The Changing Business Environment Of Nike Marketing Essay

Change as we see around was always there in our environment and in our ecosystem. This is a way how the old things evolve and new products are developed. What has changed with time and development of new technology is the rate at which change takes place around us. If earlier the life cycle of a product was 10 years, it has been shortened down to 2 years or to a maximum of 3 years. (reference) This is also different for different industries. It may be faster for a low technological oriented product to slower on a higher technology intensive product. What is can be of interest is are the factors which brings about this change and how large corporations are dealing with this fast changing environment to sustain their business and to maintain their leadership status.

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* avoid using WE , put reference in between the text, similar as I have send you.

** This is called Harvard style of referencing .

The Changing Environment

As mentioned above the change in the business environment is not only because of technological developments but there are other factors as well. These factors directly or indirectly have an impact over the ecosystem of the business. These factors are the political environment, the environmental climate, the social changes, the economic scenario and at last the legal aspects of doing business, each of these factors change with the passage of certain duration of time. Though social change may take place every 10 to 15 years the legal or political change may take place faster.

* Tell more about the business model and how Nike is doing it and use IT instead of WE

Whatever we have spoken earlier is about the change in the external environment of a company whereas there are certain factors which affects the company because of the change in internal environment. This may include the change in the management of the company, long term impact of the company policies being followed etc. These factors are more in control than the external factors. Apart from this, Davidson and Griffin (2006) has also included the task environment which is composed of the competitors, customers, suppliers, regulators and strategic alliances. The entire gamut of factors could be very large but here we will understand how these factors have affected the sports gear company Nike and how it has been dealing with these forces to emerge successful.

USE SOME GOOGLE BOOKS AND PUT A SMALL DISCUSSION, AS TO WHY IT IS IMPORTANT TO STUDY THE CHANGING BUSINESS ENVIRONMENT

NIKE – A Company Profile

Nike Corporation was started in 1955 as a shoe distributor company has grown a multi product internationally present entity in the last six decades. During these years it has faced all kind of challenges and has come to this level of existence. Nike, Inc. is the biggest manufacturer worldwide of both athletic footwear and apparel in terms of sales. It specializes in the production and sale of athletic footwear, apparel and equipment. For the fiscal year 2009 it announces revenues of about $19.2 billion. It is a global company that besides in the US, which accounts for 34% of its revenue, operates in Europe, Middle East, and Africa. Nike has manufacturing plants and operations throughout Asia. The global slowdown in both sales and consumption in the retail industry affected Nike and it recorded a revenue growth of only about 3% in 2009. Net income fell by 21% and was expected to continue to fall in 2010. However, net income in the third quarter of 2010 is almost double in the net income in the same period of the previous year bringing it up to $496 million. The company has leading brands such as Converse acquired in 2002, Hurley acquired in 2003 and Umbro acquired in 2008. (REFERENCE)

Vision and Mission

The Nike Mission – To bring Inspiration and Innovation to every athlete in the world

Customer Service Mission – To represent the highest service and standard within and beyond our industry, building loyal customer relationships around the world.the

The change in the outlook of the company can be seen from the mission it had in 1962 which said “to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an attempt to break Germany’s domination of the domestic industry.

* close in ” ” and give proper reference and also avoid using Wikipedia , use standard books . Always rephrase and can use synonyms to convey the message. (AVOID SENTENCES LIKE THIS AS THEY ARE TAKEN AS IT IS AND INCREASES PLAGIARISM

The inclusion of the phrase “around the world” itself signifies the global strategy the company has adopted for future growth.

