Nike

Group JASA
Allison Ball
Anthony Grady
Jarrah Howell
Shaquon Riddick
05/29/14

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Introduction
Nike was named the No. 1 Most innovative company of 2013 by Fast Company
history, providing their industry analysis and describing their competitive strategy. By using each
of these illustrations, it will be easy to see how a former track and field athlete and his coach
forged a relationship and business partnership that led to a Swoosh logo becoming one of the
most recognizable symbols in the world (Shaw, 2010). At the close of fiscal year 2013, they had
a workforce of nearly 48,000, 705 retail stores, 90 administrative offices and 110 sales offices
and showrooms (Nike, Inc., 2014).

The Company
Nike is worth around $49 billion and is by far the biggest sports brand in the world
(Arshad, 2014). Nike began as a vision from two men back in the mid 1950s. Phil Knight was a
runner on the track and field team at the University of Oregon under Coach Bill Bowman. It was
during this time that they made a bond that would eventually lead to the Nike Corporation which
is known throughout the world today. In 1964, they formed a company called Blue Ribbon
Sports with a handshake, $1,000.00 and a phone call to Japan for their first shoe order. By the
year 1971, they had grown significantly and created their own brand of shoe and called them by
the companies newfound name, Nike (Nike, Inc., 2014).
Nike continued to grow throughout the 70s by using their introduction of Nike Air
technology as a catalyst. It was at the end of 1980 that they became a publicly traded company
and many of the earlier pioneers decided to move on to other ventures. During this transitional
period, Nike lost some momentum. In steps Michael Jordan, one of the biggest names ever in
basketball history. Jordan endorsed his first line of shoes, known as Air Jordans. Nike
rebounded in the market and used their resources to launch a new innovative line of shoes in
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1987 called Air Max. Their use of the Beatles song Revolution to support their campaign
proved to be an innovative move towards promoting their shoes (Nike, Inc., 2014).
Soon after the Revolution campaign, they were ready with the next big thing. Crosstraining had become the next phase in athletic shoe wear and a two-sport athlete named Bo
Jackson inspired the now well-renowned motto for Nike, Just do it. Another motto that came
from this period and made famous by Nike was Bo Knows. By the end of the eighties, Nike
had once again become the industry leader in athletic footwear and apparel (Nike, Inc., 2014).
Today, Nikes mission statement reads: To bring inspiration and innovation to every
athlete in the world. In 2002, Nike went away from the traditional big athlete, big ad, big
product formula and went with an approach that incorporated the internet, public relations,
retail and consumer events to promote their products (Nike, Inc., 2014). This new way of
marketing helped them to reach out to the athlete in everyone in a way that was on a much more
personable level. Nike co-founder, Bill Bowman, said if you have a body, you are an athlete
(Nike, Inc., 2014).

Industry Analysis
Nike is the world leader in the athletic footwear and apparel industry (Nike, Inc., 2014).
Using Porters Five Forces to complete an analysis of Nike will help us understand just what
they are doing to remain at the top of their industry. In order to make the picture clear, we must
break down each one of the forces and understand the intensity levels created by those forces.
Nike should be able to use this information to adjust their competitive strategy in a way that
addresses those threats with medium or higher intensity levels.

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Competitive Rivalry within the Industry

Competitive rivalry within the industry is an area that should be of great concern for
Nike. The intensity level of this force is medium to high due to various factors. The competition
of global players such as Adidas, Puma and Asics is at the forefront. The ability to keep up with
the constant changes in customers technical and preferential needs and competition from new
companies like Under Armour and Luluemon are a few other areas where Nike must remain on
guard. Nike even faces some threats from smaller, local companies that are entering the market
with high quality products. Differentiated products and their reputation are keys to their
continued success and help forge their path to combat these threats (Trefis Team, 2013). Adidas,
a German brand, is still only worth half of what Nike is worth and they are their closest
competitor (Arshad, 2014).

