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BUS FPX3022 Assessment 1: Nike’s DTC Distribution Strategy

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The supply chain is considered the bloodline of an organization. Supply chain regards the elaborate network of people and business entities interacting with each other through a complex network of transactions that support the operational and strategic targets of the organization. The supply chain is the extensive network of suppliers, manufacturers, distributors, logisticians, warehouses, and retailers. All of these entities coordinate with one another to deliver the products and/or services demanded by consumers (Chopra, 2018). Supply chain management, on this note, is about the whole set of processes and activities focused on the coordination, alignment, and decision-making related to the flow of resources for the creation of goods and/or services. It is also about the process of efficient product returns through reverse logistics, to deal with damaged, inferior, or defective goods (Oracle, 2022). Supply chain management targets the maximization of available technologies and capabilities of the organization to achieve the highest possible level of product quality, service reliability, customer satisfaction, and financial wellness (Chopra, 2018).

Direct-to-Consumer (DTC) Distribution

One of the key functions of supply chain management is the distribution which is particularly concerned with the activities and strategies of an organization focused on the delivery of goods and/or services to the consumers (Chopra, 2018). A distribution strategy that has become popular in recent years is the direct-to-consumer (DTC) method which is an approach that reduces the need for intermediaries to sell the product to the market. DTC links businesses directly with their target customers and the general consumer population, thereby also reducing the added cost of partnering with intermediaries while boosting sales and profits (Marr, 2022). Customers are now able to buy directly from company-owned shops, retail centers, and also online stores with added ease and speed. Without intermediaries standing between the company and the customers, the retail environment becomes more direct, more engaging, and potentially more fulfilling for the clients. 

DTC Advantages and Disadvantages: The Case of Nike

Nike adopted the DTC distribution strategy in 2017 to leverage its market presence and growth capabilities by establishing a retail presence among key areas in select cities (George-Parkin, 2019). The company referred to this strategy as Consumer Direct Offense which is an attempt of the footwear and apparel manufacturer to innovate its supply chain and strengthen relationships with the customers (Rivas, 2020). DTC, according to a study by Pesavento (2019) presents an opportunity for businesses to have a wider market reach, and customers also benefit from it by having access to more product selection and options. For Nike, the adoption of DTC in its retail activities is strategically embedded in the global firm’s effort to promote “digital prowess, scaling of new and existing product platforms”, and enhancing the company’s “speed-to-market capabilities” (George-Parkin, 2019). 

DTC is also beneficial in streamlining the company’s retail activities while building better brand equity and recognition through product authenticity (Hufford, 2019). Direct distribution in Nike’s retail activities generates a higher sales margins for the company compared to retail with intermediaries in the supply chain. DTC is essential in the provision of a “premium” shopping experience for customers which leads to retail attractiveness and potentially high shopper traffic (Oberoi, 2020). Lastly, the DTC strategy grants firms control over the brand, enabling the business, such as Nike, to create a centralized promotional strategy for its products. 

Despite the known benefits of this retail strategy for the company, there are also drawbacks to this distribution strategy mainly to the intermediaries – wholesalers – who are eliminated from the supply chain of the company (Marr, 2022). DTC through online channels may expose the company to cyber-related risks. In the absence of intermediaries, companies, such as Nike, will also be required to form or organize their distribution fleet which will fulfill the logistics responsibilities which can pose serious challenges in terms of speed of fulfillment, cost of delivery, and transparency of logistics. DTC works best for consumers with brand loyalty. As such, it reduces the opportunity for customers to compare products from a differentiated retail platform or channel which is available in the presence of intermediaries (George-Parkin, 2019). 

DTC and Customer Satisfaction

With a successful DTC channel, Nike can provide a seamless shopping experience for consumers which then leads to a satisfying purchase experience (Rivas, 2020). An omnichannel DTC channel can generate a more fulfilling shopping experience for customers, as they can find the retail channel that is most applicable to their constraints and shopping needs (James, 2021). Direct distribution through digital channels also contributes to the improvement of Nike’s knowledge concerning customer data – demographics, influences, motivators, and shopping patterns – that can be integrated by firms for the betterment of the business’s interaction with customers (Hufford, 2019). Through this, the retail experience can be transformed into a customer-centric shopping environment, thus, leading to excellent – if not superior – customer experience because Nike is focused and committed to the delivery of products that the customers need and want (Chopra, 2018). Finally, DTC distribution can provide inventory visibility which, from the standpoint of customer service, is essential in keeping consumers updated about whether the products they like are available and the location of product availability. 

Recommendations for Improvement of DTC Strategies

Customer data is critical in the improvement of a company’s distribution strategies. On this note, Nike can invest in the expansion of its DTC distribution channels, mainly through online retail or eCommerce site. This will allow the company to own digital information and data about their customers that are collected via the internet so that Nike can address the concerns of the consumers. Data analysis is also critical in furthering Nike’s presence in the eCommerce industry. Data analytics, being a vital component of supply chain management to become more competitive in the marketplace, can help companies like Nike to “generate deeper insights about consumer needs, to maintain control over their brand experience, and to differentiate their proposition to consumers” (Arora, Khan, Kohli, & Tufft, 2020). Data analytics can also be leveraged in the establishment of a feedback cycle for the business that will allow Nike to increase its customer responsiveness. 