Challenges of the Changing Environment and Nike Strategy

As discussed above there are various factors that can affect an organization. In this background we can see that Nike’s major market has always been supportive and helped it to advance its products. The overall stability of the American economy low interest rates, stable currency condition and competitive tax system has also helped Nike to reach the stage it is present. (REFERENCE)

Similarly the economic condition as of today is a matter of slight concern for Nike. Its biggest market the US is going through a severe financial crisis which is affecting as sales as customers are postponing their spending. This crisis is also affecting its manufacturing cost as its manufacturing base is in Asia and the cost of material and labour is on upward trend. Its sales are not affected by only local economy but also international economy hence the lower valuation of Euro coupled with Asian financial crisis will affect the sales of Nike. Though his also one reason that the sales will remain stable over a longer run as the strong movements in one part of the world compensates for the weak conditions in some other part. (REFERENCE)

Increasing social trend of fitness and people awareness of diet and health has also benefited Nike. People are joining fitness centers and looking for up to date equipments and other sports gears which is a positive sign for Nike.

At the same time Nike has also got bad publicity because of ignoring the social conditions of labours in its manufacturing locations which they have taken up seriously and have come up with its responsibility agenda. (PUT SOME YEAR HERE , SO WE KNOW ITS UNDER LAST 5 YRS AND REFERENCE)

Nike has also harnessed technology for its utmost utility. It has implemented IT systems in its supply chain which has facilitated its growth in international markets. At the same time it has used technology for product development, this again has taken Nike far ahead of its competitors. It is making use of technology from all aspects of its product from development to supply chain and distribution.

The challenges for Nike can also be explained in terms of Michael Porters five forces model in which Mr. Porter explains how the five forces working in the industry affects the competitive environment of a company, in this case Nike.

*You will see that the following text is appearing at Scribd (http://www.scribd.com/doc/38643840/Nike-Strategy-Analysis-Final-Jun-2010) so take a snapshot and put as image instead of a text box.

Threat of New entrants (Low)

~High Barriers to Entry

Capital Intensive

Strong Brand Following

Economies of scale

High R & D Costs

Industry in consolidation phase

Internal Rivalry (High)

Fierce Competition- Adidas, Reebok, New Balance

Mature Industry

Mostly Non-Price competition

Differentiation strategy

Industry in Consolidation phase

Substitutes (Low)

Other types of shoes

Other sport apparel

Buyer Power (High)

Everything depends on Customer Preferences

Price sensitivity issues

Brand following

Retail and vendor consolidations

Growing power of retail chains e.g. Walmart

Supplier Power (Low)

Raw Materials are abundantly available

Cheap resources, commodity items

From the diagram we figure 1, it is observed can see that each of the factors of entry barrier to the industry, buyer power, supplier power and other substitutes can affect the industry. The two concerning points for Nike in this category are internal rivalry i.e. competition and the other is the buyer power that is an inherent part of this industry. Nike has adopted various policies that has to an extent neutralise the effect of both this factors by introducing product innovation and adopting various selling strategies that has helped it retain the market leader status.

Innovation and the NIKE DNA

Innovation is the DNA of Nike, whether it’s the product development or supply chain management, marketing and branding strategies the company is way ahead of all its competitors. Nike has implemented its innovative methods in each and every field to enhance their competitiveness which are discussed as follows.

Innovation in Product Development

As mentioned earlier Nike has been at the forefront using technology as a key component for product development. Few successful products out of its stable are Nike Air, Nike Air Max, Nike Air Zoom, and Nike Shox.

In the most recent product innovation Nike has teamed up with Apple to launch Nike+: a digital sports kit comprising a sensor that attaches to your running shoe and a wireless receiver that connects to your iPod. This is leveraging the success of Nike with the meteoric success of iPod. Apart from listening to music while you jog the device will calculate your speed, distance and the calories you have burnt. You can upload this data to the website nikeplus.com. The website will provide a tracking of your progress. Further you can share the same platform with other social networking websites like facebook and twitter where you can form group with people with similar interests and form groups for sharing knowledge ad information. The latest in this category is the Nike+GPS application on Apple iPhone.

They have also come with a web portal where customers can customize their shoes design.

