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and the Athletic Footwear Industry Strategy and Competition Analysis
Prof. Ben Gomez Casseres
Polina Petkova, MBA 2011 Sudarsan Pattabiraman, MBA 2011 5/19/2010
Nike, Inc. is the biggest manufacturer worldwide of both athletic footwear and apparel in terms of sales. It specializes in the production and sale of athletic footwear, apparel and equipment. For the fiscal year 2009 it announces revenues of about $19.2 billion.1 It is a global company that besides in the US, which accounts for 34% of its revenue2, operates in Europe, Middle East, and Africa. Nike has manufacturing plants and operations throughout Asia. The global slowdown in both sales and consumption in the retail industry affected Nike and it recorded a revenue growth of only about 3% in 2009. Net income fell by 21% and was expected to continue to fall in 2010.
However, net income in the third quarter of 2010 is
almost double in the net income in the same period of the previous year bringing it up to $496 million.4
Nike’s Global Business Strategy
When first founded in 1962 under the name of Blue Ribbon Sports, the strategy was “to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an attempt to break Germany’s domination of the domestic industry.”5 Today Nike offers athletic shoes at every marketable price point to a global market. Nike sustains its leading position through emphasizing quality products, constant innovation, and aggressive marketing. Nike sells its products in more than 180 countries under not only its namesake brand but brands such as Cole Haan, Converse, Hurley International, and Umbro Inc.6 It uses distribution channels such as company-owned stores and websites or sports retailers, such as Foot Locker.
2 3 4 5
Nike, Inc. 10-K, 2009, p. 26. Ibid., p.86 NIKE, Inc. Reports Fiscal 2009 Fourth Quarter and Full Year Results Wikiinvest.com, Nike, Inc. „Strategic Analysis of Nike, Inc.,” DePaul University, March 14, 2000. Wikiinvest.com, Nike, Inc.
3 . which is also its core competency.com.As mentioned earlier. For 2009 each of these regions accounted respectively for 34. they spread their influence in other sport-related markets.9 However.1%. soccer and it includes even a casual footwear line. 2009. With an increase of only 0.8 The second most profitable segment for Nike is apparel.10 Unlike footwear. 10 Wikiinvest. Nike’s main source of revenue is athletic footwear.the US. It accounts for 54% of total revenues. due to the growth of 25% of revenues in emerging markets. Nike. which main market is the US. apparel sales accounted for 27% of the company’s revenue in 2009. Inc.7%. such as Russia. sweatpants. 7 8 Ibid. between 2007 and 2008. It divides its sales into four main regions. Nike also has several sub-brands to grasp different consumer groups. Nike’s strategy in terms of segmentation is excellent. Nike. and licensed apparel made specifically for universities with their own logos. and 6. cross-training. Middle East and Africa (EMEA).3%.7 Segmentation Strategy: Nike realizes that in order to be number one they need to offer a wide range of products to be able to develop a culture and fulfill their loyal customers’ needs.2%. Inc. Nike is a truly global company. shorts. Sales in this segment increased by 14% in 2009 from which a big portion was a result of the increase in sales in the Asia Pacific region. the majority of apparel sales come from the EMEA region accounting for 38% of total apparel revenue. such as t-shirts. p. Europe. which means that its success story is transferrable over borders. 28. sales in this segment grew by 14% in the previous period. It is designated for running. 87 9 Ibid.7% of total revenue. basketball. Asia Pacific. Their core product is footwear but they also manufacture apparel and equipment and thus. 17. 10-K. and Central and South America. and other EMEA countries but also a substantial revenue growth of 50% in China.
