Macro Elements affecting Nike using a PEST analysis
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Political and Legal Forces – The European Commission wants to assist new European footwear manufacturers into the market by imposing a combination of quotas and tariffs on shoe imports from China and Vietnam. This may push production costs higher as cheap labour may not be legally available to mass produce Nike’s footwear. This will result in Nike having to increase the selling price of the footwear to accommodate the higher production costs. The legal framework put in place by the EU has also prevented companies joining forces to reap monopolistic profits and controls the size of companies to prevent excess market power of any particular company.
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Economic Forces- Nike trades internationally and so is exposed to the nature of international trade. “It buys and sells in different currencies and so costs and margins are not stable over long periods of time” (Marketing Teacher). This means Nike may be manufacturing and selling at a loss, however this situation is apparent for all Global companies.
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Social/Cultural Forces – the UK currently adopts a fat culture which could result in less consumers of sport goods but there has been government schemes and a push by the UK economy as a whole to be more healthy which could improve Nike’s sales of sports footwear. Also There is a current decline in the younger age group in the population and “a rising proportion of people over the age of 45 in the EU” (Jobber). This has made it more important for the footwear companies to cater for this older age group and is an emerging market open for new competition.
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Technological Forces – Nike continue to be innovators in the footwear industry and strives to innovate the best footwear and sports apparel possible. Nike were one of the first company’s to implement the idea behind Nike ID footwear, which offers customised footwear created by the customer on the company website. Other technologies have been innovated by Nike such as the air cushioned soles that first recognized Nike as being a footwear innovator. Footwear is becoming more and more advanced and it is crucial that Nike continue to develop new ideas and designs to cater for the consumers. Advertising is more predominant in everyday life and media can be delivered via internet, television, radio and other technologies so it is easier for companies to promote their products.
Micro elements can be split into four categories. In the following categories I have explained the microenvironment within which Nike operate and the way each category affects Nike:
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Customers – Customer needs are changing and it is important that Nike keeps up with current trend and fashions. Nike have endorsed footwear with famous sports people which sells the product itself and Nike often set the trends however it is important to stay ahead of the fashions so constant research and development is needed to stay competitive. Nike are always the first to try and develop footwear for every major sporting activity, for this reason they need to be able to discover new and upcoming sports and develop products before competitors with ideas that are innovative and new.
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Competition – Nike is the leader in the Footwear market worldwide however there are other large organizations that compete for the market share and in the UK footwear market it is assumed C&J Clarke holds a slightly higher market share in the UK footwear market than worldwide leading competitors Nike or Adidas.
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Distributors – Nike are such a large and established organization that they have a lot of market power and so has its fellow competitors. Most of these large companies that take most of the UK footwear market share sell to retailers and so retailers have the buying power and can put pressure on organizations like Nike to push prices down, hence why the footwear industry is so price competitive.
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Suppliers – The top companies in the footwear market produce most of their products in the East where labour costs are lower so they can produce products cheaper and thus sell at a cheaper and more competitive price.
From further research I found that in the UK footwear market it “generated total revenues of $9.8 billion in 2005, an increase of 3.7% since 2004, representing a compound annual growth rate (CAGR) of 2.7% for the five-year period spanning 2001-2005” (Data Monitor). Also, the market volume “grew by 3.8% in 2005 to reach a volume of 326.7 million pairs” (Data Monitor). This shows the UK footwear market is getting more profitable and is growing.
Opportunities, Threats to Nike and Potential Strategies
It is important to identify the key strengths and weaknesses of Nike to try and find strategies that may be used to help protect the weaknesses and oppose threats and identify and fulfill new opportunities in the market. To help me analyse these strengths, weaknesses, opportunities and threats I am going to use a SWOT analysis to assess the current situation with regards to these factors to try and help me better understand the pressures on Nike and hopefully develop strategies able to effect these current conditions and improve the Nike organization.
Strengths:
Nike is known as the lead competitor in the footwear industry. It is a globalised brand, recognized all over the world. Because of this it plays an important role in the footwear sector and some may say are the trend leaders and setters in particular in relation to sport shoes. Nike promote themselves as the innovator of footwear and pay particular detail to the research and development of their products. Nike do not own any factories which means it does not tie money up in property or manufacturing works. This makes Nike a very lean organization. Nike is the worlds top sports manufacturer and can use this brand image and power to promote their products.
Weaknesses:
The footwear sector of Nikes organization is the largest and most profitable so it is imperative Nike concentrate on the innovation and promotion of their products in this sector. The retail sector is very price sensitive. For this reason Nike have to ensure they are producing products as cheaply as possible without compromising quality. Because Nike sell primarily to retailers this is an ever more important factor as Nike does have it own retailer (Nike town) and large retailers Nike sell too put companies under pressure to produce products cheaply to improve margins.
