CG Group3 Paper 04 AT

CORPORATE GOVERNANCE
A PAPER PRESENTATION: BEHAVIORAL AGENCY THEORY: NEW FOUNDATIONS

FOR THEORIZING ABOUT EXECUTIVE COMPENSATION
Group 3: Avijeet Tulsiani | Youssef Agrad | Jens Motschmann | Lekgotla Tsatsi
Leipzig, 17 October 2017
Pepper, A. & Gore, J. (2012), Behavioral Agency Theory: New Foundations for Theorizing about Executive
Compensation, Journal of Management, 42 (4): 1045-1068.
1 2 3 4 5 6
Behavioral Agency Theory: New Foundations for Theorizing about

Executive Compensation
Agenda
1 Paper Introduction
2 XXX
3 XXX
4 XXX
5 XXX
6 XXX
G r oup 3: Corporate G overnanc e: Prof . Dr. Alek s andra G regoric 17 October 2017
B e h a v i o r a l A g e n c y T h e o r y : N e w F o u n d a t i o n s f o r T h e o r i zi n g a b o u t E x e c u t i v e C o mp e n s a t i o n 2
1 2 3 4 5 6
Jens
The paper of Pepper and Gore addresses contemporary research on

executives compensation through the behavioral agency theory
Paper Introduction
Authors Motivation
Alexander Pepper Provide insights on the recent topic of executive compensation out of
London School of Economics a behavioral theory perspective since existing behavioral theories do
and Political Sciences not provide a realistic set of
Julia Gore Research
assumptions.
University of Surrey
Contribution to
Behavioral Agency Theory: academic research
Year of Publication
New Foundations for
2012 Provision of a new micro-
Theorizing about Executive
foundations for theorizing
Compensation about executive
Origin of paper compensation, combined
with a drawing on the
USA Paper
behavioral economics
literature, based on a more
Type of paper Journal realistic set of behavioral
assumptions than those that
Academic research paper Journal of Management have typically been made by
A* Ranking agency theorists.
1 2 3 4 5 6
AT
Various theoretical Framework for determining ideal Executive

Compensation
Approaches to Executive Compensation
Agency Theory Approach

Shareholders as principal and Top Management as Agents
Agents having more information
Principal and agent having different interests,
Tournament theory (Lazear & Rosen, 1981)

Human capital theory (Combs & Skills, 2003)
The managerial-power hypothesis (Bebchuk, Fried, & Walker, 2002)
Institutional theory (Balkin, 2008)
Political theories (e.g., Ungson & Steers, 1984)
Theories about fairness (e.g., Wade, OReilly, & Pollock, 2006)
Behavioral Agency Theory (Author) based on work on Behavioral Economics and theories of
motivation
1 2 3 4 5 6
JM
Research Approach Introduction
1 2 3 4 5 6
TBD
Behavioral Agency Theory (in corporate governance)
1 2 3 4 5 6
RT
Positive Agency Theory (in corporate governance)
1 2 3 4 5 6
RT
Comparison: Positive Agency Theory vs. Behavioral Agency Theory
1 2 3 4 5 6
AT
Effectiveness and Efficiency both should be parameters for

evaluating Agents Performance
Understanding effectiveness and efficiency
Effectiveness: capability to achieve the intended outcome

Efficiency: Maximum output for a given input
Motivates Top
High
Ideal Executive compensation is the one managers ,aligns
which motivates top management, aligns the Achieves
Objectives, But the interests of
interests of managers and shareholders at the managers and
minimum cost Costs are high
shareholders, costs
Effectiveness
are minimized
The Top management includes CEO, CFO ,
CTO, COO and all senior executives who
make the strategy and are responsible for its
execution
Fails to achieve the
objectives, Costs
are also high
Low
Low Effeciency Hig

h
1 2 3 4 5 6
AT
Effectiveness and Efficiency both should be parameters for

evaluating Agents Performance
Agents performance functions overview
P = f (A, M, O),
Where,
P = Individual Agents performance
A = Ability of agent to perform in form of knowledge, experience, skills and aptitude
M = Motivation as sum total of intrinsic and extrinsic motivation
O = the right opportunities including the necessary work structures and business environment
The behavioral agency theory focuses on the behaviors, interests, and actions of individual top
managers or agents instead of Top Management Team as unit od analysis in upper echelons theory.
Although the paper has defined Agents Performance as P si\upra, the propositions have been made
by analysing Pay (Variable X) and Effort (Variable Y).
The paper tries to explain that beyond an inflection point increase in pay doesnot lead to increase in
effort/Performance
1 2 3 4 5 6
Jens
Proposition Overview
Motivation Risk
1a: the weak crowding- 2a: Below a level of
out conjecture compensation
1b: the strong crowding- 2b: Above level of
out conjecture compensation
Corporate Performance
7: Incentives and rewards
Time Discounting
must be internally
compatible with a firms 3: Agents discount future
performance compensation e.g.
according to the average
Agents Job performance & discount rate
Work Motivation Cycle
Inequity Aversion
6: Set of first best
compensation strategies 4: Individual agents will
determine their
Goal Setting, Contracting, and Monitoring compensation by the
5a: Goal setting, monitoring and linked rewards and incentives are reference of the
positively correlated to performance & motivation compensation of a reference
5b: Weak incentives are more effective and efficient than strong incentives class
1 2 3 4 5 6
AT
Impact of increase in Motivation caused by increase in Pay
Deep Insights to propositions: 1a & 1b
Mi = f (Ni, Xi) Where,

