Companies need to develop their product lines in synergy in order to create effective operations. Strategic fit helps organizations utilize their resources and capabilities in accordance with the conditions of the external environment (Gamble et al., 2020). Nike has various divisions that target different markets and audiences. However, separate product lines exist in synergy in order to maintain the balance of revenue streams. Footwear and apparel divisions are two diverse product lines that have different levels of demand among customers. Those units create a strategic fit in terms of financial support. Footwear generates the most revenue for the company, which helps to maintain the development and production of apparel (Investor news detail, 2022). Additionally, those divisions have different shares in various markets, which helps Nike to satisfy the needs of regional customers. Finally, footwear is the main marketing focus of the company, which allows the company to attract attention to other products as supplemental.
Companies need to diversify their product lines in order to gain larger market shares. Nike has several units which generate different amounts of revenue for the company. Nike’s marketing division can be considered a cash hog. This unit serves to create advertisements in order to promote the company’s primary products and does not generate its own revenue. In recent years, expenses related to advertising and marketing have been rising proportionally to market and production expansion (Nike, 2022). Therefore, the marketing division requires investments from the company in order to make money from its main product. The footwear, apparel, and equipment selling division can be considered Nike’s cash cow. This unit generates the main streams of revenue for the company (Nike, 2022). In particular, Nike gets the largest profit from selling its footwear (Investor news detail, 2022). Apparel and equipment play a supporting role as customers choose them less frequently (Investor news detail, 2022). However, investments in the marketing division help the company to promote its cash cow and draw revenue from it.
The Pandemic has changed the operations of many companies, forcing them to focus on digitalization and remote communication with customers. For example, Spotify diversified its activities, adding to also streaming original content creation (Guillén, 2020). This allowed the company to overcome the crisis that occurred due to the drop in the demand for advertisement, which constituted the major part of its revenue (Guillén, 2020). The decision helped the company to add extra value to its product and gain a competitive advantage. For the expansion through diversification, Nike would try to set its own mix of education and entertainment content. Although the company already has its own platform with various workout tutorials that people can use at home, the company may develop a broader niche. Nike would create its own podcast attracting athletes who can talk about professional sports, workouts, lifestyle, etc. This can help attract not only people who do sports but a wider audience. Additionally, the strategy could help the company to become an influencer with its own style.
Diversification requires additional resources and capabilities, which sometimes can damage the overall success. Therefore, managers need to be aware of possible risks associated with the strategy. Over-diversification can be the result of poor strategic decisions and lead to lower-than-expected profits. In order to be successful, diversification should target the core audience of the company, as it is difficult to enter a completely new market. Additionally, diversification should be based on the already existing product lines and activities so that the company can limit its expenses. For example, in 1980, Colgate decided to diversify its products by launching frozen lasagna (Lowin, 2017). However, the strategy failed quickly due to a lack of demand and high investment in development and production (Lowin, 2017). The company targeted the market, which already has several major players, which made the entrance extremely difficult. This instance illustrates that the company should expand related areas that complement the main product lines.
References
Gamble, J., Thompson, A., & Peteraf, M. (2020). Essentials of strategic management: The quest for competitive advantage. McGraw-Hill.
Guillén, M. G. (2020). How businesses have successfully pivoted during the pandemic. Harvard Business Review. Web.
Investor news details. (2022). Nike. Web.
Lowin, R. (2017). Did you ever wonder what happened to Colgate lasagna? Food & Wine. Web.
Nike. (2022). Form 10-K. Nike. Web.