Market Analysis Nike

Market Analysis Nike

Nike Inc. is a globally leading organisation involve in the development, design and global marketing and selling of apparel, athletic footwear, equipment and accessories. Nike is one of the largest sellers of athletic apparel and footwear worldwide with more than 200 subsidiaries all around the world. Nike is famous for its cutting edge technology.

Nike was founded in year 1964 by Phil Knight and Bill Bowerman as an importer and distributor of Japanese shoes and was named as Blue Ribbon Sports. It officially became Nike, Inc. in 1971. The company is one of the largest manufacturers of sports equipment and suppliers of apparel and athletic shoes.

PESTEL Analysis

Political

The company has favourable relationship with other countries and has its subsidiaries in around 200 countries. Every country has its own laws and regulations and therefore the company faces the risk of different tarrifs and non-tarrifs, regulations and laws in diverse countries. The adverse trade protection by Nike in global businesses affects its services and selling.

Economic

The economic downturn worldwide that reduces consumers’ confidence to spend money and hence affects the consumer purchases. Moreover, being a global brand the companies dealing in diverse countries create diversity in currency and exchanges which is sometimes unprofitable for Nike. Nike can take advantage to outsource the low cost manufactures as it does not have its own manufacturing unit and it globally outsource the manufacturing services from where it get from cheaper rates.

Socio-cultural factors

Nowadays, consumers are becoming more brand conscious and the buying habits of youth have changed a lot within two years. Moreover, the market share of female customers is increasing and Nike does not concentrate on them. Furthermore, there is diversity in the living habit of every individual. Therefore, all such things create issue for the company.

On the other hand, Nike get benefits because people are becoming more of brand conscious.

Technological factors

Nike is considered as a technologically innovative company that manufacture technically superior quality products. But the company is required to follow the concept if lean manufacturing and to use the up to date technology.

Environmental factors

 The company needs to follow certain policies regarding the safety of environment and every country has its own policy. The environmental sustainability is important issue and is relevant for the companies. Reduction in the consumption of energy comes under the corporate social responsibility. Nike has introduced the “green” products.

Legal factors

The legal factors that affect the working of the company are the variation in laws and regulations in diverse countries. Like the law related to the company’s social responsibility.

Unique Value Proposition

The company has unique value proposition on the design, durability and quality of its products. Nike’s primary strategy that is the reason for its unique value proposition is its innovativeness.  A value proposition is something a company provide its target customers that help in giving them a better result of choosing the company. Nike Inc. practice the form follows value. For creating such value it uses the following resources –

  • Design or R&D for new products;
  • Marketing of the new products that means to drive and create demand for it; and
  • Distribution of the new products that means to make sure they reach fast to the end user.

Nike has been among the greatest value creators because of its organisational form that entail concentration of people, processes and resources. Generally, the company has achieved maximum profitable growth giving higher level of productivity and low cost of production and it’s positive and flexible responses to the changing taste of customers.

Market Analysis Nike
Market Analysis Nike

Nike’s Global Strategy

The primary strategy of Nike is to build its presence in almost every major world posting event like Olympics, World cups, skating, etc.

Nike’s global marketing strategy includes 4 P’s of marketing – Product, Promotion, Price, and Place. The company has almost every range of products that include sports apparel, footwear, equipments and accessories. In starting, Nike was only targeting consumers related to sports but later they realized to expand and started emphasizing on casuals as well in countries like India where people wear sport shoes as casuals.

Nike uses Value based pricing and Price Leadership strategy. Value based pricing strategy is the one in which company decides the price of the product on the basis of value placed by the consumers. Nike has spent so much to maintain its brand value and this is the reason people customers like to buy Nike’s products for its symbol and are willing to pay even higher amount for the same.

The company also uses psychological pricing strategy where people think .99 is cheaper than .00. Nike also uses Higher Pricing strategy in which people feel that they are purchasing products of higher quality and higher prestige.

Global Sourcing

The company has relocated the manufacturing of its clothing and footwear in around 40 countries and employ around 8, 00, 000 people to do so. Nike manages a global virtual company from its headquarter through the combination of R&D functions and low cost of production.

Brand Portfolio

The company has followed the strategy to extend its brand and product line form only sports footwear to sports apparel, equipments and accessories. For that it has owned some affiliated businesses that include – Converse, Inc., Cole Haan, Nike Golf, LLC, Umbro, Ltd. These businesses play an essential role in the growth of the company.