Where, Eik = Expectancy that action i will
Ni = Intrinsic Motivation lead to outcome k
Xi = Extrinsic Motivation Vk = Valence of k
Ni and Xi are neither additive nor = Discount Factor for+ and
independent t= time lag
1 a) Weak Crowding Out 1 b) Strong Crowding Out
Above a certain level of compensation, 1 If compensation increase above higher level

intrinsic motivation will decrease as of compensation, , total compensation will
compensation increases reach zero start to decline
The rate of increase of total motivation will Intrinsic motivation is crowded out by
diminish extrinsic motivation
At a higher level of compensation, , total Besley and Ghatak (2005) study on public
compensation will reach zero sector and NGO employees
1 2 3 4 5 6
AT
People are risk averse is an over simplification
People are loss averse (Tversky and Kahneman
Every agent has his own risk profile.
People over estimate the probability of loss and underestimate the probability of gain which
is referred to as loss aversion behaviour
2 a) People are loss averse below 2 level 2 b) a) People are risk averse below
of compensation 2 level of compensation
a high propensity to take short-term risks small probabilities are typically

below a certain level of compensation. overweighed
and large probabilities are typically
If compensation is set below a certain level, underweighed
agents have high propensity to take short
term risk Above a certain level of compensation,
agents would prefer to retain a level of
Nothing to loose type of mentality compensation and not take risks required
to grow the business.
For example, a future bonus evident by

past trend
1 2 3 4 5 6
AT
Agents will take action that give short term pleasures although
detrimental in long run
Deep Insights to propositions: 3
3 Economic agents discount future events Hyperbolically as against exponential

discounting used in Finance
Agents extrinsic
motivation is affected by
time discounting
Compensation is not able

to motivate action if it is
remote
A counter to proposition of
Dr. Raghuram Rajan in
fault lines suggesting
differed payments to
executives
1 2 3 4 5 6
AT
People prefer not absolute but relative equality1

One must get outcome in proportion to efforts applied
Deep Insights to propositions: 4
4 If agents feel unfairness in compensation, they are demotivated
Adams ratio; {O/I}:{Or/Ir}
Agents form perceptions of what

constitutes an appropriate balance
between inputs and outputs by comparing
their own situations with those of other
people.
External as well as internal comparison
Source: 1. Rahuram Rajan, Fault Lines. Video: https://www.youtube.com/watch?v=-KSryJXDpZo
1 2 3 4 5 6
AT
Goal Setting, Contracting, and Monitoring System should be

transparently communicated and implemented
5 a) The system has positive 5 b) Weak incentives are a more effective and
correlation with performance and efficient way of motivating agents than
motivation strong incentives
Main Problem: Agency contracts are Roberts (2010): Strong incentives not
inevitably incomplete, if every thing could appropriate when co-operation is necessary.
be specified there would be no need for
incentive Teece, Pisano, and Shuen (1997): it is
difficult to calibrate individual contributions to
Limitation of cognition a joint effort and high powered incentives
Agent is an expert might well be destructive of cooperative
Business environment is dynamic - Actions activity and learning.
that are contractually required of the agent
when a contract is negotiated may cease to Again leads to problem of social loafing ;
be appropriate at a later date Adams Ratio
Agents Job Performance and Work Motivation Cycle
Summary of above 5 proposition
Mathematical convenience : = 1, 2, and 3
1 2 3 4 5 6
AT
Optimal Pay Motivation Ratio and compatibility of incentives of

entire team
Deep Insights to propositions: 6 & 7
6 Optimal / Best Compensation 7 Incentives of team must be

Strategy compatible
represents the point where total compensation Behavioral agency theory takes individual
is most efficient and effective. agent as unit of analysis
Incentives of entire top management team
Compensation strategy: should be compatible
Combination of fixed and variable pay
Contingent and discretionary bonuses Marketing : Highest Sales
Short-term and long-term incentives Production : Niche and qualitative product
Division : Highest Division profit
Limitations: Corporate : Highest Firm Profit
Labour Market Conditions (Imperfect)
Strategic (interfirm) rivalry Alignment of Goals (Prop 5a) attached to
political (intrafirm) gaming incentives
Inequity aversion (Prop 4)
Because of above limitation, Executive pay is Weak incentives against strong incentives
dis-proportionately high in comparison to (Prop 5B) to ensure cooperartion
average pay
1 2 3 4 5 6
RALPH
Conclusion and outlook (highloghting of future field of research)
1 2 3 4 5 6
Jens
Team member
Youssef Agrad, B.Sc. Jens Motschmann, B.A.

Full-time Student (M.Sc. 15) Full-time Student (M.Sc. 15)
Master in Management Master in Management
youssef.agrad@hhl.de jens.motschmann@hhl.de
Lekgotla Tsatsi, B.Sc. Avijeet Tulsiani, CA, M.com.

