GBR Strategic Marketing Analysis of Nike
| ✅ Paper Type: Free Essay | ✅ Subject: Marketing |
| ✅ Wordcount: 5368 words | ✅ Published: 1st Jan 2015 |
Executive Summary:
This report looks into a famous company Nike, well famous for its sportswear products. Nike being a Fast Moving Consumer Good (FMCG) is ranked number one globally and British market holds a great repute for Nike products. In this report, I looked at different aspects about the company which led to its success in British market.
The report also includes a literature review with explanatory reviews and in-depth details into different scholarly journals, books and academic resources.
A mixed methodology was prepared for research findings, combining both qualitative and quantitative research.
The market of Nike was segmented by discussing the promotional techniques, its market strength, differentiation and its target audience. Several factors including, price, advertisements are also included in the report and discussion has been made as to how it affects Nike brand and its customers and competitors.
Researches have been carried out to examine and to create a clear image about my project. Analysing them through the help of graphs and questionnaires will help to conclude Nike’s market analysis and where it is going right now.
Acknowledgements
I would like to thank ‘ALLAH ALL MIGHTY’ first of all who gave me the courage and strength and foremost an opportunity to study abroad. Then i would like to thank my family who has been a great support throughout. Many thanks to my tutor Chris Evans, whose guidelines have helped me prepare my dissertation. Thank you all for being there and being a source of inspiration and motivation.
Topic: Strategic marketing analysis of Nike in British market and its critical success factors
Background of Nike:
Nike is a universal brand, highly idolized by teenager groups and leading sports brand and supplier. Initially the company was founded with the name of Blue ribbon by Bill Bowerman in 1964 and the name was changed to Nike in 1970. Pronounced also as NI-KEY, Nike is a Greek word meaning ‘Goddess of victory’ and kicked off with an investment of just $500. Nike starts to sell the first ever football shoe in 1971, named Nike. In 1980’s after hard work and dedication, Nike market share increased by 50% and started to appear in TV commercials with the famous slogan; ‘Just Do It’. In 1986, Nike had one billion sales showing its financial strength since it started off. With time Nike, progressed through market segmentation, differentiation, promotion until it made blunders such as Sweat shops in Asia. With the competitors active and accusations proving right Nike gave its own statement, and told all its contractors strictly to abide by the code of conduct; which worked to some extent. Nike has been successful till today and stays number sports brand, competing with famous brands like Adidas and Reebok. Nike is operating a large market in United Kingdom, with an area of 244,755 km2 and a population density of 249.9 people/km2 (GMID 2009).
Nike stocks and sells a variety of products ranging from footwear to t-shirts and sports goods.
Problem definition:
Nike is number one sports brand and faces internal and external threats. Nike faces internal threats from its employees, product, consumers, which may not be loyal at times. External threats are linked with internal threats and can turn your assests into loss. Nike fears of losing its customers to its competitors, which are part of an external threat. Competitors are active in this fast consuming world and dangerously active in developing new strategies, differentiating their products, innovating new products, advancing in technology and manufacturing their products at a large scale. In this highly competitive and sensitive market Nike can not afford to make mistakes such as Sweat shops in Asia and repeat child labor issues. Market shares were seen stumbling down due to Nike’s policies in Asian countries. Hatred for the brand developed which then again forces consumers to switch towards other brands. Due to this competitive advantage Competitors like Adidas and Reebok, promote their product to a greater extent; taking full advantage of Nike’s weaknesses.
All the problems mentioned above, have been discussed and linked together and solutions have been given at the end to overcome weaknesses and turn them into strengths for the company chosen (Nike). (Mintel 2009)
Literature Review:
Brand image:
For every business uniqueness is important to distinguish themselves from their competitors. This is important because when a brand is unique, people associate themselves with the brand. Therefore it allows them to value your brand (Heaston, 2002). Awareness about the brand comes through different range of ideas, advertising, word of mouth, company portfolio, personal experience with that particular brand, and many more (Armstrong and Kotler, 2004). Nowadays, the trend is to follow and adapt something that sounds cool and looks cool, even if its meaningless to the audience (Pesce 2002) Strong brand image pulls a customer to buy the company’s product, even if they are paying more (Sims 2001) and success of a brand depends on how well a brands image and meaning is maintained over long term (Michell, King and Reast, 2001)
Companies must manage their brands by creating awareness so the brand’s positioning must be continuously communicated to the consumers. Positioning is how you want to be perceived in the marketplace, and branding is a further modification of that positioning (Moran, 2008)
Marketing Mix:
Product: According to Jobber (2006), ‘Product decision’ is the type of service or product that should be offered. If a company has a strong brand image customers will buy company’s product even if they have to pay more for it (Sims, 2001). Product prototype should be sampled before launching their products like Nike. As (Lury 2001) states that managing the product is therefore vital to a brand’s success. For a company to succeed it needs to improve its services, revise its market position, and its image besides managing it.
