mgt300 - nike strategic analysis

7/27/2019 Mgt300 - Nike Strategic Analysis

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MGT300: Group ProjectAshleigh Robinson, Nana Yaa Dankwah, Thomas Avery and Nick Jowers

21783, 20691, 1013999, 1018899


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31/07/13 MGT300:GroupProject-NikeInc.

(21783) (20691) (1018899)(1013999)


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1. Executive Summary2. Current Situation : Nike in the Athletic and Leisure Footwear/Apparel and Athletic Equipment

Industry3. The External Environment: General Environment and Industry Structure4. The External Environment: Competitor Analysis5. The Internal Environment: Key Competencies and Sustainable Competitive Advantage6. Strategic SWOT Analysis7. Nikes Current Business-Level Strategy8. Nikes Main Functional Strategies Contributing to Overall Success9. Nikes Corporate Strategy: Overview10. Recommended Strategies: Overview11. The New Nike Strategy 2014-201612. Management Control and Governance13. References



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-The Current Situation: a strong brand operating in a highly competitive market and generating over US$24.1 billion in revenue (+16% 2012 vs.2011).

- Nikes Main Division is Nike Brand Footwear comprising 53% of stock price, and has shown consistent growth within the global market share

over the over the last few years.

- The External Environment is characterised by a recovering domestic retail market, with increasing global competitive forces and 3 major competitors

- The Competitive Forces in the industry are High, Bargaining Power is Strong, especially across Buyers Power, Barriers to Entry and Rivalry. - Nikes Key Competitors are Adidas, Puma and Asics. - The Internal Environment highlighted key competencies around efficiency, quality, innovation and customer responsiveness, resulting in

value creation and superior profitability.

- Nike has two Sustainable Competitive Advantages of brand recognition and product innovation as well as some temporary competitive advantages of product quality and efficient operations.

- The SWOT Analysis highlighted that there are big opportunities for Nike, offsetting threats and weaknesses, especially growth of production

operations overseas, strengthening of Global brand and the creation of further and improved technological innovation and advancements.- Nike employs a Differentiation Business Strategy which encompasses both product differentiation and marketing differentiation.- The main Functional Strategies are implemented by Nike within their Research and Development as well as Marketing divisions.- Nike implements a number ofCorporate-Level Strategies including a multi-business strategy, mix of acquired and organic growth strategy and a

global strategy.- We recommend a Mixed Approach to strategy; including utilising some past strategies as well as a fresh and new approach.- 3 Strategic Initiatives were identified for implementation, consisting of a number of activities between 2014 and 2016, with focus on introducing a cost

leadership focus as well as focusing strongly on continued differentiation from competitors.- Management control and governance will be achieved through regular reports, check ups, target setting and performance measures.- References



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Nike, Inc. Nike was founded in 1964 by Bill Bowerman and Phillip Knight, and since

then has evolved from its small beginnings of selling shoes out of a car trunk

to the largest seller of athletic footwear and apparel in the world. (1)

Nike designs, markets and sells athletic and leisure footwear, apparel,equipment, accessories and services worldwide through Nike-owner retail

stores, various distributors and online sales in over 190 countries.

Phillip Knight, Chairman of Nikes Board of Directors and Co-founder is themajority shareholder, owning over 74.8% of the companys Class A Common

Stock (1). Mark Parker is the President, CEO and Director.

The Nike Brand is considered the strongest asset within the companiesportfolio, accounting for approximately 85% of total revenue.

In 2012, Nike generated over UA$24.1 billion in revenue, which is a 16%increase from the previous year. (1)

Nike has created a long-term vision which relates to integrating sustainabilityinto everything the company does. With core values relating to environmental

impact, renewable resources, sustainability and innovation. (2)

Nikes mission is to bring inspiration and innovation to every athlete* in theworld. (* If you have a body you are an athlete) (3)

A number of factors represent a significant risk to Nikes operations, whichinclude; strong competition within the market, as well as rapid changes in

consumer preferences and technology. (1)


Nike announces Strategic leadership changes

At the beginning of the year Nike announced that they wrestructuring their senior management team with the ovealigning their long-term strategy with the companies org

strategy. This will also result in the re-evaluation of Nik

chain, manufacturing processes and capabilities, the sus

Nike products and the Nike brand itself. (4)

- The company was originally called Blue Ribbon Sporbecame Nike in 1978.