Exchange Student (AF17) Exchange Student (AF17)
Master in Management Master in Business

Administartion
lekgotla.tsatsi@hhl.de
avijeet.tulsiani@hhl.de
Nike is the biggest sports-wear and lifestyle brand and active all over
the world
Company Profile
Business Description Brand Description
Founded in 1971 If you have a body, you are an athlete.
President and CEO of Nike: Mark G. Parker
Mission: Bring inspiration and innovation to
Headquarters: Beaverton, Oregon U.S. every athlete in the world
Employees: > 70.000 worldwide (2016) Committed to building vivid communities that
Engages in the design, development, marketing, interact and inspire
and sale of sports and lifestyle footwear, Foster sustainable innovation
apparel, accessories, and services
Recent Financial Development Sales by Product / Sales by Region (2015)

30.6 35%
30 27.8
23.3 25.3
1% Footwear USA
30% 5% 16%
20
28% Apparel 11% 48% Europe
27% 27% 28%
10 27% 25%
66% Equipment China
25%
0 20% Other APAC
2012 2013 2014 2015
Sales [$bn] EBITDA margin [%]
Source: Company Filings (2012 - 2016)

Nikes brand portfolio covers both, traditional sports clothing and
lifestyle products
Brand Architecture
Corporate
Brand
House of
Brands Nike Nike Nike
Sportswear Plus Jordan Converse Hurley
Nike Sports Nike Lifestyle All Star Hurley Surf

Nike Women Nike Basketball Cons Club
Family Brands Nike Lifestyle Nike Training Jack Purcell
Nike Lab Made by You
Nike ID
Shoes Nike+ Events Shoes Sneaker Surf Club

Sport shoes Nike+ Training Clothing Clothing Events
Bags Club App Accessories Accessories Surf Sports
Products Clothing Nike+ Running Equipment Clothing
Accessories App Lifestyle
Gadgets Gadgets Clothing
Accessories
Source: Company Information (2016)
The most important characteristics of the brand identity of Nike are
victory, emotions, athletics and authenticity
Brand Identity Assessment (1/2)
Selection of Nikes Values1) Major Characteristics1) Evaluation of Nikes Brand Characteristics2)
Brand Vision: Sustainable 8 6 7 6 27

No official vision statement
CSR vision: We aim to help Athletic 6 6 10 7 29
How sustainable is the characteristic?

Uniqueness towards the competitor?
6
Meeting expectation of customer?

NIKE, and our consumers
Perceivable by the customer?

thrive in a sustainable Authentic 8 7 7 7 29
economy where people,
profit and planet are in
Fashionable 6 7 8 4 25
balance.
Result
Healthy 4 7 8 8 27
Brand Personality:
Nike works to present the Free 7 8 4 6 25
personality of authentic,
exceptional and passionate Victory 8 9 9 8 33
athletes
Attributes: down-to-earth, Innovative 6 8 8 6 28
cheerful, real, young, daring,
imaginative, unique, tough,
victory, team, power
Emotional 6 7 9 8 30
Rating matrix: 0 (not applic.) 10 (fully applic.)**
Source: Brand identity framework (Prof. Dr. Kirchgeorg)
1) For further details, please refer to the appendix; 2) All categories are weighted equally, team evaluation
Nikes major brand identity characteristics support the core values of
its USP and thus emotionally attach customers to the brand
Brand Identity Assessment (2/2)
Major Brand Characteristics USP of Nike
1 Victory Nike has created a unique brand and a set of values,

(e.g. performance, authenticity, and sustainability) and
2 Emotional
characteristics for which it stands in the customers
mind. The brand heavily invests in a community,
3 Athletic
which represents the Just do it. mentality
4 Authentic customers strive to identify with.
Characteristics act as brand promise and behaviors, thus they are brand USP touchpoints
Nike doesnt sell shoes, but the idea that we can all be athletes! Based on that philosophy, Nike
helps people realize their ambitions and emotionally attaches customers to the brand
Nike took the sale of an everyday, commoditized productsneakersand built a mystique
around them with innovative designs of its durable and high-quality sportswear.
Through the evaluated brand identity of Nike, the company is able to strengthen and support its
unique selling prepositions in a focused method. Overall the brand characteristics lead to a higher
success for the company through higher awareness and identification via recognizing the USP.
Sources: Brand identity framework (Prof. Dr. Kirchgeorg); Meffert, Burmann, Kirchgeorg (2015); Moine, Lloyd (2002); Gray, (2016); Aaker, (1996)
In the US sports wear industry, the brand Nike holds a leading position
in terms of fulfilling the most important customer buying criteria
Brand Positioning in US sports industry
Brand Positioning Assessment
Product quality and style/fashion/fit are the

High
most important buying criteria for the

POP average US sports wear buyer
POD Product quality:
From the customers perspective, Nike
has the best product quality in the US
Product Quality
This achievement is based on Nikes

