Nike Product Differentiation

Nike designs, develops, and markets high quality footwear, apparel, equipment, and accessory products. Nike is the largest seller of athletic footwear and athletic apparel in the world. They have been around for many years and have developed themselves as the most popular brand name in the sportswear industry. The company sells its products to approximately nineteen-thousand retail accounts in the United States and through a mix of independent distributors and licensees in approximately one hundred and forty countries around the world.

Continuing, consumers around the world have become very loyal to Nike’s products and services. One of the main reasons why Nike has become so successful is because their consumers are extremely loyal. For a while now Nike has been doing a terrific job sponsoring and doing endorsements deals with megastar athletes. Some of the megastar athletes which have had a tremendous impact on Nike are Michael Jordan, Mia Hamm, Venus Williams, and newly acquired Tiger Woods. This company has been around a long time and has also sponsored some of the greatest recent sporting events. Nike is very familiar with the NBA, sponsoring all-star games as well as regular season games.

Like many companies Nike wants to have a global presence in the marketplace for selling its apparel goods. Nike has to choice a corporate-level strategy first and then determine which business level strategy for the market is best. Nike can choose a business level strategy based on if it has a different product then others, is a cost leader, has differentiation; is a focused cost leader, has focused differentiation or integrated cost leadership/differentiation.

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Nike Cost Leadership

Nike’s corporate cost leadership strategy includes a moderate level of diversification. The operational relatedness between businesses is very high. They share most information and technology needed to succeed. Nike falls into the category of related constrained, since less than seventy percent of revenue comes from a dominant business and all businesses share product, technological and distribution linkages. Nike’s diversification is related because the firm builds upon or extends its core competency and resources/capabilities to create value. Also, economies of scope are incorporated. For example, Cole Haan line of luxury footwear and Bauer hockey utilize cost savings from capabilities and competencies that were developed in one of its businesses, Nike, and used in the others. Nike expects activity sharing among units to result in increased strategic competitiveness and improved financial returns, which it has seen. Moreover, intangible resources are difficult for competitors to imitate and/or understand. This allows the other businesses to gain an advantage immediately over competitors.

Another firm that has pursued an effective combination strategy is Nike. When customer preferences moved to wide-legged jeans and cargo pants, Nike's market share slipped. Competitors such as Adidas offered less expensive shoes and undercut Nike's price. Nike achieved the turn-around by cutting costs and developing new, distinctive products. Nike reduced costs by cutting some of its endorsements. Company research suggested the endorsement by the Italian soccer team, for example, was not achieving the desired results. Michael Jordan and a few other "big name" endorsers were retained while others, such as the Italian soccer team, were eliminated, resulting in savings estimated at over $100 million.

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Evaluating Nike’s Strengths and Weaknesses

Strengths

Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets.' Nike has a healthy dislike of its competitors. At the Atlanta Olympics, Reebok went to the expense of sponsoring the games. Nike did not. However Nike sponsored the top athletes and gained valuable coverage.

Nike has no factories. It does not tie up cash in buildings and manufacturing workers. This makes a very lean organization. Nike is strong at research and development, as is evidenced by its evolving and innovative product range. They then manufacture wherever they can produce high quality product at the lowest possible price. If prices rise, and products can be made more cheaply elsewhere (to the same or better specification), Nike will move production.

Weaknesses

• 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.
• The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. Can you tell one sports retailer from another? So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike.

Opportunities

• Product development offers Nike many opportunities. The brand is fiercely defended by its owners whom truly believe that Nike is not a fashion brand. However, like it or not, consumers that wear Nike product do not always buy it to participate in sport. Some would argue that in youth culture especially, Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out i.e. consumers need to replace shoes.
• There is also the opportunity to develop products such as sport wear, sunglasses and jewelry. Such high value items do tend to have associated with them, high profits.
• The business could also be developed internationally, building upon its strong global brand recognition. There are many markets that have the disposable income to spend on high value sports goods. For example, emerging markets such as China and India have a new richer generation of consumers. There are also global marketing events that can be utilized to support the brand such as the World Cup (soccer) and The Olympics.

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Nike: Evaluating Environmental Opportunities

Nike’s management analyzes its internal environment and makes decisions based on that analysis. Because of Nike’s marketing research, the company has decided to revamp its apparel division to be more fashion savvy. As a result of product and pricing research, Nike has decided to continue to focus on the high end market while increasing its market share in the middle and low price ranges in an attempt to broaden Nike’s product spectrum.

Nike thoroughly examines and compares the aforementioned performance standards to the actual results that have occurred as a result of implementing strategies to meet or exceed performance standards. These standards are important to Nike as a comparison of past performance to present performance as well as in Nike’s attempt to forecast future results in these areas.

Nike utilizes innovation to produce top quality athletic footwear and apparel. As a result of devoting vast resources to the research and development of its products, Nike has captured the largest market share in the athletic footwear and apparel industry and continues to be the leader of quality products.  Nike’s top management’s leadership style can be characterized by the team management approach. Top management consists of a committed group of executives all bringing together vast experience and knowledge. The group is team oriented, but is capable and does work independently recognizing the common stake that each places in Nike. This style of leadership leads to relationships of trust and respect. The company culture lends a hand to the fact that top management’s teamwork style has spread throughout the organization.

A comprehensive establishment of profitability standards has assisted Nike in the evaluation of individual performance as well as a comparison to other competitors. Nike utilizes standards such as net profit, earnings per share, return on investment, return on equity, sales growth and asset growth. Performance standards are also established and checked regularly. Some of the areas in which the company has established standards are productivity of productions sites, competitive position in the United States relative to the global market, technological leadership in comparison to competitors and overall social responsibility and the public’s perception.


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