Introduction
Nike is the biggest sports apparel brand and company in the world, reaching unprecedented popularity and profitability in recent years. Nike reported net revenue of $39.1 billion in the fiscal year 2019. It also holds a 27.4% market share in the athletic footwear segment, which is its main product, as well as significant shares in sportswear, being ahead of all competitors in every space (Nike, 2019). Nike’s success has come largely due to its active, creative, and targeted marketing strategy that has taken advantage of the industry’s trends and the company’s own positioning.
External Analysis
PESTLE Analysis
External industry analysis demonstrates that Nike is facing largely the same influences and challenges of major international corporations. Due to its global presence and stretched-out supply and production chains, it relies heavily on international trade and regulations, forces that may impact this mechanism such as trade, treaties, currency rates, and even weather. It must abide by local regulations, such as financial and tax laws in the United States where it is based and manufacturing laws in its production countries. Legal elements apply to individual country approaches regarding labor and intellectual property. As a company reliant on retail sales for profit, Nike is heavily dependent on economic conditions that stimulate consumer sales, particularly of premium products.
In economic downturns, consumers may choose cheaper alternatives from competitors. As a brand that is more than just apparel but embraces technology in its products and marketing, technological development plays an important role for Nike. It can improve the quality and performance of its products as well as enhance the manufacturing process through the use of new materials or techniques. It is possible that technology will allow to shift production towards more eco-friendly methods as it is a major concern for the company due to the economies of scale and impact it has on the environment.
Porter’s Five Forces
The Porter’s 5 Forces analysis presents an opportunity to examine the state of competition in the industry and can be used to reduce competitive pressure. The bargaining power of suppliers for Nike is weak. Nike utilizes suppliers in over 40 countries across hundreds of factories. Many of these are individual suppliers that are small and have no forward integration. Nike sets the order and standards and can easily switch to another supplier if necessary. Meanwhile, few suppliers are willing to lose lucrative contracts from Nike. Despite Nike being reliant on consumer retail sales, buyers have low to moderate force impact. Customers have low switching costs due to the availability of international and local competitors. However, the high quality of Nike products and brand name recognition socially is difficult to find, particularly from unique products that have no alternatives such as Air Jordans. Substitute threats are moderate for Nike. Lower-priced substitutes in athletic apparel are common due to the wide availability of some technologies while other brands such as ASICS offer high-performance sneakers that can compete with Nike in the hi-tech segment. There are almost no threats of new entrants to the market, not at the international level where Nike could be challenged. The industry is extremely competitive and barriers to entry are enormous from a cost standpoint. Most known brands have been established for decades, while newer ones are being acquired by larger companies. Overall, the level of competition in the industry is very strong due to major competitors and similar products offered by all brands. Nike holds a strong brand name power, but other brands are catching up and top competitors in the industry are rapidly targeting consumers.
Competitors
Nike has a wide range of products and competes into distinct segments of sports apparel, athletic footwear, and sports clothing and accessories. Nike relies on footwear for over half of its profits. In this segment, it goes against established footwear companies such as ASICS, New Balance, and Reebok, as well as similar multi-range sports apparel brands the likes of Adidas and Puma. In recent years, ASICS and Puma that specialize in running shoes have been directly challenging Nike in terms of technology and design, for a lower price at the same or better quality, also having unique offerings that match Nike’s Air Jordan or Converse brands. Meanwhile, New Balance is a premium segment shoe manufacturer that is also a popular choice and sponsor of numerous sports while offering innovative designs that challenge Nike (Russell, 2017). In athletic sportswear, Nike competes with brands such as Adidas which has a respectable market share and similar market capitalization, a close second to Nike in the world of professional sports attire and retail sales. Smaller but rapidly growing firms in the segment such as Puma and Under Armour are competing with Nike at similar quality and price points (Danziger, 2017).
Internal Analysis
SWOT Analysis
SWOT analysis is a technique that combines internal and external analysis to identify the internal strengths and weaknesses of an organization from the viewpoint of resources, management, and risks while highlighting external opportunities and threats (Heldman, 2018). The SWOT analysis as seen in Appendix A demonstrates a clear image of Nike’s strategic approaches in its business model. Nike emphasizes a global brand image that it builds around its range of products, with footwear being the major segment. It positions itself as a luxury brand with high quality of products and newest technologies, but that is also a weakness as the company relies on its footwear segment for profitability and ultimately depends on tight retail margins that can be volatile (Green, 2017). Economic disruptions, such as one currently going on in the world, represent a threat since supply chains are disrupted and retail sales have crashed.
High prices reduce the volume of sales as many customers are locked out by the entry and allow competitors to take advantage of these target markets, which is a major threat. Nike can take advantage of the opportunity to enter new target markets by making more affordable products, further diversifying its product offerings, and entering niche markets (Russell, 2019). Another context that SWOT highlights are the manufacturing process for Nike products. Nike uses outsourcing to independent contractors, usually in the Asia-Pacific region due to cheap labor which increases its profit margins. However, there have been numerous accusations of poor working conditions and use of forced labor by the contractors that Nike has largely ignored, this can be a significant threat to the company’s reputation, but also an opportunity if the company addresses these controversies (Nisen, 2013).
Internal Resources
The above VRIO analysis of Nike’s internal resources highlights the dominant position of the company which creates a competitive advantage. It is evident that in areas of brand equity and marketing, Nike holds a competitive advantage simply due to the massive scale of its marketing efforts and global brand recognition that few other brands in any sector will experience. However, some of its marketing efforts are imitable, which competitors can take advantage of. Nike also holds a competitive advantage in research and development and product innovation, producing highly technological athletic goods from advanced materials, as well as setting new trends in the industry constantly forcing competitors to catch up. The company holds the temporary or relative advantage in elements such as supply chain management and customer loyalty, which are in a strong state but are also utilized by competitors.
