Nikes Strategic Management - Assignment Example

? Nike’s Strategic Management of the of the of the Nike’s Strategic Management Introduction Nike Incorporation is considered as world leader in designing, developing and worldwide distribution and marketing of sports equipment, ranging from athletic footwear, athletic clothing lines, sports equipment and accessories. The company is said to hold around 18,000 retail outlets worldwide, either in form of franchises or company outlets and has established itself as the largest seller of sports apparel and equipment in more than 200 countries. Nike serves a diversified customer base comprising of men, women and children (Nike Incorporation 2011). In this paper, Nike strategic positioning and market environment is analyzed with the help of strategic tools in order to make the position of the company in sports equipment industry, understandable and clear. Marketing Environment Analysis PEST Analysis of Nike Political Nike’s main focus is on markets where the political environments are relatively stable and democracy flourishes. Nike’s main markets are considered to be USA, European Countries, developing countries of Asia, South Africa and few countries of North and South America. Usually, in these countries, the government has been elected through a general election. The economic conditions in these countries are relatively stable and favorable for businesses, despite of the economic slowdown experience in rest of the world. These political conditions provide a competitive advantage to Nike as it does not have to face the adverse effects of economic fluctuations and fluctuations in exchange rates (Cuizon 2009). The policies regarding the interest rates and other monitory responsibilities are made keeping in view the requirements of the businesses, therefore; it becomes easier for Nike to utilize the disposable income in a more productive way (Mishra 2010). Although, the political scenario seems to b e favorable for Nike, but within governments, there are certain groups and lobbies that put pressure on authorities to ban the methodologies used by Nike for producing and marketing its products. Nike also needs to consider the subsidies it might get from the Government as it can be helpful for the company to setup its factories in these countries and import goods into the respective countries (Jennifer and Sergiu 2010). Economic Conditions In most of the countries, where Nike sells its products, economic conditions are either getting improved or they have already flourished or target customers’ purchasing power is improving on a regular basis. Especially in European countries and USA, Nike’s products are considered to be reliable and durable and purchased by customers on regular basis due to their ever increasing purchasing power and better economic conditions. Also, sports are considered to be an essential part of an individual’s life in these countries which helps Nike to sell more units of its products in a year as compare to the previous year (Petkova and Pattabiraman 2010). Social Being a USA based multinational company, Nike is widely accepted as a brand in USA and European countries, but at the same time, Nike faces criticism and neglected to be accepted by the society in some Asian and South and North American countries. For catering this strategic problem, Nike designs different products for every region of the world and markets the products according to the societal norms and values. These products are designed keeping in view the local customers’ buying behavior, their culture, the society in which they live and the attributes of sports equipment that these customers look for. Lifestyle also plays a pivotal role in Nike’s decision regarding designing a product. Majority of the markets that Nike caters, have a social background where sports events are paid especial attention, which implies that the purchasing of sports equipments is higher in these countries or markets (Mishra 2010). Technological Nike utilizes latest technology for manufacturing of durable and comfortable sports equipment. Technology is also utilized for easy and quick production of products, keeping in view the ever increasing demand for such products and services. Use of technology has also enabled Nike to reduce the costs incurred on the production of sports equipment. Another area where Nike makes useful utilization of technology is the marketing and sells of its products through the company website. It is estimated that 37% of Nike’s total sales comes from the internet as it is more facilitating for the customers to choose their desired products from the online catalogues and place their order (Chang 2010). Nike is also on the beneficial side as it does not have to incur heavy expenses on opening retail or franchise outlet (Nike 2010). Porter’s Five Forces Analysis Rivalry among Competitors Nike has to face intense competition from the rivals in the sports equipment manufacturing industry. The presence of brands like Adidas and Reebok makes it difficult for Nike to enjoy the pleasures of being the leader in this industry. Instead, Nike has to strive and make efforts on continual basis to protect its place as the industry leader. Adidas and Reebok are equally recognized in the world and possess a huge customer base, having an online business just like Nike and generating sales that are challenging when compares to Nike’s. Adidas and Reebok, both invest a sufficient amount of their revenues on building a brand identity