Bargaining Power of Suppliers

Bargaining power of suppliers is a force that currently has a low intensity level due to the
fact that Nike has spread out their factory production across several suppliers and by not
allowing any one factory to comprise of more than 6% of the total production. They do however
need to be concerned with the sovereign and currency issues that could arise in the three
countries that account for 98% of their footwear production, Vietnam, China, and Indonesia.
Switching cost would be high also, but Nike and their suppliers share in the inflationary
pressures of raw material cost and labor expenses through manufacturing service pricing (Trefis
Team, 2013).

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Bargaining Power of Customers

Bargaining power of customers shows intensity levels in the low to medium range. This
is an area in which Nike must keep an observant eye out for customers that may be swayed away
by the competition with crafty pricing, advertising, special sponsorships and more creative
styles. A bargaining power Nike uses is paid endorsement deals to sports players. Included in
these are Tiger Woods, Derek Jeter, LeBron James, Maria Sharapova and as mentioned before
Michael Jordan. Maria Sharapova is the first and only girl in the top 10 list of highest paid
endorsement deals; Sharapova makes $8.50 million a year (Arshad, 2014).
The most recognizable threat may come from wholesalers wishing to broaden their
relationships with competitors. Some may even try using private labels of their own. Wholesalers
accounted for 80.6% of Nikes total sales in 2013, while direct-to-consumer sales accounted for
18.9%. Those direct-to-consumer sales rose by 23% in 2013, compared to a 6% growth in the
wholesale channel. Nike will continue by focusing more attention on those direct sales as they
move forward in 2014 (Trefis Team, 2013).

Threat of New Entrants

The threat of new entrants is low to medium since entrance to this industry requires large
amounts of capital for an upstart company. The threat really lies in the e-commerce community,
where entrance is fairly easy. A company, using a business model that incorporates selling the
competitors brands at discounted prices online, is cause for some concern (Trefis Team, 2013).
One cannot help but mention Under Armour as a company that has proven that new companies
can enter the market and compete. The fact that is has taken them nearly 20 years to make a dent
into the marketplace, that was essentially created by Nike, is reason enough to not see an
immediate threat of new entrants. (Under Armour, 2014).

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Threat of Substitute Products

The last force to discuss is the threat of substitute products, which has a force intensity
that is low to medium. There is no substitute for properly engineered athletic footwear, apparel
and equipment, but the main thing that Nike needs to be aware of in this category is the problem
with counterfeit products. The quality of these products have shown improvement over the last
few years and they could diminish the value of authentic Nike products. Keeping up with the
demand for higher quality and technologically advanced products will help Nike to keep this
threat low (Trefis Team, 2013).

Competitive Strategy
A competitive advantage of Nike is its strong branding. Nike is one of the most wellknown, recognized global symbols throughout the world with athletics and sport teams. The
competitive advantage Nike has is unique to its profile. Nike believes that sustainability is one
of the key drivers that will catalyze innovation and lead us toward continued growth (Nike,Inc.,
2014). By Nike focusing on innovation, it enables new heights in performance which is
expected from the customers.
Nikes sustainability strategy is not only about improving products they make but how
they can leverage sustainability by inventing better products with design in mind. For example
the new NIKE Brand Shoebox will be completely rolled out by FY2015 (Nike, Inc., 2014). This
new NIKE Brand Shoebox is 3% lighter than the previous box. Nike is always looking for
improving their product line, which serves the athlete, helps the company grow and delivers
inspiration.
The value chain which Nike has built helps to demonstrate the forces which are used.
Using the competitive forces mentioned in the above section of the industry analysis are
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instrumental in helping Nike to maintain their stronghold on the market. Without recognizing the
strengths and weaknesses within each of the factors, Nike would not be able to continue their
trend of sales growth and increased profit margins. Knowing that their highest threat is currently
coming from Competitive Rivalry within the industry, Nike can fight it off with continued
innovation, differentiation and superior marketing activities (Trefis Team, 2013).

Conclusion
We have reviewed how Nikes strategic framework and use of the Porter competitive
model has driven profit growth and reduced risk through sustainable innovation (Nike, Inc.,
2014). Regardless of whom enters the market and tries to match Nike, they are currently having a
hard time. It is obvious that this company is doing everything that it takes to remain at the top of
their industry when they can still pay Michael Jordan, who retired from professional sports in
2003, $60 million dollars a year in endorsements fees (Arshad, 2014).

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Bibliography
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