In 2008. athletes in basketball. Inc. The company focuses its marketing on celebrity endorsement. but real drivers were huge oversized billboards and murals on buildings that blanketed cities with messages featuring key Nike-sponsored athletes. and surfing. 11 Advertising strategy: Nike’s strategy was to create dominant presence in media. After the recent Tiger Woods scandal Nike plans on revisiting it celebrity endorsement strategy. golf. soccer. develop product identity and expand customer loyalty. TV ads linking Nike to a city were used. Cole Haan on the other hand offers premium dress and casual footwear. Nike invests annually between 11% and 13% of revenue in marketing. these different sub-brands supplement Nike product lines. Competition between players is non-price but rather based on differentiation in brand image and product innovations. Converse.Equipment. 11 Nike. i. 10-K 2009. Therefore. Umbro etc. not products. Nike has also began to sponsor big sporting events so as to create huge awareness and brand following. Nike created media presence in several trend setting United States cities. Nike spent significant amount on advertising in the Beijing 2008 Olympics and the Football Championship. Umbro specializes in selling soccer apparel and footwear. such as Cole Haan. It can be noted that the ‘swoosh logo’ is one of the most famous in the world due to these huge advertising efforts. and tennis. substantial investments in marketing campaigns are required. p. golf clubs etc. 4 .e. such as balls. Hurley International offers products suitable for snowboarding. skating. Nike Golf targets golf players and offers specialized golf equipment. accounts for 6% of total revenues in 2009 and 13% come from other brands under Nike. Marketing Strategy: Significant role for the competition of market share in the footwear industry plays marketing in order to strengthen the brand image. For instance.24. Lately. apparel and footwear.
“you don’t win silver. “Brand Identity Prism” Nike website – www.nike. on seeing the potential of the low price market. a part of the website allows a customer to customize his own shoes and buy it. to avoid brand dilution. Nike built its brand around sports. 13 There are independent small retail stores that sell Nike products all around the world as well. Nike was the first company to establish flagship stores and it turned out to be a sensation.”12 which clearly suggests that winning is vital.com Kapferer. Currently. Also. Nike’s brand is associated with an aggressive attitude portrayed by. attitude and lifestyle. Manufacturing Strategy: 12 13 14 “History of Nike. NikeId14. However. The website is available in 14 languages and is different according to the country requirements. first national. The Nike customer associated the Nike brand with being the ‘American’ way: Being individual and aggressive like Michael Jordan and John McEnroe. competing with private label brands. Nike backed this strategy with marketing campaigns like “Just do it” and with the companies front athletes like Michael Jordan and Tiger Woods. Branding Strategy: Nike’s strategy in this front is to develop a premium brand associated with high quality product that satisfies customer needs.” Sneakerhead. Nike has a high quality website and uses it as an online selling channel.com 5 . Selling Strategy: Nike’s strategy in early 2000s was to develop. NikeTown shops in bigger cities. Nike took efforts in 2005 to tap in to the low price segment by striking a deal with big retail discount stores like Walmart and rolled out starter shoes at a cheaper price. Nike did not use the swoosh logo in these shoes. flag ship stores. and then abroad. you lose gold.
there was no formal communication link between the regional vice presidents (those in the United States. Nike has taken the time to recognize the importance of each individual 15 Nike. 4 “Expanding the Playing Field: Nike’s World Shoe Project Case. Primary reason for this is that it is cheaper to manufacture in South East Asia and transport it to USA and Europe. Asia-Pacific. 36%. India.000 employees worldwide.16 Human Resources Management Strategy: The sweat shop debacle in late 1990s has led Nike to form a distinctive strategy to provide a good working environment for employees. equipment). These countries accounted for 36%. Brazil. apparel. Indonesia and Thailand15. Organizational Strategy: With over 21. For example. 10-K – 2009. Inc.” The William Davidson Institute. and Latin America) and the product vice presidents (footwear. Europe. regardless of the transportation and tariff costs involved. which created overlapping management responsibilities and a fluid leadership structure. the company was organized into departments by both geographic divisions and product categories. Nike also has manufacturing agreements with independent factories in Argentina. Nike has contract suppliers in China. Vietnam. However. p. 22% and 6% of total NIKE brand footwear respectively. They have several internal guidelines and compliance standards apart from state laws for ensuring proper working conditions for all workers in its contracted supplier factories. a footwear manager in Europe answered to both the Vice President of Footwear and the Vice President of Europe. January 16 2002 6 . and Mexico to manufacture footwear for sale primarily within these countries. Due to the magnitude of Nike and their number of stores and manufacturing plants throughout the world.Nike manufactures all of its footwear from outside United States.