Strategic Marketing Activities
Target Market
As an active sportswear company, Nike targets younger demographics, starting from teenagers and up to 45 years old. Young athletes and stylish athletic wear are a key focus for the brand. Nike does not only offer performance apparel but numerous products in the sport-casual category, including its sub-brand Converse. Due to the company’s push into technology, digital sports, and e-commerce, many Nike marketing efforts are targeted towards the digital space that is appealing among the teen and young adult demographic. The company caters to athletes of both genders, with an emphasis on empowering women and young girls around the world as evident by its popular commercials and sponsorship of the Women’s FIFA World Cup. While approximately 20% of Nike’s revenue comes from women’s lines of clothing, the market segment is rapidly growing and expected to increase (Childs and Jin, 2018).
Nike often uses geographic segmentation of its target market, based on popular sports in the region. While North America may see more American football and basketball-focused marketing, Europe is targeted with soccer advertisements. Behavioral and psychographic segmentation is utilized in a precise manner to identify target individuals with specific lifestyles and personalities as the brand targets those who actively engage in sports as well as those who exercise recreationally. Nike utilizes some targeting of consumers based on race or religion in its advertisements, but not in a discriminatory manner, but rather inspiring and inclusive. However, the high prices of its products essentially target the medium class and higher, so income can be considered a targeting factor (Childs and Jin, 2018).
Marketing Mix – 4Ps
- Product – a wide range of products are available from Nike including footwear, equipment, apparel, and accessories. Footwear is the primary product offered by Nike as the company invests significant resources into the technology, design, and promotion of its shoes, particularly the luxury brands such as Nike Air Jordans.
- Pricing – Nike’s pricing strategy is that of a luxury or premium segment. Pricing strategy utilizes vertical integration where participants at differing channel levels take roles in operation to control cost. The premium approach allows Nike to use the value-based pricing approach with offering niche, high-quality products to a consumer who has the capability of purchasing them and continues to return. The high equity of the brand establishes a relationship with the consumers that are willing to pay more to receive high-quality products.
- Place/Distribution – Nike distributes its products primarily through retail through its own stores as well as numerous multi-brand and athletic sports worldwide. Nike sells in more than 200 countries and has manufacturing facilities globally as well. Nike continuously maintains distributor and licensing deals. Significant distribution of Nike products occurs online as the company pushes its direct-to-consumer digital sales, through Nike’s marketplace (NikeID) or similar multi-brand platforms.
- Promotion – the company uses a wide variety of effective communication mixes and strategies (discussed in the next section). It is a major strength of Nike as a company as it is has been able to adapt its marketing promotions well in accordance to social trends and geographic locations. Nike utilizes traditional and digital advertisements, social media participation, as well as a heavy emphasis on endorsements where famous athletes, teams, and celebrities support the Nike brand, driving brand awareness tremendously that convert directly into sales (Bhutto et al., 2016).
Marketing Strategy
Nike utilizes its marketing mix to target its key demographics in a similar manner that many companies do, through advertisement and connection. However, the company can do this better than most due to their long-running campaign of “Just Do It”, a slogan to their marketing material that is also the foundation to their success. Nike sells more than products, but an idea and aspirations, highly capitalizing on emotional branding. Few of their advertisements directly mention new products but focus on the narrative. Through this, in combination with smart utilization of traditional media, social media, and endorsements, Nike is appealing to consumers, leading people to discuss and believe in the brand. Furthermore, when highly respected athletes endorse or wear the brand, many want to mimic such actions, further emphasizing the status quo changing elements of the brand messaging (Golubeva, 2019). It has taken many decades for Nike to build this narrative and cultural zeitgeist impact of its brand, using nothing but a traditional marketing mix and offering high-quality products with a few unique signature elements.
Nike utilizes an integrated marketing communication strategy. Advertising is the primary method, intending to achieve the largest possible impact. Advertisement, particularly in the visual media, is used to form the attitude towards the brand through storytelling and positive emotional links. Social media is a leading IMC strategy for Nike which perceives itself as a modern and technological company. Nike has launched various social media projects where people share media of themselves posing or performing in Nike gear. Direct marketing is utilized in combination with advertisements and social media marketing to promote new products to target markets. Specific products are heavily advertised to target markets that would benefit from them for the biggest impact. Although rarely, Nike does hold promotions by offering consumers special offers on products to attract new customers and improve demand. Finally, Nike utilizes the sponsorship marketing strategy, being one of the main corporate sponsors in the world for both teams and individual stars (Mahdi et al., 2015). This approach usually contributes positively to the brand image and popularity which Nike closely monitors, viewing public relations as one of the essential elements of its marketing communications mix.
Conclusion
Nike is the largest company in the athletic apparel industry in the world, eclipsing competitors in both exposure and sales. Nike built a strong competitive advantage by capitalizing on its business model of outsourcing, distribution, and creating a relatively strong product portfolio, as well as utilizing a powerful marketing mix that involves sponsorship, endorsements, and emotional or social elements to its brand. As a brand, Nike represents innovation and persistence, seen in its founding and continuing in its growth not just as a sports apparel company, but as a company that realizes the importance of technology. At the same time, the company has invested significantly to formulate a brand mentality that supports resistance and differentiation from the status quo. It is controversial, but it is appealing, particularly to the younger generations that it seeks to appeal to. By creating the brand centered around “Just Do It,” an idea rather than a product or image, Nike resonated with everyone since all humans inherently strive for greatness and inspiration. Nike continuously uses its marketing mix to push new boundaries and enhance its visibility, ranging from the use of social media to endorsements and revolutionary technology. It can do so by taking advantage of its large internal resources and capitalizing on marketing positioning and strategies that formulate its successful brand.
Reference List
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