Nike's growth is not just affected by the local economy but also in the international economy. A weak Euro and an Asian recession could mean weak sales for Nike. The overall results in the sales generated by Nike in athletic footwear, however, remained stable. The global market makes up for the variances in sales particularly between peak and lean seasons.
Political and Legal
The government must create economic policies that will foster the growth of businesses. Nike, fortunately, has been helped by the US policies, which enable it to advance its products. The support accorded to Nike by the US government, particularly in the general macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike’s growth.
Nike has created many different ways to stay within compliance with government regulations. One of the ways is Nike has created levels of compliance to ensure each of its factories are being operated correctly. It also has found new ways of improving the working conditions in its factories. Due to the bad press and the past problems with child labor Nike had to change its limitations and conduct to ensure that children under a certain age were not working. Because of this laws were enforced and Nike created Code Leadership Standards. “Nike opposes child labor. In 1998, we directed contract factories to set age standards at 16 for apparel and 18 for footwear factories - more demanding standards than those set with the 1991 Code, and exceeding the International Labor Organization's minimum of 15. Wherever NIKE operates around the globe we are guided by this Code of Conduct and we bind our contractors to these principles. Contractors must post this Code in all major workspaces, translated into the language of the employee, and must train employees on their rights and obligations as defined by this Code and applicable local laws” (Nike, 2009).
The impact of government regulations has caused Nike to create more programs and be a part of the Global alliance to ensure its factories are being used correctly and not out of compliance with the government. Nike has also created programs to suite its employees as a token of good faith to show it has its workers best interest in mind. Unions are also in place to keep employees involved and to ensure employees are being treated fairly and compensated fairly. Nike also introduced the Code of Conduct in 1991 to set standards for its organization. Nike opposed child labor and made sure its employees are not underage children working in its factories. Nike uses the Environment, Safety and Health (ESH) to ensure its workers have safe working conditions also.
Technology and Systems
Nike uses IT in its marketing information systems very effectively. Nike applies marketing information systems to the economics of innovation, segmentation and differentiation for most of its businesses. Nike’s leadership status owes in large part to the use of extremely valuable information technology, and applying it to every aspect of the product from development to distribution.
In a world of globalization and technological developments, many corporations choose to outsource their work. However, “Nike Focuses on its Core Business. Nike is the world’s largest supplier of athletic foot ware, a technology and fashion intensive sector that requires high levels of marketing and production flexibility. In order to focus on these strategic activities, the company sources nearly 100% of its manufacturing through a global supplier network. This enables Nike to create maximum value by concentrating on preproduction (research and development) and postproduction activities (marketing, distribution, and sales). The entire process is integrated by what is, perhaps, the best marketing information system in the industry and a highly sophisticated supplier coordination and governance program.” (Pradhan et al, 2004)
Macro-Environment
A clear understanding of what macro-economic forces are comprised of is essential to the development of a strategic plan. Individually the forces are of equal importance, however, the cause-effect relationship among them compounds the need for a collective evaluation. Tracking certain economic factors is also important during the development of the strategic plan. A variable such as determining the optimal deployment date of a very expensive advertising campaign is critical. By tracking the economic status of Nike’s market, the company is better able to predict consumer response. The following are some of the most commonly tracked economic indicators and what they measure:
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Gross Domestic Product (GDP) is the total market value of all goods and services produced within a country during a given period of time, usually one year. This is the government's official measure of how much output our economy produces. It is tracked quarterly for the nation. (Investorwords, 2009).
- Consumer Price Index (CPI) is an index that measures changes in the price of a basket of typical consumer goods. The changes in the index reflect price changes; hence monthly changes in the CPI represent the rate of inflation. The CPI is a widely used indicator of inflation (or deflation) and indicates the changing purchasing power of money in the U.S. (Investorwords, 2009).
- The unemployment rate is the percentage of labor force that is unemployed (actively looking for work). It is a key indicator of the performance of the economy, generally lagging economic activity.
- The federal funds rate is the interest rate that banks charge each other when loaning bank reserves through the federal funds market. This is a key interest rate in the economy because it helps to determine banks' minimum cost of getting funds.