efforts (e.g. Nike Sport Research
Laboratory, most patents among peers)
Nike has to make sure to keep this POD
and to not be reached by Puma or Under
Product Quality
POD Armour
Style/fashion/fit:
In terms of style/fashion/fit, the average
US customer prefers Adidas to Nike
Innovation Nike tries to reach POP here with:
Low
$1 bn sales
Style/Fashion/Fit functional and performance wear (Dri-Fit),
sustainable materials, eSports products
Low Style/Fashion/Fit High (Nike+) and product personalization
Source: Statista (2016b,c), Running Shoes Reviews (2016)
With respect to brand equity, Nike shows strong growth of 8,7% CAGR
over the last ten years and clearly outperforms its major peer, Adidas
Brand Equity Development of Nike and Adidas from 2006 to 2016 [$bn]1)
Nike
Adidas
30 CAGR
8.7% 25.0
25 23.1
CAGR
6.3% 19.9
20 17.1
14.5 15.1
15 12.7 13.2 13.7
10.9 12.0
10 7.5 7.4 6.8 7.9
5.5 6.2 6.7
4.3 4.8 5.1 5.4
5
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
As of the latest measurement in 2016, Nike has 3,2x the brand equity of its major peer, Adidas
Nike managed to increase its brand equity significantly in each year over the last 10 years, while
Adidas had a down-phase from 2014 to 2015
Nike was the big winner of sports year 2014 (Football Worldcup, Winter Olympics) with a year-on-
year growth from 2014 to 2015 of 16%, while Adidas suffered brand equity losses of 7,7%
Source: Interbrand Brand Equity Reports (2006-2016); 1) CAGRs are calculated for the period from 2006 to 2016
The gap model assessment for Nike reveals that only the fourth
potential gap of the model (identification gap) bears an inconsistency
Gap Model Assessment for Nike
1 Perception gap assessment 2 Performance gap assessment
Analysis: Operationalized and benchmarked key Analysis: Investigated whether employees are satisfied
components of Nikes mission statement1) ("reach: with the alignment of the target and the real brand
articles sold & innovation: "number patents") with peers identity or whether they are unsatisfied due to big gaps
Outcome: Nike has the most active patents and sold Outcome: Nike has, together with Adidas, the highest
the most articles over the last ten years in the sports employee satisfaction rate among its peer group
wear business (appreciation of brand by customers)
Existing gap: No gap identified Existing gap: No gap identified
3 Communication gap assessment 4 Identification gap assessment
Analysis: Analyzed whether customers are satisfied Analysis: Assessed customer satisfaction index for
with the communication quality of the brand and how Nike, its major peer, for the sports wear industry and for
the brands online visibility (SEO) compares to peers a control group
Outcome: Nike has the highest customer Outcome: Nike outperforms sports wear index, but
communication satisfaction score and visibility lags behind Adidas in 5 of the last 10 years by, on
index among its peers average, ~3% ppts.
Existing gap: No gap identified Existing gap: Gap identified
Sources: Company Filings (2016), Google Analytics (2016) American Customer Satisfaction Index (2016), Underhood Communication Analysis (2016)
1) In its mission statement, Nike explains its target understanding of its brand. We analyzed how the target components (innovation and reach) rate against peers to
check whether customers have the same target brand understanding and appreciate Nikes approach
The comparatively lower levels of customer satisfaction offer room
for improvement through an extension brand growth strategy
Brand Growth Strategy: Brand extension
Problem
Lower customer satisfaction levels in 5 of the last ten years by on average ~3% than Adidas
Customer expectations were better met at Adidas, hence an identification gap for Nike results
Solution
To better meet expectations, introduce new product with existing brand (brand extension)
New products are sports wear articles that are co-designed with customers via online platform
Through this co-creation process, it is ensured that the customers feedback is integrated
immediately and their expectations are integrated in the designing process and better met
Risks
Make sure that marginal cost of unit of additional customer satisfaction < marginal benefits
Through the new product, Nike will increase customer satisfaction, and thus brand loyalty forming
thicker ties with the customer and increasing customer lifetime value and brand equity in the end
Source: Team analysis
Nowadays, Nike successfully pursues a multi-channel marketing
strategy
Nikes multi-channel marketing strategy
DIGITAL TOUCHPOINTS
Social Media e.g. SEA Newsletter

largest global Nikeblog.com E-Mail help desk Social Media
Instagram Nike+ App Nike.com Chat Nike+ App
presence Social Media Retailer websites Social Media Nikeblog.com
x Awareness Consideration Purchase Service Loyalty

TV & Print Events e.g. we Nike concept Call center Events
Events run BLN stores Shop Assistance Community
Athlete Community Retail network Run clubs &
endorsement Gyms
PHYSICAL TOUCHPOINTS
The entire marketing strategy is highly content driven and leverages social media presences.
Nike focuses on advertising the product benefits rather than product features and succeeds in building
large communities, which are created around the just do it lifestyle.
Source: Team analysis according to idiladigozalzada. (2016), ONEtoONE New Marketing. (2016), Harvard Business Review. (2010), Tsarkova, A. (2016).
Along with its marketing and multi-channel strategy, the brand design
has evolved and the swoosh has become the stand-alone icon
Assessment of Brand Design Suitability
1971: Original Nike brand mark SWOOSH BRAND DESIGN ADVANTAGES:

Greek mythology of winged
goddess if victory Easy to recognize even with reduced
Lower case Nike or enlarged size
1980s: Industry dominance and Simplistic design can easily be used

logo modification for Apps & Favicons
Upper case typeface
Move Nike above swoosh for Can be used in different colors
greater distinction depending on background
without changing the perception
1990s and beyond: Minimalism
Strong connection to icon
The evolved brand design perfectly addresses
allowed stand-alone choice of
the challenges of todays digitalization trends
the swoosh icon as brand with regards to the multi-channel strategy.
design
Source: Pride, A. (2016), Blackbox Design. (2016)