- Phil Knight is a track runner, Bill Bowerman was his c- The name Nike comes from the Greek Goddess of Vi

came from one of the companys very first employees

- A graphic art student designed the Swoosh logo and w$35.00 for it.

- The first athlete signed by Nike was tennis bad boy Jin 1978.

- Michael Jordan is Nikes highest paid endorser, earninannually from the Jordan brand!

- The most expensive shoe released by Nike is theLeBron X at $315 a pair


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Nike Footwear Global Market Sha

- This graph refers to the dollar mark

Nikes main division (Nike Footwear

the international market for sporting

- As can be seen, Nike footwear has s

consistent growth within the global

share over the past few years, reachinthe end of 2012. (6)


Nike Percentage of Stock Price

This shows the percentage contributiNikes different divisions to the estim

price and is calculated using forecast

pricing, market share and profits mar

- Nike Brand footwear constitutes 53price estimate for Nikes stock

- Nike Brand apparel makes up 26%

estimate for Nikes stock (5)


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- Demographic- Population Size 313,847,465 0-54yrs 74.4% (7), Age: 6

months-late 50s ,Industries: Clothing, footwear and sporting apparel.

Targeting men, women and children

- Economic -Recover of US retail market resulting in a 17% revenue increase

for Nike (1). Leading global athletic footwear manufacturer holding around

20% market share (8). Equating to 44% of Nikes North American revenue in

2012 (3). Raising levels of income in developing markets.

- Political/legal Copyright issues, past public relations issues with off-soreproduct manufacturing.

- Socio-cultural - Continuing strong brand recognition, ongoing innovation

(i.e Nike Fuel Band), Successful endorsement campaigns continue to

increase sales (e.g FIFA World Cup, NFL league and individual team

sponsorship), Growing sales to Female shoe market, corporate responsibility

is effecting consumer choices.

- Technological - Top of the range innovation (won the innovation award),

constantly innovating

- Global - Continuing growth of global scales (Asia specifically, China)

Key Environmental Drivers in the industry are: 3 Major Competitors



Competitive Forces

- Rivalry -Nikes threat of rivalry is Medium. Nikes annual report states Nike is the Largest seller ofootwear and apparel apparel in the world(1). This statement found in Nikes annual report highlightsposition. Nikes global footwear market accounts for 20% of the market share with Adidas and Asics m10% of the market totaling a grand total of 30% market share within the industry (8). Although Nike hmarket lead however it is experiencing higher levels of competition as the surrounding companies comaggressively with endorsement marketing (9).

- Threat of substitutes-Nikes threat of substitutes is low/medium. Nikes brand power has been devlast 50 years and now gives Nike a comprehensive competitive advantage within its markets . Nikes marketing and endorsement strategies such as the Hero endorsement and International Team sponsocontinued to link the Nike brand with success on the highest levels of sporting prowess (10). Howevercompetitors Adidas are gaining market share as they continue to compete with Nike for Sport endorsesponsorship (8). To counter this rise in competition Nike needs to focus on continually innovation. Thrmonitoring technologic advances and continuing to work with leading technologic companies such as

on to their competitive advantage.- Bargaining Power of Buyers- Low due to lack of substitute product. This is created through extensivcampaigns involving endorsements and brand recognition (Nike Swoosh, sponsorship of all major spoevents both national and domestic e.g. Football world Cup , Jordan Shoes)

- Bargaining power or Suppliers- Nikes power of suppliers is currently low due to Nikes economiesexisting relationships and developed distribution networks. However this is shifting from low to low/mcompanies enter into off-sore production. An example of this is Nikes main competitors Adidas have their manufacturing facilities with in Asia (11). This is leading to a stretch of resources and capabilitiemanufactures as companies demand for products increase due to continuing success and more and mocompanies enter Asia and Africa. This can lead to a shift in bargaining power if Nike is to remain withmanufacturing regions.

- Threat of New Entrants - Low due to high cost of set-up, require extensive marketing budgets and skcompetitors such as Adidas, Puma and Asics already compete within an extremely competitive marketholding 20% of the market share (8). New companies would lack the initial market power to compete level, further more knowledge of out-sourcing and working in foreign cultures is required to compete manufacturing adding to the difficulty.