Opportunities:
“Product development offers Nike many opportunites.” (Marketing Teacher). Although Nike believes they are a sports brand, some consumers of the Nike products do not partake in sport. This shows that Nike is not only a sports brand but is now considered a large fashion brand too. This means there are new opportunities to create innovating products to try and target the fashion market. Nike has used various celebrities to endorse products which has, to some extent, made Nike the trend setter as people copy the stars. This is a great way to promote products and capitalizing on this new, potentially huge market in fashion footwear could promote new opportunities in the sector. Nike could also further their worldwide brand dominance by expanding their services to new countries. China and India are both economies that are expanding rapidly so the increase in income for these two economies could be potential to promote products to the wealthy Indian or China economies.
Threats:
As Nike trade internationally they are prone to changes within the international markets. This can include differing exchange rates so costs and margins are not as stable as they could be. This means Nike has to assess its markets and products especially regarding price, regularly to stay competitive. Most of Nikes products are manufactured abroad to make them cheaper, however, many other companies including Nike’s top competitors have done the same in order to compete with Nike’s cheap production costs. This has made the footwear market very price sensitive and so price competitiveness is now more important than ever before. In the following diagram it shows the fall of the average price of footwear in the UK from 2002-07. This demonstrates the importance of lowering costs as Nike no longer have a sufficient competitive advantage in this sense.
Figure 1: Footwear, average price, 2002-07
Strategic Recommendations
All of these elements of the organization and its market offer opportunities and threats to the Nike organization. I am going to apply what I believe are some attractive options they may have in the short, medium and long term taking into account my research and findings.
In the short term (between 0-3 years) I believe Nike would benefit from the increased research and development into shoes that are aimed at the fashion market. Nike are the innovators and leaders in sports apparel but with this increase in non-sports people buying Nike footwear, it would be in the interests of Nike to start producing shoes primarily for fashion purposes. If a strategy is adopted quickly they may be able to establish a market base before the other competitors can compete effectively in this market however there has already been a move by other large competitors into this market. It may also benefit Nike to implement a strategic plan to manufacture products in other countries cheaply and efficiently as they currently do in China and Vietnam as the EU commission has future plans to restrict the amount of produce manufactured in these countries. If another economy is found that can work as effectively and cheaply as workers in China and Vietnam early, Nike will be able to capitalize on this and once restrictions are put in place, Nike may be able to offer cheaper footwear than its competitors if the competition neglected this area.
In the Medium term (3-5 years) Nike should develop a strategy to increase promotion of its products in China and/or India. These two nations are increasing in size rapidly and in the years to come it has been estimated these economies may be as successful as the largest in the world if not the two largest. If Nike can capitalize in the footwear industry early in both economies they may be able to gain a large market share before competitors which may in the long term become a very profitable economy to sell to as there will be many consumers with high wealth and thus disposable income. Both of these economies have large populations and with the estimated high growth of these economies I think Nike should try and penetrate these markets if they continue to grow. Threats to the Nike organization in the medium term may be the forecasted predictions of the UK footwear market. Future forecast of the UK footwear market shows there may be a minimum volume growth of footwear in the market within the next five years. This shows Nike have to ensure they adopt a strategy that may help protect the company at the time the volume of footwear demanded is low. It is vital Nike can operate effectively and recover after the market slowdown in volume and return as competitive as before if not more competitive. With price still decreasing in all retail sectors it is important Nike always try to cut its manufacturing costs to stay competitive. Pricing strategies could be put in place to tackle this threat and more research into sourcing cheaper resources to manufacture the footwear.
In the long term (5+ years), falling prices has led to volume growth of footwear in the UK being minimal in the future forecasts, it shows “From 2007-12, market growth in value terms will be minimal, while volume growth is expected to decline from 2009 onwards” (Mintel). This makes it very important for Nike to try and gain as much market share as possible before it becomes saturated and no future volume growth can be achieved. This could be achieved with more endorsed products and advertising campaigns to capture the consumers. This could also apply to the medium term.
References
Jobber, D, Principles and Practice of Marketing, 2007 (5th Edition), Published by McGraw-Hill Education, Maidenhead
Footwear in the United Kingdom: Industry profile, Reference Code: 0183-0619 Publication date: August 2006, (http://dbic.datamonitor.com/industries/profile/?pid=87D60C74-7DA2-4CFB-B740-BAC2B267E659)
NIKE, Inc. Company Profile, Reference Code: 1191, Publication Date: July 2006 ()
Mintel, Footwear, UK, 2007 report, (http://academic.mintel.com/sinatra/oxygen_academic/display/id=220168/display/id=313272)
Marketline, Nike Inc - Company profile. (http://dbic.datamonitor.com/companies/company/?pid=8E563969-FC1C-4D3A-8EEE-F9D79F81F0C3)
Marketing Teacher, SWOT Analysis Nike, Inc. ()