‘employees’ but rather ‘team members’ because each part of the team has something to add to the business.http://www. To begin with. diversity and inclusion is a crucial factor in Nike’s diplomacy in their many locations and globally. diverse opinions and a multitude of perspectives All of the above will in future venture apply and assist them in working more efficiently and having more satisfied employees for longer periods of time. Strategy Analysis To analyze and evaluate the above strategy. In order to strive to reach this mission they have put into action these strategies:17 Cultivate diversity and inclusion to develop world-class. They have also admitted that they have a very large array of workers and this brings many diverse cultures and points of views together. we did a basic SWOT analysis of Nike and then performed an extensive Porter’s five forces analysis of the footwear industry in the US and the emerging markets from Nike’s point of view.nikebiz. According to one of its statement. Nike does not call its employees.com/company_overview/diversity/ 7 .and what they can contribute to the team. For this reason. SWOT Analysis: Strength Weakness Opportunities Threats 17 Nike Website . inclusion and innovation Create venues and environments for open dialogue. high-performing teams Ignite change and inspire critical conversations around diversity. it is necessary to understand the internal and external forces in the environment. In identifying the differences they have set apart the opportunities to better understand how their teams will work together and what adversity they may face because of this.
susceptible to recessions Dependence on contracted suppliers – compliance issues Ever Changing customer preferences Dependence on endorsed athletes Seasonal business Porter’s Five Forces – Footwear Industry in the US & Developed Countries: Threat of New entrants (Low) ~High Barriers to Entry Capital Intensive Strong Brand Following Economies of scale High R & D Costs Industry in consolidation phase Buyer Power (High) Everything depends on Customer Preferences Price sensitivity issues Brand following Retail and vendor consolidations Growing power of retail chains e. Brand Image Market leader in most of the world Diverse product portfolio Strong advertising Experienced Management team Under constant scanner of Human rights companies due to its history of unethical labor practices Premium player in a price sensitive sector Emerging markets Can be a leader in developing environmentally sustainable business Mature industry. New Balance Mature Industry Mostly Non-Price competition Differentiation strategy Industry in Consolidation phase Substitutes (Low) Other types of shoes Other sport apparel Rivalry: (Very High) 8 . Reebok.g. Walmart Supplier Power (Low) Raw Materials are abundantly available Cheap resources.Adidas. commodity items Internal Rivalry (High) Fierce Competition.
competition is targeted towards attaining market share. Rivalry among the big players is fierce. i. 9 . Economies of scale play a huge role as well and the bigger players have an advantage of producing the products at a lower price than compared with newer entrants. As the output is bigger and the fixed costs of factories. many mergers and acquisitions. Adidas-Reebok. Since they cannot compete on price they need to differentiate their product through constant innovation. Also. It is as very capital intensive industry.e. machinery. maintaining a single brand image for companies like Nike becomes really a tough ask. there is almost no chance for them to gain popularity in such a mature industry with some of the strongest brand names in the world. As a result. We will discuss rivalry more in details in the Competitor Analysis later on. and New Balance. Even though it would not be difficult for a new company to obtain the raw materials and the labor needed to produce shoes. Both marketing and R&D constitute high costs and since new entrants will not be able to take advantage of the economies of scale they will be less competitive. are taking place and the market is going towards consolidation. continuous efforts are needed towards strengthening their brands. Asics on running shoes. marketing and R&D will be decreased per unit. Brand loyalty is extremely strong and it would be very hard for a new entrant to “steal” loyal customers from the already existent players. i. In order to stay competitive and have presence in all sectors. Since the athletic footwear industry in the US is a mature industry.e. Adidas and Reebok. Companies need to introduce products at numerous price levels in order to compete and reach all areas of the market. In this sense there are only a few players who are able to compete in all sectors: Nike. Smaller firms in this industry focus on specific type of shoes hence targeting specialized sub-markets. Threats of New Entrants: (Low) Barriers to entry in the athletic footwear industry are high due to several factors.
which we discussed. Second. in the same product category. Similar conditions apply for distribution opportunities and retailers. in terms of building image and style. there is substantial threat coming from the number of other types of shoes. etc. Lifestyle athletic shoes sales. flip-flops. New entrants will not be able to pay hefty sums for such agreements. The bigger players have already established agreements with both teams and athletes. boots. In other words. Economics of Management and Strategy. heels. 10 . it is impossible to grow in this industry because someone will take over your company. First. They want the wellestablished brands on their shelves that customers want rather than a new unknown brand. Industry Analysis. other types of apparel could also be seen as a substitute. Some of the most popular acquisitions include Reebok by Adidas. the perceived threat is low since they have unique functions. Converse by Nike. Saucony by Stride Rite.” Tufts University. Substitutes: (Low) In theory there are a several substitutes of athletic shoes. Even though sneakers are still the most popular type of footwear in the world. other types of shoes are also substitutes. Small companies are bought before they become a threat to the bigger ones and before they have a chance to gain market share. Another barrier is the fact that access to endorsement. However. The large companies are strategically and constantly acquiring smaller companies. etc. for instance are growing at the fastest annual rate and Puma is undoubtedly the leader in this segment.with more than 50% sales growth. The industry itself is in a consolidation phase and only the big ones will survive. is very important in the industry. such as slippers. May. in the sports industry.18 18 “Athletic Footwear. 2006.