Promotion: Promotion covers the communication areas which include, sales promotion, advertisement, public relations, internet marketing etc (Sims, 2001). These help enhance the awareness of the products benefits among the consumers. All of the communication areas mentioned have their own strengths and weaknesses (Jobber, 2006).
People: People can turn out to be a great asset or a great weakness for businesses. The impact of variables highlighted as attached in appendice during market research help in critically analyzing the market research factors and opting for best tools of pricing of Niche products. Lury 2001, mentions that brand interaction is important with customers to create awareness of the brand. Likewise, for a company to overcome its weaknesses the targeted audience (people) plays a pivotal role and helps a company, like Nike to shift from a bracket of threats to opportunities. Timely understanding and market research of a company’s weaknesses will prove helpful in overcoming the threats and shift towards opportunities in short and long run.
Place: Place is like a key of branding strategy, because if customers do not have a guide as to where to find the product how will they buy the brand (Lury 2001). Businesses have to Target their audience and then setup their shops according to the demand of their products. Nike has been promoting its products globally and has targeted every country according to their market demand. Customers expect that a company delivers them high quality products in shortest time available. Access is improved through multi site locations (like McDonalds, KFC, Pizza Hut), where customers dont have to wait for long for their product delivery. Nike synchronises supply in almost every major countries in Europe, Asia, Middle East and Africa and productivity problems are solved through its Multisite chains.
SWOT analysis:
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Strengths |
Weaknesses |
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Opportunities |
Threats |
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Source: Kotler et al (2005)
Strengths:
Nike is leading the sports wear market with its innovative products and customer services. Biggest strength that ‘Nike’ has over its competitors is its percentage of market share within the footwear industry. The revenues recorded of the company were $16,325.9 million in the financial year (FY) ended May 2007, up by 9.2% over 2006. Nike operates in more than 160 countries, covering America, Europe, Asia Pacific, Middle East and Africa. `In 2007 Nike launched a hat phone, hat with built in controls for iPod nano . At the Atlanta Olympics, Nike also sponsored the top athletes and gained valuable publicity and coverage. At different stages Nike allied itself with celebrities and stars. In 2006, Nike unveiled its new women fitness dance with music videos featuring some famous stars like Rihanna and artist def Jam, celebrity director Jamie king. This Nike rock star work out and its stylish moves show that Nike shoes are not just stylish but flexible and allow for maximum performance. The workouts are available for viewing at nikewomen.com for fitness conscious women.
http://www.pocket-lint.co.uk/news/news.phtml/6514/7538/nike-hatphone-ipod-nano-clothing.phtml
In 2006, UK contributed the largest to overall sales of footwear and clothing in Western Europe with a volume sales share of 27%. (GMID 2009)
Nike is the leading sports footwear brand in the region, placed ninth overall among footwear manufacturers. In Spain, Converse has done very well, with 2006 sales growing 37% over prior year (GMID 2009). In response to the price-led competition brought on by less expensive Asian imports, many important players will continue to shift their production facilities to countries where labour costs are substantially lower (GMID 2009). Casual footwear was estimated to account for 56% of all footwear sold in 2006, up from 49% in 2004. (GMID 2009) However, the market is growing because of price discounting and promotions.
Weaknesses:
Nike promotes and sells diverse range of products. However, their income of business is heavily dependant on footwear sales. Nike targets its customers through its branches and different retailers which sell Nike products to gain their shares as well. This results in price differences, less stock and price margins being squashed due to their demand.
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Essay Writing ServiceAdidas on the other hand Segments its market with a different approach like introducing gift cards for shopping online or in store. These gift cards are only redeemable at Adidas originals and its outlets and factories. Nike fails to introduce such gift cards till now, showing that Adidas differentiates its products, and has a realistic approach when it comes to promotions.
