Nike is a very well known company around the world. It is one of the most recognizable brands in any part of the world. This paper analyzes the company to uncover various facets of its operations and to get a glimpse of its overall strategy.
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Vision and Mission
The vision of Nike is to “bring inspiration and innovation to every athlete in the world” (Ali & Al-Aali, 2011, p. 12). The company has a threefold mission. First, the company seeks to perpetuate the legacy of innovation established by its founders (Ali & Al-Aali, 2011). Secondly, Nike aims at providing athletes with the shoes they need to maximize their potential (Ali & Al-Aali, 2011).
According to the founder, an athlete is anyone who has a body. Thirdly, the company seeks to become dominant in the market as a means of creating value for its shareholders (Ali & Al-Aali, 2011). It also seeks to create business opportunities that can help it to achieve its vision.
The strategic goals of any company play a very important role in its growth. These goals give a company focus and helps it to determine how best to allocate available resources (Burns, 2011). The case study shows that Nike had one strategic goal. The company wanted to raise $23 billion in revenues in the 2011 fiscal year (Ali & Al-Aali, 2011). Such goals in organizations usually translate into the sales targets in the marketing plan for that specific duration. The three main aspects of the strategic goals set by Nike came from three principles.
First, the company set itself to ‘pursue the greatest growth opportunities” (Ali & Al-Aali, 2011, p. 13). This principle affected how Nike looked at the market. At any time, a company must know which market segments hold the most promise in terms of growth opportunities. In addition, the company must decide on what growth means. Growth may mean increasing its market share, or increasing its revenues.
The second principle guiding Nike’s strategic goals was “leveraging Nike’s resources and capabilities” (Ali & Al-Aali, 2011, p. 13). Every company has resources that it can commit to growth. However, it takes careful planning to find out how best to deploy available resources to achieve the greatest impact. Nike must have realized that it was not enough to allocate resources to strategic ventures. Therefore, it made the decision to optimize its resource allocation practices to achieve the best results.
The third principle used by Nike when developing its strategic goals was “serving customers with premium products and experiences” (Ali & Al-Aali, 2011, p. 13). Nike began operations as a retail outfit. This foundation made customers its basic priority from inception. The founders interacted with customers at close quarters and learnt about customer preferences. This attitude still pervades Nike’s thinking today. Customer satisfaction remains the most important aspect of its operations.
Nike commands respect in the market because of its focus on business. Its strategies have been successful for a number of years. This does not mean that it has not suffered setbacks in its operations. It only means that Nike has been able to overcome many of these challenges.
One of the main branding strategies used by Nike is celebrity endorsements (Ardichvili, Cardozo, & Ray, 2003). Since Nike specializes in sportswear, the company usually gets sports personalities to collaborate with it in the promotion of its products.
One of the most successful relationships cultivated by Nike in this regard includes basketball superstar Michael Jordan career-long association with the company. The brand became very successful. Up to date, Jordan Air is still one of the best selling products lines from Nike. Other celebrities who have teamed up with Nike include Tiger Woods, and Spike Lee.
Apart from these brand ambassadors, Nike has also had many campaigns with sports personalities who take sponsorship deals that see them wear Nike apparel as a means of promoting the company. The list of sports personalities who have been involved with Nike is very long. They include former world sprinting champion Carl Lewis, the European footballer of the year Christiano Ronaldo, among others. The third approach Nike has used in the market place is sponsoring the kits of national teams.
Apart from these approaches, Nike has a very strong presence in the mainstream media. The company runs different types of promotions all year round. The company was also among the first ones to adopt internet marketing as a promotional outlet. It was among the first companies to develop an email system for marketing and product distribution. These examples show that Nike is a dedicated retailer with unmatched prowess in retail business.
Changes in the business environment affect every organization. This section deals with the external issues affecting Nike.
The economic forces that can affect Nike’s Operations include the following. First, the United States is in recovery after several years of recession. The recovery is not very robust. This has created a depressed economic environment driven by low risk attitudes towards investments (Walker, Walker, & Schmitz, 2003).
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It is harder to make money in this market right now. Considering that Nike sells sports apparel, some consumers think that buying such products at this time is not prudent. The level of unemployment at this time means that Nike can find labor cheaply in the US for the activities it conducts there.
The baby boomers are now entering the retirement phase in the US. This generation gave America the largest spike in its population. This means that the target market for Nike products constitutes of people who are now in the middle years of life. The positive effect is that their buying power is now higher as compared to earlier years, but it also means that the appeal of Nike products must change to suit their current circumstances.
On the other hand, international markets in Asia, Brazil, India, and China are growing rapidly because of the high population of young people in those countries (Burns, 2011). The impact of this situation on Nike’s business is that it should focus more on the high growth markets.
