Current Issues of Nike, Inc - Case Study Example

Research Paper on Nike, Inc. Table of Contents Introduction 3 Target Market 4 SWOT Analysis 4 Competitor Analysis 6 Current Issues of Nike, Inc. 7 Labor issue and the use of Sweatshops 7 Premium pricing 7 Other Important Issues 7 Marketing Mix 8 Porter’s Five Forces 8 Formulation of Strategies 9 Two main Strategies for Nike, Inc. 9 Abolition of Child Labor 9 Value Based and Segmented Pricing Strategy 9 Pros of the Suggested Strategies 10 Cons of the Suggested Strategies 10 Conclusion 11 Recommendation and Justification 11 Works Cited 12 Name of the Student: Name of the Professor: Date: Introduction Nike, Inc. is an American global corporation founded in the year 1964, having it’s headquarter in United States. The company is engaged in manufacturing, development, design and worldwide sales and marketing of apparel, accessories, footwear, equipment and services (“Market Realist”). It has employed over 44,000 individuals worldwide. Nike, Inc. sponsors athletes of high-profile as well as sports team, with an extremely recognized trade name of “Just Do It” (“Nike”). The company fosters the traditions of invention. They generate experiences, services and products for athletes of today while solving troubles for the upcoming generation. Nike, Inc. believes that diversity drives innovation and if it is done correctly, then managing diversity as well as inclusion can result in a competitive advantage. The company needs a wide range of suppliers who significantly and actively support their requirements of business. The international procurement team of the company administers the procurement process through contracting and selecting the correct suppliers for the accurate services and goods (“Nike”). Nike, Inc. is committed towards the sustainability practice. Through their strategic sourcing programs, they have begun to minimize Nike’s footprint as well as lessen their impact on the environment. The company is committed towards increasing the procurement of the sustainable products. In this way, they have decided to remain green for the betterment of the society (“Nike”). The main purpose of this research paper is to focus on the two strategic issues faced by Nike, Inc. and then strategies will be formulated to address those issues. Different theories like analysis of weakness, strengths, threats and opportunities will be taken into consideration along with the focus on the competitor analysis. Evaluation of Porter’s five forces will be done so that it becomes easy to formulate strategies for Nike, Inc. Further, recommendations and justification on the suggested strategies will be provided to reflect the viability of the proposed strategies. Target Market Nike, Inc. mainly targets the athlete category, both women and men. The age group falls between 25-60 years. The athletic gear of the company is targeted at the professional athletes (“Market Realist”). In 2003, Nike, Inc. acquired ‘Converse’. The product line of the brand targets the premium customer. It includes the footwear and casual apparel which are sporty in nature. ‘Brand Hurley’ targets those customers who are interested in action sports like skateboarding and surfing. ‘Brand Jordan’ also targets the premium athletes. So, basically, the target audiences of the company are athletes and the people who are interested in sports. Young athletes are considered as the future target audience of the company mainly in categories like running, basketball and soccer (“Market Realist”). SWOT Analysis SWOT analysis is done to provide a view of the external as well as internal factors which can have an effect on the operations of business. It is considered as a valuable tool for strategic planning (Johansson 31-32). A SWOT analysis of Nike, Inc. is presented below. Strengths: Nike, Inc. is the largest provider of apparel and athletic shoes and a main manufacturer of sports equipment around the world. It possesses strong team in the research & growth department, who come up with the innovative ideas of manufacturing shoes. The famous slogan of the company ‘Just Do It’ is recognized by everyone around the world. They have great brand equity especially in terms of appeal and recognition tied to their status among sport professionals and celebrities (Johansson 31-32). Among the 190 countries, North America is the most significant growth drivers of Nike, Inc. which has resulted in 44% of their total revenue (“Market Realist”). Figure 1: Major Growth Drivers of Nike, Inc in terms of Revenue (Source: “Market Realist”) Weaknesses: Nike, Inc. is not straightforward in terms of their strategic affiliations, which has generated suspicion as well as brought interest to the lack of lucidity or transparency of the company. Labor issue is the main concern that has constantly bothered Nike, Inc. and also led to the disturbance of their manufacturing operations in several occasions (Johansson 31-32). Opportunities: The Company has opportunity in terms of enhancing its brand image by involving more in the corporate social responsibility and committing towards the sustainability. They already address the environmental footprint by reusing the waste as well as toxicity of processes and materials use to create their products. Due to its global presence and leading the footwear industry, the company has an opportunity to diversify their portfolio of products. They can look at clothing products and accessories to attract larger customer base (Johansson 31-32). Threats: Threats for Nike, Inc. may come from global trade practices, currency fluctuations and labor strikes related to carrying out business in a global context. Poor economic condition like recession can also be a threat because at that time, consumers become price conscious and this may lead them to cut the price of their products (Johansson 31-32). Competitor Analysis The apparel and sportswear equipment industry is very competitive and therefore it includes several prominent players. Nike, Inc. is the main provider of the apparel and footwear around the world. The company has its presence in almost 190 countries. The competitors of Nike, Inc. are ESPN, Adidas, Sky Sports and Under