Nike’s key to sustainable brand + revenue growth = demand creation expense

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What is it?

For years, Nike has had an obscure line-item within its financial reporting called “demand creation expense” (DCE) which encapsulates all spending related to sponsorship and media that creates demand for Nike products...

Nike doesn't cut corners when it comes to this expense, and this allows them to align themselves to the worlds biggest athletes, teams and leagues. A sample:

🤝Christiano Ronaldo, Michael Jordan and LeBron James all have “lifetime” deals with Nike believed to be worth North of $1b

🤝 Serena Williams, Tiger Woods, Giannis Antekounmpo, Rafael Nadal, and Naomi Osaka are some of the many other high-profile athletes that sit within the Nike stable

🤝Nike has kit supplier partnerships with the world’s biggest leagues such as the NFL, NBA and MLB reportedly worth $100m+ annually

🤝Kit supplier partnerships with teams such as Paris Saint Germain, Barcelona and Liverpool form part of Nike’s strategy to ensure strong visibility and awareness across Europe and the UK

🤝Nike signed it’s first ever kit supplier deal with a sports league within Australia, partnering with Cricket Australia to supply all kits for the 2021/22 BBL season

Traditionally, Nike has kept Demand Creation Expense at about 11-12 per cent of revenue but it hasn’t always been a strict rule. For example, in 2022:

·      Nike revenue = $46bn
·      Demand creation expense = $3.85b

This extravagant spending may raise some eyebrows from Nike shareholders however this weapon has proven key to keeping Nike the most marketable brand on the planet, and allowed them to create a competitive advantage...

How?

In 2022 16,903 athletes and entities promoted Nike across social media, resulting in 566k+ branded posts, 8m+ engagements, valued at $527m

Nike don’t have to build awareness. Everyone knows them. But when they build awareness of their partnerships, and align themselves so closely with the sports teams and athletes people love, a transfer of brand equity occurs.

Sponsorships are the perfect tool to impact the middle of the marketing funnel and Nike have used it to create a powerful brand moat. Through their rich history and authentic immersion in sports, they've managed to create deep connections with customers, and more direct consumer relationships.

In the latest quarterly earnings report, Nike CEO John Donahoe noted that Nike’s positive results were “…a testament to our deep connection with consumers” which he also noted was driven by Nike’s expanding brand strength.

🔨 The tool that has enabled this to happen is the Demand Creation Expense budget.