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CapabilitiesNike has a strong team of staff who implement, control and managethe quality, efficiency and effectiveness of the outsourcedmanufacturing plants. This in turn creates a product which is sort afterby consumers within the industry. (1)- - Brand Management

- Business Analysis Financial Planning- Product Design and Innovation- Strong R&D- Strategic Planning- Good Reputation- Marketing and advertising capabilities

- Understanding needs of consumers


TangibleResources Intangible

Resources:Nikes production plants are

located all around the world, andthe capacity to which Nike can

effectively deploy its resources ismet through the innovative and

strategic measures. NikeManagement states that

intangible resources are difficultfor competitors to imitate and/or

understand (1). This allows themto gain an advantage immediately

over competitors.

Core CompetenciesNike builds and extends upon their

core competencies to help providevalue creation for customers. Nikes

resources, both tangible andintangible and Nikes capabilities

make up the core competencies- Brand Management

- Financial Management- Resource Efficiency

- Market Knowledge(16)

(17)


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Competitive Advantage

Nikes core competencies play an important role in the companys success giving the

company a competitive advantage, and differentiates Nike from its competitors. Todevelop and maintain its competitive advantages, Nike uses its tangible and intangible

resources and develops their capabilities and competencies to their maximum potential.

- Brand Recognition and Brand Loyalty

- Product Quality

- Product Innovation

- Efficient Operations

(20)

Value Chain Analysis

Value chain analysis is a ..process where a firm identifies its primary and support

activities that add value to its final product and then analyze these activities to reduce costs

or increase differentiation. (19). Nike competes on a differentiation advantage. Thesource of Nikes differentiation comes from their ability to create superior products over

their competitors and satisfy different customer needs, resulting in increased profits.

Primary Activities: Inbound Logistics (use of raw and specialised material, inventorycontrol), Operations (outsourcing manufacturing, research and development to achieve

technological innovation, quality control), Outbound Logistics (global distribution

channel, strong supplier relation), Marketing (strong brand recognition, hero-athlete

endorsement, variety of products offered, aggressive marketing) and Services (customer

responsiveness, added value, use of IT, product quality) (1)

Support Activities: Technology Development (research and product development,product and design improvement, leading edge within market) Human ResourceManagement (strong management, staff training, good employee relations), Firm

Infrastructure (IT systems, online infrastructure, financial management and corporate

social responsibility) and Procurement (good and long-term relationship with suppliers).

(1)

CompetitiveAdvantage

Valuable Non-substitute

Non-inimitable

Brandrecognition

Y Y N

ProductQuality

Y N N

ProductInnovation

Y Y Y

EfficientOperations

Y N N

= sustainable competitive advantage

= temporary competitive advantage


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Opportunities- Demographics- Increased sales to women and children ,Growing

within Asia.- Economic- Continue growth of production operations to new Asia

decrease competition. (Vietnam, Indonesia). Global footwear mark

to grow 1.8% by 2018 due to growing population (8).

- Socio-Cultural- Entice high level endorsers due to brand image/r

campaign) ,Changing social importance of healthy living. Product

superior performance and social prestige.

- Technological - Highly developed research and design team (NSR

Reputation for technologic superiority, Create trends through endo

strong marketing

- Global-Economies of Scale, Established distribution networks and

relationships with producers, Strengthening of Global brand.

Weaknesses- In the past Nike has faced and been accused of unethical business practices and in

particular that of labor violations, which has created bad publicity for the company.

- The majority of products are outsourced and in doing so the company creates a bad

image for itself, particularly in the USA.

- Internally it is difficult to manage the quality of the production processes in off-

shore manufacturing plants and therefore as the companys success lies entirely on the

production of its footwear and if there was a slight decline in the quality of some of the

footwear the entire company could collapse.- Nike products are very price sensitive, people who buy the products expect to get

what they pay for, in other terms as the products are generally of a high quality

customers are inclined to pay a higher price for them. (21)

- Currency exposure due to global presences

Threats- Economics- Recession, Incorrect forecasting can effect manufact

Increase of Interest rates.

- Political/Legal-Increased tariffs to offshore manufacturing, Failu

intellectual products.