Armor (“Market Realist”). Figure 2: Competitors of Nike, Inc. (Source: “Market Realist”) Nike, Inc. leads the footwear market by having a brand value of $19 billion and market capitalization of $83.6 billion in 2014. ESPN ranks second in terms of brand value and market capitalization followed by Adidas, Sky Sports and Under Armor (“Market Realist”). Nike, Inc. has sustained their competitive edge through applying effective strategies: Focusing mainly on the innovation as well as introduction of the proprietary products like Lunar, Dri-Fit, Nike Fuel, Shox, NIKE AIR, Flywire and NIKE+ (“Market Realist”). Building a range of internationally recognized brands (“Market Realist”). Making use of targeted marketing especially at the sporting events of high profile for example Soccer World Cup, NFL Super Bowl and Rio Olympic Games (“Market Realist”). Making endorsement contracts with athletes of high profile like Roger Federer, LeBron James and Neymar (“Market Realist”). Current Issues of Nike, Inc. Labor issue and the use of Sweatshops Nike, Inc. is facing many issues which will threat its survival and also the competitive advantage. Poor working condition of labor and the use of sweatshops is the main strategic issue which is faced by the company. The company is employing child labors especially in their manufacturing facilities and providing them low wages for their tremendous effort. It has affected their brand image to some extent. Recently, in Bangladesh, one of their factories has collapsed due to these issues (West, Ford and Ibrahim 77-78). Premium pricing Second strategic issue is the premium price of their products. Currently, premium customers, especially who are interested in sports activities are purchasing the company’s product with great ease but at the time of recession, premium pricing will hamper their revenue and profits (West, Ford and Ibrahim, 77-78). Other Important Issues Other issues are that they are not up-front in terms of their strategic associations, which has generated doubt as well as brought interest to the lack of lucidity of the company. The company is not paying attention to the diversification practice and putting its whole focus on the footwear business. This may be considered risky because the trends of the market often change and most of the companies sustains by means of product differentiation practice. Nike, Inc. does business with the retailers who also supply materials to their competitors; hence, there are a lot of chances of loss of uniqueness. If there will be lack of exclusivity in their brand, then customers will opt for other brand (West, Ford and Ibrahim, 77-78). Marketing Mix Product: Nike, Inc. includes range of products including apparel, sports footwear, equipment and accessories. However, the main focus of the company is on the sports footwear. Recently, they have introduced the cricket shoes named as ‘Air Zoom Yorker’, which is designed keeping the customer preference in mind. It is 30% lighter than the shoes designed by their competitors (Lamb, Hair and McDaniel 48-49). Promotion: Promotion of Nike, Inc. products greatly relies on finding the nearby store locations. The company creates various strategic alliances and gives their advertisement in the newspaper. The company has done contracts with the top athletes like Roger Federer, LeBron James and Neymar to promote their brands. Sponsorship of various events is considered as another promotional strategy of the company. Nike, Inc. has also made different websites entirely for sports loving person (Lamb, Hair and McDaniel 48-49). Price: Nike, Inc. makes use of vertical integration pricing method wherein the company engages in the operations of various channel levels. This is an attempt towards influencing their pricing practices and controlling their costs. The company adopts competitive and premium pricing strategy because they position themselves in terms of technology, quality and design (Lamb, Hair and McDaniel 48-49). Place: Nike, Inc. sells the products to 20,000 retailers in the United States and in 190 countries across the globe. The shoes of the company are carried by selected Nike stores and also by stores of multi-brand around the world. In the global markets, they sell their products through autonomous subsidiaries, licensees and distributors (Lamb, Hair and McDaniel 48-49). Porter’s Five Forces An evaluation of Porter’s five forces has been done to investigate the environment or surroundings in which Nike, Inc. functions to generate competitive advantage. The five forces are used to determine the strength of competitive forces and therefore the attractiveness and profitability of the industry (Grundy, 220). Barriers to entry: The threat of new participant to enter into the market is low due to the highly established players in the industry. Companies like Nike, Inc., ESPN and Adidas have great presence in the footwear industry which makes it difficult for the new participants to prove their presence in the industry. Nike, Inc. has a control on its costs and therefore upholds competitive advantage over emerging participants (Porter 52-53). Threat of the substitute products: The threat of the substitute products is low because the switching costs of the customers are low in the footwear industry. There are no actual substitutes especially for the athletic footwear (Porter 52-53). Bargaining power of customers: As there are numerous brands within the footwear industry, therefore, customers’ bargaining power is high. The brands like Adidas, ESPN and Nike, Inc.; all offers high quality footwear, therefore customers can easily switch from one brand to other (Lussier and Kimball 97). Bargaining power of supplier: The bargaining power of suppliers is low because the firms can switch easily from one supplier to other in case they do not stand to their expectation in terms of quality. The suppliers are normally dependent on several companies for their survival. Therefore, the suppliers’ bargaining power is almost negligible (Lussier and Kimball 97). Rivalry within the industry: The competition among the existing big companies like Nike, Inc., Sky Sports and Under Armor, ESPN and Adidas is very high because