Demographics
Nike's once loyal market is currently aging. This means that our customers are not as athletic as they may have been in the past. However, this presents an opportunity for Nike because Nike can influence the next generation of Nike customers. The older generations of Nike brand purchasers have the power to influence their children - part of the next generation of Nike loyalists. In addition, by marketing different types of shoes to this market, these existing customers will continue to be loyal to Nike.
The phenomenon of the aging of our most loyal market segment questions whether there is a threat that the new generation will not be exclusively loyal to Nike. In the current market, there are a number of other competitors that are not mainly athletically oriented. Examples include such manufacturer-retailers as The Gap and Old Navy. Their clothing and shoes are competing with Nike's. In addition, Nike is not keeping up with the latest trends and styles like some of its competitors have been.
Nike, Inc. Strategies
Nike's current series of strategies are aimed at increasing the company’s global logistics and strengths while refining its strategic vision to capitalize on emerging market opportunities. To be more precise, Nikes' strategies today are focused on making their entire global organization demand-driven, where customers' requirements are accurately communicated to the manufacturing centers globally in addition to the company's vast supply chain. Aligning strategies to this vision of a synchronized demand chain is the greatest challenge for Nike in attaining strategic alignment globally today. (Nike, 2009).
One of the most urgent strategies within Nike that needs better alignment to the vision of a synchronized demand chain is a re-vamping of their distribution channels. Globally Nike has exceptionally high quality products, yet their distribution partners are exceptionally weak at managing gross margins. As a result, Nikes' profitability is being directly impacted by the over-distribution in several countries of their shoes, the rise of black-market counterfeit products, and a distribution strategy in the U.S. and Europe that concentrated in market breadth and in-channel market share dominance over margin retention and profitability. To better attain strategic alignment from a distribution strategies perspective, the company will need to limit selling of its products through mass merchandisers including Costco, Wal-Mart and comparable discount-centered retailers like these who generate higher gross margins on Nike shoes and associated products than Nike themselves earn on them. (Nike, 2009). In addition to margin deterioration occurring due to choosing distribution partners for breadth of selling versus margin retention, Nike also has now to contend with companies such as Wal-Mart attempting to define their product strategies for them. The development of the NikeID.com site, where Nike consumers can build their own customized shoes online, was used by Nike to launch their high-end shoes to avert margin erosion and price pressure from companies such as Wal-Mart. (Nike, 2009). Nike plans to accelerate growth through focused execution by opening retail stores globally and by acquiring other company products such as Converse (Chuck Taylor) shoe line. (Nike, 2009). Nike plans to use customer intimacy to develop a new and deeper relationship with its customers. In addition, Nike plans to use a differentiation strategy to increase its brand image and develop and innovative as well as quality product. Nike plans to counter slow sales in the US by growing internationally in locations such as China, Europe and Eastern Europe.
Grand Strategies
For the grand strategy, Nike uses innovation to produce top quality athletic footwear and apparel. As a result of devoting vast resources to the research and development of its products, Nike has captured the largest market share in the athletic footwear and apparel industry and continues to be the leader of quality products. Nike is focused on delivering superior and innovative products to its customers. In addition, Nike is focused on accelerating it growth by opening at least 1 store a day in international markets such as China. Nike also plans to grow by partnering with or acquiring companies such as Converse. That acquisition has allowed Nike to acquire the Converse shoe line known as Chuck Taylors.
Competitive Advantage
In the past, our company has utilized product differentiation as our competitive strategy. As our reputation dictates, we will continue to place our emphasis in this area. Nike has built its business on providing products that rise above all others; it has made us the success that we are today. Nike is known for its technologically advanced products. Nike, Inc. has dominated the athletic shoe market since 1988, but still has strong competition from Reebok and Adidas. Nike currently holds over 37% of the athletic shoe market, while Reebok maintains about 20% and Adidas 12%. This considerable market share has been achieved through many factors. (Nike, 2009). One of these factors is the high consumer awareness of the Nike name and logo. Nike is now able to drop the name and include only the logo on their products. The Nike "swoosh" has become the most recognizable trademark in the shoe industry. (Nike, 2009). This is a huge advantage among the brand conscious demographic and a major contributor to their control of the market. In addition to brand name recognition, Nike is able to stay one step ahead of the competition through superior research and development. Nike spent approximately $97.5 million in 1999 for research and development. Nike designers do extensive laboratory work using new and innovative technology to design new products. (Nike, 2009).
