Headquarters of Nike is located in Beaverton, Oregon within the Portland metropolitan area. This corporation established in 1964 as Blue Ribbon Sports (BRS) by Bill Bowerman and Phil Knight.
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Several years later, in 1978 the company transformed its business name to Nike, Inc. This name comes from Greek language; it belongs to ancient Greek goddess of victory. The company was initially established as an importer of Japanese shoes.
Eventually, it has expanded into the leading global marketer of footwear with a world market share of about 37%. The company has about 22,000 retail stores spread throughout the United States where it sells its merchandise. The company markets its goods under its brands Plus, Nike Golf, and Nike Pro.
The company has a number of well-known subsidiaries such as the Converse and Umbro. Nike’s major business endeavor is the designing, development, and global marketing of high-quality footwear, equipment, apparel, together with accessory products.
Nike is the giant distributor of athletic footwear and athletic apparel all over the globe. The company is spread in one hundred and eight countries where it markets its finished goods.
Virtually, independent contractors manufacture all the goods or products belonging to Nike, Inc. Almost all the apparel and footwear products are produced outside the United States of America.
This paper focuses on the kind of market structure that Nike, Inc. belongs to, the price elasticity of its demands, the price elasticity of its products, the company’s closest competitors, the substitutes or subsidiaries of Nike, Inc. products, the growth in the demand for its products, the company’s labor force, level of profitability, and how Nike, Inc. can improve its profitability.
Nike, Inc. Market structure
Every corporation operates under a particular market structure. There are various kinds of market structures. They include monopoly, oligopoly, and duopoly market structures. This segment explores the type of market structure Nike, Inc. belongs to.
To commence with, Nike, Inc. is a classic case of an oligopolistic market.
This kind of market structure has a few suppliers who dominate it. The small number of the leading firms accounts for the greater percentage of the market share. Under this kind of arrangement, there is an extremely increased level of market concentration.
Going by the established economic dogmas and precepts, the top five companies usually account for about 60% of all the sales within an oligopolistic market organization.
In the world’s market for sports apparel, Adidas, and Nike, Inc. hold 60% of the market share. Lately, the athletic footwear and garment industry have become more consolidated. As a result, the leading competitors of Nike, Inc. namely, Adidas and Reebok merged in 2006.
This merger increased the market share of the two firms since both companies had a significant proportion of the apparel industry as well as the athletic footwear. As a single corporation working under the management of Adidas, its total market share is that of both Adidas and Reebok.
Nike, Inc. on its part has also engaged in consolidation. For this reason, it can be noted that acquisitions and mergers are evident and familiar in oligopolistic markets.
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Another essential feature of the oligopoly market structure is product differentiation which is also responsible for the strength of Nike in this market. Nike, Inc. engages in the sales of footwear for different kinds of sport.
Apart from the athletics shoes, Nike, Inc. engages in the distribution and selling of the sportswear alongside athletic bags and accessory items. The company also sells performance equipment that includes balls, bats, as well as eyewear.
Nike, Inc. has a broad range of goods that can only be compared with those of other few companies in this oligopolistic market structure such as Adidas, Puma, and Timberland.
Companies working under the oligopolistic market arrangement attain and keep market control by the use of the general barriers to access. The obvious restrictions in this regard are the copyrights, patents, product technology, as well as the identity of the brand.
All of these are clearly demonstrated by Nike, Inc. The company has about 3000 patents, including the conspicuous air-sole cushion technology. In addition, the Nike, Inc. has a special certificate to produce and sell footwear for the use of its copyright air technology.
All these arrangements of patent thoroughly limit any competition from startups or other small-scale corporations, due to the limitations placed on the goods they can manufacture or sell.
Another landmark characteristic of the companies operating under the oligopoly market structure is that there is no price competition. The only competition in this sphere of business lies in the brand identity. The brand of Nike, Inc. has a strong reputation and global recognition.
The company has its trademark swoosh logo together with its most famous slogan ’Just Do It’ that are closely linked to the enterprise. In order to maximize popularization of its products and make advertising more efficient Nike invites celebrities such as Michael Jordan, Serena Williams as well as Tiger Woods to promote the brand.
The company’s market structure makes its goods accessible and available to all groups of consumers. This strategy is imperative for giving the company an upper hand over the competitors. The company ensures that the goods are available at all its stores worldwide and checks on the change of the customers’ demands.
Product and price elasticity demand of Nike’s products
This segment exclusively deals with the elasticity of Nike’s products. The demand for the products manufactured by Nike is inelastic. The demand for a given product is very sensitive to the variations in price, subject to its volume or quantity.