Nike must also focus on its brand equity and transform it into a competitive advantage. Even if the company has a strong global position and share, it remains a critical aspect of the business to have strong brand equity that is aligned with the company’s strategic targets and focus (Chopra, 2018). From the strategic management viewpoint, a reliable distribution strategy – being supply chain function – is important in attaining positive responses and feedback from the consumers. As such, Nike can position its DTC strategy as a component of its brand equity (Hufford, 2019). To do this, Nike must ensure that its distribution objectives are aligned with its corporate mission, vision, and goals. 

DTC Recommendation for Adidas

Adidas, a direct competitor of Nike, can innovate its distribution strategies in the same way that Nike did. Furthering the direct-to-consumer distribution strategy is essential to Adidas’ competitive advantage in the market, not only in the United States but on a global level. The first charge for Adidas’ DTC is to use it as a tool for value proposition (James, 2021). To do this, Adidas can take advantage of the availability of eCommerce capabilities that the firm has already established (Arora et al., 2020). Adidas’ eCommerce presence can be used as the company’s digital distribution channel, apart from the firm’s physical stores, to leverage its DTC approach (Rivas, 2020). An omnichannel distribution strategy is also critical in strengthening Adidas’ position and competitive value in the market (Deck Commerce, 2022). 

Fulfillment is another vital consideration when putting up a DTC distribution strategy for the business (Hufford, 2019). Excellent products can be downplayed by poor and slow delivery times. Distribution and logistics are closely intertwined, and Adidas can leverage its DTC strategy by investing in a reliable, competitive, and transparent fulfillment strategy which will complete a satisfactory shopping experience (Deck Commerce, 2022). Adidas must be aware that customers nowadays consider distribution and logistics efficiency as a vitally equal aspect of a successful business. Thus, if Adidas can successfully establish a reliable fulfillment network, then the firm can retain its customers by creating a superior shopping experience that will appeal to the perception of the consumers (Chopra, 2018). 

Conclusion

Distribution encompasses all activities related to the movement of goods from one point to another across the supply chain. In the downstream side of the supply chain, distribution links manufacturers with their clients, and retailers with the customers. Distribution strategies and activities are critical in the profitability of the business because it facilitates the movement of goods and products from the business to the consumers. The case presented Nike’s use of direct-to-consumer (DTC) distribution strategy which has generated a myriad of benefits for the company, despite several disadvantages for the intermediaries and the company itself. The strengths of DTC are then recommended for Adidas’ distribution strategy as a way for the company to leverage its competitive market position. For both companies, DTC has been emphasized as a critical facet for customer satisfaction leading to successful business outcomes. 

References

Arora, A., Khan, H., S. & Tufft, C. (2020, Nov 30). DTC e-commerce: How consumer brands can get it right. McKinsey & Company. https://www.mckinsey.com/business-functions/growth-marketing-and-sales/our-insights/dtc-e-commerce-how-consumer-brands-can-get-it-right 

Chopra, S. (2018). Supply Chain Management: Strategy, Planning, and Operation (7th Edition). Pearson Education (US). https://capella.vitalsource.com/books/9780134732459 

Deck Commerce. (2022, May 10). DTC Brands Need Superb Relationships With Customers to Succeed. Global Newswire. https://www.globenewswire.com/en/news-release/2022/05/10/2440085/0/en/DTC-Brands-Need-Superb-Relationships-With-Customers-to-Succeed.html 

George-Parkin, H. (2019). How Nike’s direct-to-consumer plan is crushing the competition. FN75. https://footwearnews.com/2019/business/opinion-analysis/nike-dtc-competition-adidas-under-armour-digital-sales-1202845517/ 

Hufford, J. (2019). Why brands are going direct-to-consumers (DTC) and winning. nChannel. https://www.nchannel.com/blog/direct-to-consumer-dtc/ 

James, L. (2021, Apr 29). Direct to consumer e-commerce: Great for buyers and brands alike. The Future of Customer Engagement and Experience. https://www.the-future-of-commerce.com/2021/04/29/benefits-of-direct-to-consumer/ 

Marr, B. (2022, Apr 11). Why Every Brand Should Be Going Direct-To-Consumer (DTC). Forbes. https://www.forbes.com/sites/bernardmarr/2022/04/11/why-every-brand-should-be-going-direct-to-consumer-dtc/?sh=7ae533e5769f 

Oberoi, M. (2020, Jul 25). Analyzing Nike’s distribution channels and retail strategy. Market Realist. https://marketrealist.com/2019/10/analyzing-nikes-distribution-channels-and-retail-strategy/ 

Oracle. (2022). What is SCM (Supply Chain Management)? Supply Chain Management—Overview. https://www.oracle.com/scm/what-is-supply-chain-management/ 

Pesavento, M. T. (2019). The Impact of Direct to Consumer Shipping Laws on the Size Distribution of Wineries. Doctoral Dissertation, Miami University. https://etd.ohiolink.edu/apexprod/rws_etd/send_file/send?accession=miami1564415779784843&disposition=inline Rivas, T. (2020). Why Nike is doubling down on its digital strategy. Barron’s. https://www.barrons.com/articles/why-nike-is-doubling-down-on-its-digital-strategy-51595430019

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