Long-Term Objectives
As a long-term objective, Nike plans to continue taking advantage of the female market with female sports becoming more popular. Nike’s women’s apparel division has done well with the sales of women’s apparel accounting for 22% of Nike’s $4.7 billion apparel business. (Nike, 2009). Nike plans to continue developing the women’s apparel division and Nike has set the goal to increase the sales of women’s apparel by 30%. “By region, futures orders for the U.S. were down 1 percent; EMEA (which includes Europe, the Middle East and Africa) decreased 25 percent; Asia Pacific declined 1 percent and the Americas were down 4 percent. Excluding changes in currency exchange rates futures orders in EMEA would have declined 9 percent, increased 2 percent in Asia Pacific; and increased 22 percent in the Americas region.” (Nike, 2009). In addition, Nike plans to increase future orders for U.S by 2%; the EMEA (which includes Europe, the Middle East and Africa) orders by 2% gradually to make up the 25% decrease; and increase the Asia Pacific future orders by 2%. “Revenue decreased 2 percent to $4.4 billion, compared to $4.5 billion for the same period last year. Excluding changes in currency exchange rates, revenue would have increased 2 percent.” (Nike, 2009). Nike plans to increase revenue at least by 2% to meet or surpass the $4.5 billion for the same period last year. (Nike, 2009).
Nike Financials
Nike employs Ernst and Young, and Price, Waterhouse, Cooper to conduct audits of their financial statements worldwide. “The standard Industrial Classification Codes that appear in a company’s disseminated EDGAR filings indicate the company’s type of business” (SEC, 2005, p.1). Nike’s standard industrial classification is Rubber and Plastics Footwear 3021. “These codes are also used in the Division of Corporation Finance as a basis for assigning review responsibility for the company’s filings” (SEC, 2005, p.1). The industry Nike is considered a part of is Textile – apparel, footwear and accessories. “Nike, Inc. is engaged in the design, development, and worldwide marketing of footwear, apparel, equipment and accessory products” (2005 p.2). Nike’s company financial statement reflects the growth of the company. The company financial data encompasses both quarterly and annual reports, as well as a consolidated version. Included in the reports are income statements, cash flow statements and balance sheets. The annual income statement reflects the total revenue over the past few years, including gross profits. In addition, the report includes total operating expenses, operating income, and operating expenses.
(Nike, 2009).
Current Price Elasticity of Demand
According to the eBook, price elasticity of demand is defined as “the percentage change in quantity demanded divided by the percentage change in price” (Colander, 2004), which determines the magnitude of the change in the quantities demanded of the product when its price changes. For Nike, Inc., its prices are fairly elastic because it is not the only producer of shoes and sport apparel. Nike has to maintain a fair price to keep up with its competitors, but most of the time it is Nike that sets the standard for prices and its competitors try to follow that same trend. The demand for Nike products is in high demand so the prices are determined based on the demand for the athlete that is advertising the product. For example, when Michael Jordan was the advertising tool that Nike used to market the Air Jordan’s the price rarely went under $120. Because of Michael Jordan’s popularity, the shoes usually sold at a premium price and usually sold out. It is rare that the price elasticity of demand for Nike products falls to inelastic because the company knows to whom to market its product. If Nike, Inc. came out with a new Air Jordan and it decided to raise the price to over $150, the demand would be still high because there is a market that is willing to pay that price for Nike Air Jordan’s.
Recommendations
Nikes’ goal should be to achieve 100% of the US Basketball Shoe market by 2010 and to attempt to drive Adidas/Reebok from the basketball segment of the footwear market through promotions and celebrity appeal. In addition, Nike should want to have the top market share in China for athletic footwear by 2010 and Nike should set a target 25% of 2008 advertising budget to Asia/Pacific region by offering Yao Ming a celebrity endorsement deal. Another goal would be to attain sponsorship of the 2012 London Olympics and target product placements and advertising to dominate 2012 Olympic television coverage worldwide
As a global corporation designing, developing, manufacturing, transporting, selling and marketing in countries all over the world, Nike encourage, establish and direct partnerships and diversity in the global marketplace. Many of Nike's strengths lie in the firms marketing, design, research and development abilities. Nike developed new and innovative products that met the needs of serious athletes, while setting fashion trends in the process. Researchers conducted extensive research and testing to define human movement and create performance enhancing and injury-reducing products.
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