The political issues affecting Nike’s operations are in the differences in political systems across its supply chain and its distribution network. Nike may face human rights abuse scandals because some of its contractors operate in countries that have poor human rights records. Nike manufactures many products in South East Asia. This gives valuable employment to people in these countries but is also exposes them to occupational hazards because of poor working conditions (Bohle & Quinlan, 2000).
The environmental concern the company needs to address is the sustainability of its business operations (Sahu, 2009). All companies must take into account the environmental impacts of their operations in order to remain sustainable (Mark, 2004). The challenge in Nike’s business model is that the company does not have total control over the activities of its contractors (Kaplan & Norton, 1996). This means that Nike cannot accurately report on its carbon footprint, or implement carbon management measures.
The main technological force that can have an impact on Nike’s operations is ICT. Nike is an early adopter of technology. It is one of the companies working hard to make ecommerce a viable distribution channel for its products. Nike’s capacity to harness ICT will give it a competitive edge among all its competitors.
The vision of the company shows that it considers everyone its customer. The company however attracts active people with a love for sports. In this regard, Nike’s primary customers are people of all ages who are living an active lifestyle, and may be involved in sports. Based on this description, Nike appeals to young people in their teens all the way to the late thirties.
The main suppliers of the company are manufacturing contractors. Nike outsources all manufacturing to companies based in China, Indonesia, and Malaysia. The company chose this business model to reduce the costs of business. The cost advantage gained by outsourcing of manufacturing gives Nike a competitive advantage.
Nike coordinates all its operations from its headquarters. The company has skilled executives who handle various aspects of the business. In this regard, the company has the skills and the expertise needed to attain its business objectives.
An analysis of Nike’s business position based on Porter’s Five Forces Analysis reveals the following (Porter, 1991). The company has several suppliers in its ranks. The company has ensured that none of its contractors supplies more than eight percent of the products it sells (Ali & Al-Aali, 2011). In this regard, the company has kept the bargaining power of suppliers low, reducing the risks of losing the cost advantages it currently enjoys.
Secondly, the company’s brand name has helped it to rise above the bargaining power of consumers. Since the company uses a retail distribution model, none of its customers is too large to negotiate effectively with the company. In this regard, the bargaining power of customers is low.
On the threat of substitutes, it is very difficult for any other manufacturer to compete with Nike in entirety. However, Niche operators can eat away Nike’s market share by offering substitute products to the specialized niches (Dalal, 2007). Currently, Nike offers a wide range of shoes, and other apparel.
The danger of fresh businesses joining this industry is also low. Nike’s biggest competitive advantage is its scale. This scale is difficult to replicate. The company has operations in many continents ranging from manufacturing to marketing. In this regard, new entrants are not an existential threat for Nike. However, Nike must be careful about niche operators, because they can wipe off Nike’s leadership position in some market segments.
The fifth force on Porters’ Five Forces is rivalry from current competitors. This may then be most significant threat for Nike. Nike’s main competitors are Puma and Adidas (Armistead, 1989). These two companies have brand recognition, and can adjust their strategies towards becoming the dominant player in the business. This is a real threat for Nike. It must ensure that it keeps its operations streamlined and focused on the development of its competitive advantages.
Opportunities and Threats
Nike’s opportunities presented by the general and specific environments are as follows. First, the company can aim for growth in sales in resurgent economies. These economies include Brazil, India, China, and South East Asia. These regions are expanding rapidly leading to more demand for manufactured products. Secondly, Nike must continue to build its brand in order to retain market leadership. It is already in a dominant position but its rivals can cut into its sources of competitive advantage.
The threats in Nike’s external environment include questions regarding the sustainability of its operations and the political and social changes in its markets. Nike must find ways of ensuring that all the products made by its contractors meet stringent emissions rules. In addition, it must make sure that none of its suppliers engages in unethical labor practices such as running sweatshops and employing underage workers.
In summary, the following table shows the threats and opportunities in Nike’s operating environment.
|Internal Environment|| || |
|External Environment|| || |
Table 1: Nikes Opportunities and Threats
The McKinsey 7S Framework is a tool that analyses the strategic alignment of an organization. The seven aspects of the framework are strategy, structure, systems, shared values, skills, style, and staff (Grant, 2005). The application of the McKinsey’s 7S framework to Nike’s operations reveals several things about the operations of the organization.
|Strategy||Nike’s basic strategy is to market itself as the producer of active lifestyle products. It marketing strategy hinges around modeling this lifestyle through star athletes. Its business strategy involves manufacturing its products in low cost regions of the world and using the cost advantage as a competitive advantage|
|Structure||The company operates from a centralized location. This models works well for the company because of the need to monitor its supply chain and its distribution network. This structure also allows it to control its brand elements|
|Systems||Nike has well developed business systems|
|Shared Values||The values espoused by Nike include a commitment to quality, and a focus on customer needs. Nike understands its customers and seeks to make them a central part of its operations, In the same way, Nike is very careful on matters of quality.|
|Skills||Nike has many skilled people in its ranks. This is one its greatest strengths|
|Style||Nike styles itself as an active lifestyle company. Its products speak of taste, class, and fun. In addition, it sells its products as functional items. Customers buy them to enhance their performance.|
|Staff||The company’s staff portfolio includes both workers in the headquarters and those employed by its contractors.|
Table 2: McKinsey 7S analysis of Nike
Some of the ratios derived from the financial records of the company are as follows. The first ratio for consideration is the liquidity ratio.
