Nike Company history

Nike Company

Company’s History

Nike was founded as a chief importer of shoes made in Japan and now it has grown tremendously to be a world leader in marketing of footwear as well as apparel. Nike products are sold in about 20,000 retail shops. The company sells its products in approximately 110 countries worldwide. Almost all the products sold by Nike are manufactured by different contractors who are independent companies. However, design, marketing and development are purely done by the Nike Company. In addition to a wide range of athletic shoes, the company also sells athletic equipment, casual footwear and sports related headwear. The company highly relies on consistent innovation of its products and promotions which has led to its tremendous growth both in the United States and other foreign countries.

Blue Ribbon Sports (BRS) which is a precursor of Nike originated in 1962 which was an idea by Philip Knight a business graduate student at Stanford University and a member of the track team at University of Oregon (Carroll and Buchholtz, 2008). After completing his studies he was travelling in Japan and come in touch with Onitsuka Tiger Co. a company manufacturing athletics shoes. He thought that these shoes would sell in the United States since they were of better quality than those sold by Germany based companies that had dominated the market. With the contract that Philip Knight had with Onitsuka Tiger Co. he formed Blue Ribbon Sports that later came to be known as Nike.

In the 1970s Knights venture in the United States had led him to employ about 20 employees and sales increased as the company continued to grow. Knight was frustrated that he lacked capital for the expansion of the company to cater for the demand in the United States. Blue Ribbon Sports was funded by Nissho Iwai Corporation a Japanese company making it possible for them to produce their own line of shoes by use of independent contractors. According to (Gereffi, 1994) a disagreement based on distribution Blue Ribbon Sports broke away from Onitsuka Tiger Co. and embarked on a promotion strategy by having well known athletes to use Nike’s name thus endorsing the brand. Nike’s shoes were used by most serious athletes due to their high performance which was equivalent to their high prices.

Within a year, the new products increased profits to $1.96 million increasing the corporate staff from 20 to 45. Subsequently operations were extended to Canada and then Australia being the company’s first foreign markets. In 1974, the company opened a plant in the United States to cater fro the increase in demand. This brought the number of employees to 250 increasing the sales to about $5 million worldwide. This was due to the promotions done by having their shoes won by prominent athletes. The company opened new manufacturing plants in Maine, Korea and Taiwan in order to keep up with demand for its products. Markets were expanded to South America and Asia by the end of 1977.

In the 1980, Nike had surpassed Adidas an athletic shoe company which was initially a leader in the United States sales. Nike then went public selling two million shares which would allow the company to continue with its expansion. Nike acquired more plants to cater for demand and also established a Research and Development Lab. Production was then shifted from Japan to Taiwan, Korea as well as China. Since athletics shoes were on high demand with high returns, the company also invested in leisure shoes, baby shoes, basketball shoes and tennis shoes.

In 1990, Nike was involved in a scandal where they sued two of their competitors for imitating their brands. The company was also engaged in disputes with the United States Customs Service regarding import duties on its Air Jordan basketball shoes (Gereffi, 1994). During the same year, the company revenues totalled to $2 billion and they opened a shop which they termed as Nike Town where all products belonging to Nike could be purchased. In 1991, the presence of the Nike’s Air shoes had enabled the company to surpass Reebok its rival in the United States market (Holmes, 2004). The company acquires Canstar Sports Inc. a leading manufacturer of hockey equipment and skates in the world and later renamed it Bauer Nike Hockey Inc. The company signed up Tiger Woods to a $40 million endorsement deal for 20years (Gereffi, 1994). In 1996, the company created an equipment division and started selling its products directly to consumers through its web site.

SWOT Analysis

Nike is a company that has thrived in its industry relying on innovation of design to surpass its competitors. Though the company has proved itself to be popular worldwide, it has weaknesses and threats as well as strengths and opportunities.

Strengths

The greatest strength enjoyed by Nike is that it is known by all people worldwide. Its sign and slogan “just do it” are well known and loved by many (Adam, 2010). This goes to show that the company has marketed its products and is working well at expanding the products and selling them worldwide. The company started out in just distribution of athletes’ footwear and now it has developed to produce sports equipment. The company has a strong international presence selling is products in over a hundred countries. The company also has the advantage of the well known athletes like Michael Jordan, Tiger Woods and Lebron James promoting their products (Watts, 2009) and (Jerome, 2005).