This way, if an enormous change in the rate is accompanied by an insignificant amount of change in volume of demand, the product is described to have inelastic demand.
The demand of a given commodity is described as elastic when there is a small variance in price of a particular good resulting in a big change in the demand. It is a common practice for businesses to assign higher prices for products characterized as inelastic.
Availability of alternate goods, income levels and time are some of the factors that impact the elasticity of a particular product. The availability of substitute products is directly proportional to the elasticity of the particular product. The goods produced by Nike, Inc. are mostly marketed via companies within their contract.
Another advantageous strategy is the clients’ ability to choose to either go or purchase from the company directly or from other partnered organizations with the similar product brand. If the customers chose to buy the products through the specific retail stores, the prices will remain high or be heightened notwithstanding the rates of demand.
The demand for the goods manufactured by Nike is price inelastic.
Nike’s business is extremely profitable today. Investing in Nike footwear makes a lot of sense since the shoe industry is quickly expanding as the years pass by.
The shoes associated with Nike have been valued a little or more half of the initial price in annualized return. Nike, Inc. maintains its stock synthetically little in order to build up the shoe release. The longer the shoes are preserved in good condition the higher their value becomes.
The increase in the hype is directly proportional to the increase in demand. This automatically increases the value of the product.
The revenues of Nike have been gradually increasing over the last 15 years. Over the period between 2001 and 2014 the revenue of Nike tripled having grown from 10 billion dollars to nearly 30 (Nike Inc. Cl B par. 1).
The company’s net income also demonstrates significant progress growing from 1.91 billion dollars in 2010 to 2.69 in 2014.
Today, Nike is an extremely strong competitor that is able to sustain it profitability due to such factors as excellent reputation, high level of brand awareness, skillful and heavy promotion of the products, wide range of offered goods, international brand recognition, good quality of products, and high frequency of innovation.
Besides, Nike remains connected in the globalizing world as its leaders know that communication with the consumers is the key to success and brand sensitivity improvement.
Income elasticity of Nike, Inc. products
In economic terms, the income elasticity of demand quantifies the responsiveness of the application for a product to a variance in the income of the individuals placing demands on the product, holding other factors constant.
In summary, the income elasticity of demand measures the rate of response of quantity demand due to either an increase or decrease in the income of the consumer.
Nike, Inc. experiences income elasticity in the areas where the company operates low income hence reduced demand for its products. Since the business is more attractive compared to other players in the field, it suffers price elasticity of its products as this depends on the level of income of the consumers (Lim 110).
It is logical that one’s purchasing power is subject to their level of income. In summary, income elasticity of demand is denoted as IEoD. Therefore, IEoD =% change in quantity demanded/ % change in income.
Competitors of Nike, Inc. and substitute/complementary goods
The major competitors of Nike, Inc. are Reebok, Puma, and Adidas, who also want to promulgate themselves as the global fittest company. This way, they are presenting a very tough competition to the Nike Corporation. The company is spending many financial resources in its marketing tactic.
On the other hand, Adidas centers on marketing its goods spending a lot of revenue for advertising, promotion and the development of brand awareness.
Furthermore, Puma majorly has women as well as female dominated spheres as their primary targets. They realize the demand of the consumers based on the acuity of the image of the clientele rather than their requirements.
Furthermore, Puma aims at the middle-upper class group via their advertisement, and this is plainly reflected in their marketing stratagem. The substitute good for Nike is Adidas. These products are horizontally integrated.
Nike as a company opts to increase the price of Adidas footwear. If the cost of Adidas footwear increases, then it therefore follows that there would be a decline in the demand for the Adidas shoes and the demand of Nike’s footwear will raise (Characteristics of an Oligopoly Industry par. 5).
Such connection in the brand dynamics is rather typical for the businesses opertaing within oligopoly industry. Since oligopoly is characterised by a relatively small number of competitor, it is known for tighter connection between them (Characteristics of an Oligopoly Industry par. 1).
Price policies within oligopoly are intertwined. For example, competing in the sports footwear market which target similar groups of customers will try to coordinate their pricing strategies. Basically, the prices for their goods of similar kinds will be very close in range.
Besides, as soon as one of the competitors lowers their price, the other one will immediatelly do the same.
This happens because lowering a price the competitor automatically gains advantage and starts to attract more customers, so to remain in demand all of the competitors need to monitor each other’s prcing strategies and respond quickly. The business that ignores the lowering prices in the competitor’s stores will be likely to lose revenue.
