Monday, February 28, 2011

Nike Business Level Strategy

To distinguish its brand and increase customer loyalty, Nike uses differentiation business level strategy. It offers high quality goods and acceptable price. Nike is perceived as something “fancy”, in terms of sport goods manufacturer.
The company segments its products in different ways. First of all, it manufactures sports goods and accessories for three different Demographics: men, women and children. Each segment is carefully examined in terms of physical capabilities, sociological needs, and design preference. Along with business level strategy it should be mentioned that Nike uses strong diversification (Corporate level strategy) to support its product differentiation. These products create value and increase customer satisfaction: Apparel, accessories, such as Nike watches or gym bags, as well as performance equipment, including sport balls, timepieces, eyewear, skates, bats, gloves etc. Nike produces goods for every type of major sports: running, basketball, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities, hiking, fencing etc. Such wide variety of goods is an attempt of Nike to increase “Affiliation” dimension. Nike constantly looks what could be added to current product range to increase customer satisfaction and strengthen the links between company and client.
Major advantage of manufacturing a number of product lines is the reduction of risk. In such multiproduct portfolio, if one product is not successful, there are numerous others to compensate this risk. Besides just offering differentiated goods, Nike also adds value with the opportunity for customization.
NIKE designs most of its footwear for athletic use; however, in order to diversify its products, a large percentage of their products come from sales of footwear, apparel, and accessories for casual and leisure purposes. It targets the clients who can afford higher price compared to the products which are positioned using cost-leadership strategy. Major reason to pay higher price is the brand itself, and all perceived benefits that are firmly connected with having Nike.
Besides the two segmentations described above, NIKE also has agreements for licensees to produce and sell NIKE brand items aside from athletic footwear and apparel. In part, this product differentiation is accomplished through strategic management planning by having the company sell NIKE brand timepieces, children’s clothing, school supplies, electronic media devices, and other items. Using such strategy Nike increases firm’s access and connection to customers – the “reach” dimension.
According to Nike Annual Report, company will maintain high quality and acceptable price as major strategy for growth. “We have shared information on the company’s growth strategy, including our aim to achieve revenue of $23 billion by FY11. This strategy is the context for our corporate responsibility efforts. We aim to achieve this growth by delivering premium products, growing in our geographic regions and elevating the retail experience”.

Thursday, February 24, 2011

Nike and Outsourcing


      Sport goods producer companies have two options for manufacturing their products. They can own and operate the factories, or look for the ways of outsourcing. Facilities that are enough efficient for outsourcing, could be located either domestically or internationally. Outsourcing to domestic firms (US) gives advantage of easy monitoring, skilled workforce, well understood labor rules, but on the other hand it is relatively expensive if compared with outsource in developing countries. By manufacturing products overseas, in the third world economies, tremendous efficiencies are gained because of low salary expense, but in this case company has to face increased difficulty of monitoring the quality of their products and the uncontrolled working conditions in the factories.
      Nike uses outsourcing strategy, using only subcontractors throughout the globe. It currently owns a 47% market share of the domestic footwear industry, with sales of $3.77 billion. Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people working for Nike. Vast majority of production comes from China, Indonesia, Vietnam, Philippines, Taiwan, and South Korea. Factories in these countries are owned by subcontractors, with the majority of their output consisting solely of Nike products. 
        To avoid pressure from customers and legal cases against the company, Nike employ teams of four expatriates per each of the big three countries (China, Indonesia, Vietnam), that focus on both quality of product and quality of working conditions, visiting the factories weekly. They also developed their code of conduct in 1992 and have implemented it across the globe. Its goal is to set the standard for subcontractors to follow. However, company still faces problems with executing code of conduct because most of the factories are owned not by the company, but by subcontractors. Factory conditions and human rights issues have been widely criticized by different pressure groups. Even though company responded these issues with Andrew Young report, the Dartmouth Study, and Ernst & Young’s continual monitoring, Nike still needs couple years to eradicate mentioned problems. 

Friday, February 18, 2011

Nike 1

Nike is the market leader manufacturer of sport shoes clothes and accessories. Nike creates benchmark and trends which forces Reebok, Adidas-Salomon AG and Fila USA to follow these market trends despite their will. Strong positions of Nike are also supported with its link to the athletic world’s most recognizable faces (e.g. Michael Jordan - Air Jordan sneakers; Emmit Smith and tennis star Venus Williams - Reebok sneakers).
For the time of its existence, Nike created perfect combination of strong brand, R&D and synchronized strategic management which led company to surprising success.
Even though Nike never stops developing new products, innovations in competitive market are difficult to defend for a long time. Nike’s introduced “Air” technology for Air cushioned athletic shoes in August 1996. The Company has an exclusive, worldwide license to make and sell footwear using patented "Air" technology. The process utilizes pressurized gas encapsulated in polyurethane. However part of Nike patent expired in 1997, enabling competitors to use certain types of “Air” technology.
Reebok, a short time later in early 1997 introduced its own air cushioning technology called DMX. According to its website at Reebok.com; “DMX provides superb cushioning through a unique moving air system.” Besides, in 1997 Reebok launched big marketing campaign based on its new endorsement of the NBA's #1 draft pick, Allen Iverson who was new face of DMX cushioned shoes. Not to be outdone, Fila introduced its own 2A air cushioned technology called ‘Fila 2A’. This fact proves once more that Nike is a trend setter but even has to continue the process of interminable innovation to avoid losing leader position.
As Nike describes on its web site: recognizing the decline of natural resources and the need to move to a low-carbon economy, the tool is a practical way to rate how apparel designs score in reducing waste and increasing the use of environmentally preferred materials while allowing the designers to make real time adjustments.
“This tool is about making it simple for designers to make the most sustainable choices right at the start of the product creation process. Over the past four years it has proved to be invaluable at Nike and has helped us create products with a higher sustainability standard,” said Hannah Jones, Vice President of Nike Sustainable Business and Innovation.
“By releasing the tool we want others to improve on it and we hope to inspire further collaboration to create global industry standards for a level playing field, encourage widespread industry adoption of sustainable design practices and have more sustainable products available for the consumer.”