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Why NIKE, Inc. (NKE) Fielded Kobe as China Second-Stringer

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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, Inc. (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.

NIKE Inc. (NKE)

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, Inc. (NYSE:NKE) 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, Inc. (NYSE:NKE)’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, Inc. (NYSE:NKE)’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.

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