the big companies prefer to work only with approved manufacturers and suppliers that are known to follow these labor standards. the suppliers do not have the power to bargain the price of their product. Steve Madden’s “thick high heeled shoes”19 are very popular and since thick heels are considered a more comfortable version among women they could be a substitute for sneakers.21 However. Hence the supplier power is low. the supplier needs to make investments in their facilities to improve working conditions and many suppliers cannot afford to do so. to reach this level. Therefore. first gained popularity in Europe but now are also becoming popular in the United States. since there are numerous suppliers. In other words. and foam. 22 If the supplier fail to meet these standards contracts are discontinued. Ibid. 19 20 21 22 Ibid. rubber. Ibid. all of these materials are commodity goods. Therefore.cotton. Companies such as Steve Madden and Sketchers are also seen as threats. These practices have been damaging the image of some companies including Nike. Ibid. the working conditions. Sketchers introduced non-athletic heel-less shoes also called “sneaker mules”20 These shoes. 11 . Supplier Power: (Low) Typically athletic shoes are manufactured using three major raw materials. However. suppliers are trying to establish themselves as reliable because once they gain Nike as a customer they know that they will request enormous volumes. The rubber is vulcanized through a simple chemical process that improves durability and stability. there has been some standardization of production in the industry due to growing concerns of labor practices of the suppliers and manufacturers. and the distribution are at high standards. However. Both Adidas and Nike have created a system to ensure that all the high quality of the product.
24 The end user of the industry is also considered a buyer and he has unlimited power. Asia Puma. i. he can easily switch the brand to Threat of New entrants (High) another one.e. Wal-Mart. Substitutes (Low) Bare foot. The footwear retailers. However. Therefore. In order to gain more power buyer companies have started merging. everyone will be interested Non Sophisticated market needs Local players advantage – Conservative government policies to help local players Supplier Power (Low) Rivalry (Very High) Cheap labor. Sport Authority.e. Retailers also have no power in determining the design of the product.Buyer Power: (Very High) The buyers for this industry are retailers and end users. India Leather boots and slippers 12 . This consolidation will transfer some of the power from the big players because in order to be industry leaders they will need these well-recognized retailers as well. the top 25 retailers account for two-thirds of the sales of athletic footwear.g.approximately $15 billion in value. if the user is dissatisfied. competition commodity items 23 24 Buyer Power (Very High) Customer needs to be educated High price sensitivity Brand image to be re-established Need to educate and catch retailers. Every company is fighting for the loyalty of the end user through constant innovations and brand management. walking with slippers e. needing Fierce Competition from jobs in South East global brands E. range in sizes.g Adidas. Growing margins suggest that buyer power has been increasing. Less/Not explored Markets i. However. The lack of concentration among buyers brings down the margins and gives the power to the vendors. such as “big box stores” and vendors that open their own stores.23 New retailers are entering the market. Ibid.Footlocker -Foot Action. overall we consider buyer power to be high. Footlocker.Gart. New Balance etc Porter’s five forces analysis: Emerging Markets Raw Materials are Local players with cultural abundantly available advantage and price Cheap resources. distributors etc Ibid. Therefore the big footwear manufacturers generally dictate the price of their shoes.
The market is less sophisticated and customers will get satisfied with basic level products. less capital is needed to produce basic level goods. However. it is not capital intensive for a new entrant to enter into a regional market. there are considerable changes in the nature of the market. the buyers and hence we see some changes in rivalry.As we see in the five forces analysis picture above. every big player in the world is looking to enter into these markets. Hence. Threat of New entrants: (High) Since the markets are quite new and unexplored. new entrants and buyer power. Since there is no major brand following. 13 . most of the attributes pertaining to Supplier power and Substitutes remain the same.
