possibility to better answer customers’ expectations. Due to the characteristics of a product, it is a lot more difficult to offer genuine personal touch compared with services (Godson, 2011), which signifies a challenge for Nike.

1.2 Transaction Marketing vs. Relationship Marketing

Transaction marketing focuses on a single sale instead of generating repeated sales. Transaction marketing doesn’t differentiate between a repeat customer and a new transaction (Godson, 2011) and disregards customer satisfaction and customer loyalty (Hartung, 2009). Additionally transaction marketing is focused on the product features, happens on a short time scale, neglects customer service (Payne, 1995) and is indirect, impersonal and a one way communication (Gummesson, 2008).

Relationship marketing on the other hand focuses on customer retention and continuous customer contact. This marketing approach emphasizes customer value and is long time orientated. A high level of customer service and commitment to meet the expectations of customers are also distinctive features of relationship marketing (Payne, 1995).

Transaction marketing activities revolve mostly around the traditional 4Ps of marketing; Price, Place, Promotion and Product (Grönroos, 1994), whereas relationship marketing applies more newly concepts such as permission marketing. Permission marketing was first introduced by Godin (1999) and means that the consumer gives his consent to receive marketing messages from companies. By doing so, the costumer is more receptive to marketing messages because the message is anticipated, personal and relevant (Godin, 1999).

Nike uses a mix of relationship and relationship marketing. Nike as a global brand is in the maturity phase of the product life cycle. At this level, relationship marketing aiming at customer retention and loyalty is most suitable. On the other hand, Nike constantly released new products. New products are by nature in the introduction phase of the product life cycle. In this phase transaction marketing is most suitable (Gummesson, 2008).

According to the company’s homepage, the focus of Nike retailers around the world is on execution, product presentation and service. Moreover the homepage states that “it’s not about transactions, it's about connections” (Nikeinc.com). This statement underlines Nikes relationship marketing orientation. On the other hand Nikes uses mass marketing through standardized worldwide advertising campaigns. Mass marketing is indirect, impersonal and one-way (Gummesson, 20008) and therefore can be seen as a form of transaction marketing.

1.3 Company Background

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Fig.1: company background

Co-founder and chairman Phil Knight delineates Nike as a marketing orientated company and states that marketing their products is the company’s core competency (Willigan, 1992). Due to the company’s marketing activities and product innovations, Nike holds a strong market position in most of its product segments which are Clothing, footwear, sportswear and accessories (Datamonitor, 2011). Nikes marketing activities are mainly revolved around the sponsorship of athletes and athlete’s teams and using top sportsmen as brand endorser. In line with the mission statement, Nikes key target group are athletes. Other than sportsmen, Nike targets the youth that have embraced the Hip Hop culture (Hopkins, ??).

One of Nikes major strengths is its strong brand equity (Datamonitor, 2011). Nike is an expert in brand building, the catch phrase “Just do it” has become more of an idiom than an advertising slogan (Willigan, 1992). In 2011, Nikes brand equity was valued at $14,528 million, which makes the brand the 25thmost valuable brand worldwide (Datamonitor, 2011). A look at the scope of duties of the different departments of Nike reveals that a central part of Nikes global marketing activities is telling a story about the Nike brand (Nikeinc.com, 2012). An authentic brand story helps to distinguish a brand from its competitors and brings the brand to life (van de Wiel, 2009). Nike emphasis their employers from the brand management department to the retail staff to tell customers the story about Nike. The objective is to make to customer want to become part of the story, which of course can only be achieved by buying Nike products. Moreover Nikes extensive use of celebrity endorsement has helped to establish a strong brand identity and brand personality (Roll, 2012). According to urbandictionary.com, a Nike head is “a person that is very much dedicated to wearing Nike sneaker” (urbandictionary.com, 2012). The fact that a special slang term evolved for its die hard customers underpins Nikes strong brand.