and attracting more customers to provide a healthy competition to Nike (Mishra 2010). Threat of New Entrants Keeping in view the size of business of Nike and its global presence and continuous introduction by the company of innovative sports equipment, it can be said the entry of new competitor in the industry will not hurt Nike’s interests. Nike’s loyal customer base and the expenses it makes on marketing its products by celebrity endorsement can not be matched by a new entrant and hence, it is evident that the threat from new entrants is low for Nike (Lussier and Kimball 2011). Threat of Substitutes The comfort and durability that a customer perceives from a Nike’s product can not be matched by its rivals and people hardly try to find out a substitute to Nike’s products. Other substitutes that are available to customers, like bots, snickers or sandals can not take Nike’s place as sports wear as they can not be used to play a sport. Therefore; thereat from substitute is lower for Nike in sports equipment manufacturing industry (Enderle, et al. 2000). Bargaining Power of Suppliers The raw material required for the production of sports equipment is expensive but it can be acquired by Nike from a number of suppliers and vendors. In addition, these raw materials like wood, rubber, leather or cotton are abundantly found in number of global markets. Being the industry leader and mass producer of sports goods, Nike has the advantage over its suppliers that it dictates the terms and conditions to the suppliers and suppliers have very little room to argue on these terms and conditions, which suggests that Nike have upper hand when it comes to suppliers’ bargaining power (Jennifer and Sergiu 2010). Bargaining Power of Buyers The presence of other sports equipment manufacturers in the industry and their strategy to sell their products at a lower price as compare to Nike leaves very little room for Nike to price its products according to its own requirements. Customers of sports equipment are price sensitive and there other options available to them to purchase sports equipment. For a company to be successful in sports equipment manufacturing industry, it is essential to come up with innovative, durable and high quality products. Despite of the fact that the prices of Nike’s products are relatively high as compare to competitors, but Nike practices a weak power over buyer’s bargaining power (Cuizon 2009). Overall Market Environment and Nike From the market environment analysis of Nike Incorporation, it is clear that for Nike, the biggest threat to its business is the rivalry in the sports equipment manufacturing industry. Despite of the fact that the market environment seems to be stable supplemented by good economic conditions, technological backup, social acceptance in majority of the markets and favorable micro and macro environmental attributes, Nike have to strive hard to protect its place as the global industry leader. Therefore, investing heavy amounts on research and development is necessary for Nike to remain customers’ first choice for sports equipment. Strategic Analysis Value Chain Analysis A value chain analysis helps in analyzing systematically, a company’s functional activities and how these activities help in adding value to the customers (Schmitz 2005, Porter 1998). Primary Activities Inbound Logistics Nike inbound logistic activities enables the company to produce goods at lower costs. Nike outsources a number of its operational activities like refining of material, stitching, tagging, labeling and etc. Nike possesses a sound and technologically driven inventory control system which helps the company to reduce the inventory risk by alarming the higher authorities about the requirement of raw material. Nike’s inbound logistic activities mainly focus on designing of the product, marketing and the technology required to produce these products (Rugman and Verbeke 2005). Operations Nike invests a heavy portion of its earning on the research and development of new products. Factories of Nike are managed by utilizing a sound inter organizational communication system which enables the authorities to direct the operations according to the changing market environment and demand (Mishra 2010). Outbound Logistics Nike runs its own distribution channel and sometimes, outsources the distributional activities of its products when the destination is located in remote part of the world. Nike pays especial attention towards maintaining a healthy and long term relationship with the suppliers and distributors. AT times, when required, Nike has shown the potential to integrate forward in its supply chain to lower the acquisition and production costs. Nike’s strong communication channel and control systems enable the company to support and manage the supply chain activities (Mishra 2010). Marketing and Sales Nike uses celebrity endorsement as its core strategy for marketing its products. Number of athletes and showbiz celebrities has endorsed Nike which help\ the brand to build stronger and longer brand recognition and reputation. Celebrity endorsement definitely is evidence that Nike invests huge amount of its revenues on marketing the products and building a stronger and loyal customer base. The online medium of marketing has also proved to be beneficial for the company as it helps in diversifying and offering variety of products at a single point to the customers (Cell Phone Advertising 2007). Services Nike utilizes IT in order to facilitate