on continuous marketing and educating efforts. The retailers and distributors need education to do the business and operations and hence. As a result. In general. arising from two dimensions: Global competitors like Adidas. Emerging markets in general are very price sensitive. overall threat of a new entrant is considered high here. New Balance. The premium sector will grow with time as the market becomes more sophisticated. However. 14 . Sketchers and other players combined together. Reebok. However. Even though the global players can have low production cost. Nike’s major competitors in the footwear industry are Adidas & Reebok. he needs to be educated about the features and the comfort the footwear provides. the reasons for that differ as follows: The customer is not aware of the product or brand. Buyer Power: (Very High) The buyer power remains high in both developed and emerging markets. Puma etc Local competitors who are already in the business and have a cultural advantage in understanding the customer. the marketing and other expenses grow high and they are competing with smaller players here unlike in developed countries. this market might be transferred into a growth region for all companies. Competitor Analysis To understand the position of Nike in the industry. it is a daunting task for making them move from their regular local vendors to a new vendor. emerging market does not look like a favorable environment. it is important to perform a competitor analysis. Hence. Puma. with three out of five forces being high. Threat of Rivalry: (High) The overall threat of rivalry is high here as well.
Privat New Balance 25 26 Christoph Dolleschal." Equity Research." Equity Research. Nike has a dominant global market share of 31% followed by Adidas and Reebok together at 22%.Market Share: As of 2007. Commerzbank.63B 3.58 Adidas 1.80B experiencing a slow sales growth. Financial analysis:26 Earnings Current Company Mkt Cap per share ratio Nike 35. it is quite obvious that 2.66B Nike is leading the market in most of aspects. However. 28 February 2008. Yahoo! Finance.73 company.63 3. the company to note here is Under 2. "adidas. "adidas.97 the major Puma 13. Commerzbank.98 1. The corresponding figure in US hovers around 36% followed by Adidas and New balance at distant second and third.51 competitors. SEC Filings of the companies 15 .95 8. Google Finance.19 Armour as this company has high growth rate despite the fact that other companies are 1. 28 February 2008.42B From the analysis shown above between3. Nike should put some effort to study the strategy of this Under Armour 0. 25 Source: Christoph Dolleschal.
Product Portfolio Analysis: 27 Type of Shoe\Company Running Walking Basketball Children’s Tennis Lifestyle Skating Cross-Training Soccer X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 27 Company websites. Industry Analysis. Economics of Management and Strategy. 2006.” Tufts University. K-Swiss Converse Puma Asics Vans Brooks AND1 Stride Rite Corp Spira Mizuno Saucony X X X X X X X X X X X X X X 16 Nike Adidas Reebok New Balance . May. “Athletic Footwear.
Advertising strategy: The advertising strategy differs from company to company. Also. Moreover. there is a high possibility that Adidas is competing with Reebok and hence cannibalizing its own sales after the merger. Hence. Nike has planned to spend $4. However. Nike is at a strategic advantage. they quickly recognized this shortcoming and introduced a skate boarding shoe. With such a product line. 2006 17 . Nike has a wide range of products ranging from athletics to life 28 “Puma – Brand Communication analysis. Nike will be able to compete with all players in the industry. lifestyle & fashion Puma concept retail stores Puma fashion shows New stuff advertising campaigns Building seasonal momentum during holiday seasons Minimal or less advertising based on stores Nike Adidas. it is tough for other companies to allocate a big amount for their marketing expenses. Nike believes in spending 5-7% of its revenues in advertising and endorsement.2 Billion until 2014 for endorsements alone. During early 2006. it can be noted that there are overlapping product category lines between Adidas and Reebok.” Trent Kahute. Nike was lacking products in the skating category. Company Strategy Endorsing Athletes Sponsoring Sports events City based advertisements Banners & Billboards Themes on bringing inspiration and innovation to every athlete in world Sponsoring Sports events Endorsing Athletes Themes on improving performance of every athlete in the world Mixing influence of sports. Generally. With the huge size of Nike. Therefore.It can be seen that Nike has products in all lines. Reebok Puma28 Other companies Branding Strategy: Nike has invested a lot so far in developing a premium brand that implies high quality and care for the customer. The table below shows the advertising strategy for the major players in the industry. Nike has always an edge when it comes to advertising and marketing.
