Strategic Alliance Breakup: Nike and Amazon Alliance Analysis
Industry
E-commerce refers to the process of selling and buying goods and services using an online mean. The E-commerce history goes back to 1982 when a company called Boston Computer Exchange was operating as an online marketplace for used computers. Then in 1995, Amazon came and disrupted the e-commerce industry. In 2019, e-commerce global market size amounted to 3.5 trillion USD. One year later, the COVID-19 pandemic strikes and the e-commerce global market size jumped by 22.3% to 4.28 trillion USD. E-commerce industry expected to reach 22% of the total global retail sales by 2023. The last few years have showed that it is just the start of the online shopping trend. Consumer behavior is impacted by social media and technology. Internet users are more likely to buy online than to drive to the store and search for the product, this is what e-commerce is all about, convenience. Every year new mobile technologies are getting to customers with better, faster, and easier experience. In 2019, smartphones accounted around 60% of retail e-commerce visits worldwide (Coppola, 2021a).
Nike
In 1964, Nike was formerly called Blue Ribbon Sports, then later in 1971, the company was rebranded and called what we all know today as Nike, the world largest multinational corporation supplier and manufacturer of sports shoes, apparel, and sport accessories. In 2020, Nike revenue exceeded 37.4 billion USD. With more than 75,400 employees worldwide, Nike is a huge company and is a well-known and respected global brand. The Brand value alone estimated at around 34.8 billion USD worldwide in 2020 (Sabanoglu, 2021).
Amazon
Amazon is an American multinational tech company that started in 1995 by Jeff Bezos, an entrepreneur and businessman that shaped the e-commerce industry. Amazon started as an online marketplace where companies or third-party sellers could register and list their products on the website and sell them to their customers. As of 2019, the net sales of Amazon reached 280.5 billion USD, with a net income of 11.59 billion USD.
As of July 2019 the distribution channel through online marketplaces was at the top of all other channels presented 47% of the total online purchases worldwide (Coppola, 2021b).
Case Analysis
Strategic Alliance
Vision Alignment. Nike’s vision was to expand and grow in the e-commerce space while maintaining the brand’s reputation and customer service level. Amazon, on the other hand, is trying to create new industries and list more recognized brands in their marketplace, this alone would increase the traffic on Amazon and therefore increase the value of the company. Nike was motivated by the fact that Amazon is already in the industry and the most popular online sales channel in the world. When both companies decided to work together, each with different perspectives and hopes. Vision alignment and written formal agreements should be studied carefully and the scope of work should have been mentioned. Speaking of large enterprises like Nike and Amazon, one can argue that these paper works are already taken care of.
Value Creation.
The value for Amazon in this arrangement is to gain more publicity and Nike was one of the biggest brand name partners to Amazon. Nile is also very popular in the apparel category. This gave Amazon the luxury to use this advantage when their executives try to convince other big-name brands to join Amazon, hence taking advantage of the brand name. For Nike it was to mainly cooperate with Amazon to clean the marketplace from counterfeit Nike products.
Cultural Fit.
Both Nike and Amazon came from the same geographic location, which might be a positive point for communications. However, cultural fit is not limited to the location or the language of the partners, cultural fit can be measured to the extent of looking at the cultural behavior and act that is going on inside an organization’s close doors. Amazon and Nike have different cultures in that regard. On one hand, Amazon is known for its culture to have bold and peculiarity, meaning that the company and its employees believes that conventions impose limitations on self-growth and business growth (Meyer, 2017). Nike’s culture is more focused on talent and employee engagement in higher decision making. This might impose a strain to the managerial decision-making process; therefore, it can be argued that Nike lacked the managerial skills to sustain some partnership negotiations before starting the pilot program between the two companies.
Motive.