- Socio-Cultural- Changing design trends, Failure to maintain repu

image ,Lack of continuing corporate responsibility increases can d

reputation.

- Technological-Failure to anticipate customer preferences and pop

advances, Rapid technology advancements leads to loss of market

- Global- High levels of Global competition, Decreased production

independent producers as more companies go off-sore, Counterfei

production due to differing copy write law enforcement globally (

Strengths- Nike has benefited from its prominent brand and is easily recognizable throughout

the world as a sports apparel and footwear brand.

- Brand equity i.e. The Nike logo is very distinctive and The Nike Slogan just do it

- Global Presence

- Diverse range of products

- Nike has a strong research and development process, which strives to add value to

its products, and in doing so Nike is highly perceived as a high quality brand. As the

product is highly perceived people are more willing to spend more money on the

products.

- Repeat customers, generally people who buy Nike products are doing so because they

are content with quality and brand image of the product and therefore are more likely

to purchase Nike products again

- Nike products are highly fashionable in the sports industry.


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Business Strategies: Nikes current market development strategy encompasses both product differentiation and marketing differentiation. Nike diff

products from its rivals based on perceived superior quality (product differentiation). Nike conducts marketing differentiation by uadvertising and marketing campaigns to provide a unique and exclusive image.

Unique Value Proposition: Nike define innovation to create value and increase consumer demand by creating a need (1) Nike offers customers reasons to keep preferring the brand over competition from rivals through differentiating their products by offe

quality products and creating innovative must have products as well as delivering exceptional consumer experiences in retail and online Nike has the opportunity to build deep personal connections between the consumer and brands by promoting fundamental elements

which help consumers notice, recognise and recall the brand name. For example, Nikes tagline just do it and celebrity endorsements Woods.

Nike caters to three demographic market segments: men, women and children. Research and Development is conducted frequently tomarket in terms of new emerging trends in sports wear, physical capabilities of individuals, scientific and technological advancement

equipment, athlete attire/accessories as well as design preference. Evidence of Nikes differentiation strategy can be seen within their decision to employ professional athletes to promote their products.

Tiger Woods endorsement of Nike led to the introduction of Nike into the golf industry and eventual creation of golf products. (22) Furtcan be seen in Nikes international marketing. Nike associates its brand with the most respected and well-known world sporting eventsGames and Soccer World Cup. (23).

Opportunities: Nike makes the business stand out by offering unique features of high quality, innovation and customer experience. Opportunbrand loyalty. Product and Marketing differentiation provides competitive advantage for Nike over its competitors. Focus on innovation. In ordcompete on Product differentiation, Nike is continually investing resources into researching and developing new and improved products baseproduct features, performance and design.Threats: The cost of implementing differentiation strategies is high. For example, ensuring constant innovation as well as large-scale marketin

campaigns with international events and sports athletes is very expensive. Nike must be wary of imitation from competitors offering cheaper athe market, as well as changing consumer preferences. (24). They can help prevent this through constant innovation and product development.



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Functional Strategies:Functional Strategies are implemented by Nike within their product development, manufacturing, research and development as

well as Marketing departments. Nike typically outsources the manufacturing of its products to different countries within Asia, to

help focus on and improve effectiveness of the most important functional strategies of research and design aimed at increasing

innovation as well as their marketing strategies.

Research and Development:- Nike runs its own Sport Research Lab that specialise in areas of biomechanics, engineering, design, exercise

physiology, sensory perception and chemistry (25)

- Nike has had some of the most entrepreneurial products within the market. For example:

- Nike also is an expert in manufacturing high-performance fabrics that aim to enhance athletes performance

- NIKEiD: allows customers to design and customise own shoes online, personalising experience.

- NIKE+ range: company made strategic alliance with Apple, allows customers to connect apple devices such as iPhone

and iPod to sensors in Nike shoes to measure steps, distance, time and speed what you could refer to as the smartshoe in combination with the smart phone.

- Nike has been listed in the number one position in The Worlds 50 Most Innovative Companies of 2013 a list recently

released by Fast Company (26)

Marketing:Basis to Nikes winning marketing strategy, which has brought the company to be named the number one shoe and

apparel company in the world (27). Three main marketing elements used include:

- Nike Swoosh Logo: strategically placed on uniforms and athletic apparel of famous athletes, and becomes visually

prominent as they perform in such events as the Olympic Games, which are covered by multiple mediums worldwide.