the shopping experience of customers and improve its customer care services. Customer base of Nike is considered to be satisfied as the company provides high quality, durable and comfortable sports equipment. Another service that Nike has offered in very few markets is the customer’s own customized shoe option. By utilizing this service, customer can design their own shoe on a touch screen computer placed at Nike’s stores (Mishra 2010). Secondary Activities Firm Infrastructure Nike’s businesses are stretched in over 5 continents of the world with a network of more than 18,000 outlets and a diversified workforce of over 25,000 people. The top management of the company, headquartered in Oregano, USA, runs and looks after the global business of Nike. Nike’s financial strength reflects that the annual returns of the company are greater than any other sports equipment manufacturing organization in the world, which allows Nike to operate with minimum possible debt financing of its operations. The strong presence in the marketplace along with a wide range of products makes Nike a unique and competent brand which is followed by effective compliance process through enhanced strategic knowledge and verification (Mishra 2010). Human Resource Management Nike’s recruitment and selection policies and its training and development procedures for the work force helps the company to possess a competitive work force, which believes on working as a unit towards achieving the corporate goals and objectives. Nike’s HRM policies clearly provides that the only core value of its HRM policies is honesty and producing goods that keeps that customer base satisfied and loyal to the company. Nike is perceived to be a company having great management and efficient corporate strategy worldwide, carrying out business activities by keeping in view the ethical values, well mentioned labor audit and planning in compliance with corporate social responsibility measures (Lussier and Kimball 2011). Technology Development Nike is considered to be global leader in Air-sole technology, motion analysis, metabolic rate and blood work. All these attributes of the technology are related to the products that Nike produces and help the customers to overcome their fatigues and related issues. Beside the use of technology in production processes, Nike also uses technology for marketing and selling its products. In recent years, Nike’s online business model has gained strength and produced sufficient amount of revenues (Cuizon 2009). Procurement Nike’s procurement strategies are based on JIT philosophy which implies that the company believes on shipping the products to the markets, as soon as they are ready to be presented to customers for selling. In addition, Nike’s procurement decisions makes it possible for the company to maintain a buffer in its production and keep a safety stock in hand , which can be utilized and brought to the market in changing market environment (Petkova and Pattabiraman 2010). Nike’s Distinguished Resources There are certain resources of a business which are considered to be the key resources of that business and can not be matched or copied by any other company. Nike’s distinguished or key resources are its employees who are t rained and developed in such a manner that their competence can not be matched by Nike’s rivals in the sports equipment manufacturing industry. Nike’s innovativeness and strategic planning is also considered to be its key resource as it helps the company to flourish and establish itself as a global leader in sports goods manufacturing. Beside these two core resources, Nike’s strong distribution network, state of the art laboratories for research and development and the brand image and reputation that it has build over the years at the marketplace, are other key resources that help Nike to become the ultimate choice of consumers (Mishra 2010). Nike’s Core Competency Nike’s core competency is its satisfied customer base. Customers are satisfied when they are provided with a variety of high quality, durable, reliable and innovative products and services. Nike’s research and development facilities has proved to be beneficial in a way that they allow the company to produce technologically driven products that caters the needs and desires of customers by providing solution to their issues. In this way, Nike is successful in winning customers’ loyalty globally and have has the highest customer retention ratio in sports good manufacturing industry. It is evident from the market data that Nike holds the largest market share in sports equipment manufacturing industry, i.e. 32%, due to the reasons that its products are offered at a competitive price. In addition, these facts can be supported by the company growth rate, which is 7% in case of Nike as compare to the industry standard of 4.5% growth annually (Mishra 2010). Overall Strategic Analysis The strategic analysis of Nike Incorporation proves that the company has always come up with unique and innovative product ideas that help it to cater and solve the issues of its vast customer base. As most of t he customers of Nike are athletes, Nike strives to design products t hat foster the best possible performance among these athletes. These strategies has helped Nike to continue ruling the global sports equipment manufacturing industry by producing innovation and technologically driven sports footwear, apparel and equipment. Strategic Fit Analysis By fetching the information presented in the