MARKETING STRATEGY & BRAND MANAGEMENT
THE CASE OF NIKE APPENDIX
Lennart Bachmann, Katharina Knuth, Jung-Chen Lee, Didier Louis, Jens Motschmann, Yin Wu
Leipzig, 22 November 2016
Brand characteristics shown by Nike to the external environment can
be descripted as sportive, fashion oriented as well as successful
Appendix: Brand Identity framework Search Areas (1/2)
1 Internal
Brand Vision: Nike, Inc. has not published an official vision statement. (CSR) is a good approximation for its
business. This CSR vision is to help NIKE, Inc. and our consumers thrive in a sustainable economy where people,
profit and planet are in balance. Main components Nike addresses: Help Nike, Inc. and our consumer; Sustainable
economy; People, profit and planet are in balance.2)
Brand Personality: Characteristics that can be attributed to Nike according to the brand personality dimensions:3)
Today, Nike works to present the personality of authentic, exceptional and passionate athletes.
The Brand personality of Nike can be descripted with attributes such as athletic, down-to-earth, real, charming,
daring, young, imaginative, unique, cheerful, good-looking, friendly, upper class and tough.1),4)
Core competencies: Nike's core competence isn't shoes or sport accessories, it is marketing an image of sportsmen
as an attractive lifestyle. Nike describes its company profile as fostering a culture of invention, creating products,
services and experiences for todays athlete while solving problems for the next generation.5)
Brand attributes: Nikes brand image is build on attributes of a pure American icon. High performance, innovative
aggressive which is associated with high notch athletes, challenging themselves or maximum performance achievers
as well as winners.1 Whereby Nike mentions that everyone who has a body, is an athlete.6)
Brand Heritage: Nike build on a brand history since its founding in 1964. As a famous fitness power brand, endorsed
by famous athletes it is still a relatable fashion sports brand, that build on a long lasting history. Brand Heritage is an
important factor for Nike which is also reflected in collections honoring the heritage of the brand.7)
Source: 1) Team analysis, 2) Nike News. (2016b), 3) JAaker, J. (2000), 4) Mustamil, N., Chung, H. and Ariff, M. (2014), 5) About.nike.com. (2016a).
6) About.nike.com. (2016a,b), 7) Nike News. (2016a)
Note: External environment not applicable for Nike due to multinational company acting worldwide
A brands internal signaling as brand identity has to be adapted to
the brand environment to achieve a competitive brand position
Appendix: Brand Identity framework Search Areas (2/2)
2 External
External Factors: In order to have a successful company, it is necessary that the company is scanning the
surrounding environment for potential factors that will have an impact on internal decisions and actions. According
to these, the brand identity has to be oriented by setting the internal signals to the environment. 1) The following
priorities characterize the relationship of Nike and there customer. These characteristics contribute to Nikes brand
strength, which is a strong customer relationship.2)
Presence: Nike sponsors a huge number of athletes to wear various Nike products because if the consumers
sees there favorite athletes wearing Nike products they consider to buy them because of the product durability,
quality and performance and at least because of the feeling of being an athlete.2)
Relevance: Consumers must conceive that the product is relevant and useful in their lives2) because if it were
not, athletes would not use them and consumer will lose interest in the products.
Performance: Deliver all promises to the consumers, showing that the various product by Nike is reinforced
by designed, development of the product, and making the athletes wearing the latest products.2)
Advantage: Attraction of consumer by showing all the benefits to the various products.2) Nike demonstrates
this not at least in his advertisements and und his website or through the use of athletes.
Bonding: Bonding is when the customer realizes that Nike is tailor made for them in any expectations. Nike
uses also feedback from the customer to provide Nike applications and special features as well as NIKEiD
which is a customized product line.3)
Source: 1) Brown, D. and Fiorella, S. (2013), 2) Larson, D. (2011), 3) Nike. (2016b)
Kapferers Brand Identity framework can be used to describe a brand
identify in different perspectives according to its characteristics
Appendix: Kapferers Brand Identity Prism1)
Physique Personality2)
Slogan: Just do it.3) Sportive spirit
Logo/symbol Athletic
Sender
Relationship1) Lifestyle
Externalization
Internalization
Comfort as well as Provocation
Relationship2)
e.g. Yesterday you said
tomorrow. Run the day, dont let it American
run you.4), Your circumstances
dont determine your outcome.5) Receiver Sport & fitness
Reflection1) Physique2)
Full of energy I am an athlete
Aggressive & youthful I am brand conscious
Competitive I am cool
Brand conscious
Source: 1) Kapferer, J. (2012), 2) Team analysis according to About.nike.com. (2016a,b). 3) Nike. (2016a), 4) YouTube. (2016b), 5) YouTube. (2016a)
Product quality plays a crucial role in the purchase decision of
American customers and Nike is favored by both, men and women
Customer behavior and competitor analysis in sports industry
Influential Factors in US Customer Purchase Competitor Analysis
1 Product Quality (92%) Just do it

Bring inspiration and innovation to every athlete* in
the world (*if you have a body, you are an athlete)
2 Style/Fashion/Fit (79%) Focus on quality: with most amount of patents
Athletic excellence, a spirit of determination, and
3 Innovation/Technology (67%) playful self-awareness
Nothing is impossible
4 Low Price (65%) Innovate, creating the worlds leading products
Focus on style/fashion/Fit: Partner with external
designers (e.g. Stella McCartney)
5 Environmental Initiative (47%)
Design, creativity and stylishness
Brand Preference in gender in US Protect this house
80% Make all athletes better through passion, design,
63% and the relentless pursuit of innovation
60% 51% Focus on functionality and performance
35% High-tech, performance, ruggedness, competence
40% 30%
28%
20% Forever Faster
12% 5% 3% To be the Fastest Sports Brand in the world
0% Focus on style/fashion/Fit: Partner with external
designers & endorser (e.g. PUMA x Rihanna)
Male Female Casual-friendly, elegant, speedy, active lifestyle
Sources: Statista. (2016a) Statista. (2016e), UKEssays. (2013), Nike (2016a,b), Uabiz.com. (2016), Adidas-group.com. (2016), About.puma.com. (2016)
Adidas has the highest average prices in running shoes among the
respective brands we analysed
Appendix average prices across brands
US$ Average Prices across brands1

