Sports Equipment Company Strategic Analysis - Assignment Example

? TABLE OF CONTENTS Introduction 2. TASK A – Market Environment Analysis………………………………………3  2a) Environmental Analysis…………………………………………………………3 2b) SWOT analysis…………………………………………………………………..3 2c) Porter’s five forces analysis……………………………………………………..5 3. TASK B – Sports Equipment Company Strategic Analysis…………………….9 3a) Nike’s Global business strategy………………………………………………10 3b) Nike Corporate Level Strategy……………………………………………….10 4. TASK C – Strategic Fit Analysis………………………………………………12 4a) Segmentation Strategy…………………………………………………………12 4b) Marketing strategy…………………………………………………………….13 4c) Advertising strategy……………………………………………………………13 4d) Branding………………………………………………………………………...14 4e) Selling……………………………………………………………………………14 4f) Manufacturing…………………………………………………………………..14 4g) Human resource strategy………………………………………………………15 References NIKE 1. Introduction: Nike Inc was founded in 1962 by two partners Bill Bowerman and Phil Knight. The name was originally Blue Ribbon Sports. The goal then was to start a business that broke the domination of German sportswear in the domestic American retail. Market regions have expanded to more than 100 countries in regions like United States, Europe, Asia pacific and the Caribbean. Distribution channels have expanded into both traditional and non traditional ones with social media marketing also increasing. It is the world’s leading supplier of athletic shoes and apparel and also a manufacturer of sports equipments. For 2009 the revenue was about $19.2 billion and employees amounted to 30,000. The company’s name was changed to Nike Inc in 1978; it is derived from the Greek goddess of victory’s name. the other brands Nike has are: Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding, and subsidiaries including Cole, Hurley International, Umbro and Converse. Nike’s sport ambassadors are huge personalities, from Michael Jordan to Roger Federer that further promote their products. The ‘swoosh’ logo and the slogan ‘Just do it’ has become recognizable everywhere due to the company’s worldwide presence and quality goods. Products: Primary product is athletic footwear and athletic apparel. Newer product offerings include Performance equipments like balls, timepieces, eyewear, bats and other equipments designed for sporting activities. Product categories are: Running Basketball Cross-Training Outdoor Activities Tennis Golf Soccer Baseball Football Bicycling Volleyball Wrestling Cheerleading Aquatic Activities Auto Racing Other athletic and recreational uses Phil Knight was responsible for entering into their fist ever agreement with a Japanese manufacturing company named Onitsuka Tiger company. They were to be the sole supplier of BRS in the United States of high quality athletic shoes. The first worldwide successful shoe design was Cortez designed by both Bowerman and Tiger and it was sold at the first BRS store. In 1972 however Tiger left the company and the company changed its name to Nike inc. in the late 70s, famous sportspeople started wearing the shoes and the company was made famous. In 1980 Nike went public on the New York stock exchange. 2. TASK A – Market Environment Analysis  ANALYSIS: 2a) Environmental Analysis Internal – Strength Nike’s own management style, its history, its product range all are strengths that the company utilizes. They have a great marketing strategy that emphasis on the importance of marketing research. This research helps them to be constantly ahead of competition and be more focused. They continues to be a premium brand but market value is slowly being increased by making product catered towards middle and low market customers. External – Weakness The problems Nike faced when the sweat shop debacle arose were numerous, their sales declined as there was growing pressure on the company to ensure a safe working environment for its overseas labour. This resulted in bad publicity and declining sales but since then the company has tried to make its image better and be seen as a more socially responsible organization. 2b) SWOT analysis: Strengths: Brand image, for decades Nike has developed a strong brand image. The name Nike invokes a strong brand personality that consumers want and know that it satisfies them. Nike is very strong at research and development which enables them to stay ahead of their competition. They have no cash tied up in their factories, factories are all based overseas often leased out to independent contractors. This results in low manufacturing costs. Global, market leader Diverse product portfolio that brings in revenues Experienced management team that is very competitive. Weaknesses: Constant labour scandals, human right organizations keep Nike under observation to make sure no child labour is used and the factory conditions are made better. The sportswear retail sector is very price sensitive, and Nike still remains a premium brand. Opportunities: The brand can become more fashionable; diversify their product portfolio to cater to regular customers who don’t really wear it for everyday sporting activities. Due to globalization, better economic conditions new and emerging markets always open up. Can develop an environmentally sustainable brand as that is the ‘in’ thing nowadays. Threats: Sales and margins are spread over different countries with different environments. So costs and margins are not stable The market is very competitive with new cheaper products coming up, consumers want better deals Ever changing customer preferences. Compliance issue with contracted suppliers. 