Nike does not have factories and it seeks the services of independent contractors to manufactures their products according to their specifications. This way, they have no cash tied up in manufacturing plants, storage space and money to pay workers working in the manufacturing department. Their main job is development of design, marketing and distribution of their products. This way, they can provide high quality products manufactured at the lowest cost possible (Adam, 2010). If the manufacturers can not produce their products at a low price, then production can be done in another place where they can get better quality products at a cheaper price.

Nike has made several acquisitions in order to gain a competitive edge over its competitors. Nike has acquired Hurley International, Cole Haan, Umbro and Converse Inc. This has given Nike an advantage strategically placing it in its industry to effectively compete with other companies.

Weaknesses

The main weakness in this company is that Nike is considered an expensive brand. Therefore, it is impossible for third world countries to purchase their products. Their competitors offer products that are of similar quality at a cheaper price and are therefore able to conquer markets where most consumers are price sensitive (Adam, 2010).

Nike has no relations with the manufacturing companies and is not aware of labour conditions in the manufacturing plant. In 1996, they were accused of using child labour in Pakistan. This led to negative publicity decreasing the company sales (Watt, 2009). Following this incident most people chose to boycott the brand. Most manufacturing companies will employ any means to reduce their production cost because Nike requires that they manufacture their products at the lowest cost possible.

Nike’s revenues are highly dependent on footwear making the company vulnerable if they lost that share in the market. The sports products produced by Nike are not diversified making them dependent on just on product (Lussier and Kimball, 2009).

Opportunities

Product development presents Nike with many opportunities. Many defend the brand claiming that it is not a fashionable brand and should only be won for the purpose of sports. However, some consumers do not buy Nike products because they want to participate in sports; they want to be associated with the brand. Nike can explore this opportunity by manufacturing products like shoes that can be won by people not interested in engaging in sports. Nike could also develop other products like jewellery, sunglasses and sportswear which are items of very high value and are associated with products of Nike (Lussier and Kimball, 2009).

The company has opportunities to venture into untapped markets especially those in Asia and in third world countries. They can do so by lowering their prices because consumers in these regions are price sensitive. They could also enhance brand recognition in countries like India and China that has a rich upcoming young generation. Global marketing can be emphasized during events like the Olympics and the World Cup (Jerome, 2005).

Threats

Nike sells its products in the international market and t therefore sells in different currencies. This destabilizes the costs and may affect profit margins over long periods of time (Adam, 2010). The market of sportswear and sports shoes is very competitive and other companies are constantly developing alternatives to put Nike out of the market.

Nike products are very expensive and consumers are always looking for a better deal where they can get equal or better quality at a cheaper price. Competitors offer consumers products at a cheaper price and this could be a threat to Nike because most consumers are price sensitive.

The textile industry upsets the atmosphere and Nike is constantly trying to retain its eco-friendly reputation. The organization has also been caught up in negative publicity especially in production where the manufacturers are accused of employing child labour. The negative reputation threatens to hurt the company’s sales because consumers might choose to boycott their products.

Porter’s Five Forces

1371600297180Threats of new entrants (Low)

Capital intensive

Strong brand following

Economies of scale

Industry in consolidation phase

Threats of new entrants (Low)

Capital intensive

Strong brand following

Economies of scale

Industry in consolidation phase

37719001432560Buyer Power (High)

Everything depends on the preference of the customer

Price sensitivity issues

Brand following

Retail and vendor consolidations.

Growing power of retail chains

Buyer Power (High)

Everything depends on the preference of the customer

Price sensitivity issues

Brand following

Retail and vendor consolidations.

Growing power of retail chains

13716000Substitutes (Low)

Other types of shoes

Other sports apparel

Substitutes (Low)

Other types of shoes

Other sports apparel

Recommendations

Nike has a mature market in the United States and other developed countries therefore product differentiation would be the best way to gain a market share (Petkova, 2010). Nike should rely on innovation by investing heavily on product design to always have a lead on trailing competitors. They should also set an information system where they are able to handle complex chains of supply.