140
122
120 117
102 98
100
80
60
40
20
0
Nike Adidas Under Armour PUMA
1 Based on a survey run by RunRepeat 134,867 reviews and 391 running shoes from 24 running shoe brands
Sources: Running Shoes Reviews. (2016)
Nike has the highest user ratings in running shoes compared to
other brands, which indicates the product quality of Nike is strong
Appendix Average user ratings across brands (Quality perceived by the customers)
Average user ratings across brands1

86
85
85
84 83.5
83 82.8
82
81
81
80
79
Nike Adidas Under Armour PUMA
1 Based on a survey run by RunRepeat 134,867 reviews and 391 running shoes from 24 running shoe brands
Sources: Running Shoes Reviews. (2016)
Product quality in sporting goods plays a significantly crucial role in
customer purchase in US
Appendix Influential factors and the importance level in customer purchase in US
Source: Statista. (2016c)

Nike generated the revenue with around 30.6 billion U.S. dollars in
2015 compared with the peer firms
Appendix Sportswear & sporting goods companies by worldwide revenue 2015
Revenue in billion USD

Nike (2015) 30.6
Adidas (2015) 18.48
VF Corp. (2015) 7.4
Under Amour (2015) 3.96
Puma (2015) 3.7
Asics (2015) 3.56
New Balance (2014) 3.3
Amer Sports (2015) 2.77
Quicksilver (2015) 1.35
Source: Statista. (2016b)

Nike clearly outperforms Adidas in terms of absolute brand equity
and growth rates, but lags behind Google, Apple and Coca Cola
Appendix Brand equity assessment
Source: Interbrand Brand Equity Reports 2006-2016 Interbrand. (2016)

The analysis of the first potential gap (perception gap) leads to no
gap as the brand is aligned with its target in its mission
Appendix Gap model for Nike: Perception gap (1/4)
No gap identified

Nike is best-in-class in employee satisfaction, mirroring that staff is
satisfied about the alignment of the target and real brand identity
Appendix Gap model for Nike: Performance gap (2/4)
No gap identified

Customer award Nike for the best dialogue interaction quality among
all sports wear players and Nike is also deemed most visible online
Appendix Gap model for Nike: Communication gap (3/4)
No gap identified

In terms of customer satisfaction, Nike lagged behind Adidas in 6 of
the last 10 years with an average of 3,0 percent ppt.
Appendix Gap model for Nike: Identification gap (4/4)
Gap identified

Some of the calculations of the gap model rest on assumptions;
those assumptions are disclosed and highlighted below
Appendix Footnotes
0) Idea: Nike has only a mission. These statement expresses what the targets of Nike are.
The statements implies that they want to have as many clients as possible and want to be a leading
innovator. If they fulfill these claims, the customers perceive the targets of Nike to be achieved (source:
investors.com; google patents)
1) Company Filings & Integrated / CSR Reports
2) Maximum of 5 (source:underhood.com)
3) Measured with Google Analytics (SISTRIX)
4) Measured with customer satisfaction (American market)
Nike emphasizes in its mission statement inspiring, bringing
innovation and working with every athlete in the world
Appendix Nikes mission statement
Nikes Mission Statement
Nike Inc.s official mission statement is to bring inspiration and innovation to every athlete in the
world. The company furthers that everybody is an athlete, based on Nike founder Bill Bowermans
statement, If you have a body, you are an athlete. This mission statement represents the companys
strategic goal of reaching out to the global sports shoes, apparel and equipment market. The following
main components are in Nikes mission statement:
1. Inspiration
2. Innovation
3. Every athlete in the world
Source: Nike News. (2016a)

Market share of social media webpages in respect of page
impressions in 2016
Market share of social media webpages in 2016
Number of Instagram followers in 1,000

Nike 64.9
National Geographic 62.4
Victoria's Secret 46.9
FC Barcelona 41.3
Real Madrid FC 39.6
9GAG 33.6
Nike Football 23.7
NBA 19.2
H&M 17.3
NASA 16.7
Chanel 15.9
Adidas Originals 15.3
Manchester United 14.3
Zara 14.2
Louis Vuitton 13.5
Source: statcounter.com (2016)

NIKE+ App
Appendix Key Features
About Nike+
Track workout activity

Use universal nike fuel metric to
compare results
Compete against friends / strangers
Lock-in your favorite nike shoes
Personal training schedules
Goal setting and push notifications
Select power songs (inspires)
Source: NIKE+ RUN CLUB APP, 2016

Nike Multitouch Footwear Table combines online and offline offers
Appendix Key Features
FEATURES
Bridge between in
store shopping, online
shop, and online
community
Watch soccer live

streams, view real time
comments of
community, view
statistics, find desired
product and order right
pay, pay online or in
store, etc.
Source: e-Commerce News Magazin. (2015)

Nike Brand Experience framework
Source: Tsarkova, A. (2016)