2c) Porter’s five forces analysis: Rivalry: (Very High) The athletic footwear industry is relatively mature in the US with a lot of competition existing. Companies introduce different product ranges at different prices to expand their market share; this makes the competition very difficult. Rivalry amongst Nike, Adidas, and Reebok is very high, as they have to differentiate their product and price them accordingly. Because of this intense competition it is difficult to survive in the market which is why consolidation is taking place e.g. Adidas-Reebok. This makes the companies stronger and even harder to compete against. Threats of New Entrants: (Low) Barriers to entry in the athletic footwear industry are high. The industry has matured, it is almost impossible for new entrants to establish a brand name. They can have access to cheap manufacturing and cheap labour but it is very hard to start their business and sustain it. Brand loyalty is very strong in this sector; it would require an extremely special product to make the customers try something new. Economies of scale are achieved over a long period of time 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 One of the most difficult barriers is the player endorsement. The huge brand names already have long standing contracts with the big sportspeople. Lower ranked athletes are left for the new entrants who don’t have enough image to sustain their advertising. The customer will always demand the big brands, it will be harder for retailer to stock new brand products on their shelves which have no demand. It is impossible to grow in the industry, even if a new company acquires substantial footing there is a big chance they will be acquired by the big brands. Substitutes: (Low) Technically there can be no substitute for an athletic shoe. They are designed for special purposes and no other alternate can be used during games, track running etc. The apparel required is also specific in nature and cannot be substituted, so over all the threat of substitutes is low. Supplier Power: (Low) Nike has numerous suppliers and each of these suppliers have their own competition. When manufacturing is done in low cost countries with cheap labor it is easy for everyone to enter the market and start producing their own goods. It is also easy for a huge brand like Nike to use a different and better production facility. The shoes are manufactured from three major raw materials which are rubber, cotton and foam. This does not leave the suppliers to have enough bargaining power as they are not unique and are commodity goods. Due to criticism from human rights groups production facilities are carefully evaluated for their working conditions, if they don’t meet the standards they are disqualified from the contract. In fiscal 2008, contract suppliers in China, Vietnam, Indonesia and Thailand manufactured 36 percent, 33 percent, 21 percent and 9 percent of total NIKE brand footwear, respectively (Nike Annual Report). So the bargaining power of suppliers is low. Buyer Power: (Very High) The buyers include both retailers and end users. With increasing media coverage, globalization and competition customers are becoming more and more aware of what kind of product they want so it’s a tough ask for companies. Retailers serve as the bridge between customers and the company; they also give valid feedback about what the customers want. They have power over the companies as they can choose what to put on their shelves. Every company is fighting for customer loyalty and they will do anything to get the user satisfied. Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate Nike’s credit risk, and impair its ability to sell Nike products (Nike Annual Report). Competitive Analysis: Nike has competitors everywhere it looks. Not just big brand competitors but also low scale companies that grab market share by pricing their products low. Nike sells its products to retailers, through Niketown stores and internet in over 170 countries. Product categories include footwear, consumer products, sporting goods and equipments. These are all the places where Nike faces competition. Non store retail and internet retail are also major marketing channels that have to be managed effectively to keep out competitors. In apparel business the competition is fragmented but in the footwear category the competition is consolidated, only few exist. According to US Athletic Retail Market Report, 2009 Edition, Nike had approximately 31% of the global market share of athletic footwear at yearend 2008 and Adidas, Nike’s biggest competitor, had only 16% of the share. The rest of the market share was divided amongst a variety of lower market players. Figure 1: Athletic footwear-Global market shares US Athletic Retail Market Report, 2009 Edition In athletic apparel however Nike only had 7% of the market while the closest competitor Adidas had 6%. The huge remaining market share was spread among a variety of smaller companies (US Athletic Retail Market Report, 2009). Figure 2: Athletic apparel- Global market shares US Athletic Retail Market Report, 2009 Edition 3. TASK B – Sports Equipment Company Strategic Analysis Business strategies: Nike's Corporate Mission Statement: "To be the world's leading sports and Fitness Company." 3a) Nike’s Global business strategy: Their initial 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.” This strategy has remained the basis of Nike over years. This initiated the fact that Nike was open to globalization; they liked the idea of manufacturing their products overseas and selling them elsewhere. Nowadays Nike offers their products at different price points to the global market. The products are sold in more than 180 countries, under both the Nike brand and its owned subsidiaries. Both traditional, non traditional retail and distribution channels are used making sure that the costs are minimized and the customer always gets their product. 