Opportunities:
Nike is a fashion brand among youngsters especially teens, also seen in appendix. Youngsters get easily influenced by fashion, style, price and design. Youngsters especially Teens tend to purchase more and are sometimes claimed as shopaholics, compared to the normal population. Teens get easily influenced by stars and celebrities and consider their brands as up to date and Fashion oriented. Nike spends a lot of money on celebrities to endorse their product; and if they spend more, this will help increase their revenues. These revenues can be used by Nike to focus on their existing product lines such as jewellery, sunglasses and sportswear and at the same time introduce new ones.
Nike can focus on new emerging markets such as China and India, two developing economies, to build up strong brand recognition. China is a large market rich of consumers and Nike can promote their products by indulging in their sports activities. Global events in sports like football tournaments and events such as IPL (Indian Premier League) are opportunities to promote and market Nike’s brand. Other sports events such as rugby tournaments, boxing events can also be utilized especially the upcoming Olympic Games to build up and strengthen Nike’s global brand recognition.
Threats:
Nike has been accused several times for child labor policies in some underdeveloped and developing countries, mostly Asian countries such as Pakistan, China, India, Bangladesh and Indonesia. The result was a devasted market when consumers and several retailers stopped purchasing products from Nike, as it broke the international code of conduct and there was a risk that Nike’s assets might collapse at some stage.
Nike faces both internal and external threats from some of its great competitors like Adidas, new balance and Reebok. Like Nike, Adidas and Reebok also manufacture their products from abroad as the manufacturing cost and production is cheapest. Adidas is a major sponsor of kits to famous Cricket teams like England and Australia. It is active in supporting top football clubs like Chelsea, AC Milan and Liverpool and others. Not only this, it also sponsors London Marathon.
Nike trades internationally and faces threats of stumbling international markets and low exchange rates. Pound sterling recently faces threats from the rising Euro and Dollar. Recent Global recession which lead to the collapse of some major companies like Woolworths can also have its after affects on the company.
Slept factors:
Slept factors include Social, legal, economic and technological factors influencing a business. These factors are part of external environment. (Lancaster 2002)
Social:
Nike has been engaged in social activities and seen as a much responsible brand. In august 2008, Nike organized a one day running event in London and New York with live music performances in designated race cities.
Developed economies were once traditionally strong markets for children’s footwear. There is a current decline in the population of target segment: children and a rising proportion of people over 45 years old in European countries. (Jobber 2007) This is an emerging market and can be target segmented. In 2004, Nike denoted $37.3 million in sincere services to charity. Nike has also been active in major sponsor events such as age concern big band concert and Rhos y Ghalian Outdoor Education Centre in Wales for the use of local community and children studying at school.
http://www.bumpershine.com/2008/08/28/nike-human-race-lots-of-concerts-on-aug-31.html
http://www.nikegroup.co.uk/community.php
Legal:
Different countries have different legal requirements. In UK, there is a basic minimum wage of £5.74 to be paid by companies. Companies paying less than basic amount are said to be in an illegal activity. Nike . In 1997, Nike workers in Vietnam were forced to work overtime illegally and exposed to chemical toxic and other hazards.
Similar type of cases were seen in Pakistan and Indonesian sweat shops, where children upto 12 years of age and younger were made to work more than 70 hours a week. Nike here violated the human rights laws and acted highly irresponsible. Nike’s brand image was damaged at several stages like In 2006, Nike lost a case against hackney over copying its logo.
http://www.motherjones.com/news/feature/1997/11/nike.html
Economic:
Recent credit crunch globally has almost stumbled the market shares and has brought consumers buying decisions to a dead end. Due to increased interest rate and less loan availability consumers have become miser in shopping and this has resulted in declined sales of organizations compared to credit crunch free environment. Price reductions and price losses are beared by companies out of their budget to reach consumers buying power. A margin squeeze is seen with companies reserves and market shares falling down. Organizations cannot invest in new advancement and promotional sectors, with the delay of other projects. This means less innovation in products, less budget availability for new marketing campaigns, economies of scale gradually coming down. Nike and its competitor’s economic conditions have also been affected by the above factors.
Exchange rates of currencies also affect the sale of a product. Buying and selling is highly affected in situations where transactions are carried out between rich and poor countries. However, the profit margins get squashed depending on the economic environment of that particular country. Pound sterling being a strong currency is therefore still in a beneficial position when transactions are carried out with poor and developing countries in Asia or even European countries If the exchange rate is low this means one can exchange more sterling for foreign currency, therefore if there will be more surplus demand of Nike in Britain from abroad, this will lead to a poor balance of payment which is beneficial for the British footwear organisations. If in Britain, Export is greater than import this is excellent for the British economy in general. The opposite of this would mean slump in countries exchange rate, which would correct a balance of payment deficit, and is the Marshal Lerner Condition.