- Hero Athlete Spokespersons and Celebrities: used to endorse and associate the brand with well-known celebrities.

- Creating unique advertisements that become covered by the news: media promotes brand for free, and creates large

social media hype, which helps the company leverage the intended message and Nike brand. For example the 2012

She Runs campaign aimed at connecting specifically with female runners. (28)


Opportunities: Nike celeb

created a relatively high lev

awareness. Mass media and

marketing campaigns enha

image.

Threats: High costs, chang

trends and consumer prefer

innovation means more adv

problems associated with abrand with athletes i.e. bad

heroes i.e. Lance Armstro

Pistorius

Opportunities: Opportunit

unique and cutting-edge pro

the company a competitive

others, once product develo

generate long-term income,

research can present new op

business. Can help discover

that exist or will emerge in t

value to the companyThreats: Research and Dev

presents high costs, potentia

competitors to copy or imita

technological developments


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Multi-Business StrategyRelated diversification: Nike is an extremely diversified company, and related diversification is a major tool of

the companys corporate-level strategy. The business has expanded into activities and product lines similar tothose that it currently offers. For example, Nikes product offerings cover basically all sporting needs in footwear,

apparel and equipment (29). Further, Nike use their aggressive and differentiated marketing and advertising

campaigns to help achieve growth within their business. Not only is Nikes product mix diversified, but Nike also

implements diversification using their suppliers. Nike is a global business with a worldwide customer base and

uses manufacturers in as many as 43 different countries (30).

Acquired Growth StrategyMerger and Acquisition Strategies: Nike is continually seeking sources of competitive advantage, and have

historically implemented a number of horizontal merges and product extensions. The company has a mixture of

both organic growth through innovation and creating new products, as well as acquisitions of new businesses.- 1988: acquired Cole Haan, upmarket and fashionable footwear (Sold 2013)

- 1994: acquired Bauer, hockey products (Sold 2008)

- 2002: acquired Hurley International, surf apparel.

- 2003: acquired Converse, former basketball shoe competitor.

- 2004: acquired Stater, premium athletic apparel (Sold 2008)

- 2008: acquired Umbro, soccer apparel

(31)

International Strategy:Global Strategy: Nike encompasses a global strategy in the sense that their products are standardised

for different national markets more often than not Nikes products are the same in regards to price,quality and reputation within international markets. Further, strategic decisions regarding Nikes

business-level strategies are centralised at Nike Head Quarters, which is based in Oregon, Portland..


Opportunities: diversification ofprovide an opportunity for Nike tand create value through the use ocore capabilities more broadly, wh

diversify risk. Flexibility to movmarkets. Reduce dependence on swThreats: too much diversificatioincreasing number of businesses cresource allocation and managcoordination problems, as well as c

bureaucratic costs increasing.

Opportunities: Create economic vincrease profits for shareholders. In

power within different product marand revitalise the company as well a

Build upon core competencies. Levto increase profit.Threats: integration problems betwand corporate cultures, employees mexpenses associated with purchase.

Opportunities: Leverage economhelp gain access to low-cost produmaterials as well as gain access tofor existing products. Once develosell in all global markets. Astandardised across all countries r

Threats: Global strategy may nmarkets as some may have particulmay be more sensitive to pricing. in terms employment laws in companies. Also unpredicted eventdisasters and war company obligations


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Business Strategies:In the past, Nike has utilised a product differentiation strategy which is used to help compete within the

market. As the companys reputation and success dictates, we would continue to place emphasis on this area.Some additional activities that could be undertaken to further differentiate the company from its competitors

include introducing a Formula 1 Sponsorship team. However we also suggest that Nike consider focusing on

trying to develop and make a strong effort in cost leadership strategy as well as differentiation. In the past,

Nike products have been concentrated at the higher end of the pricing scale. We suggest that within the Asia

Pacific market Nike make an entrance into the lower range pricing scale by developing an entire new brand,

whilst still ensuring high quality products.