Nike’s focus on long term financial objectives

The long term financial strategy of Nike include the following:

  • High single-digit revenue growth (average annual rate)
  • Mid-teens Earnings Per Share growth (average annual rate)
  • 25 % Return on Invested Capital
  • Increasing dividends within a target calendar year payout range of 25-35% of trailing four quarter earnings per share

Porter’s Five Forces

Barriers to Entry – Low

The barriers of entering to the industry of athletic footwear are very low. Though the companies have a great potential to enter into the industry because of the high level of competitiveness into the industry but the huge companies like Nike and Adidas maintain their competitive advantage and control their costs in such a way that it is really difficult for the new entrants to compete with them. Moreover, the company has a strong brand power that helps it in competing with the new entrants and to beat them. So, the entry of new entrants is quite low.

Bargaining Power of buyers – High

The number of buyers is quite high in comparison to the number of companies present in the market. Therefore, the companies are required to manufacture differentiated products and make use of most innovative strategies to market and sell their products in the market. Because of such reasons it is necessary for Nike to attract and retain the consumers and it is also necessary for the company to build strong brand. The strong brand value of Nike provides its customers loyalty and trust. The brand image is also necessary because most of the buyers are cost sensitive. This shows that the bargaining power of buyers is quite high.

Bargaining power of Suppliers – Low

The material that is primarily required for the industry entail cotton, rubber, and leather and there are so many suppliers of these materials in the market and therefore, the bargaining power of suppliers is very low or does not exist. The companies need to depend on a single supplier for these materials and they can switch over to the substitutes and this is the primary reason that suppliers have less bargaining power.

Threat of substitutes – Low

When we talk about fashion items than so many substitutes are there but for professional athlete no substitute for shoes is present. An athlete does not have any substitute to switch and therefore the threat of substitute is low.

Rivalry among existing competitors – High

The company has strong competition with companies like Adidas, Puma, and Reebok. The rivals are extremely fierce and the company is considered hyper competitive. Therefore, there is a requirement of differentiated strategy that Nike is following. Still the rivalry among existing competitors is quite high.

SWOT Analysis

Strength

Nike is a highly competitive company that sponsor top athletes and gain valuable coverage.

The company has a strong brand image. Nike is a global brand and is considered as number one brand in sports items.

Nike is a very lean organization with no factories. It does not tie up cash in manufacturing workers. Rather it focuses on innovative products through its strong R&D. Nike start production of products when it is required and that too at lowest possible cost. Therefore, if the prices of product increases and the company is able to produce it at low prices in some other area then it move its production or manufacturing to that part.

Weaknesses

The first and foremost weakness of the company is that it is highly dependent on footwear market and does not have diversified range of sports products that erodes market shares of the company.

Nike does not have its own retailers and retail is the most sensitive sector. This is decreasing the prices of Nike’s products because retailers try to emphasize on Nike for low prices.

Opportunities

Nike considers it as a sports brand and not meant for fashion purpose. But development of the company’s product can offer it many opportunities because consumers do not buy its products for the purpose of sports.

Nike has a very strong image and high income group like to purchase its product for the sake of prestige and therefore Nike has opportunity to make development in the existing products like sports wears as well as to enter into the new market like that of  jewellery and sunglasses.

Nike should focus more on global expansion because even some emerging markets like China have a richer consumer to spend lavishly on sports products.

Threats

The costs and profit margins of the company are unstable over long run because of the company’s exposure to international trade. This is a global issue that Nike being a multinational brand is facing and because of which the company may be manufacturing and selling products in loss.

There is no sustainable competitive advantage in the industry because the market for the sports apparel and shoes is highly competitive and competitors in any way want to take away Nike’s market shares.

The retail sector as we discussed above is highly competitive and people really want to go for a best deal. Therefore, consumers make comparison between prices before purchasing a product and this is another threat for Nike.

Recommendation

Nike should concentrate on the impacts of its global expansion on its brand integrity and loyalty of the customers. Moreover, the company should push itself in digital sports. The company should also concentrate on the Women Athletics. Nike has a very strong image and therefore it can also concentrate on fashion products with the sports products. Nike should also concentrate on application of lean in manufacturing its products.

Being a global brand the company is required to deal with consumers in diverse locations and countries and therefore Nike needs to monitor the movement of foreign exchange. For that it is necessary for the company to engage itself in substantial forward hedging of the currency that provides it with the moderate shift in the value of currency and save Nike from loss incurred because of dealing in diverse currencies.

References

Katz, D., 2004. NIKE Kingdom. Triumphpublish Co., Ltd.

I hope you liked this post written on the market analysis of Nike. What other marketing strategies do you think will help Nike maintain its position as the number one sports clothing manufacturer in the world? Let us know in the comments.

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