Innovation in Marketing Mix

Nike has not only got a diversified product line but it is involved in continuous innovation to add to its marketing mix. This gives it a huge advantage over its competitors. The marketing mix has been developed taking into consideration a wider range of diversified market catering to various sections of people.

Earlier Nike was only in athletic footwear market focusing on Soccer and Basketball but with changing times it has diversified its portfolio not only by product development, venturing into other sports as well as acquiring new companies.

It realizes that in order to be a leader in the fiercely competitive market they need to offer a wide range of products to be able to fulfill their customers’ needs. Nike’s strategy in terms of segmentation is excellent. Their core product is footwear but they also manufacture apparel and equipment and thus, they spread their influence in other sport-related markets. Nike also has several sub-brands to grasp different consumer groups.

Nike’s main source of revenue is athletic footwear, it accounts for 54% of its total revenues. It is designated for running, cross-training, basketball, soccer and it includes even a casual footwear line. Sales in this segment increased by 14% in 2009 from which a big portion was a result of the increase in sales in the Asia Pacific region.

The second most profitable segment for Nike is apparel, such as t-shirts, shorts, sweatpants, and licensed apparel made specifically for universities with their own logos. With an increase of only 0.2%, apparel sales accounted for 27% of the company’s revenue in 2009. However, sales in this segment grew by 14% in the previous period, between 2007 and 2008, due to the growth of 25% of revenues in emerging markets, such as Russia, and other EMEA countries but also a substantial revenue growth of 50% in China. Unlike footwear, which main market is the US, the majority of apparel sales come from the EMEA region accounting for 38% of total apparel revenue.

Equipment, such as balls, golf clubs etc. accounts for 6% of total revenues in 2009 and 13% come from other brands under Nike. For instance, Umbro specializes in selling soccer apparel and footwear. Nike Golf targets golf players and offers specialized golf equipment, apparel and footwear. Cole Haan on the other hand offers premium dress and casual footwear. Hurley International offers products suitable for snowboarding, skating, and surfing.

Innovation in Marketing Strategy:

Nike has been market leader in marketing and advertising in the sports gear industry. Be it their iconic “swoosh” symbol or the punch line “just do it” it has created raves among the younger generation to create a brand identity in itself. This brand is the utmost strength for the Nike Corporation. This is supported by the number of celebrities and teams that the company supports in order to gain customer loyalty through their superstars and nationalistic sentiments. Nike invests annually between 11% and 13% of revenue in marketing.

Advertising strategy: The Company focuses its marketing on celebrity endorsement, i.e. athletes in basketball, golf, soccer, and tennis. Lately, Nike has also begun to sponsor big sporting events so as to create huge awareness and brand following. In 2008, Nike spent significant amount on advertising in the Beijing 2008 Olympics and the Football Championship. After one of the top celebrity was caught in the scandal last year Nike has been cautious about the celebrity endorsements it has been promoting.

Branding Strategy: Nike’s strategy in this front is to develop a premium brand associated with high quality product that satisfies customer needs. Initially the Nike customer associated the Nike brand with being the ‘American’ way: Being individual and aggressive like Michael Jordan and John McEnroe, they have carried the same strategy across all nations and promote heir products by signing international and nationally renowned players. The company has built its brand around sports, attitude and lifestyle. Nike backed this strategy with marketing campaigns like “Just do it” and with the companies front athletes like Michael Jordan and Tiger Woods. (USE SOME DATES AS WE HAVE TO COVER ONLY LAST 5 YRS, N REFERENCES INBETWEEN)

Selling Strategy: Nike’s strategy in early 2000s was to develop, flag ship stores, NikeTown shops in bigger cities, first national, and then abroad. Nike was again an innovator in setting up first company to establish flagship stores and it turned out to be a sensation. There are independent small retail stores that sell Nike products all around the world as well. Also, on seeing the potential of the low price market, Nike took efforts in 2005 to tap in to the low price segment by striking a deal with big retail discount stores like Walmart and rolled out starter shoes at a cheaper price, competing with private label brands. However, to avoid brand dilution, Nike did not use the swoosh logo in these shoes. Currently, Nike has a high quality website and uses it as an online selling channel. NikeId, a part of the website allows a customer to customize his own shoes and buy it. The website is available in 14 languages and is different according to the country requirements. The company is aggressive in direct selling and has recently opened the world largest store in Oxford circle, London which covers 42,000 square feet of area. This shows the commitment of the company to be in touch with the customer and enhancing customer experience.