Political:
High taxes and minimum wage criteria in United Kingdom forces companies to recruit sensibly. So companies prefer to choose workers who are highly skilled, motivated and have an experience related to the field they chose. Nike is an old company and enjoys its friendly ties with government officials, which think Nike is a surplus to their economy. However, Illegal practices are unlawful and are fined heavily; these include cash in hand jobs, child labor practices (like the one carried out by Nike in some Asian countries) and tax exemptions. So far Nike has had several legal cases running against him, but in 2003 Nike had to face Supreme Court charges for its foreign operations which were considered unethical, unjust and against human law policies (Sweat shops and Child Labor).
Technological:
Nike continues to be innovator in its footwear market and strives to create the best and unique sports apparel and footwear possible. Nike were one of the first company’s to implement the idea behind Nike ID footwear, which offers customized footwear created by the customer on the company website. Nike invented air cushioned soles that braught an impression in the market that Nike is more creative, price competitive than any other brand. This was the first time Nike was recognized as being a footwear innovator. Footwears have a huge market demand and it is crucial for Nike that it continues study on implementing creative ideas and designs, much faster than its competitors. Such Advances in technology help to build market strength position through comparative analysis and should be available to the audience. Advertisements and promotions of products require huge investments and are portrayed easily through the use of fast internet, television, radio and other mobile technologies.
Porter’s five competitive forces:
The strategic business manager seeking to get an edge over rivals uses this model to better understand the context of the industry in which the firm operates (Wilson A. (2003). Michael Porter introduced a framework of models which shows an industry is influenced by five forces:
Entry of new competitors is difficult in sports wear market. It’s a long way and difficult for a new rival to enter and sustain in such a competitive environment where already big brands like Nike, Adidas and Reebok are competing with each other to get on top. This gives companies like Nike more chance to market segment their existing product lines and promote them in the best possible way. Organizations are believed to spend more on their promotional methods like advertisements rather than launch of the product or any other method. Nike has so far been successful in giving its rivals a competitive edge.
Threat of substitutes:
Nike sportswears are best in quality, design and comfort. It’s quiet hard for other companies to produce the same product line, with the same quality and at cheap rates. However other companies can copy the same product and design and display in the market with a cheaper price. This price war starts when a company fails to differentiate its products from its competitors. Nike and Adidas are seen to have an head on collision with each other.
Bargaining power of buyers:
Nike’s actual buyers are customers, supply chains like JD sports, Sports Direct and stars/celebrities. The most willing shoppers are youngsters which take Nike as a fashion brand. Youngsters all over the globe follow stars and celebrities to approach their product. Brand loyalists are permanent asset for a company and it is impossible for them to switch over to other companies even if they are offered cheap products.
Bargaining power of suppliers:
Nike has a number of suppliers which promote and sell its product, like JD sports, Sports Direct, Footlocker. These suppliers are big chains present in almost every big town centers in London and its outskirts. One of the main benefits to sportswear companies like Nike are that these retailers are globally diversified, meaning they have links in several markets globally. These retailers aim at gaining popularity, profits and appreciation about their chain through promotion and selling of new product lines of these big brands. However these chains are not Brand loyalists to one specific company and aim at gaining profits from other businesses as well like Adidas, Converse, Puma, Lacoste and others.
Rivalry among the existing players:
Though Nike is leading in sportswear industry, this does not mean that it retains its position as a leader in future as well. Nike is competing with one major rival which has been fighting for years to get on top; Adidas. Adidas and Nike watch each other’s move very closely. Sometimes new ideas and thoughts are copied by the competitor creating an air of rivalry. We have seen this in several advertisement campaigns made by the two. A company which is seeking success in short and long term never overlook the strengths of its rival. The main aim of a company, like Nike, is to consider every opportunity of its rival as a threat for itself and a point to signify the problems what it might face in near future.
