Evaluating market strategy of Nike inc

The aim of this project is to evaluate Nike Inc.’s marketing Strategy. In this project we do an analysis of the Nike’s external environment and research about its competitors. We then evaluate the Nike’s sales and profit trend along with its market share. An internal assessment of Nike is also covered in this project. We then see on what basis Nike has divided its various market segments and who are its target market. The positioning strategy has also been discussed briefly. We then take a look at the Marketing Mix of Nike, i.e., the 4P’s of marketing.

On the basis of the above information collected through the duration of the project we could conclude that if Nike would like to uphold its position as the market leader in the athletic footwear market, then it has to provide its customer base with new and innovative products.

INTRODUCTION ON NIKE INC.

Nike Inc. is the world’s leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue of more than $19 billion in 2009.

The company was created in 1962 as Blue Ribbon Sports by Bill Bowerman and Philip Knight and officially became Nike Inc. in 1978. The company takes its name from Nike, the Greek Goddess of victory. Nike owns the subsidiaries Cole Haan, Hurley International, Umbro and Converse. Nike sponsors many high profile athletes and sports team around the world, with the very recognized trademarks ‘Just Do It’ and the logo ‘SWOOSH’.

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THE MARKET ENVIRONMENT

Geographical Market

Nike’s geographic market is spread throughout the globe. In March 2009, Nike announced its plan to reorganize its global business in order to bring goods closer to the consumers as well as to reduce management overlap. Following this plan Nike then decided to develop its market share in North America, Western Europe, Eastern/Central Europe, Greater China, Japan and Emerging Markets.

Main Business

Nike Inc. specializes in footwear, apparel, equipment and accessory products for men, women and children. The company offers footwear for football, basketball, golf, sport-inspired casual shoes, kids’ shoes and other athletic and recreational purposes. The company also markets sports apparel and accessories, along with sports inspired apparel and athletic bags. Nike also offers performance equipments which include bags, sport balls, eyewear, electronic devices, and other equipments designed for sports activities under the brand name NIKE.

PEST-G Analysis

Political

The support accorded to Nike by the US government, particularly in the general macroeconomic stability, low-interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike’s growth.

Nike’s main production faculties lie in the Asian countries where political unrest prevails. The rise and fall of governments’ results in change in policies relating to employment laws, trade restrictions, etc. This political unrest may affect Nike.

Economic

The economic downturn has resulted in the slowdown in sales. This will affect the growth of Nike. Also, labor cost and raw materials prices are increasing, which will affect the profit margin of the company.

Nike deals in different currencies for trading purpose. Hence, costs and margins are not stable over long periods of time due to changing exchange rates.

Social

People today prefer to buy products which have brand value associated with them. They now want fashion-oriented products for leisure activity instead of sports activities. There are also an increasing number of women consumers in the market due to changing lifestyle and trends.

The bad publicity due the poor labor and factory conditions in Asian Countries resulted in decline in sales as society wants socially responsible firms.

Technological

Nike has integrated technology to develop its products fast. Nike always adopts latest technology for its product manufacturing and development.

Environment/Green

Nike makes every attempt to reduce the impact of each of its products on the environment from design to manufacturing, and ultimate disposal. Nike shoes produce solid waste. The largest of these by weight is cured rubber used in shoes soling. Nike employees engineered a creative way to keep it out of landfills and convert it into more outsoles, called REGRIND.

THE COMPETITION

Main Competitors

Nike’s main competition comes from Adidas AG along with companies such as Puma AG, New Balance, etc. Due to Nike’s brand awareness, its competitors have to put in more effort to sell their products & new entrants in the industry should have huge amount of capital to invest in advertising to create brand awareness. This restricts the amount of entrants in the market.

Sales & Profit Trend

From graphs 1 & 2 (refer appendix), we can see that from the year 2006 to 2008 both Adidas and Puma have growing sales & profits. But in 2009 both companies saw a drop in sales & profits. This may be due to the footwear market is saturated & there is high competition where companies are striving for maximum market share &/or to maintain their existing market share.

Market Share

According to graph 3 (refer appendix), Adidas Group & Reebok together hold 22 percent of the market share, followed by Puma 7 percent and New Balance 6 percent. Since the athletic footwear market is saturated, there may be a possibility that the company’s market share erodes.

Target Market

All the companies in the athletic footwear market are targeting the same type of consumer – those who are interested in sports like the aspiring athletes, teams, individual athletes, etc., along with the urban youth.

THE COMPANY

Sales & Profit Trend

According to graphs 4 & 6, Nike’s revenue and net income are constantly growing from the year 2005. This shows that Nike has a strong grip on its market share. Consumers like Nike’s innovative new products and are willing to pay a higher price than its competitors.

Market Share

Nike is the market leader in the athletic footwear industry with a 31 percent market share. This shows that Nike with its strong research and development and extensive product range along with the marketing expertise have captured the consumer’s preferences.