Innovative Communication (PUT some dates when it happened and references inbetween the text)

There are various ways in which Nike communicates with the customers it serves and the community in which it is present. It understands the holistic development of market and hence is involved in sponsoring various international and national levels teams. But at the same time they are also involved in developing athletes and providing facilities to train them. This leads the introduction of Nike SPARQ training products where SPARQ stands for Speed, Performance, Agility, Reaction and Quickness. The mission behind this training is to provide an athlete access to a pool of experienced trainers and track their performance on web or by visiting a center. They can also benchmark improvements and compare with other athletes worldwide. In the last two years it has almost certified 44000 athletes from 2000 teams across 38 states. This is a huge leap for a sports gear company in order to develop a market for its products as well as for providing a unique platform for aspiring athletes.

Nike is also involved in initiating various community football training centers in all parts of the world. They have various training programs going in schools which signify the benefit of staying fit by participating in sports.

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Innovation in Corporate Responsibility

At the outset we have mentioned the greatest impact of changing business environment is climate change, managing communities in which you have operations, eliminating toxic and wastes. The Nike Corporation has taken into consideration all these aspects to formulate a corporate responsibility target in the year 2007. The two year progress report included the corporate responsibility goals for the next five years. In the words of CEO Mr. Mark Parker sustainability is the key to the growth and Innovation in Nike. According to him the goals were not so much clear until now. The important initiative under this category for the company is

Considered Design – It uses sustainability and innovative performance products for athletes by eliminating toxic products and using environment friendly products.

Green xchange (GX) – This platform is to enhance green innovation. Any intellectual property which can facilitate others to come up with newer environment friendly products are encouraged to be captured, licensed and shared.

Lean Human Resource management – Training of human resources for skill building, team work and other aspects to bring down waste and moreover using waste to develop new products.

Sport for Social Change – Nike is using sports as a catalyst to bring about change in communities by creating awareness amongst youth to make informed choices. It has its program going in Africa with Grassroots Soccer for HIV/Aids prevention and elimination.

Energy and climate change strategy – To bring about change in manufacturing practices which can bring down its carbon footprint. It has launched energy efficient program with its five contract manufacturers which has been successful leading to 6% fall in carbon footprint despite an increasing in production by 9%.

Conclusion

Though we have discussed here the strategy adopted by Nile in the last five years in this changing business environment which has seen the most dynamic changes in pas several decades. It includes the peak of American growth rates and high consumer spending in the year 2005-06 followed by the worst financial crisis in the American history. Next came the carbon emission norms of the developed and the developing economies. Though international companies like Nike are major gainers when everything is going on track but these are difficult times and the company has to watch its steps closely while it increases its stronghold on the whole industry. The company has seen backlash because of its ignorance and it has paid heavily for it.

Amid all this Nike has launched its global strategy for the year 2015. It has announced a revenue target of $27 Billion by the end of fiscal 2015 across its entire brand portfolio which includes Nike Brand, Cole Haan, Converse, Nike Golf, Umbro etc. It also targets to achieve additional cash flows of $ 12 Billion from its current operations. Currently Nike brand contributes 85% of the revenue share which they expect to go to $ 23 Billion by 2015.

It has plans to develop already developed markets with single digit growth whereas going aggressive in emerging markets with a low double digit growth. It plans to open approximately 250-300 new Nike retail stores in its direct selling initiative. It plans to work with retailers for enhanced consumer experience.