Liquidity ratio = current assets/current liabilities.
Nike’s current assets (2009) = $9,734,000,000
Nike’s current liabilities (2009) = $3,277,000,000
Nike’s liquidity ratio (2009) = 2.97
The second ratio that is important in the valuation of a company is the debt ratio. The debt ratio is given by dividing the total debt by the total assets. The importance of the ratio is that it helps to determine the level of indebtedness of a company. A high debt ratio means that the company cannot meet its liabilities in case of dissolution.
Debt ratio = total debt/total assets
Nike’s total debt (2009) = $8,693,100,000
Nike’s total assets (2009) = $13,249,600,000
Nike’s debt ratio (2009) = 0.66
Thirdly, the debt to equity ratio can help to clarify further the extent of the debt in question. This ratio focuses on the capitalization of the company. In short, this ratio asks whether the equity in the company can cover its debts.
Debt to equity ratio = total debt/total equity
Nike’s total debt (2009) = $8,693,100,000
Nike’s total equity (2009) = $4,556,200,000
Nike’s equity ratio = 1.91
The fourth ratio of interest in this project is the return on assets ratio. This ratio shows the performance of the assets of the organization. An investor looking at this ratio can predict the returns that will accrue from a given investment.
Return on assets = net income/total assets
Nike’s net income (2009) =$ 3,156,300,000
Nike’s total assets (2009) = $13,249,600,000
Nike’s return on assets (2009) =0.36
Nike’s internal strengths arise from its position in the market. The company currently occupies a dominant position in the market. This position arises from the confidence of the market in its founders and in their ability to take advantage of market opportunities. Nike was able to combine a deep understanding of customer needs with very sound business principles. Decisions such as manufacturing shoes and apparel in countries where the labor costs are competitive gave Nike a significant cost advantage.
In addition, Nike was able to concentrate on its key competencies rather than struggle to manufacture and market its products. The decision to limit the quantity of merchandise produced by any single contractor also shows that the company knew the importance of keeping the bargaining power of suppliers as low as possible. In short, Nike identified its strengths and then made business decisions that took advantage of its strengths.
Nike’s current competitive position is one of dominance. Nike dominates the sports shoes and apparel segments in many markets across the world. The next significant competitors are Puma and Adidas. However, their position is very insignificant compared to Nike’s position.
Puma and Adidas are strong brands, but they have not matched their brand strengths to their market position well enough to compete strongly with Nike. In an analysis of Nike’s financial strength relative to the entire sports shoes and apparel industry, Nike outdid all its competition. To demonstrate this dominance, Nike’s revenue in 2009 was $19.1 billion while the rest of the athletic footwear industry was $303.83 million. Nike’s revenues was sixty three times higher that the revenues of the entire athletic footwear industry.
An evaluation of Nike’s distinctive competencies reveals several things. First, Nike is not involved in manufacturing. Nike does not need to expend any energy in maintaining factories, sourcing for raw materials, and meeting all the regulations needed to operate a manufacturing enterprise. If Nike had its own factories, it would need the combined manufacturing ability of all the contractors who manufacture its products.
The capital needed for this outlay would make it impossible for the company to grow beyond a certain point. In this regard, Nike’s core competency is the marketing of sportswear. Nike designs the shoes and apparels it wants to sell. It then makes an order to manufacturers who have the capacity to manufacture the products. This frees up Nike’s resources for use in the development of markets, and for meeting consumer demand.
Nike has several core competencies. First, Nike is an accomplished marketing company. The founders of Nike started as direct marketers of sports shoes. This gave them a unique understanding of what the consumers needed. As the company grew, it did not lose this ability. Nike still excels in understanding market needs.
Secondly, Nike developed the super athlete-marketing model. Nike sponsors exceptional athletes and then uses this relationship to build the profile of the athlete, and the Nike brand. Athletes such as Michael Jordan have strong relations with Nike because the company made product lines based on their profiles. Another example is Tiger Woods and his involvement with Nike Golf.
This model is dangerous because the athletes can embarrass the company in case of misconduct. A recent example is Lance Armstrong’s admission to doping. The dethroned Tour de France champion caused Nike a lot of embarrassment because of the doping scandal. Nike delinked itself from him as a result.