Business Sector

Nike is part of the Consumer Goods sector which mostly consists of Fast Moving Consumer Goods such as dairy products, farm products, etc. In this sector, Nike belongs to the Textile-Apparel, Footwear and Accessories Industry.

Project Focus

Nike’s focus is on product development & providing its customer with innovative & compelling products. The introduction of Nike+iPod establishes this fact that Nike wants to cater the customer need for new & innovative products. Nike also lays heavy emphasis on maintaining its Brand name & value in the market. Hence, it invests large amounts of money in research & development of its products so that it can maintain its position as the market leader.

SWOT Analysis

Strengths

Nike is a global brand with strong brand recognition. Its famous logo ‘SWOOSH’ can be recognized instantly by anyone.

Nike has extensive distribution lines. They sell their products through independent distributors and retailers all around the world. Consumers also have a choice to design their own shoes on the official Nike website where they can choose the design, color, features, etc. for their shoe.

Research and Development has always been Nike’s strong point as can be seen from its ever evolving and innovative product range.

Weakness

Although Nike has a large product portfolio, its income is still profoundly dependent on its share of footwear market. This may leave it susceptible if the market share for footwear erodes.

Due to the diversified product range, Nike is unable to focus on one main product. This results in divided attention on each product line & the amount of time and resources in maintaining each of its product line is very high.

Opportunities

One of the opportunities for Nike is the emerging markets. Currently Nike is focusing more on Generation Y market and women. Nike has started aggressive marketing towards women by introducing women’s yoga shoes in an attempt to appeal health conscious women.

Although owners may deny that Nike is a fashion brand but many people think otherwise. This creates opportunities as people may think the product could become unfashionable before it wears out, i.e., they need to replace it.

Threats

Nike outsources its manufacturing to different countries. Nike does not have any control over the political and legal environment in that country.

High level of competition in the market is also a threat to Nike as the companies have almost the same product range and target markets.

Changing Exchange Rates also pose a threat to Nike as it deals internationally, i.e., it buys and sells in different currencies. Due to this cost and profit margins are not stable over long periods.

NIKE’S MARKETING STRATEGY

Segmentation & Targeting

Nike’s target market for its shoes, clothes and other accessories are males and females between the age of 13 and 35 years. Nike segments its markets on the basis of age, gender, geographic locations, psychographic, and benefits sought.

On the basis of age, Nike targets a variety of age groups from young adolescent to middle-aged adults. Nike has different advertisements for men and women of every race and nationality separately. Nike now is focusing on targeting more on women and Generation Y. Also teams of any sport are targeted by Nike.

Nike’s aim is to push its products in countries that apply to certain sports, which are popular in that particular country. For example, Products relating to Rugby are advertised more frequently in Europe when compared to U.S., as Rugby is popular in Europe.

Nike promotes a positive and confidant attitude and targets people who want to attain that attitude. It also is targeted towards customers who are interested in athletics.

On the basis of benefits sought, Nike provides shoes, apparel and equipment for a variety of sports all over the world. It also offers products to many different people who have different tastes, interests and needs. This can be seen from the fact that Nike has a website where consumers can design their shoes according to their requirements and tastes.

Positioning

Nike promotes products that ooze with style, attitude and self-confidence. This message is clear in Nike’s tagline ‘Just Do It’ or ‘If you have a body, you are an athlete’ which is shown in many advertisements of Nike. The former message of Nike has been used since 1989, when it was first introduced and the latter was developed by Bill Bowerman when Nike first started. This message clearly defines Nike’s image which is a positive and self-confident nature.

Porter’s Generic Strategy (Differentiation/Low Cost Leadership/Focus)

Since the footwear market is highly competitive, companies are striving to provide the best possible deals to the consumers. This means that they are trying to cut down costs. Since Nike outsources its manufacturing to other countries, it doesn’t have any capital tied up in machinery, equipment or factories. This means it doesn’t have any expenses that may arise out of maintenance of any of the above.

Nike also lays heavy emphasis on Differentiation and continually strives to innovate and develop its products. The introduction of Nike+iPod sports kit in the year 2008. This enables runners to log and monitor their runs via iTunes and the Nike+ website.

Growth Strategy

On May 5th, 2010 Nike revealed its Global Growth Strategy to achieve sustainable, long-term growth across its global portfolio of brands. With a revenue target of $27 billion by the year 2015, Nike outlined each and every category of their product line – from Nike SB to Women’s Training – and hoped to reach that goal through a consumer-focused strategy. The company also expects to generate over $12 billion of cumulative free cash flow from operations through 2015. Both goals extend NIKE Inc.’s long term financial model of high single-digit revenue growth, mid-teens earnings per share growth and expanding returns on capital.

NIKE INC.’S MARKETING MIX

Marketing Mix

Product Mix

Nikes product range includes an assortment of goods which include shoes and apparel for sports activities such as Basketball, Football, Athletics, Golf, Cross training, etc., for men, women as well as children.

