Marketing in Asia: How Nike Figured out China

The China market is finally for real. To the country’s new consumers, Western products mean one thing, status. They can’t get enough of those Air Jordans.

Nike swung into action even before most Chinese knew they had a new hero. The moment hurdler Lui Xiang became the country’s first Olympic medalist in a short-distance speed event – he claimed the gold with a new Olympic record in the 110 m hurdles last August. Nike launched a television advertisement in China showing Liu destroying the field and superimposed a series of questions designed to set nationalistic teeth on edge. “Asians lack muscle?’ asked one. ‘Asians lack the will to win?’ Then came the kicker, as Liu raised his arms above the trademark Nike Swoosh on his shoulder. ‘Stereotypes are made to be broken’. It was an instant success. ‘Nike understands why Chinese are proud’ says Li Yao, a weekend player at Swoosh-bedecked basketball courts near Beijings Tiananmen Square.

Such clever marketing tactics have helped make Nike the icon for the new China. According to a Hill and Knowlton survey, Chinese consider the Middle Kingdom’s ‘coolest brand’. Just as a new Flying Pigeon bicycle defined success when reforms began in the 1980’s and a washing machine that could scrub potatoes became the status symbol a decade later, so the Air Jordan – or any number of Nike products turned out in factories in Asia – has become the symbol of success for China’s new middle class. Sales rose 66% in 2003, to an estimated $300 million, and Nike is opening on average 1.5 new stores a day in China – yes a day! The goal is to migrate inland from China’s richer east-coast towns in time for the outpouring of interest in sports that will accompany the 2008 Summer Olympics in Beijing. How did Nike build such a booming business? For starters, the company promoted the right sports and launched a series of inspired advertising campaigns. But the story of how Nike cracked the China code has as much to do with the rise of China’s new middle class, which is hungry for Western products and individualism, and Nikes ability to tap into that hunger.

The West has dreamed of penetrating the elusive China market since traders began peddling opium to Chinese addicts in exchange for teas and spices in the 19th century. War and communism conspired to keep the Chinese poor and Westerners out. But with the rise of the newly affluent class and the rapid growth of the country’s economy, the China market has become the fastest growing market for many American companies. Although Washington runs a huge trade deficit with Beijing, exports to China have risen 76% in the past three years. According to a survey by the American Chamber of Commerce, three out of four U.S. companies say their China operations are profitable, most say that margins are higher in China than elsewhere in the world. For companies selling consumer items, ‘a presence here is essential’, says Jim Gradoville, who stepped down last month as Chairman of the Amercian Chamber in China.

The Chinese government may have a love-hate relationship with the West – eager for Western technology yet threatened by democracy – but for Chinese consumers, Western goods mean one thing: status. Chinese made Lenovo computers (the firm recently bought IBM’s PC unit) used to outsell foreign computer 2 to 1: now more expensive Dells are closing the gap. Foreign-made refrigerators are displacing Haier as the favourite in China’s kitchens. Chinese dress in their baggiest jeans to sit at Starbucks, which has 100 outlets and plans hundreds more. China’s biggest seller of athletic shoes, Li Ning, recently surrendered its top position to Nike, even though Nike shoes - $100 and more a pair – cost twice as much. The new middle class ‘seeks Western culture’ says Zang Wanli, a social scientist at the Chinese Academy of Social Sciences. ‘Nike was smart because it didn’t enter China selling usefulness, but selling status’.

The quest for cool hooked Zhang Han early. An art student in a loose Donald Duck T shirt and Carhartt work pants. Zhang, 21, has gone from occasional basketball player to All-Star consumer. He pries open his bedroom closet to reveal nineteen pairs of Air Jordans, a full line of Dunks and signature shoes of NBA stars like Vince Carter – more than sixty pairs costing more than $6000. Zhang began gathering Nikes in the 1990’s after a cousin sent some from Japan; his businessman father bankrolls his acquisitions. ‘Most Chinese can’t afford this stuff’, Zhang says, ‘but I know people with hundreds of pairs’. Then he climbs into his jeep to drive his girlfriend to McDonalds.

Zhang had not yet been born when Nike founder Phil Knight first travelled to China in 1980, before Beijing could even ship to U.S. ports; the country was just emerging from the turmoil of the Cultural Revolution. By the mid 80’s, Knight had moved much of his production to China from South Korea and Taiwan. But he saw China as more than a workshop. ‘There are 2 billion feet out there’, a former Nike executive recalls him saying, ‘Go get them’.

Phase 1, getting the Swoosh recognised, proved relatively easy. Nike outfitted top Chinese athletes and sponsored all the teams in China’s new pro basketball league in 1995. But the company had its share of horror stories too, struggling with production problems, rampant knock-offs, then criticism that it was exploiting Chinese labour. Cracking the market in a big way seemed impossible. Why would the Chinese consumer spend so much – twice the average monthly salary in the late 1990’s – on a pair of sneakers?

Sport was not a factor in a country where since the days of Confucius, education levels and test scores dictated success. So Nike executives set themselves a quixotic challenge to change China’s culture. Recalls Terry Rhoads, then Director for sports marketing in for Nike in China: ‘We thought, we won’t get anything if they don’t play sport’. As a Chinese speaker, Rhoads saw basketball as Nike’s ticket. He donated equipment to Shanghai’s high schools and paid them to open their basketball courts to the public after hours. He put together three-on-three tournaments and founded the city’s first high school basketball league, the Nike league, which has spread to seventeen cities. At games, Rhoads blasted the recorded sound of cheering to encourage straitlaced fans to loosen up, and he arranged fir the state-run television network to broadcast the finals nationally. The Chinese responded; sales through the 1990’s picked up 60% a year. ‘Our goal was to hook kids into Nike early and hold them for life’ says Rhoads, who now runs a Shanghai-based sports marketing company, Zou Marketing. Nike also hitched its wagon to the NBA (which had begun televising games in China), bringing players like David Robinson for visits. Slowly but surely, in-the-know Chinese came to call sneakers ‘nai-ke’.

