Friday, February 17, 2012

Jeremy Lin (JL) and Cultural Marketing

JL is big business for NBA and related US merchandises.

JL is a marketing dream come true for US big businesses from Nike to NBA franchise. It certain helps to deflate the US trade deficit with China. ("Linsanity" a marketing dream in Asia.”

Let us see how “Linsanity” works out in dollars and cents, and in turn whether it makes sense:

(1) JL makes about $762, 195, or about $12,000 per game.

(2) The labor cost per pair of NIKE shoes made in China is $2.42. The market retail price is about $65. NIKE makes about $32.50/pair of shoes (APPENDIX I).

(4) If NIKE sells 1 million pairs of NIKE on account of “Linsanity”, that amounts to $32 millions of profit, net.

How do we make sense of this “Linsanity” NIKE transaction?

(1) NIKE (NBA) pays JL $762, 195/yr.
(2) Chinese people buy NIKE shoes in the millions.
(3) Chinese laborer gets paid $2.42 for making per pair of shoes.
(4) MIKE keeps $32.5 as profit.
(5) NIKE adds no value to the pair of shoes, other than promoting JL, a cultural product.
(6) NIKE MBAs are sipping cold latte in air condition offices in front of a computer, working 9/5 or flex hrs., with big pay checks, creating a wholesome image of JL.
(7) Chinese laborers are sweating in the factory 12 hr., a day, with subsistence wages, creating the shoes. (Average wage: $300 - 400)'s_Republic_of_China
(8) Environmental, health and other social costs are extra.

If you are a NIKE executive, would you rather have the Chinese making money for you, or doing it all yourself?

In this NIKE case, all business actors are from China – Taiwan: marketing (JL), manufacturing (Chinese laboring), purchasing (Chinese consumers). Yet, NIKE - US makes most of the money in the process. A good deal?

Somebody is laughing to the bank. Brain power over sweat labor, every time.

Now you understand why JL is not (only) about celebrating JL, and Yao Ming before him, for their athleticism. It is about culture marketing, through and through.

The question is, if China, Taiwan, or Asia see through this, would they be buying JL – NIKE still? More importantly, if Asia is not an emerging market, would JL still be an overnight sensation?

There is a good end for this critical piece.

So far this is a win-win situation for everyone involved: China gets her hero. Chinese youths get their shoes. JL gets to be famous. NIKE gets the money. US gets to reduce its trade balance. A fair trade, all round! Who is complaining?


"What exactly is the labor cost of Nike shoes?

The cost of labor for Nike products varies slightly by model, volume and sources. As a general rule, labor represents about 15 percent of the price Nike pays the factory for the product. Because Nike's cost is about 25 percent of retail cost, labor accounts for about 4 percent of the retail cost. The breakdown is roughly as follows:

Let's say the consumer pays: $65
Retailer pays: $32.50 to Nike, and then doubles the price for retail.
Nike pays: $16.25 and then doubles the price to retailers for shipping, insurance, duties, R&D, marketing, sales, administration and profits.

The $16.25 price paid the factory includes:
Materials: $10.75
Labor: $2.43
Overhead + Depreciation: $2.10
Factory Profit: $0.97

Total Costs: $16.25

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