Product Life Cycle

The athletic footwear industry and Nike Inc. are both at the maturity stage of the Product Life Cycle. This can be established through graphs 4 & 6. According to these graphs Nike’s revenue and net income are constantly increasing at almost the same pace for the last 5 years. But in the year 2009, we can see that the rate of growth in revenue and net income has decreased due to saturation and high competition in the market. Nike can maintain its revenue, net income and market share in the footwear market by introducing new innovative products to keep the consumer base captivated, expansion into new market like India and China and use extensive marketing of the product to continue its demand in the market.

Boston Consulting Group Growth-Share Matrix

Source: http://www.flatworldknowledge.com/node/115329#web-115329

Since Nike is the market leader in the footwear market, it is safe to say that it is established within its market segments. The market for footwear is saturated with high competition. This places Nike in the Cash Cows category. Being in the cash cows category means that Nike has to maintain its sales and hold its position of a market leader in the market. To do this Nike has to spend a lot of money in research and development to provide customers with fresh and original products to keep them loyal to the brand Nike.

Ansoff Matrix

Source: http://www.anythingresearch.com/Strategic-Planning/Ansoff-Matrix.htm

Since the athletic footwear market is saturated with no scope for much growth in the market Nike can choose from either Market Development or Diversification Strategies. If Nike opts for Market Development it means that Nike will focus on the emerging markets such as India, China, etc. with its existing products. If Nike opts for Diversification then it would have to focus on new markets with new and innovative products.

Price Mix

Nike Inc. applies a premium pricing strategy. This strategy implies the product to be priced higher than that of the competitor based on the quality of the product. Some critics and people claim that the prices of Nike’s product are high. However, the company owners and employees argue that these prices reflect the quality of the product. This strategy seems to be working as consumers who purchase Nike products are ready for their prices.

Place Mix

Nike products are available in multi-brand stores along with the exclusive Nike stores across the globe. Nike sells its products to more than 20,000 retailers in the U.S. and in approximately 200 countries in the world. Along with this Nike has its own ‘Niketown’ stores.

Nike also sells its products through its official website, where people can also customize and design their shoes according to their preferences and directly delivers these from the manufacturer to their house.

Nike sells its products in the international markets through independent distributors, licensees & subsidiaries.

Promotion Mix

Nike reinvests around 12 percent of their revenue into marketing, which includes advertising, endorsements and sponsorship deals.

Nike advertises it products through print media, television and billboards and posters. Apart from this Nike has a number of celebrity athletes like Cristiano Rolando for soccer, Tiger Woods for golf, etc., and professional teams like Manchester United to focus attention on their products.

Nike also has several websites for individual sports such as nikebasketball.com, nikefootball.com and nikegolf.com.

EVALUATION OF COMPANY’S STRATEGIES AND TACTICS

Evaluation of Nike Inc.’s Current Position & Evidence of Success & Prospects of Future Growth/Success

From graph 7 & 8, we can see that Nike’s Earnings per Share (EPS) and Return on Invested Capital has gone down. This may be due to the reduction in Earnings before Interest and Tax (EBIT) due to fall in revenue (refer graph 4-appendix). Hence, we can say that Nike has to maintain its position in its existing market and grow in the new markets to increase or maintain its EPS and Return on Invested Capital. If Nike wants to maintain its market leadership it has to focus its strategies on product development to provide its loyal customer base with new, captivating and innovative products. Along with product development, Nike also has to penetrate new & emerging market like India and China if it wishes to grow be number one in its industry.

CONCLUSION

Time and again Nike has proven to be the best when it comes to satisfying consumers needs. Nike provides people with innovative and original products that others in the industry are not able to provide, thus upholding its position as market leader in the athletic footwear market. This gives Nike a competitive advantage over its competitors, which provides Nike with opportunities which Nike has used to its maximum. With its Marketing mix, Nike has been able to create an all around dominant strategic plan. Nike has shown that they are a true force to be reckoned with.

APPENDIX

Data Source: http://www.adidas-group.com/en/investorrelations/financial_data/default.aspx

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=PUM:GR

Graph 1

Data Source: http://www.adidas-group.com/en/investorrelations/financial_data/default.aspx

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=PUM:GR

Graph 2

Source: http://www.wikinvest.com/stock/Nike_(NKE)

Graph 3

Source: http://media.corporate-ir.net/media_files/irol/10/100529/AnnualReport/nike-sh09-rev2/index.html#select_financials

Graph 4

Source: http://media.corporate-ir.net/media_files/irol/10/100529/AnnualReport/nike-sh09-rev2/index.html#select_financials

Graph 5

Data Source: http://media.corporate-ir.net/media_files/irol/10/100529/AnnualReport/nike-sh09-rev2/docs/Nike_2009_10-K.pdf

Graph 6

Source: http://media.corporate-ir.net/media_files/irol/10/100529/AnnualReport/nike-sh09-rev2/index.html#select_financials

Graph 7

Source: http://media.corporate-ir.net/media_files/irol/10/100529/AnnualReport/nike-sh09-rev2/index.html#select_financials

Graph 8