And those sneakers brought with them a lot more than just basketball. Nike gambled that the new middle class, now some 40 million people who make an average a year of $8,500 for a family of three, was developing a whole new set of values, centred on individualism. Nike unabashedly made American culture its selling point, with ads that challenge China’s traditional group-oriented ethos. This year the company released Internet teaser clips showing a faceless but Asian looking high school basketball player shaking-and-baking his way through through a defense. It was timed to coincide with Nike tournaments around the country and concluded with the question, ‘Is this you’? the viral advertisement drew five million e-mails. More recently however, Nike blundered with a series of TV commercials showing Cleveland Cavaliers star Le Bron James defeating mythical Chinese characters in video-game style fights on the basketball court. The government said the James spot ‘blasphemes national practices and culture’. Nike dropped the commercial and apologised.

Starting in 2001, Nike coined a new phrase for its China marketing, borrowing from American black street culture: ‘Hip Hoop’. The idea is to ‘connect Nike with a creative lifestyle’ says Frank pan, Nike’s current director of sports marketing for China. The company’s Chinese website even encourages rap-style trash talk. ‘Shanghai rubbish, you lose again!’ reads a typical posting for a Nike league high school game. The hip-hop message ‘connects the disparate elements of black cool culture and associates it with Nike’ says Edward Bell, director of planning for Ogilvy & Mather in Hong Kong. ‘But black culture can be aggressive, and Nike soften its to make it more acceptable’ to Chinese. At a recent store opening in Shanghai, Nike flew in a streetball team from Beijing. The visitors humiliated their opponents while speakers blasted rapper 50 cent as he informed the Chinese audience that he is a P-I-M-P with impure designs on their mothers.

Source: Hill & Knowlton

Thanks in part to Nike’s promotions, urban hip hop culture is all the rage among young Chinese. One of Beijing’s leading DJs, Gu Yu, credits Nike with ‘making me the person I am’. Tall and handsome under a mop of shoulder-length hair, Gu got hooked on hip-hop culture after hearing rapper Black Rob rhyme praises to Nike in a television advertisement. Gu learned more on Nike’s website and persuaded overseas friends to send him music. Now they send him somehting else too: limited edition Nikes unavailable in China. Gu and his partner sell them in their shop. Upward, to Beijing’s several hundred ‘sneaker friends’ and wear them while spinning tunes in Beijing’s top clubs. To them, scoring rare soles and playing banned music are part of the same rebellious experience. ‘Because of the government, Chinese are not allowed access to a lot of these things’ says Gu’s partner, Ji Ming, ‘but with our shop and Nike style music, they can get what they want.

The Nike phenomenon is challenging Confucian-style deference to elders too. At the Nike shop in a ritzy Shanghai shopping mall, Zhen Zhiye, 22, a dental hygienist in a miniskirt, persuades her elderly aunt, who has worn only cheap sneakers that she says ‘make my feet stink’ considers spending $60 on a new pair. Zhen explains the ‘fragrant possibilites’ of higher-quality shoes and chides her aunt for her dowdy ways. Her aunt settles for a cross trainer. For most of China’s history, this exchange would have been unthinkable. In Chinese tradition, elders pass culture to youth, now there is a reversal of roles, with parents and grandparents eating and clothing themselves like their children.

Success aside, Nike has had its stumbles. When it began outfitting Chinese professional soccer teams in the mid-1990’s, its ill-fitting cleats caused heel sores so painful that Nike had to let its athletes wear Adidas with black tape over the trademark. In 1997, Nike increased production just before the Asian banking crisis decreased demand, then flooded the market with cheap shoes, undercutting its own retailers and driving many into the arms of Adidas. Two years later, the company created a $15 swoosh-bearing canvas sneaker designed for less affluent Chinese. The ‘World Shoe’ flopped so badly that Nike withdrew it.

Yet all that amounts to a frayed shoelace compared with losing China’s most famous living human. Yao Ming had worn Nike since Rhoads discovered him and brought him size 18s made for NBA All-Star Alonzo Mourning. In 1999, he signed Yao to a four-year contract worth $200,000. But Nike let his contract expire in 2003. Yao defected to Reebok for an estimated $100 million. The failure leaves Nike executives visibly dejected. Nike is determined not to repeat this mistake. It has signed China’s next NBA prospect, the 7 ft. Yi Jianlian, 20, who plays for the Guangdong tigers. And it has resolved problems that plagued it a few years ago, cleaning up its shop floors and cutting its footwear suppliers in China from forty to sixteen, allowing Nike to monitor its suppliers more closely. At Shoetown in the southern city of Guangzhou, 10,000 mostly female labourers work legal hours stitching shoes for $95 a month – more than the minimum wage. Therefore, Nike is not now seen as the ugly imperialist. In fact, the company’s celebration of American culture is in synch with the Chinese as they hurtle into a chaotic, freer time. At a Nike three-on-three competition in the capital, a Chinese DJ plays rap songs on his Dell computer, stating that ‘Nike says play hip-hop because that’s what blacks listen to, the government does not exactly promote these things. But we can all expose ourselves to something new’. That sounds pretty close to a Chinese translation of ‘Just Do It’.