NIKE BUSINESS STRATEGY
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6. Five Forces in the Sportswear Market
Nike is an international company producing sports based apparel. Its origins date back to 1964 when it was initially a distributor for a Japanese sports shoe manufacturer but soon became profitable in its own right, opening its own store in 1966, in California. By 1971, Nike had parted company with the original distributor and began to produce its own range of footwear. The first range of shoes was launched in 1972 and Nike, named after the Greek goddess for victory was established.
The company grew quickly and by 1980 it had 50% of the US market in sports shoes. Interestingly, the company did very little in the way of media advertising, with the first ever television advertising running in 1982. In 1988, Nike began to acquire additional subsidiaries with Cole Haan and by 2008 a further three brands have been acquired making Nike one of the fastest growing companies of the late 20th century (Ramaswamy, 2008)[1].
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One of the most notable and recent acquisitions was that of Umbro, extending Nike’s reach of the sports apparel market including jerseys, T-shirts and sports kit such as tennis rackets. As well as maintaining a wide range of products, the company has also been at the forefront of design, bringing in the latest in footwear technology, namely the Air Zoom Yorker, which is a shoe weighing 30% less than competitors’ shoes.
The basic strategy employed by Nike is one of branding and premium positioning in terms of quality and design. Early advertising was very specialist relying almost entirely on the track and field publication, with the focus being on the benefits of quality running shoes. Branding was premium from the beginning with the relationship that it developed with the Wieden and Kennedy advertising company. In 1982, the first television advert was aired during the New York Marathon. Tag lines such as ‘there is no finish line’ were used and Nike won advertiser of the year at the Cannes festival. This development of a premium brand has been the central strategy for Nike and all of its acquisitions have been done with enhancing the brand image of Nike in mind.
As well as a strong advertising approach, Nike has used premium sponsorship carefully to enhance the branding of Nike. Well recognised sports individuals such as Serena Williams and Tiger Woods further enhanced their brand image, publicly. Being recognised as a world expert of design and sports apparel has been the central basic strategy for Nike and has proved to be very successful both in design and retail, expanding its scope both in terms of geographic location and type of product (Brown & Eisenhardt, 1998)[2].
In line with this basic strategy, Nike has grown quickly yet organically since the 1960s. Acquisitions and expansions have been well thought out yet have also been allowed to develop at their own speed and in line with the premium branding approach. Any damage to the branding would be disastrous for the company; therefore, expansions have been undertaken with dynamism and caution in equal proportions.
One of the ways that this has been achieved is to have key individuals in critical roles within Nike and the subsidiaries. For example, Lee Bird was hired as president of the subsidiaries who had the express role of managing the subsidiaries in a way that encouraged long term growth. Nike has a strategy of growing in a way that is responsible and ensures long term financial growth. Doing business responsibly has been at the cornerstone of Nike’s growth strategy. In order to maintain this mission statement, Nike has ensured that it has maintained socially responsible policies throughout its growth. Prior to any acquisition or growth, Nike had ensured that the acquisition was in line with its socially responsible approach, once again recognising that any damage to the brand name could be seriously detrimental. Recent difficulties have been encountered by Nike in relation to the working practices of its suppliers and, as such, a much greater degree of control has been taken by Nike headquarters in the US to ensure that all working practices are ethical and sustainable in the long term.
The chosen corporate strategy for Nike is likely to be based on its own internal strengths and weaknesses in relation to its external opportunities and threats facing the organisation.
In terms of internal strengths, the main thing that Nike has in its favour is its singular and well recognised brand. When it acquires a new subsidiary, it insists on its own brand being used. Its product range is extensive and innovative and multiple celebrity endorsement has proved to be a considerable internal strength for Nike and one that has been exploited to the maximum in gathering additional market share.
Its weaknesses are, however, linked to its strengths. Having a single, strong brand is a notable strength but it is also possibly a weakness. Nike’s entire success relies on the success of the one brand and any damage to the brand is something that could have a seriously detrimental effect on the company. Nike has very few shops of its own and, therefore, relies on retailers more heavily than would be considered ideal[3].
Opportunities-wise, Nike has the potential to exploit technology through the medium of e-commerce. New product lines particularly ones with a high level of innovation have become central to Nike’s strategy and present considerable opportunity for growth. There are also untapped markets for Nike to consider entering, in developing countries that are able to spend more money than was previously possible.
Threats are constantly present in the sports market. Competitors such as Adidas are regularly entering the market or gaining new market shares. Nike places a great deal of emphasis on its one brand and any damage to this brand is critical. Recently, that has come under fire with the revelation that some suppliers were using less than suitable suppliers. It was revealed that certain suppliers were using child labour as a way of keeping costs down. Whilst Nike managed to recover from this by acting swiftly to remove such suppliers, this offered competitors opportunities to gain market share from the company, during this time of crisis.
Looking at the political, economic, social, technological, legal and environmental factors surrounding Nike will allow the choice of business strategy to be seen much more clearly.
Politically, Nike has some interesting issues to contend with. Supply chains and the efficiency of these chains has been critical to Nike’s ability to serve customers’ needs. Political issues such as strikes on a national or local scale can cause havoc to Nike’s supply chain. Any form of political unrest, particularly in the country of production can be a huge potential threat (Collis & Montgomery, 2005)[4].
Economically, Nike faces considerable challenges. Market penetration is high in certain countries and Nike needs to look to expand into new markets, although this is proving difficult in Europe due to entry barriers. Any drop in general consumer confidence has reduced spending across all sectors and premium sports brands have suffered as a consequence.