Nike has a wide range of options on how it can use its strengths to overcome its weaknesses. Many of the strategies that Nike is currently using are working well. Therefore, the first thing Nike must do is to continue implementing these strategies. Its athlete marketing strategy is working well for the company. Secondly, Nike needs to carry out periodic analysis of its market position relative to its competitors.
The analysis should focus on whether its competitors are gaining ground in any niche within its portfolio. If a smaller firm devotes its efforts to a specific Niche, Nike cannot compete adequately with it at that level because of its size. However, Nike can counteract such activities by emphasizing its brand to the target market. Nike makes high quality footwear, and sports apparel. This may be sufficient to retain market share in markets that have high competition from niche players.
Thirdly, Nike has very strong credentials in regards to market knowledge. Nike must use its market research capabilities to cultivate stronger ties with its key markets. Stronger grassroots ties will lead to stronger brand devotion among its customers. A company like Coca-Cola has perfected brand devotion. Coca-Cola customers ask for it regardless of where they are.
Based on the issues discussed in the sections above, the main objective recommended for Nike is to pursue market dominance. Nike’s position is already very comfortable, but the failure to develop a long-term plan for sustaining its market dominance can be detrimental to its long-term prospects.
The recommended strategies for Nike’s use are as follows. First, Nike needs to dominate all popular sports by sponsoring the top athletes. Nike is already doing this in many fields, but it should try to capture all popular sports. In addition, Nike should work towards becoming the title sponsor of at least one worldwide event every year.
Coca-Cola has been the title sponsor of the FIFA world cup. Options available to Nike include an edition of the Olympics, or one of the popular soccer leagues in the world. While Nike already has a strong presence in these events as a kit supplier, the company can gain even more mileage if becomes a title sponsor.
The cost of sponsoring an athlete ranges depending on the components of the sponsorship deal. However, Nike can use about one million dollars per sport to sponsor one of the top athletes. If Nike takes about five new sports annually, the incremental cost of sponsorship will be five million dollars.
Becoming a title sponsor for a major sporting event will require more resources from Nike. In 2012, Coca-Cola paid over $50 million to become the title sponsors for the FIFA world cup. Therefore, Nike needs at least 25% of this figure to sponsor a major sporting event.
The first recommendation is in line with Nike’s current activities. It already sponsors several athletes in the fields. However, very few of them have managed to become high value brands like Michael Jordan or Tiger Woods. This is the main difference between the status quo and the recommended action.
On the second recommendation, the company already has a presence in almost all the sport events in the world because the company supplies sports kits to many teams across the world. What the second strategy asks for is more commitment from Nike by taking the role of title sponsor.
The implementation of the proposed strategy will require three main steps. The first step is internal. Nike will need to review its sponsorship programs to determine whether the value it derives from the program warrants further commitment of resources. Every investment has an optimum level beyond which an organization can only have diminishing returns (Kottolli, 2006). It will be best to appoint a special committee to handle the issues of the sponsorship.
Secondly, Nike will undertake a survey of all the popular sports in its markets. The implementation committee should give emerging markets more prominence in this regard. Nike will be seeking to enter new markets and to create new customers by doing this. The third step will be to shortlist athletes who fit its sponsorship credentials. The outcome of Lance Armstrong’s relationship with Nike is a case in point.
While Nike had no way of knowing whether the athlete was doing everything above board, it still suffered reputational damage because of its association with Lance Armstrong. Essentially, the athletes chosen must be people of high integrity in addition to being exceptional in their sport. The committee will then send the final list to Nike’s top management for final approval.
The strategy evaluation process will require three components. First Nike will conduct research to ascertain current levels of brand perception in its target markets. This research will help to establish current attitudes towards the brand. After the implementation of the program in a given market, the company will then conduct research to find out whether there were changes in customer perception.
The second exercise will also aim to find out whether the athletes contributed in any way to the perception of the markets. The third aspect that will help to evaluate the effectiveness of the strategy will be a review of the sales records to find out if there were any increases in sales in the target markets.
This study shows that even well established companies that have a comfortable grip on the market can still benefit from an analysis of their operations. Nike’s position in the market can lead to complacency because the industry does not give the company too much competition. In addition, this study illustrates that expanding the current strategies is a form of strategy. It gives the organization new challenges and new areas of focus.
The third lesson from the case is that the foundational elements of a company pay a big role in its future character. Nike’s founders began their operations by trying to understand their target market. They never stopped doing this even after Nike became a recognized brand. In conclusion, the development of strategy in an organization is an ongoing activity. One strategy cannot meet all the objectives of an organization. In addition, the environment changes often. This usually calls for a re-evaluation of strategy.
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