Is Nike’s marketing strategy sustainable? – Cameron Lee (EC004)

Ever since Nike’s slogan, ‘just do it’, and its advertising campaign with the same title were created in 1988 the company has been at the forefront of the advertising world.

It is estimated that in 2019 alone Nike spent approximately 5.75 billion dollars (AUD) on advertising. The obvious question is: Will this exorbitant amount of spending be cost-effective, and will it pay off in the short or long term?

Nike’s higher budget adverts are often visual stories which can almost be classified as short films. They aim to invoke an emotional response from the viewer, most commonly with themes of heroism and empowerment.

In order to justify the high spending on advertisement and reap benefits in the long term, Nike must create meaningful stories which evoke emotion and engage the consumer. The advertising department chooses to ignore the model of a ‘homo economicus’ or ‘rational economic man’ given by traditional economics and instead assumes that their customers will be influenced by the herd and act with instinct and emotion. This is why they cater towards the customer’s emotional side rather than merely displaying the technical features of their products, which would only be useful if customers made decisions based on utility maximisation.

The company has not been shy to controversy, with a recent example being the decision to continue endorsing Colin Kaerpernick given his controversial statements. They were forced to choose between ending his sponsorship to appeal to the baby boomer generation or continuing to endorse him which would appeal to the younger generations. They realised that whatever was chosen would have an opportunity cost of the other option.

Nike opted to forgo the support of older generations and launched a massive campaign of which Kaepernick was the poster boy. This decision was likely made as Nike spends so much on powerful advertising with the goal of creating long-term customers who are likely to continue buying from them in the future and will hence generate more revenue for the company.

Nike’s hefty spending on advertising appears to be paying off, with a gross profit in 2019 of 26.48 billion dollars (AUD). Their gross profit has continually increased over the past ten years and increased by 9.51% from 2018 to 2019. The advertising strategy employed by Nike is bold, but they have continually proven it to be effective.