References (1/4)
Aaker, D. (1996). Building strong brands.. 1st ed. London: Simon & Schuster : Free Press.
Aaker, J. (2000). Dimensions of brand personality. 1st ed. Stanford, CA: Graduate School of Business, Stanford University.
About.nike.com. (2016a). About Nike - Company Profile. [online] Available at: http://about.nike.com/pages/company-
profile [Accessed 10 Nov. 2016].
About.nike.com. (2016b). About Nike - The official corporate website for NIKE, Inc. and its affiliate brands.. [online]
Available at: http://about.nike.com [Accessed 6 Nov. 2016].
About.puma.com. (2016). PUMA This is Puma. [online] Available at: http://about.puma.com/en/this-is-puma/
[Accessed 7 Nov. 2016].
Adidas-group.com. (2016). Home. [online] Available at: http://www.adidas-group.com/de/ [Accessed 8 Nov. 2016].
Blackbox Design. (2016). A lesson in successful brand evolution. - Blackbox Design. [online] Available at:
http://www.blackboxdesign.com.au/brand-design-a-lesson-in-brand-evolution/ [Accessed 4 Nov. 2016].
Bridgeable. (2016). Why a Great Brand Just Isn't Enough: Exploring the Relationship Between Brand and Customer
Experience. [online] Available at: http://bridgeable.com/great-brand-just-isnt-enough/ [Accessed 8 Nov. 2016].
Brown, D. and Fiorella, S. (2013). Influence Marketing: How to Create, Manage, and Measure Brand Influencers in Social
Media Marketing. 1st ed. Pearson Education.
e-Commerce News Magazin. (2015). Demodern erschafft Multichannel-Shopping fr Nike. [online] Available at:
http://ecommerce-news-magazin.de/online-marketing/demodern-erschafft-multichannel-shopping-fuer-nike/
Gray, F. (2016). Give Your Name a Voice - Views - Interbrand. [online] Interbrand. Available at:
http://interbrand.com/views/give-your-name-a-voice/ [Accessed 4 Nov. 2016].
Harvard Business Review. (2010). Branding in the Digital Age: Youre Spending Your Money in All the Wrong Places.
[online] Available at: https://hbr.org/2010/12/branding-in-the-digital-age-youre-spending-your-money-in-all-the-
wrong-places [Accessed 3 Nov. 2016].
References (2/4)
idiladigozalzada. (2016). NIKE: ONLINE STRATEGY AND MULTICHANNEL MARKETING, BUSINESS MODEL, AND
CAPTURING DATA. [online] Available at: https://idiladiguzelzade.wordpress.com/2016/02/25/nike-online-
strategy-and-multichannel-marketing-business-model-and-capturing-data/ [Accessed 4 Nov. 2016].
Interbrand. (2016). Best Brands - Interbrand. [online] Available at: http://interbrand.com/best-brands/best-global-brands/
Investors.nike.com. (2016). NIKE, Inc. - Investor Relations - Investors - News, Events and Reports. [online] Available at:
http://investors.nike.com/investors/news-events-and-reports/?toggle=events [Accessed 16 Nov. 2016].
Kapferer, J. (2012). The new strategic brand management. 1st ed. London: Kogan Page.
Larson, D. (2011). Global Brand Management - Nike's Global Brand. ISM Journal of International Business, 1(3), pp.1-14.
Meffert, H., Burmann, C. and Kirchgeorg, M. (2015). Marketing. 1st ed. Wiesbaden: Springer Gabler.
Moine, D. and Lloyd, K. (2002). Ultimate selling power. 1st ed. Franklin Lakes, NJ: Career Press.
Mustamil, N., Chung, H. and Ariff, M. (2014). Determining Brand Personality of Nike Sports Shoes Using Aakers Brand
Personality Scale. International Journal for Innovation Education and Research, [online] 02-06. Available at:
https://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahUKEwjzgPLpja3QAhXKwBQKHR
FICKQQFgglMAE&url=http%3A%2F%2Fwww.ijier.net%2Findex.php%2Fijier%2Farticle%2Fdownload%2F355%
2F331&usg=AFQjCNEuA3MOYRa-Dy8HgtQIP9vPUOZPdA [Accessed 2 Nov. 2016].
Nike News. (2016a). Nike News - News Archive. [online] Available at:
http://news.nike.com/news/page/189?_=1360002024028 [Accessed 6 Nov. 2016].
Nike News. (2016b). Top Things to Know About Sustainable Innovation at Nike. [online] Available at:
http://news.nike.com/news/sustainable-innovation [Accessed 9 Nov. 2016].
Nike. (2016a). Nike just do it. nike.com. [online] Available at: http://nike.com/us/en_us/c/justdoit? [Accessed 3 Nov. 2016].
Nike. (2016b). Nike Store. NIKEiD Personalisierbare Schuhe, Sportschuhe und Taschen.. [online] Available at:
http://nike.com/de/de_de/c/nikeid [Accessed 6 Nov. 2016].
References (3/4)
NIKE+ RUN CLUB APP. (2016). Die Nike+ Running App fr iPhone und Androit. Nike.com (DE). [online] Available at:
http://www.nike.com/de/de_de/c/nike-plus/running-app-gps [Accessed 4 Nov. 2016].
ONEtoONE New Marketing. (2016). Nike-startet-in-Berlin-mit-neuem-Muli-Channel-Konzept. [online] Available at:
http://onetoone.de/de/artikel/nike-startet-berlin-mit-neuem-muli-channel-konzept [Accessed 4 Nov. 2016].
Pride, A. (2016). What You Can Learn from Nike Branding Strategy - Rival IQ. [online] Rival IQ. Available at:
https://www.rivaliq.com/blog/nike-branding-strategy/ [Accessed 3 Nov. 2016].
Running Shoes Reviews. (2016). Expensive Running Shoes Are Not Better Than More Affordable Running Shoes (Study)
- RunRepeat.com. [online] Available at: http://runrepeat.com/expensive-running-shoes-are-not-better-than-more-
affordable-running-shoes-study [Accessed 3 Nov. 2016].
Statista. (2016a). Men's favorite brands of athletic apparel in the United States 2012 | Survey. [online] Available at:
https://www.statista.com/statistics/243139/mens-favortie-brands-of-athletic-apparel-in-the-united-states/
[Accessed 31 Oct. 2016].
Statista. (2016b). Product quality sports footwear brands 2014 | Survey. [online] Available at:
https://www.statista.com/statistics/308182/survey-product-quality-sports-footwear-brands/ [Accessed 1 Nov.
2016].
Statista. (2016c). Sporting footwear purchase influences United States 2014 | Survey. [online] Available at:
https://www.statista.com/statistics/306054/survey-footwear-purchase-influences/ [Accessed 31 Oct. 2016].
Statista. (2016d). Sporting goods/sportswear companies revenue worldwide 2015 | Statistic. [online] Available at:
https://www.statista.com/statistics/241885/sporting-goods--sportswear-companies-revenue-worldwide/
Statista. (2016e). Women's favorite brands of athletic apparel in the United States 2012 | Survey. [online] Available at:
https://www.statista.com/statistics/243142/womens-favortie-brands-of-athletic-apparel-in-the-united-states/
[Accessed 30 Oct. 2016].
References (4/4)
Theacsi.org. (2016). Benchmarks By Company. [online] Available at:

http://www.theacsi.org/index.php?option=com_content&view=article&id=149&catid=&Itemid=214&c=Nike
Tsarkova, A. (2016). Differentiation and touch points for value creation.. [online] Brandbattle-adidasvsnike.blogspot.de.
Available at: http://brandbattle-adidasvsnike.blogspot.de/2014/11/differentiation-and-touch-points-for.html
Uabiz.com. (2016). Under Armour, Inc. - Brand News. [online] Available at: http://www.uabiz.com [Accessed 7 Nov. 2016].
UKEssays. (2013). A Report On Nike Company Sport Essay. [online] Available at:
https://www.ukessays.com/essays/sports/a-report-on-nike-company-sport-essay.php [Accessed 4 Nov. 2016].
YouTube. (2016a). Come out of Nowhere.. [online] Available at: http://youtube.com/watch?v=dOZxIpy6Gm4 [Accessed 8
Nov. 2016].
YouTube. (2016b). Nike Yesterday Commercial. Jess Plaza. [online] Available at: http://youtube.com/watch?v=vWu-
IoeUDo0 [Accessed 16 Nov. 2016].

CG Group3 Paper 04 AT

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CG Group3 Paper 04 AT

Uploaded by

Copyright:

Available Formats

CORPORATE GOVERNANCE

A PAPER PRESENTATION: BEHAVIORAL AGENCY THEORY: NEW FOUNDATIONS

Behavioral Agency Theory: New Foundations for Theorizing about

The paper of Pepper and Gore addresses contemporary research on

Various theoretical Framework for determining ideal Executive

Agency Theory Approach

Tournament theory (Lazear & Rosen, 1981)

Research Approach Introduction

Behavioral Agency Theory (in corporate governance)

Positive Agency Theory (in corporate governance)

Comparison: Positive Agency Theory vs. Behavioral Agency Theory

Effectiveness and Efficiency both should be parameters for

Effectiveness: capability to achieve the intended outcome

Low Effeciency Hig

Effectiveness and Efficiency both should be parameters for

P = Individual Agents performance

A = Ability of agent to perform in form of knowledge, experience, skills and aptitude

M = Motivation as sum total of intrinsic and extrinsic motivation

Impact of increase in Motivation caused by increase in Pay

Deep Insights to propositions: 1a & 1b

Mi = f (Ni, Xi) Where,

Above a certain level of compensation, 1 If compensation increase above higher level

a high propensity to take short-term risks small probabilities are typically

For example, a future bonus evident by

3 Economic agents discount future events Hyperbolically as against exponential

Compensation is not able

People prefer not absolute but relative equality1

4 If agents feel unfairness in compensation, they are demotivated

Adams ratio; {O/I}:{Or/Ir}

Agents form perceptions of what

External as well as internal comparison

Source: 1. Rahuram Rajan, Fault Lines. Video: https://www.youtube.com/watch?v=-KSryJXDpZo

Goal Setting, Contracting, and Monitoring System should be

Optimal Pay Motivation Ratio and compatibility of incentives of

6 Optimal / Best Compensation 7 Incentives of team must be

Conclusion and outlook (highloghting of future field of research)

Youssef Agrad, B.Sc. Jens Motschmann, B.A.

Master in Management Master in Management

Lekgotla Tsatsi, B.Sc. Avijeet Tulsiani, CA, M.com.

Master in Management Master in Business

Recent Financial Development Sales by Product / Sales by Region (2015)

Source: Company Filings (2012 - 2016)

Nike Sports Nike Lifestyle All Star Hurley Surf

Shoes Nike+ Events Shoes Sneaker Surf Club

Selection of Nikes Values1) Major Characteristics1) Evaluation of Nikes Brand Characteristics2)

Brand Vision: Sustainable 8 6 7 6 27

How sustainable is the characteristic?

Meeting expectation of customer?

Perceivable by the customer?

Major Brand Characteristics USP of Nike

1 Victory Nike has created a unique brand and a set of values,

Product quality and style/fashion/fit are the

most important buying criteria for the

This achievement is based on Nikes

1 Perception gap assessment 2 Performance gap assessment

3 Communication gap assessment 4 Identification gap assessment

Social Media e.g. SEA Newsletter

x Awareness Consideration Purchase Service Loyalty

1971: Original Nike brand mark SWOOSH BRAND DESIGN ADVANTAGES:

1980s: Industry dominance and Simplistic design can easily be used

Source: Pride, A. (2016), Blackbox Design. (2016)

Slogan: Just do it.3) Sportive spirit

Full of energy I am an athlete