The agreement between Nike and Amazon started with the motive of eliminating unauthorized Nike listings on Amazon. After starting to list their products on the marketplace, Nike felt that this was not enough and needed from Amazon to reduce and eliminate counterfeit products. Amazon at first did cooperate with Nike to remove the listings that they thought are fake or unauthentic and gave them that option, however Nike did not appreciate the whole process of them having to go through hundreds of thousand Nike listings on the website. That alone was a challenge and a dealbreaker to start with.
Governance.
Having a system to define the whole process of an alliance is crucial in managing and organizing the alliance specially to manage risks through measuring performance while maintaining trust and control. The partnership between Amazon and Nike was not that sophisticated to have a complicated system to govern the process of the alliance, however it is important to point out that Amazon was in charge of the whole process.
Control.
Amazon was controlling the alliance in terms of operations as it is handling the website. Nike have less risk to take when joining the alliance, while Amazon is now responsible for technology and logistics which are not that easy to handle when having a big brand name in the marketplace. Control was also intangible, as the market is controlled on how customers are looking for products and when they are looking for those products. Nike strategy was clear from day one, they wanted to enter the e-commerce market, they wanted to partner with Amazon for a long time but was not very sure, this shows why the alliance is two years old and still in pilot phase. Nike want to control their sales while giving their customers the best experience and reach. Having their own website and app is in the strategy to hit its direct-to-consumer market. According to an article, Nike shares went up by 13% in 2020 as the company reported an increase in digital e-commerce sales by 82% (Thomas, 2020).
Performance.
Measuring performance is an important factor for the success of the alliance. For the case of Nike and Amazon, it is hard to come up with a precise performance measure as the alliance was in a pilot mode for two years only.
However, data have shown that Nike’s most popular sold products on Amazon for years, which was a men’s running shoes, lost its rank after the end of the alliance between the two companies.
Issues and Challenges
Trust.
Building trust and transparency prior experience is important, but before that a company should investigate and look for the partner’s (to be) reputation and previous partnerships to minimize risks and increase protectiveness (Nielsen, 2001). Nike expected Amazon to stand for their agreement and arrangement, but apparently the paperwork either was not that great, or that Amazon are not doing something about it. One argument can be made in this regard, that according to an article, in early 2019 Amazon launched an anti-counterfeit program that allow brands the ability to remove counterfeit products themselves. Nike did not like this and was disappointed as it was hard to track all third-party sellers that are accounted for more than 50% of the company’s total sales. (Arcieri, 2020).
Expectations.
Nike and Amazon each had different expectation out of this alliance, Amazon expected to boost the sales for Nike while getting a huge hit on their website which means more customer especially Nike’s loyal millennials that present the majority of Nike’s customer base. Nike on the other hand, was hopping to get Amazon to finally eliminate counterfeit products once and for all, this however did not happen.
Industry Trends
Online e-commerce presence. E-commerce growth is moving in an exponential rate. What is interesting is the relationship of e-commerce and traditional sales. In 2019, e-commerce sales counted at 9.71% of total sales, which is double the sales in 2016 where e-commerce sales were at 5.55% of total sales.
Fast checkout.
Customers’ online shopping behavior is evolving, customers today want to buy frequently and efficiently. According to an article, around 44.7% of the abandoned carts at the checkout page is for the unexpected shipping costs that customers see at the end of their shopping experience (N & Kumar, 2019). This could be solved if the website was transparent enough to show such costs in advance or what is called the fast checkout process, where customers can see all the details and know upfront that they will need to pay for a specific amount for delivery.
Targeted customers.
E-commerce have evolved to work as an ecosystem of systems that work together to get target customers and convert them into buying customers. Marketing and sales have evolved over the years to increase sales and profit for any business in the market. With the internet, e-commerce targeting, and concepts are changing over the years. According to the book author of the book “Ecommerce Evolved”, there are 12 core principles of e-commerce, one of them is “Your Business is Marketing”, the author emphasizes that for any business to grow it should focus on marketing and target customers in different channels (Larsson, 2016).
Fast delivery.