all these companies have grown enormously in the past few years. All of them offer more variety and choice to the customers. The footwear industry is facing great competition as well as the rivalry is tremendously fierce (Lussier and Kimball 97). Formulation of Strategies Two main Strategies for Nike, Inc. Abolition of Child Labor As the main issue of Nike, Inc. is engaging the child labor in their operations and especially on the low wages, so first strategy would be to cut on the child labor. This is because it is hampering the brand image of Nike, Inc. They should engage adult labor which will assist the company to generate more productivity and also to build good reputation. Value Based and Segmented Pricing Strategy At present, the premium customers are purchasing the company’s product with great ease but at the time of economic slowdown, they will switch from premium price to reasonable price. Recession makes the customer price conscious. Therefore, the strategy which is formulated for Nike, Inc. would be to adopt value based strategy for their pricing process. It means that customers will be willing to pay more only if they will find that the products of Nike, Inc. are superior to their competitors. Pricing is considered as a chief mechanism for managing the profitability of any business (Rao 6). Segmented pricing tactic/strategy is also formulated for Nike, Inc. which suggests that they can adjust the price of their product according to the type and location of the customers they are actually targeting. The company can keep their product price high for the premium customers and can also cut down on their price when they are targeting the customers of developing countries. The company can amend the price according to the type of product such as they can keep high price for the athlete’s shoes and continue to maintain reasonable price for other categories. This is because; athlete footwear is of high demand than other products of Nike, Inc. Pros of the Suggested Strategies The pros of the suggested strategies will be that the abolition of child labor will help the Nike, Inc. to maintain their status and earn high reputation in the society. Adoption of adult and skilled labor for their business operations will also excel productivity and therefore assist the company to earn more profits. Value based pricing strategy will assist the company to earn more revenue by providing best quality product. Cons of the Suggested Strategies The cons of the formulated strategy will be that, segmented pricing approach will force the company to generate less revenue from the developing nations if they lower the price of their products. As Nike, Inc. is already using competitive pricing tactic so, when the company will adjust their product’s price, then it may create the misconception in the customers mind about product’s quality. When pros and cons of the formulated strategies are compared it has been observed that pros outweigh the cons because both the suggested strategies will assist the company to earn more revenue, excel productivity and also to generate more profits. Conclusion The research paper is designed to focus on the main issues which Nike, Inc. is currently facing and then to formulate different strategies to address the same. To pay attention to the major issues, SWOT analysis has been carried out. By conducting this analysis, it has been analyzed that labor issue is the main concern that has constantly bothered the company and also led to the disturbance of their manufacturing operations in several occasions. It has also been observed that Nike, Inc. has opportunity in terms of enhancing its brand image by involving more in the corporate social responsibility and committing towards the sustainability. The marketing mix helps to know that Nike, Inc. has done contracts with the top athletes to promote their brands. Sponsorship of various events is considered as another promotional strategy of the company. An assessment of Porter’s five forces has been done to investigate the environment or surroundings in which Nike, Inc. is operating. Abolition of child labor as well as value based and segmented pricing tactics has been formulated for Nike, Inc. in order to assist them to achieve higher profitability and status in the society. Recommendation and Justification Among the various strategies which have been formulated, abolition of child labor is considered as the most appropriate strategy as it is affecting the reputation of Nike, Inc. It is recommended that the company should engage adult and skilled labor in their business operations and pay them according to their performance. When the workers will get paid as per their performance, it will motivate them to put more effort in their job and ultimately this will result in exclusive quality product and also in increased productivity. Customers pay for the product quality so it is very important for Nike, Inc. to maintain their quality. This will further result in the increased revenue and profits. Works Cited Grundy, Tony. "Rethinking and reinventing Michael Porters five forces model." Strategic Change, 15.5, 2006: 220. Print. Johansson, Johny K. “Global Marketing”. New Delhi: Tata McGraw Hill, 2000. Print. Lamb, Charles, Joe Hair and Carl McDaniel. “Marketing”. Boston: Cengage Learning, 2007. Print. Lussier, Robert and David Kimball. “Applied sport management skills”. United States: Human Kinetics, 2013. Print. Market Realist. Traditionally Innovative: The History of NIKE. Market Realist, Dec 2014. Web. 29 June 2015. Market Realist. NIKE’s target market today and tomorrow. Market Realist, Dec 2014. Web. 29 June 2015. Nike. Company Profile. Nike, Inc., 2015. Web. 29 June 2015. Nike. Sustainability: Sustainable business reporting & governance. Nike, Inc., 2015. Web. 29 June 2015. Porter, Michael E. Competitive strategy: Techniques for analyzing industries and competitors. New York: Simon and Schuster, 2008. Print. Rao, Vithala R. “Analysis for strategic marketing”. New Delhi: Pearson Education, 2006. Print. West, Douglas, John Ford and Essam Ibrahim. “Strategic Marketing: Creating Competitive Advantage”. Oxford: Oxford University Press, 2015. Print. Read More