above two sections, it is easier for the author to derive the SWOT analysis of Nike Incorporation which provides an inside into the strengths, weaknesses, opportunities and threats that Nike possess or face at the marketplace (Marketing teacher 2011). Nike’s Strengths Nike’s biggest strength is the brand equity that it has build over the years by providing high quality sports equipment to its vast customer base dispersed all over the globe. Then is the global presence which entails that Nike is present in more than 200 countries of the world located in every corner of the world. Nike is perceived among market players and customers as a provider of high quality, comfortable and technologically driven sports equipments which provide fair chances to the company for expanding the size of its business. Nike offers a diverse product line to the customers which enable the company to overcome the financial deficiencies from the sales of other equipment, if one equipment has failed to produce revenues. Nike’s strong research and development mechanism helps the company to come up with new product ideas every now and than. Nike’s marketing and promotional activities are also considered as one of the pillars on which the enhanced performance of the company rests. Nike’s Weaknesses The biggest threat to Nike’s business is the fluctuation in currency exchange and the economic fluctuations which cause a reasonable amount of financial loss to the company due to its global presence. Nike’s sales audit reflects that the sales of Nike’s products in USA has declined since the starting of 2007 or better be said, the starting of great recessionary period. Nike has remained under severe monitoring by Human Rights organizations, who accuse the company of violating child act and employing unethical labor policies. Nike’s pricing strategies are also under severe criticism. Industry experts suggests that Nike offers premium sports equipment at higher prices to a highly price sensitive customer base. The organization does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes. Nike was positioned as a subject of criticism by anti-globalization groups due to its unruly and exploited manner that was quite a disaster for its reputation. Opportunities for Nike Although, Nike is present in over 200 countries, it still has fair chances to enter and penetrate in other emerging markets of the world. Nike operates in an industry, where the customers demand for innovative and latest products. Keeping this in view, Nike can bank upon its research and development systems in order to produce innovative products and keep the company at top of the industry. The rising number of female athletes has also opened new doors for the company to cater this segment, by producing large number of sports equipment for the female segment. Nike also can establish itself as a environmentally sustainable business in all the markets where it operates. There is an opportunity for Nike to expand the business scope and start producing sunglasses and jewelry for athletes. It is expected that these high value items are beneficial for producing high profits. Threats for Nike The biggest threat to Nike’s business is the maturity of sports equipment manufacturing industry which makes this sector susceptible to the recessionary impacts. Also, sports good manufacturing companies heavily rely upon contracted suppliers, which results in compliance issues and delayed delivery of supplies. Customers of sports equipment are considered to be vulnerable as their demands change on a regular basis. Nike’s marketing efforts completely depend upon the endorsed athletes who are not uniformly popular in all markets where Nike operates. Sports good manufacturers heavily depend upon the discretionary income that customers earn, as the customers will not prefer to buy sports equipment over other basic requirements in daily life. Due to its global presence, Nike is exposed to the currency exchange risks. Nike has to face intense rivalry at the market place due to the presence other big and reputable names, such as Adidas and Reebok. Conclusion From the strategic, marketing environment and strategic fit analysis of Nike Incorporation, the readers can clearly get an idea that the only business strategy of Nike is to produce products that are different from competitors’ products, with a diverse brand portfolio and supplemented by investments focusing on highly potential markets all around t eh world. Nike operates in a highly competitive environment and rapidly changing consumers’ demands, which requires the company to be equipped with research and development mechanisms that facilitates the production of latest technologically driven products and services. List of References Cell Phone Advertising, 2007. Adidas and Nike’s mobile advertising campaigns get a staggering response. [Online] Available at: [Accessed 2 June 2011]. Chang, B., 2010. Nike, Adidas readjust marketing strategy. [Online] Available at: [Accessed 2 June 2011]. Cuizon, G., 2009. Marketing Audit of Nike's Strategies. [Online] Available at: [Accessed 28 November 2011]. Enderle, K., Hirsch, D., Micka, L. and Saving, b., 2000. Strategic Analysis of Nike, Inc. [Online] Available at: [Accessed 28 November 2011]. Jennifer, D. and Sergiu, N., 2010. Nike: Case Analysis. [Online] Available at: [Accessed 28 November 2011]. Lussier, R. and Kimball, D., 2011. Five competitive forces in sport business environments. 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