Delivery is an important element in e-commerce principle. Convenance and low cost is what customers are looking for. A same day delivery might not be important, but fast delivery is key for any e-commerce brand that want to reach out to more customers that have delivery as one of their reasons on why they buy online.
Contactless payments.
During COVID-19 and part of the social distancing, customers and businesses are adopting contactless payments including digital payments like PayPal, and also are using NFC technology with their credit cards to process payments without having to enter the credit card in the point of sale (POS) device. Many smartphones are using Near-field communication technology (NCF) for payments, also wearables like Fitbit and Apple watch have this feature as well.
Key Success Factors
Strategy Adoption.
Each company should have a strategy to adopt and work on. In the case of Nike and Amazon it is important to have this strategy set before signing the papers. Nike had the alliance as a starting point for a greater strategy to enter the e-commerce market, which is a good part from their side. However, both parties need to adopt a strategy that work best with them.
Evaluation.
Constant evaluation of the strategy and the alliance is required to maintain the healthy relationship between both companies and to assure homogeneous process and workflow.
Development.
Constant development in the strategy is important to keep the alliance alive and maybe explore new opportunities.
Diligence.
This is one of the most important aspects that many partners do not look into. Conducting due diligence is a viral action to limit risks and uncertainties in any partnership. Cultural and operational misalignment is the top reason why companies fail in alliances, according to research.
Negotiation and Execution.
Partners must think toward enhancing their partnership in a way that it becomes a win-win situation. Negotiations at the beginning of any partnership opportunity should be transparent and bold. Communication is key when it comes to aligning objectives and goals for a partnership.
Management and Measurement.
After signing the paperwork, it is key to measure and manage the performance of the partnership and point out misaligned operations or practices to fix any issue. Many companies do not do this step thinking that the partner is doing the same, leaving them with a pool of issues that might pile up to a point that ending the partnership is the only solution to clean the mess.
References
Coppola, D. (2021a, March 23). Amazon – Statistics & Facts . Retrieved from Statista: https://www.statista.com/topics/846/amazon/
Coppola, D. (2021b, February 20). E-commerce worldwide – Statistics & Facts. Retrieved from Statista: https://www.statista.com/topics/871/online-shopping/
Sabanoglu, T. (2021, February 19). Nike – Statistics & Facts. Retrieved from Statista: https://www.statista.com/topics/1243/nike/
Inc., S. (2020). Distribution of Online Purchases Worldwide as of July 2019, by Channel. San Francisco: Salesforce Research.
Steinhilber, S. (2008). Strategic Alliances: Three Ways to Make Them Work. Brighton: Harvard Business Review Press.
Meyer, P. (2017, February 12). Amazon.com Inc.’s Organizational Culture Characteristics (An Analysis). Retrieved from Panmore Institute: http://panmore.com/amazon-com-inc-organizational-culture-characteristics-analysis
Arcieri, K. (2020, January 6). Nike’s breakup with Amazon may lead other brands to call it quits: analysts. Retrieved from S&P GLOBAL MARKET INTELLIGENCE: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/nike-s-breakup-with-amazon-may-lead-other-brands-to-call-it-quits-analysts-56193375
Thomas, L. (2020, September 22). Nike shares soar 13% as online sales jump 82%, retailer sees rebound in China . Retrieved from CNBC: https://www.cnbc.com/2020/09/22/nike-nke-reports-fiscal-q1-2021-earnings-beat.html
N, M., & Kumar, M. (2019). E-Commerce Cart Abandonment: Exploring Consumer Behavior’s and Reasons for Cart Abandonment. International Journal of Engineering Research & Technology, 254–260.
Larsson, T. (2016). Ecommerce Evolved: The Essential Playbook To Build, Grow & Scale A Successful Ecommerce. Renoq: Createspace.
Thanks for reading, I hope you enjoyed it.
You can reach me at @alounpro at Twitter.
Ahmad Aloun
