Nike Diversification Strategies

Nike implemented a diversification strategy which is a type of corporate-level strategy so as to spread its risk and capitalize on its strengths. In this strategy a company ventures into related or unrelated product lines so as to boost revenue or expand (Marca, 2001). The specific diversification strategy that Nike has ventured into related (concentric) where it decided to add beach-style sport clothing (Hurley) as a business line. Another instance is when Nike acquired Bauer so as to venture into the hockey market that was formerly dominated by Bauer. Other top selling product categories of Nike as a result of diversification are shoes for women and children, basketball, and cross training. The objective for diversification in terms of products and operations is to reduce the company’s dependence on the swoosh brand. Generally, characteristics of related diversification strategy call for the acquired investment to have some relationship to the existing business which is similar to what is happening at Nike.

Reference:

Marca, T., L. (2001). How to Think Like the World’s Greatest Marketing Minds. New York: McGraw-Hill. Pp. 26-34

Nike Vertical Integration Strategies

Nike uses vertical integration strategy which is a form of a relationship oriented approach in coming up with effective and efficient ways of managing its supply chain. This is achieved through forming alliances and relationships rather than using pricing strategy with an aim of purchasing stuff as cheap as possible (Frisch, 2008). The company has managed to maintain its relationship with contract manufacturers for its foot-ware by having different types of suppliers. The strategy is used in pricing its commodities where they have participants at different channel levels so that they could control costs and influence practices of pricing. For example, there are tier 1 suppliers and tier 2 suppliers where the former are firms with a stronger relationship with Nike who act as more of a strategic alliance than having a pure contractual relationship with Nike. Tier 2 suppliers are associated with pricing and may be managed by tier 1 firms or more closely related firms.

Reference:

Frisch, A. (2008). The Story of Nike. Minnesota: Creative Education. Pp. 1-46.

Tacit Collusion: Cooperation to Reduce Competition

Nike, one of the oligopolistic firms in the sports-wear industry has managed to conspire with Adidas to reduce the risks attached to competition more so in price competition. The company arrived at this common policy with Adidas without formal agreement to control prices in trainers (Duane et al. 2008). This agreement has ensured that when Nike raises or lowers prices of its merchandise other players in the industry will follow hence showing an evidence of the company being a price leader in Trainers. Tacit collusion is illegal in most countries but in counties like UK, Nike employs it so as to: get around the normal supply and demand of commodities, not to engage in price cutting, and not to engage in excess advertisement or other forms of competition.

Reference:

Duane, R., I., Hoskisson, R., E. & Hitt, A., M. (2008). Understanding Business Strategy: Concepts and Cases. Ohio: Cengage Learning. Pp. 173-176

Flexibility: Real Option Analysis under Risk and Uncertainty

Nike has gained manufacturing flexibility through outsourcing strategy which is also referred to ‘Real Option Analysis.’ The reasons for outsourcing its operations are to achieve larger out-put, incur less labour costs, and gain more control in the manufacturing process (Hill & Jones, 2010). Therefore, the strategy has enabled the company to be more flexible and willing to implement changes in design specifications on request from dealers. Nike implements real option analysis through subcontracting of merchandise manufacturing from cheaper sources, sourcing innovations from external design houses, and licensing of Nike’s clothing to other firms. A consequence of the strategy is that Nike has a low cost manufacturing base that is coupled with a wide distribution network hence control of risk and uncertainty. The cheap sources where the company obtains its supplies are in Asian countries such as Thailand, Japan, and China all having low labour costs.

Reference:

Hill, C. & Jones, G. (2010). Strategic Management Theory: An Integrated Approach. Ohio: Cengage Learning. Pp. 200-203

Nike's Differentiation Strategy

Differentiation strategy by Nike is used to gain market share advantage in the broad foot ware market. Aside from foot wear, the company boasts of products such as clothing, equipment, and even accessories. The strategy is achieved by producing consumer goods and services that customers perceive to be of high quality or have added unique features. This has been achieved by the company innovating state of the art athletic shoes that are publicized through dramatic “guerrilla” marketing (Marca, 2001). Marketing of the different products is designed to coerce customers that Nike’s shoes are not only superior but also a high fashion statement which is a necessary part of a lifestyle based on athletic or sporting interests. The company has also differentiated itself by using highflyers that are best used in distinguishing sporting disciplines hence enabling the company reach its target market, for instance, the Brazilian national soccer team or even Michael Jordan.

Reference:

Marca, T., L. (2001). How to Think Like the World’s Greatest Marketing Minds. New York: McGraw-Hill. Pp. 26-34