Children footwear
Children’s footwear holds an important position in the market as a subsector, resulting in one-quarter of overall footwear volume sales in 2006. Volume sales witnessed a CAGR of upto 5% globally during its review period. As children grow, there is a need to keep replacing shoes and this drives the steady demand for children’s footwear. But in terms of value sales, this subsector is relatively small, accounting for only 15% of overall footwear sales in 2006.Among the countries under study; Japan is forecast to have the lowest proportion of population (14%) below 15 years of age by 2011. Both Eastern and Western Europe will also see a decline, with lower population of youngsters.
China, which has declared officially that there will be one-child policy, will also witness a decline in its younger population. However, even with the 12% decline projected over the forecast period, the country will still have 16% of its population aged 0-14 years. In India, nearly 30-31% of the population will be under the age of 14 groups and is hoped by 2011.Countries, like Germany, Hungary, Japan, Italy, and most European countries have already begun to see declines in children’s footwear sales. These decreasing birth rates are going to affect the markets all over the globe; however some countries like China and India will still have a mass market due to its huge size and consumption.
Consumers in developed markets are becoming increasingly obsessed with their appearance and personal well-being. They are prepared to invest significant sums in self-improvement, in terms of looking and feeling younger, shedding weight and improving their physique.
http://www.portal.euromonitor.com/passport/GeographyTree.aspx
Advertisement:
Whether advertising or promotion helps or damages a brand, has still not been researched (Mela, Gupta & Lehman, 1997) In the long run advertisement help brands by making consumer less price sensitive and loyal towards the brand. For the add to be seen it must grab the attention of its target audience. ‘Ads originality’ as defined from Pietes, Warlop and Wedel, (2002) were easier for customer to remember than ordinary ads by increasing attention to it. This thus increased attention to the brand being advertised. Liking towards the brand itself can influence liking for the brand (Hawkins, Best and Coney, 1992). However according to study by Bichal, Stephens and Curlo (1992) whether customers hate or like an ad does not obviously lead to brand acceptance or rejection. So even though the consumers may like the add they see, it does not necessarily mean they will go out and buy the brand advertised (see appendix).
Advertisers must remember that advertising messages are portrayed differently between different genders (Maldonando, Tansuhaj and Muehling, 2003; Hogg and Garrow,2003; Putrevu, 2001)Hogg and Garrow (2003) found that women paid more attention to the details of the character of an ad, like celebrities, when asked to analyze advertising messages. Advertisement can change consumer’s perception of a product in terms of attributes content and proportion and also influence consumer’s taste for attributes (Gwin & Gwin, 2003).
Pricing strategy:
Price is another form of attribute used by consumers to differentiate a product. Price can sometimes be like an indicator to judge quality; with a higher price indicating better quality and lower price indicating low quality (Mowen & Minor, 1998;Siu and Wong,2002) Consumers perceive that a higher price can be attributed to the higher cost of quality control(Siu & Wong, 2002). Some consumers are highly price sensitive, whereby a high price may shift consumers to competitive brands (Mowen & Minor, 1998). Price plays and important role on the buying behavior of customers. Price is an important key in marketing mix that raises revenues. Organizations have their own different policy approaches to pricing. Prices reflect corporate objectives and policies and are important in the marketing mix. Price changes are made fast and are easy to communicate (Bradley 2003) According to Evans et al, (1995), technology has provided the means by which consumers could be individually targeted and continues to drive growth and development within industries.
Firstly that customers are interested in the bundles of benefits which a particular good or individual service offers rather than just the product itself. Secondly that customers view the benefits offered by the goods or services differently within the market. (Day et al, 1979). ‘’Effective positioning is essential for a brand’s success’’, (Marsden, 2002)
Women:
Nike differentiated women’s market from the rest of the audience through market segmentation and differentiation. By making a separate website for women, Nike target segmented successfully. The site offers women dresses and shoes in diverse ranges and also provides a link to other website nike.com.
Sweat shops:
According to William McCall, Nike battles backlash from overseas sweatshops marketing news, (1998).Nike public relations got affected in late 1990’s due to sweatshops. (Hapke 2004)The nineteenth century had earlier figured out that industry could be damaging without being sweated (Hapke 2004). Workers were treated in the most inhumane way, where they were verbally abused besides being punished (Allendale 1992). According to Harper’s magazine, Nike employed its workers in Indonesia for $1.03 per day, compared to Nike Spokesman (Tiger woods) $55,555 per day. The same shoes that they made were sold out in USA for $80 or twice the price in Britain (Allendale 1992). Nike’s code of conduct allows maximum working hours to be limited to 60 hours per week, however
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