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NIKE Inc.: Supply and Demand Research Paper


Abstract

Based on financial reports from NIKE Inc., it is estimated that the company’s supply and demand have been growing. Various indicators of financial performance are shown to confirm the growth. The company’s products are considered to be inelastic due to the weak connection between changes in price and changes in demand. The recommendation suggested to ensure further development of NIKE Inc. is to primarily maintain its cult status and popularity, which are the reasons for its inelastic demand.

Supply and Demand Conditions

The market demand for any given product or service of a company is a complex notion. It is not merely the number of products or services purchased over a certain period of time, but rather it is a combination of factors and results of commercial activities used to assess the company’s development and propose recommendations for future actions. One of the ways to evaluate market demand is to examine several key indicators from the company’s financial performance reports (Edler, Georghiou, Blind, & Uyarra, 2012). These indicators include the company’s income, the prices of relevant products and services, the current trends in customer taste and behavioral patterns, demographic information on the company’s target audiences and customers, and financial predictions (e.g., expected prices). These key indicators for NIKE Inc. (NIKE Inc., 2016; Annual Financials for NIKE Inc., 2016) are shown in Table 1.

Table 1. Key financial performance indicators for demand evaluation.

Indicator Year
2016 2015 2014 2013 2012
Revenue (in millions USD) 32,376 30,601 27,799 25,313 23,331
Net income (in millions USD) 3,760 3,273 2,693 2,472 2,211
Price/Earning ratio 25.6 27.5 25.9 22.8 23.0
Demand creation expense (in millions USD) 3,278 3,213 3,031
Cost of goods sold (in millions USD) 17,990 16,750 15,340 14,410 13,620
Gross margin (in percent) 46.2 46.0 44.8 43.6 43.5

In 2016, NIKE Inc. once again confirmed itself to be the world’s largest sportswear manufacturer, and the company demonstrated better financial performance results than had been predicted. According to the company’s financial statements, the “orders scheduled for delivery” indicator, also referred to as the future orders indicator, grew by 11 percent (NIKE Inc., 2016). A 16-percent increase in profits is also explained by rising demand. The supply of the company is estimated to be sufficient for the existing level of demand.

NIKE Inc. has been consistent in its position that the company’s growth is due to its strong connection to consumers. Around 2010, the company’s supply and demand were challenging to analyze due to a difficult economic situation in which both indicators were finding a new normal. In 2012, the company’s revenues and inventory supply were both down. The company even reduced their supply, reflecting an actual or expected drop in demand. This supply reduction was almost 13 percent. However, as the economic situation improved, NIKE Inc. returned to upward trends in supply and demand, which shows that the temporary complications were largely due to market factors, not the company’s operations, strategy, or governance.

Price Elasticity of Demand

Price elasticity of demand is an indicator measured by comparing changes in the demand for certain products or services (expressed in quantities purchased) with corresponding changes in the prices of those products and services. The indicator is calculated by dividing the percent change in demanded quantities by the percent change in price. Based on these calculations, demand is then deemed either elastic or inelastic. This measurement is necessary for management to make decisions concerning whether or not to raise the price of products or services that are in demand. Depending on the estimated elasticity, the increase in profit can be calculated. In cases of high elasticity, increasing the price of the product or service is risky because the business’s profit may decrease as a result (Edler et al., 2012). The reason is that high elasticity signifies that there are substitutes readily available for the product or service, which consumers will purchase instead of the company’s product or service in case the price is raised.

Due to the specific area of operation of NIKE Inc., which is the narrow sportswear market, the demand for the company’s product can be estimated as rather inelastic. As a result, NIKE Inc. is unlikely to gain many more customers by reducing its prices.

Among all of NIKE Inc.’s products, the ones that are estimated to be particularly highly inelastic are the company’s shoes. NIKE shoes have gained a cult following, which is why they are in strong and constant demand. An important indication of this inelasticity is the fact that the prices and profits of some of the shoe collections by NIKE Inc. have increased over the past two decades, while the costs of the company have stayed relatively the same. This is explained by the uniqueness of the products, their cult status, and the domination of particular goods, such as Air Jordan shoes, in the market. When the company’s original basketball footwear was presented to the market in 1985, its retail price was 65 USD, making them the most expensive basketball shoes available. As shown in the financial performance reports, the product’s popularity has constantly grown over the years (NIKE Inc., 2016). Based on the inelasticity of its products, the main recommendation that can be proposed to NIKE Inc. is to strengthen its popularity among target and non-target consumers for the purpose of maintaining the upward dynamics of its demand and supply.

References

(2016). Web.

Edler, J., Georghiou, L., Blind, K., & Uyarra, E. (2012). Evaluating the demand side: New challenges for evaluation. Research Evaluation, 21(1), 33-47.

(2016). Web.

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IvyPanda. (2020, September 8). NIKE Inc.: Supply and Demand. Retrieved from https://ivypanda.com/essays/nike-inc-supply-and-demand/

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IvyPanda. "NIKE Inc.: Supply and Demand." September 8, 2020. https://ivypanda.com/essays/nike-inc-supply-and-demand/.

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IvyPanda. 2020. "NIKE Inc.: Supply and Demand." September 8, 2020. https://ivypanda.com/essays/nike-inc-supply-and-demand/.

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IvyPanda. (2020) 'NIKE Inc.: Supply and Demand'. 8 September.

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