orderly. lifestyle & fashion Fashion brand. Hip hop artists Elegant. The Wall Street Journal. Stephanie. NBA stars. Aggressive. 18 . Sincere Adidas. Manufacturing strategy: 29 Kang. futuristic. Nike’s shoes are associated to be of high quality and stylish. “Sports Shoe Rivals Step Up”. international Puma Mixing influence of sports. Company Nike Branding message and strategy Athletic. Nike emphasizes on these and has developed a lot of new products with use of high technology and sophistication.style and also in different price ranges. extreme sports Other companies Based on their product lines. hi tech. Lately. metropolitan. Adidas is also working on high tech innovations to provide high quality shoes. Practical. colorful. individual. fringe. So far the success of these alliances is yet to be quantified. Outgoing. performance & casual footwear. Adidas and Nike have been doing entertainment based marketing campaign by forming alliances with technology/entertainment companies. Generally not a strong brand message In general. Nike had an alliance with Apple to sell Nike shoes with Apple iPods while Adidas tied up with Microsoft to sell Adidas goods with Microsoft Xbox gaming systems. Technology and Innovation strategy: Nike fields some of the best in class technological practices and has a few patents to its credit. An example of that is the microprocessor shoe to give great experience and comfort to the customer. technically orientated brand with strong European roots”29. and the Adidas brand boasts superior performance and is “perceived as a professional. hi tech. retro cool American way of living Associated with Athletes at top of their sport To bring inspiration and innovation to every athlete in world Clear. it is always a challenge to fight against brand dilution within Nike. The following gives an idea of the customer’s perception of the brands. However. Reebok Conservative European style To improve performance of every athlete in the world Associated with elite soccer players/teams. fresh. 6 Jan 2006. Therefore. Sophisticated. Reebok’s are comfortable and casual. spontaneous. Influential.
30 Issues of concern It is not easy to stay as the market leader always because everybody wants to be in your place. as shown in the previous competitor analysis sections. Tightening competition – growth of Adidas. Maturing industry in USA a. There are a few challenging issues that Nike is facing at this point of time. Nike’s overall US revenue growth is declining as discussed earlier. there is a 30 “Chinese Sports Brand Takes on Nike.” Vivian Wai-yin Kwok. There are speculations that Li Ning has overtaken Nike as well. b.Nike follows a 100% outsourcing strategy. New Balance. Puma etc. Most competitors follow the outsourcing strategy. Competitor Analysis in Emerging Markets: In general. With the merger between Adidas and Reebok taking off slowly and strongly and surging of companies like New Balance. With Nike entering low-price segments. According to a research report by BofA Merrill Lynch. Overall growth in other geographical regions has also dropped considerably. Problem of brand dilution – Nike has been developing a premium and high quality brand image so far. The brokerage estimated Li Ning to have overtaken Adidas in 2009 as the second-largest player in China's $10 billion sportswear industry. while Adidas ranked second with 15% share and Li Ning third with 11%. competition in the emerging markets is granular and from a lot of players. the case in China is very different.com 19 . There should be a price advantage as well. Forbes. However. Nike was the most popular sport brand in China with 19% market share in 2008. 1. Nike’s sustainability of its market leadership becomes challenging. Exceptions to this are New Balance and other smaller players. Product differentiation alone will not help as customers will not be able to understand the advantages of technology beyond a certain level. New Balance claims that 75% of its production is from the US and other small companies produce in the US as well.
Price sensitivity – Developing markets are generally price sensitive markets. and distribution. Losing market share in China – Li Ning. Nike.” Sports Business Daily. c. Nike has to decide on spending the endorsement and marketing budgets wisely. It is to be noted that Nike has not gone back to its original growth rate ever since the 2008 economic recession occurred. Inc. A new risk on athlete endorsements is seen after the Tiger Woods scandal. 10-K 2009. 18 20 . d. including product design. Increasing competition in developing economies Amidst heavy competition to be a market leader in developing economies. Sky rocketing marketing expenditures and risk of endorsements – Marketing expenditures are growing steadily. It is worth noting that Nike does not have a Chinese online website store to facilitate customers to come online and learn/buy Nike’s products31. there are quite a few issues to be noted. b. 2. manufacturing. Significant reliance on IT and sophistication in managing supply chains32 Nike is heavily dependent on information technology systems across our supply chain. Premium brand’s susceptibility to economic recessions – Premium brands are always susceptible to recession. 3. a. transportation. December 2009. sales. forecasting. the differentiation strategy might not bring as good results as it had brought in the USA. Therefore. Nike’s premium and high quality brand image doesn’t sync with the expectations of the customer. p. production. Nike’s ability to effectively manage and maintain our 31 32 “Li Ning Hoping To Grow Market Share Through Online Sale. In other words. ordering. as we explained in the previous section is in catching distance.possible chance of brand dilution and as a result customer loyalty might take a hit.