Corporate StrategiesCurrently Nike focuses on an International Global Strategy with standardised products and marketing

internationally. There is a high need for global integration, but perhaps there is also a need for local

responsiveness? We suggest that Nike move more towards a Transnational Strategy, where the company

can still take advantage of economies of scale and their centralised strategic decision making, but also starting

to acknowledge the needs of customers in different international markets. Therefore, Nike would need to seek

to achieve both global efficiency and local responsiveness. Suggest not so much developing individualised

products, but more tailoring advertising and marketing of Nike products to individual markets, rather than

using one global standardised approach.

Functional Strategies (Marketing):Nike currently follows a hero-athlete marking strategy which has and still does work extremely successfully

for the company. This strategy has received some negative criticism due to the bad behaviour of some of their

heroes i.e. Tiger Woods, Lance Armstrong and Oscar Pistorius. We suggest that although they have receivedthis they need to keep following this strategy. Currently, Nike sponsors and endorses the elite of the elite, if

they were to stop this these athletes would be picked up by competitors such as Adidas and Nike would no

longer be in the number one position.


Opportunities: enables Nike to appea

of customers, capturing a greater hold share within Asia Pacific. Try to avoid

Threats: by offering a cheaper alterna

to maintain quality as well as many cu

disappointed if product is not durable

This could potentially turn customers o

Nike brand.

Opportunities: enables Nike to appe

range of customers, capturing a grea

market share within Asia Pacific. TryThreats: by offering a cheaper altern

sure to maintain quality as well as m

would be disappointed if product is n

does not last. This could potentially

off the associated Nike brand.

Opportunities: high level of brand aw

Threats: bad behaviour of athletes cou

negative perception of Nike brand. Cdetrimental to companies image as hig

media


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Keyrecommendations When ProceduresandPolicies

Cost Leadership: New AffordableShoe Line 2014 2016 Nike has been saturated within the athletic and apparel market and could focus on introducwhich targets a younger demographic and also focuses on maintaining high quality but also

price. Research has found that amongst athletic-shoe brands, Nike ranks 5th among consumersNikes main competitor within this footwear market is Vans. We suggest that Nike develop

directly compete with Vans, and heavily promote this product to the younger demograph

market through specific advertising and marketing campaigns. The cost-leadership focus makrange an affordable product appealing to the younger demographic.

Differentiation: Formula1Sponsorship 2015Onwards We suggest that Nike should continue to compete on a differentiation basis by introducsponsorship, by creating a Nike racing team. This new sporting alliance will aim to inc

wider range of market segments by penetrating the racing market. The Formula 1 currentlysponsor so this is an opportunity for Nike and will allow Nike to further differentiate

competitors. They would establish themselves as the first sportswear and footwear bransporting segment. Nike could even look into designing a racing suit, helmet, gloves to broawear and have racing team members wearing this to promote their brand.

Marketing: Hero-Athlete Strategy 2014-2016 Expanding and building upon the Nike hero-athlete marketing due to its current and prevstrive to help prevent bad behaviour of athletes. Nike could potentially issue a clause within

clearly outlining that if their actions reflects badly on the Nike brand they will be droadvertisement, campaigns and pullout on sponsorship. Introducing mandatory screening suc

Nike currently sponsors the elite of the elite, and if they were to drop this strategy these a

taken by Nikes main competitors. It has been suggested that perhaps Nike should limit the sponsor however, if this was to happen the odds of an athlete making a bad decision w

Furthermore, although the media is quick to highlight the wrong doings of these athletebecoming more aware and understanding that they are only human and do make mistakes. Ni

by there athletes and take action to help support them within their sporting careers to help pr

reputation destroying decisions.


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Management control and governance are very important aspects of achieving the identified strategic initiatives and can be achiev

number of methods including: Ensuring that Nike is publishing regular reports to make progress readily available to the public, such as quarterly reports. Holding community meetings to help involve the public and help gain and understand community and customer feedback,

company to know where they are going well and where improvements could be considered.

Regular assessment by senior management of company processes and policies Upstream reporting where weekly updates are presented by middle management. Nike can set targets and identify performance measure standards to help achieve strategic goals and objectives Performance and Compliance monitoring of the company, as well annual performance reviews of individual employees. Establishing high standards in relation to ethical behaviour. This can be achieved through management leading by examp

establishing codes of conduct. Setting KPIs (key performance indicators) that are aligned with the overall strategic direction of the company



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http://www.youtube.com/watch?v=JfFd1uOkFEo



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