Socially, Nike has a strong market position with a high level of brand consciousness. The market is becoming increasingly female and this has been noted by Nike by increasing its product line to reflect this. Consumers are becoming more brand conscious and this has been the central strategy for Nike for some years; it is now cashing in on this brand positioning with strong corporate social responsibility policies (Werther & Chandler, 2006)[5].
Nike has technological excellence which has allowed it to be at the forefront of design technology. Bringing in new innovative products ahead of the competition has secured Nike’s market position, even through difficult economic times.
Legally, Nike has suffered some difficulties particularly in relation to employees and their relationship with the company. In particular, the under-age workforce has been active in pursuing legal actions against the companies. Trade agreements on an international level are vitally important to Nike and their management will be central to the overall success of Nike. Any break down in the legal enforceability of this agreement could be incredibly damaging and need to be monitored carefully.
Environmentally, Nike has had an interesting background. Climate issues and sustainability have been central to the organisation’s strategy. Nike places a great emphasis on corporate responsibility and this has shown in its green approach to the strategy (Human Resource Management International Digest, 2005)[6].
Porter’s Five Forces have been critical when it comes to the business strategy followed by Nike. The five forces look at the barriers to entry in the market, the extent of rivalry that exists in the market, the relative power of suppliers and the relative power that buyers have. The threat of substitutes is also important to determining where the company is positioned in the market and what strategy is most suitable (Crain & Abraham, 2008)[7].
The sports apparel market is gaining considerable attention from new entrants to the market, particularly from cheaper copies from the Far East and from other companies expanding their product range. Nike needs to ensure that it maintains its premium branding position in the market, as this will reduce the risk that it is negatively impacted by inferior, yet cheaper new entrants.
The buyers of Nike products are becoming increasingly discerning in their approach. Purchasing power for buyers is increasing and, as such, Nike has to ensure that it has value added services encouraging buyers to remain with the brand and not to be swayed by new entrants. Innovation and design is, therefore, critically important (Firestein, 2006)[8].
Substitutes do present a limited threat to Nike’s position. Whilst professional equipment and sports shoes are not readily substituted, fashion items are and this area of Nike’s market is, therefore, potentially threatened by substitutes. For this reason, Nike rightly takes a strategy of ensuring that it remains at the forefront of design technology when it comes to sports equipment fending off any potential substitutes.
Suppliers for Nike have been largely focussed in the Far East; whilst this has offered considerable economies of scale and cheaper supplies for Nike, it has also been the source of controversy, eroding some of the brand’s image.
Competition is also fierce from Reebok and Adidas, although neither has managed to corner the brand reputation that Nike has achieved (Ma, 1999)[9].
It is clear to see that Nike’s strength relies almost exclusively in the top brand quality and reputation that it has achieved, over the years. This has enabled it to maintain a competitive advantage over new entrants and substitutes alike.
Nike has a strong business strategy, centred on quality and premium branding. Top design ability and high quality products have been the central factor to Nike’s success. Rapid growth through careful acquisitions has enabled Nike to achieve considerable market penetration across developed countries. The new challenge facing Nike is to maintain this position, despite recent bad publicity relating to its suppliers. It has dealt with this by ensuring that the supplier relationships are more closely managed. Nike is still the premium brand in sports apparel and has maintained this by being at the cutting edge of design technology, particularly in relation to sports shoes.
Careful management and a determined strategy has ensured Nike’s continued success within the sports apparel market, something that substitutes and rivals have, so far, failed to achieve.
Brown, S.L. & Eisenhardt, K.M., 1998. Competing on the Edge: Strategy as Structured Chaos. Harvard Business Press.
Collis, D.J. & Montgomery, C.A., 2005. Corporate Strategy: A Resource-based Approach. McGraw Hill Professional.
Crain, D.W. & Abraham, S., 2008. Using value-chain analysis to discover customers’ strategic needs. Strategy & Leadership, 36 (4).
Firestein, P.J., 2006. Building and protecting corporate reputation. Strategy & Leadership, 34 (4).
Hoffman, A.J., 2000. Competitive Environmental Strategy: A Guide to the Changing Business Landscape. Island Press.
Human Resource Management International Digest, 2005. Nike, IKEA and IBM’s outsourcing and business strategies: Profits and perils. Human Resource Management International Digest, 13 (3).
Ma, H., 1999. Creation and preemption for competitive advantage. Management Decision, 37 (30).
Ramaswamy, V., 2008. Co-creating value through customers’ experiences: the Nike case Strategy & Leadership, 36 (5).
Werther, W.B. & Chandler, D., 2006. Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. SAGE.
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Footnotes
[1] Ramaswamy, V., 2008. Co-creating value through customers’ experiences: the Nike case Strategy & Leadership, 36 (5).
[2] Brown, S.L. & Eisenhardt, K.M., 1998. Competing on the Edge: Strategy as Structured Chaos. Harvard Business Press
[3] Hoffman, A.J., 2000. Competitive Environmental Strategy: A Guide to the Changing Business Landscape. Island Press
[4] Collis, D.J. & Montgomery, C.A., 2005. Corporate Strategy: A Resource-based Approach. McGraw Hill Professional
[5] Werther, W.B. & Chandler, D., 2006. Strategic Corporate Social Responsibility: Stakeholders in a Global Environment. SAGE.
[6] Human Resource Management International Digest, 2005. Nike, IKEA and IBM’s outsourcing and business strategies: Profits and perils. Human Resource Management International Digest, 13 (3).
[7] Crain, D.W. & Abraham, S., 2008. Using value-chain analysis to discover customers’ strategic needs. Strategy & Leadership, 36 (4).
[8] Firestein, P.J., 2006. Building and protecting corporate reputation. Strategy & Leadership, 34 (4)
[9] Ma, H., 1999. Creation and preemption for competitive advantage. Management Decision, 37 (30).
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