Nike always carries a risk of not having control over compliance to labor code laws. Solid waste from shoes – There will always be a lot of solid waste from Nike’s footwear manufacturing processes.inventory and to ship products to customers on a timely basis depends significantly on the reliability of these supply chain systems. being a market leader. it is the responsibility of Nike to develop environmentally sustainable business and stand as an example for others to follow. No direct control on compliance issues – Nike relies solely on its subcontractors for manufacturing of its footwear. Having already faced several issues on unfair labor practices at these subcontractor factories. A possible option will be recycling.5% increase. Nike should continuously invest in product design and innovation to be always with a leading edge over the trailing competitors. Recommendations Focus on Technology and Innovation o With the market being mature in US and developed countries. This is considered by us as a big risk as another scandal of unfair labor practices will completely collapse Nike’s position in the industry. Environmental sustainability a. Overall. However. o Property. but Nike still has no concrete strategy in this place. product differentiation is the best tool to gain market share.957 B as opposed to $1. o Focus on setting up a reliable Information system that is capable of handling complex supply chains in a fool proof manner. Also. this needs to increase by 5 – 7% every year.890 B in 2008 which is a 3. 15 – 20% of revenues need to be spent on this 21 . 4. b. Plant & Equipment costs for 2009 stood at $1.
Nike starter shoes should be sold as just starter and not Nike starter.because the product design and innovation forms the backbone of the company. As Nike has been building a high quality brand image so far. This might help savor the premium brand image of Nike and help convey one message to our brand. an aggressive strategy that combines both differentiation and pricing based strategies together will definitely serve better than just differentiation. it makes good sense to follow both differentiation and pricing based strategy together. They might be sold under a different name. it is necessary to have an aggressive pricing based strategy as well. but not Nike. the market grows with a price competition and later transforms into a high quality based market with non-price competition. Follow both Differentiation and Pricing based strategy o With the market matured in the US and developed countries. Thus. Compete in full fledge in Emerging markets. the competition comes down to getting more market share than any other competitor in the business. Since the industry in the developing economies is growing. We saw that the operating margins for Nike are around 44%. This means that Nike has the scope to do a combined differentiation and pricing strategy o In a developing market. For example. particularly in china make a website store 22 . Revisit branding strategy by decoupling cheap and low cost footwear from flagship items o Cheap and low cost footwear should be decoupled from the existing Nike brand.
23 . But competition is catching up and Li Ning has been growing strongly. the overall fixed costs will go down and hence profits might go up. Nike has to operate in full fledge to capture market share in emerging markets. o Also. o Nike should also work with its collaborators in all forms to have efficient sustainable supply chains. Companies like CorpWatch are consistently watching Nike and this issue of environmental pollution will eventually come up. In this situation. Invest on sustainability research o It is high time Nike begins to invest more on its sustainability research. along with environmental sustainability.o Nike is currently the market leader in China. This overall might reduce the costs for Nike and benefit the whole society as well. if a proper recycling chain is established between the end user and the company. Basic things like an online store in a country like china will seriously help drive a lot of business.
Inc. March 14. Inc. January 2002.” Sports Business Daily.. Christoph Dolleschal. 2009. "adidas. Kapferer. 5. The Wall Street Journal. 2. 2006. Inc. Nike. 28 February 2008. “Chinese Sports Brand Takes on Nike. 15.” Tufts University. “Sports Shoe Rivals Step Up. 24 . 6. May.com 8.” Sneakerhead. “History of Nike.” Stephanie Kang.com 16.” Trent Kahute.References: 1. Economics of Management and Strategy. 14.” Vivian Wai-yin Kwok. Yahoo! Finance 12. 11. 4. “Puma – Brand Communication Analysis. December 2009. Commerzbank. “Li Ning Hoping To Grow Market Share Through Online Sale. “Expanding the Playing Field: Nike’s World Shoe Project Case. 2000. Inc. “Strategic Analysis of Nike. NIKE. Nike.nike.com.com 9. 7. Industry Analysis. Reports Fiscal 2009 Fourth Quarter and Full Year Results 3. 10-K.” The William Davidson Institute. Nike Official Website – www. “Athletic Footwear. Wikiinvest. “Brand Identity Prism” 10.” DePaul University. Forbes." Equity Research. Fall 2006. 6 Jan 2006. Google Finance 13.
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