Nike should provide cheaper products to consumers who are price sensitive so that they can penetrate markets in Asia and in third world countries (Cuizon, 2009). The products should be re-branded to ensure that they are not like the highly priced Nike products. This will allow Nike to protect its brand and retain consumers who are loyal to the brand at the same time penetrating into untapped markets.

Being in control of the market in the United States and other developed countries, the competition involves getting the biggest market share. A strategy combining differentiation and pricing will better serve the company than just their differentiation strategy (Buderi, 2004) and (Cuizon, 2009). Since the operating margins are around 44% Nike has the scope to combine differentiation and pricing strategies (Petkova, 2010).

It is high time that Nike begins to invest on its sustainability research (Petkova, 2010). A recycling chain should be established helping the company curb its negative reputation on environmental pollution. Fixed costs will also decease increasing the overall profit margins as well as environmental sustainability.

In conclusion, Nike is a world importer of footwear and apparel. It has grown over the years supplying its products all over the world. Nike controls the United States market as well as markets in developed countries. The company heavily relies on innovation to develop product design which gives them a lead on its competitors. The company has a comprehensive marketing strategy that has allowed them to penetrate into new markets. They have signed deals with well known athletes who have endorsed their products through advertisements. Nike is a company that continues to grow extending its markets and diversifying its products range to meet its demands.

Bibliography

Watts Jasmine, 2009. SWOT Analysis of the Nike Company. Associated Content. 22 July, Available at HYPERLINK “http://www.associatedcontent.com/article/1961202/swot_analysis_of_the_nike_company_pg2.html?cat=35” http://www.associatedcontent.com/article/1961202/swot_analysis_of_the_nike_company_pg2.html?cat=35> [Accessed 22 February 2011].

Petkova Polina, 2010. Nike, Inc. and the Athletic Footwear Industry Strategy and Competition Analysis. Scribd.com. 19 May, Available at HYPERLINK “http://www.scribd.com/doc/38643840/Nike-Strategy-Analysis-Final-Jun-2010” http://www.scribd.com/doc/38643840/Nike-Strategy-Analysis-Final-Jun-2010 > [Accessed 22 February 2011].

Adam, 2010. Nike Inc SWOT Analysis. Free SWOT Analysis. 27 June, Available at HYPERLINK “http://www.freeswotanalysis.com/apparel-industry-swot/84-nike-inc-swot-analysis.html” http://www.freeswotanalysis.com/apparel-industry-swot/84-nike-inc-swot-analysis.html > [Accessed 22 February 2011].

Cuizon Gwendolyn, 2009. Marketing Audit of Nike’s Strategies. Suite101.com. 12 February, Available at HYPERLINK “http://www.suite101.com/content/marketing-audit-of-nikes-strategies-a94402” http://www.suite101.com/content/marketing-audit-of-nikes-strategies-a94402 > [Accessed 22 February 2011].

Carroll, A. and Buchholtz, A., 2008. Business and Society: Ethics and Stakeholder Management. New York: Cengage Learning.

Lussier, R. and Kimball, D., 2009. Applied Sport Management Skills. USA: Human Kinetics.

Gereffi, G., 1994. Commodity Chains and Global Capitalism. USA: ABC-CLIO

Holmes Stanley, 2009. The New Nike. Bloomberg Businessweek. 20 September, Available at HYPERLINK “http://www.businessweek.com/magazine/content/04_38/b3900001_mz001.htm” http://www.businessweek.com/magazine/content/04_38/b3900001_mz001.htm > [Accessed 22 February 2011].

Jerome, A., 2005. Nike’s Marketing Strategy. blogspot.com [blog]. 03 May, Available at HYPERLINK “http://www.nikemarketing.blogspot.com/” http://www.nikemarketing.blogspot.com/ > [Accessed 22 February 2011].

Buderi, R., 2004. Nike Uses a Leader R&D Strategy to Achieve Differentiation. Insare.com Articles. Available at HYPERLINK “http://www.isnare.com/?aid=532532&ca=Business+Management” http://www.isnare.com/?aid=532532&ca=Business+Management > [Accessed 22 February 2011].