At the same time, the same dynamics does not occur when one of the oligopoly competitors increases their price. On the contrary, the businesses use the competitor’s price increments in order to raise their own sales and promote themselves as more available brands.
Growth in the demand of Nike, Inc. products
This segment deal revolves around establishing whether the demand for Nike, Inc. products is on the rise or rather dwindling. Judging from the report considering the revenues and net income of Nike and its significant growth observed over the last ten years, one may note that the demand for their product has been increasing.
This happens due to the growing popularity of sporting events. For generations the occurrence of any major sporting event has been causing global concern. The examples of such events are the FIFA World Cup, Olympic Games, world marathons, races among others. All of these tournaments have sparked off the demand for Nike products.
The World Cup in soccer that was held in Brazil in 2014 has increased the demand for Nike’s gear as well as clothing. Between the months of March and July, the demand for sportswear produced by Nike increased by 12 percent which is about $11 million.
In Western Europe, where the FIFA World Cup has its optimum popularity, the company realized about 33% of the aforementioned $ 11 million.
Despite this growing demand in the products of Nike, Inc. in the United States and Europe, the company is suffering low demand in China. The strong US dollar is affecting overseas market negatively when they change their domestic income into the currency of the United States.
Despite the few challenges experienced by Nike, Inc., the demand for its products is increasing due to the strong foundation established by the company in terms of product quality, brand awareness, and overall business reputation.
The company rides on this popularity and so do the incentives it enjoys operating under the oligopolistic market intending to increase the demand for its products worldwide and across all the continents (Lim 120).
Labor training to increase productivity and reduce production cost
Nike is not a monopoly. The company operates in oligopolistic market structures in which there are other able and worthy competitors. For this reason, the company must always do its best to train their human resources and labor force to keep up with the competitors or even outdo them.
Nike ought to undertake its staff through further training to be able to improve their creativity and innovation and be able to operate the new technologies.
This will help in the further improvement of their product quality and make positive impact on the corporation’s profit, helping it to be ahead of its worthy competitors such as Adidas and Puma, who are working hard to outdo Nike. This can be inferred from the market strategy employed by these competing companies (Locke 75).
The training of human resources ought to be a continuous process. This will help the employees of Nike to update their skills in keeping with the current technological advancements. Such training has the great potential of ensuring and sustaining the competence, innovation, and creativity of the employees.
This will eventually improve the quality of the products. As a business operating within an oligopolistic industry, Nike needs to focus on innovation in order to enhance its profits.
The profitability of Nike, Inc
Just like any other business entity, Nike wants to maximize its financial gains. To achieve this end, the company is engaging in characters associated with an oligopoly.
The latest occurrence in the microchip technology would make microchips less expensive to manufacture and this would permit Nike to use this technology with the absolute efficacy of its products.
This will mean a decrease in the production costs incurred by Nike translating into an increase in the supply of the products using the microchip technology. Currently, Nike is enjoying a profitable business venture.
Nevertheless, there are an increasing number of the suppliers of shoes, and this would significantly reduce the market share of Nike meaning reduced sells. The only way the company can cause growth in its profits is to improve the quality of its products and maximize the use of microchip technology as well.
The company should try left, right and center increase and expand the skills of its human resource. This can be achieved through sponsoring the employees’ special training, as this will increase their productivity as well as the quality of the goods.
This will translate into increased market demand, meaning greater financial gains.
The factors that serve as opportunities for Nike’s profit growth include the development of fashion oriented products, addition of new items such as jewelry and sunglasses, as a global corporation Nike should rely on the expansion to the emerging markets with large customer potential, for example India (Friesner par. 7).
This paper focuses on the market structure Nike, Inc. belongs to, the price elasticity of its demands, the price elasticity of its products, the company’s closest competitors, the substitutes or subsidiaries of Nike, Inc. products, the growth in the demand for its products, the company’s labor force, the company’s level of profitability and finally how Nike, Inc. can improve its profitability.
The company is operating under the oligopoly market structure. It has close competitors such as Puma, Adidas, and Armour among others. Its products are enjoying high demand due to their quality and proper marketing strategy employed by the company’s management.
Nike has the possibility of increasing its profit margin in a number of ways. The company ought to maximize on the microchip technology in its production, focus on training human resources, obtain new technologies, look for ways of addition of new items and expanding their market.
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Lim, Suk-Jun, and Joe Phillips. “Embedding CSR Values: The Global Footwear Industry’s Evolving Governance Structure.” Journal of Business Ethics 81.1 (2008): 143-156.
Nike Inc. Cl B. MarketWatch. 2015. Web.