Lets say youre upping your game and want to exercise more. Maybe that means walking in the
Question:
Let’s say you’re upping your game and want to exercise more. Maybe that means walking in the mornings, playing a pickup game after work, or running a marathon. Whatever your goal is, you need some new shoes, and Nike is your favored brand. If you’re like the majority of consumers, you head to a retail store to purchase a pair. Until recently, this was your only choice. Just a short while ago, if you tried to connect to Nike directly you’d find yourself squarely in a system focused on B2B (business-to-business) marketing channels. While Nike is no stranger to B2C (business-to-consumer) marketing—it opened its first NikeTown retail store in 1990—these stores were as many museums as retail outlets and more about brand promotion than retail sales.
In 2014, with more than 700 Nike-contracted factories moving shoes and apparel through 57 distribution centers to 140,000 retail stores, Nike garnered 82 percent of its revenue through B2B channels and just 18 percent from B2C.But this is changing fast. Competitors such as Under Armour already get 30 percent of their sales directly from consumers. Acknowledging trends in both B2C and B2B behaviors and needs, Nike announced that by 2020 it will grow its B2C e-commerce business seven-fold, from $1 billion to $7 billion. Total B2C business, including company-owned retail, will rise to $16 billion, or 32 percent of its total global revenue, almost doubling in just six years.
As discussed in this chapter, demographic trends plus changes in consumers’ motivations and behaviors are guiding Nike to expand its target markets and channels. For example, broad consumer trends suggest e-commerce B2C sales will continue to grow, from $1.9 trillion in 2016 (8.7 percent of total Page 180worldwide retail sales) to $4 trillion by 2020. More specifically, consumers’ desire to have healthier lifestyles suggests an increase in Nike’s overall business. But the continued rise in the number of working women, who have less time to shop, suggests more spending power in the women’s sector and a greater need for access to online purchasing. In addition, demographic trends show younger cohorts, who are very comfortable with online shopping, are now the largest consumer segment. Nike, intent on serving customers in ways that meet their needs, has addressed these trends by increasing its attention to its women’s line of training footwear and apparel and expanding its e-commerce presence.
But trends in B2B also suggest that Nike should target more of its business with direct-to-consumer models. Threatening the traditional B2B distribution model in the eyeglass, razor, and shoe industries, companies like Warby Parker, the Dollar Shave Club, and TOMS Shoes are selling products directly to the consumer instead of through wholesale distribution channels. This has placed traditional manufacturers, those who make the product but rely on a distribution channel to reach consumers, on the defensive.
Prior to the Internet, it was difficult to purchase directly from a manufacturer. B2B firms didn’t have the operational systems to take and fill small orders from individual consumers. But the Internet makes one-to-one communication easier, and readily available e-commerce tools make fulfilling orders much simpler. With these tools, small manufacturers can compete with the large. Today, even the smallest of manufacturers can pitch their products directly to consumers. Before a product is made, companies can pitch their value through sites like Kickstarter—an online crowd-sourced funding site—sourcing their “investor-customers” directly and then continuing to sell B2C instead of starting with distribution channels.
Consumers often like the direct model too. Disappointments encountered in retail shopping, where limited inventory may mean the right size, color, or quantity is out of stock, are almost never a problem when shopping directly with the manufacturer, where inventory is largest and the ability to make more quickly is right at hand. Likewise, consumers are often pleased when they get to interact directly with a brand by providing input into product design or sharing feedback on their experience with the product. Manufacturers are also perceived as being the truest experts on the product, and a better place to get advice or help. Such interactions can lead to improved brand loyalty.
Manufacturers are recognizing this disruption in the marketplace, so much so that Unilever, one of the world’s largest consumer goods conglomerates, recently paid $1 billion for the Dollar Shave Club. And the reason? Not the excellent e-commerce site operated by Dollar Shave Club, but the firm’s ability to build a relationship directly with consumers. For manufacturers, the opportunity to own the relationship with the customer, and to be able to define their own brand without intermediaries, is an attractive reason to go direct. And for Nike, one of the world’s top 20 most valuable brands, owning the relationship as trends move toward B2C will be important.
What are some hurdles Nike may face as it expands its B2C business? Consider this question both internally, with new skills Nike needs to amass, and externally, with challenges it may face from its B2B channel partners.
What would be some negative consequences to consumers if all manufacturers sold only B2C and eliminated wholesaler-distributors who supply retail stores?
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