The CEO forgot: Ads rule at Nike

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For Phil Knight, the ads are the product; for CEO William Perez, they were an expense to be questioned. Say bye-bye, Bill.

The difference of opinion about Nike's marketing was one of the key cultural clashes that lead to Nike co-founder and Chairman Phil Knight replacing CEO William Perez, a former package-goods marketer, after only 13 months on the job.

"When you get somebody new at the top there's going to be some changes. Everybody knows that," said a high-ranking Nike executive who confirmed reports of two analysts who wrote that Mr. Perez wanted to change the way the world's biggest sneaker and apparel company goes to market. "But making changes to advertising and marketing? Well, you can't mess with too many of Phil's babies. He'll let you change some things, but if Bill couldn't [understand] that the ads are as much a part of Nike as the shoes, then he's not getting it at all."

Mr. Perez, with his background as the former CEO of package-goods giant S.C. Johnson, was more focused on the sneakers themselves and on the marketer's relationship with retailers. Mr. Knight has long held that advertising is a part of Nike's lifeblood. Mr. Perez, who took over in December of 2004, also saw advertising and marketing as an area for cost-cutting.

Nike's spending was down under Mr. Perez's tenure. Through the end of November 2005, according to TNS Media Intelligence, Nike spent $170 million. Even allowing for the unaccounted-for month of December, that was down from the $212 million it spent in 2003 and 2004, and the $233 million it spent in 2002.

Marketing "was one of the tip-offs his DNA was not the same as a true Nike" marketer, said an executive familiar with Nike marketing. "A company like Nike needs a visionary leader, not a quantitative leader," the executive said, adding that Mr. Perez "wanted ads quantitatively tested. Nike is intuitive. Either it feels like a winner or a big idea-or not."

`A simple story'

Mr. Knight, new CEO Mark Parker and global marketing director Adam Helfant did not respond to calls and e-mails seeking comment. A Nike spokesman said, "Nike's demand-creation strategies have not changed. We'll continue to focus on building the Nike brand and creating close relationships with our consumers. We have been clear on the reasons why Perez was asked to resign. We have no comment on statements he has made to media."

Mr. Perez could not be reached for comment. In his only interview, with The Oregonian newspaper, Mr. Perez said, "It's a very simple story. It didn't work out, because Phil didn't let go."

Mr. Knight did have a conference call following the Jan. 23 announcement, but spoke only in broad terms. "Basically, the distance between the company that Bill managed in the package-goods business and Nike and the kind of new athletic-equipment business, was too great for him to make that leap," said Mr. Knight, adding that his decision was an accumulation of "lots of little incidences over a year.

"Personally, I think the failure to really kind of get his arms around this company and this industry led to confusion on behalf of the management team," Mr. Knight said. "And I didn't see that getting any better."

The bigger issue

In an analyst's report following the Jan. 23 announcement, Lizabeth Dunn of Prudential Equity Group, New York, wrote that among the differences between the two men, "a larger dispute" was taking place over the direction of marketing and the cost of advertising.

John Shanley, an analyst with Susquehanna Financial Group, said that Mr. Perez no longer wanted to rely on Nike 's high-profile advertising campaigns from Portland, Ore.-based Wieden & Kennedy, its longtime agency.

"Some parties in the organization felt they had to ramp up a presence with both consumers and retailers to recapture whatever loss of momentum there was. Other people, led by Perez, said `Let's fix the product and then we'll market accordingly,"' Mr. Shanley said. "That went at odds with what the company has historically done."

Said the Nike executive: "He's right. Always keep the swoosh in front of the consumer."

Nike has a 44% market share in the U.S., well ahead of even the projected 21%-23% that the combined Adidas-Reebok will have when that merger is finalized on Jan. 31. The executive said Mr. Perez saw no need to increase, or even keep level, the ad spending in the U.S.

There is, however, an acknowledged problem in some of Nike's European and Asian markets. The company has made mistakes there, including an ill-advised ad featuring basketball star LeBron James that offended many in China, and Nike's failure to hang on to NBA star Yao Ming, who signed with Reebok, which now has a strong presence in China.

Contributing: Alice Z. Cuneo

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