3b) Business Level Strategy: With the abundance of competitors it is important for Nike to have a clear strategy. Their goal is differentiation. They want to innovate and provide the best possible product to satisfy their customer. Their customer needs are also varied as they design for both sports people to an average guy. The truly exploit their brand image that has been built over the years, it is a great source of advantage to them for the future also. They also have a strong brand portfolio including Cole Haan, Converse, Umbro and Nike Golf. Technology is one more factor that keeps Nike ahead, the new technology DriFit has helped in creating a stronger brand image. The first major innovation was in 2000 when they introduced the Nike Shox since then they have segmented into more markets with Nike Women, Nike iD, Nike Free and Nike 6.0. Nike continues to be new and innovative in developing superior products and finding creative methods to communicate directly with consumers 3c) Nike Corporate Level Strategy: The corporate level strategy contains a moderate level of diversification. There has to be a sharing of information and technology between businesses. All the businesses share product, distribution and technological linkages. The company builds upon its core competency and creates value. Economies of scale are created with the variety in brand portfolio that Nike has. This activity sharing among units results in increased competitiveness and improved financial returns. It is technically hard for external parties to see hoe Nike has diversified as it has internally diversified. If they make new products or acquire a new company it is always named ‘Nike’. There is a lower risk for the firm which is why Nike diversified internally. With competing companies like Reebok, Puma, and Adidas, Nike knew that they would lose market share in the shoe market. This is why Nike looked for different sports are to enter. Nike Golf is an example of this, they landed Tiger woods and he is credited into turning the small start-up business into becoming the leading golf apparel company in the world, and a major player in the equipment and golf ball market. The external incentive to diversify was bigger profits. Tiger Woods helped them in the golfing market, Michael Jordan in basketball and Roger Federer in tennis market. Their sales increased with every major profile they hired as brand ambassador. It is relatively easy for Nike to diversify as they are already an established company that has a huge resource pool. Its reputation is always the biggest resource, any company that Nike acquires immediately functions better because it is now a Nike product. All the other resources such as money, technology, innovation also help Nike in further expanding. They just have to keep in mind to not to overstretch their ore competencies, their major market is the sports market out of that they will lose their power. There haven’t been any major acquisitions or mergers in Nike history which shows they are comfortable as they are. Strategic alliances have been created with companies like with Canstar sports Inc and later turned into Bauer brand name. Bauer since then became a major player in the hockey equipment industry. Acquiring other companies is always lest costly and at the end of the day adds to the diversity of Nikes brand portfolio. Nike is very good at adapting to local markets which is why it has become such a global brand name. They are very willing to change and when they see an opportunity to change they grab it. And this is eventually a success. 4. TASK C – Strategic Fit Analysis 4a) Segmentation Strategy: Proper segmentation is necessary for every company and the better segmentation is managed the better the product is marketed and has a higher chance of being a success. Nike realized that quite early and made sure they have the proper segmentation; it is one of the reasons why the company is so successful. Being a sports equipment company it is important for the products to be divided accordingly into correct categories. Their core product is footwear but they also have sports product and apparel to market which all requires exact marketing channels. Every product has different sub categories also to further make the product better suited for every customers needs. Footwear accounts for 54% of the total revenues, the categories include shoes for basketball, tennis, soccer, running and a casual footwear line. The second segment is apparel which contains t-shirts, shorts, sweatpants and licensed logo apparel. Sports equipment is the third category it includes balls, golf clubs etc and accounts for around 6% of the total revenues. Nike golf, Cole Haan, converse are the brands Nike has and they target the customer specifically. 4b) Marketing strategy: Marketing strategy is extremely significant for Nike, there a lot of sportswear companies that exist in the market which is why it is up to Nike to perfectly differentiate itself. Marketing strategy helps in differentiating the product and making it better than others. The brand image is strengthened, a product identity is developed and there is customer loyalty. Nike thereby invests between 11 to 13% of their revenue in marketing. 4c) Advertising strategy: Nike is a huge brand that is recognizable instantly by it’s swoosh and slogan just do it. The fact that it has become so recognizable is due to the brilliant advertising strategy Nike has. They have a dominant media presence and are seen as a trend setting brand. TV ads are used and also billboards and murals on building. They key to Nike’s success has been product endorsements by famous sportspeople. Brand ambassador are key to Nike’s success, the ads feature mostly those ambassadors instead of the product itself. Michel Jordan supporting the Air Jordan brand, or the tennis players like Roger Federer, Rafael Nadal, Serena Williams etc regularly wear Nike apparel which makes the brand visible worldwide. Nike has also begun to sponsor big sporting events to create awareness; Olympics 2008 was one such event. Social media has also become a big part of marketing strategy with the company being active on Facebook, Twitter etc. 4d) Branding Strategy: Creating a brand is an uphill task that all the companies face. It helps in developing a personality image and is then seen as a symbol. Nike is a premium brand associated with high quality products. The brand personality is aggressive as can be seen by the motivating slogan ‘just do it’, it encourages the customer to win. Ambassadors such as Michel Jordan and John McEnroe further reaffirm this image. Nike has built its brand around sports attitudes and lifestyle images. 