Involvement in a marketing sense is the relevance a person attaches to a certain product or brand, based on their needs, values and interests (Solomon, 2010). Relationship Marketing could be difficult to apply for low-risk, low involvement products, since in that area a relationship with the supplier can often hardly add a value to the customer. Relationship marketing is most qualified for high involvement products (Godson, 2011). The involvement with clothing is dependent on the degree to which the costumer uses clothing as a means of self-expression (Michaelidou, 2006). A sizeable proportion of Nike customers use the company’s products as a means of self-expression and to be accepted within their peer groups; hence the involvement with Nike products is high.

2. Theoretical frameworks

The examination of Nikes relationship marketing activities is based two theoretical frameworks. The report is structured according to the four partnership approach to relationship marketing. The 30Rs of relationship marketing model is applied to underpin the four partnership model. Both are models explained in the paragraphs below.

2.1 The Four Broad Partnerships of Relationship Marketing

According to the four broad partnerships of relationship marketing model, there are four partnerships of an organization that form an important part of relationship marketing. These four partnerships are:

- External partnerships with competitors, alliances and governments
- Internal partnerships with employees, functional departments and internal business units
- Supplier partnerships with goods suppliers and service suppliers
- Customer partnerships with intermediate customers and final customers

At each of the four partnerships an exchange takes place and all of them affect the effectiveness of a company. Other than taking a simple buyer and seller approach, this model meet the requirements of relationship marketing by taking a constellation approach (Godson, 2011).

2.2 The 30Rs of Relationship Marketing

According to Gummesson (2008) the 30Rs of relationship marketing are 30 identifiable relationships that encompass a mixture of relationships between organizations and other parties. The 30 relationships can be subdivided into four broad categories: classic market relationships, special market relationships, mega relationships and nano relationships. The classic market relationships and the special market relationships represent market relationships mainly with an organizations customers; suppliers and competitors. The mega relationships and nano relationships comprise non- market relationships that have in indirect effect on the efficiency of the market relationships. The mega relationships are concerned with the economy and society at large. They exercise their influence on a higher level than the market relationships and set the conditions under which market relationships operate. Nano relationships on the contrary exercise their influence on a lower level than the market and represent relationships inside an organization. They are also referred to as internal relationships (Gummesson, 2008).

The importance of the particular relationships varies between organizations and specific situations (Gummesson, 2008). For Nike, the classic market relationship relationships to customers and supplier and the mega respectively external relationships are the most crucial. The table below shows a selection of the 30Rs applied to Nike.

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Fig.2: Nike and a selection of the 30Rs

3. Customer Relationships (R1)

The relationship between an organization and its customers is categorized as one of the three classic market relationships described by Gummesson. According to Gummesson (2008), the relationship between customers and supplier form the foundation of commercial exchange. Nike has millions of customers and it can be argued whether it is possible to create a relationship with all of them (Gummesson, 2008). It is important to notice that the transfer from transaction marketing to relationship marketing offers intermediary forms such as customized mass marketing. This marketing approach aims at creating an impression of a personal relationship between the customer and an organization and therefor is called pseudo-personal relationship (Gummesson, 2008). For a globally operating B to C organization such as Nike, pseudo- personal relationships are an efficient way to manage customer relations at reasonable costs.

3.1 Ladder of Loyalty

The ladder of loyalty is a model used to evaluate customer’s levels of involvement with a company and its products and to delineate the transition from transaction marketing to relationship marketing

(Godson, 2011). Moreover the ladder of loyalty helps to identify the different stages of the development of long term customer relationships (Payne, 1995). The ladder itself comprises of the six stages: Prospect, customer, client, supporter, advocate and partner. Prospects have the lowest level of loyalty and involvement towards a brand and partners have the highest level. The transition from transaction marketing to relationship marketing happens on the client stage. Nikes aim should be to move customers up the ladder of loyalty. The majority of Nikes customers are considered to be on the customer, client and supporter stage but Nike has customers on all stages of the ladder. At the supporter level, repeat buying behaviour turns into genuine loyalty to the Nike brand. The table below differentiates between the different types of Nike customers by applying the ladder of loyalty.