4e) Selling Strategy: Nike was the first company to have flagship stores which was a big success. They have Niketown shops in big cities. Then there are small independent retail stores that exist around the world. Worldwide there are various schemes that constantly run, enabling customers to buy products at discounted prices. The recent selling channel has been the internet. Nike has a high quality website that can be customized to an individual’s country and preferences. They sell online where a person can view the whole product catalogue, choose a product, customize it and order it. 4f) Manufacturing strategy: Nike’s manufacturing strategy is the key to its success. It started from a small agreement with a Japanese footwear company to manufacture their product and now it has branched out into all the products being manufactured globally. Nike has suppliers in China, Vietnam, Indonesia and Thailand. There are factories in Brazil, Mexico, India, Pakistan, these products are sold locally also. It has always been cheaper to manufacture in South Asia and then sell the product in USA, even thought there are transportation costs involved but still it comes at a reasonable cost. 4g) Human Resources Management Strategy: The magnitude of employees working for Nike cannot be recognized, there are formal employees and then there are factory workers. Nike has received a lot of criticism in the past for employing child labour and not providing good working conditions in their manufacturing factories. But the situation has changed now as strict guidelines have been issued and Nike makes sure that all its employees are well taken care of. Strategic fit: Nike has a very strong research and development department that enables it to stay ahead of the competition. Also their brand image, their logo and their reputation is the biggest asset that they have developed over the years. It is basically their brand image which they exploit as this gets the revenues. Even thought their products might be overpriced but everyone still pays for the products. In fact one of the criticisms of Nike is that their original product cost is not much but what they charge for it is a lot. The strategy Nike employed can be divided into two phases, one was the starting phase and the other was 1990s and onwards. In the starting phase both owners went by intuition and their gut feeling rather than a planned method. They designed an innovative sneaker that led to the famous trends. Also their aggressive marketing campaigns featuring their slogans ‘Just do it’, hiring the best athletes all changed the sports equipment marketing industry. By 1980 they had developed a significant brand image and this was easily leveraged for the next decade while introducing new products and branching out into other areas. From late 1990s to present there have been many changes that Nike has to adapt to. Consumer preferences have rapidly changed due to globalization, invasion of media and more awareness. Even though they have a great innovative R&D department but the product innovation that a sneaker can have is at the end of the day limited and differentiating from other companies proves to be a difficult task. Negative PR plagued Nike a lot during the incidence of child labour and bad employee conditions in the factory. For their strategic fit they decided to explore and enter new markets and became a global success. In 1990s their strategy had to undergo a change. There was a lot of outsourcing being done in the sports industry then with Nike being the obvious leader in that. But around 2001 they reported a profit shortfall as there were inventory build-ups, shortage of products and late deliveries. The thing with Nike is their product has a short lifecycle, fashions change extremely quickly, if a customer does not get a product on time he is dissatisfied. All these problems require an excellent timed to perfection strategy with Nike developed over time. Nike has a great marketing team, since the beginning they have been excellent marketers and used the right channels. The fact that they have the top athletes under contract who have such immense following that they can further develop the brand is their key to success. Being global they also have the individual’s country’s athletes on board to increase the sales there. Being signed by Nike has come out to be an honour and a great deal for the sports people themselves and that says a lot about the brand. This marketing has constantly been leveraged and made better by Nike over the years, now they even market at events. REFERENCES: Enderle, Kim, Dan Hirsch, Lisa Micka, Brian Saving, Sheetal Shah, and Tatiana Szerwinski. "Strategic Analysis of Nike." Web. 27 Nov. 2011. . Petkova, Polina, and Sudarsan Pattabiraman. Nike Inc and the Athletic Footwear Industry Strategy and Competition Analysis. Rep. Print. Cheng, Andria. Nike profit slightly higher; sales drop on softer demand, September 30, 2009. http://www.marketwatch.com/story/nike-profit-inches-higher-salesdrop-2009-09-29. Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press, 1980. SWOT Analysis Nike, Inc. http://marketingteacher.com/SWOT/nike_swot.htm US Athletic Retail Market Report, 2009 Edition, http://www.prlog.org/10333892- us-athletic-retail-market-report-2009-edition-new-report-by-koncept-analytics.pdf. Crain, David W, and Stan Abraham. "Using Value-Chain Analysis to Discover Customers' Strategic Needs."Strategy & Leadership. 36.4 (2008): 29-39. Print. Nike. Web. 27 Nov. 2011. . The Shoe Game - Nike History." TheShoeGame.com - Sneakers & Information. Web. 27 Nov. 2011. http://theshoegame.com/Nike-History.html Read More