Business Model of Nike
Business Model of Nike
Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under the name, Blue Ribbon Sports. Nike’s main products are sports shoes, sportswear, sports goods. In this paper, we will talk about ‘The Challenge of Entrepreneurship’ ‘Competitive Business Model’ ‘Solid Strategic Plan’ ‘Feasibility Analysis’ and ‘Business Plan’. All of these topics are very important when we study the ‘EOE and SBM’, and in each topic have more than one point. We got ‘The Benefits of Entrepreneurship’ ‘Competition’ of ‘The Challenge of Entrepreneurship ’; ‘Core Competencies’ ‘Innovations’ ‘Sustainable Competitive Advantage’ ‘Key Success Factor’ of ‘CBM’; ‘Vision and Mission’ ‘Objectives and Goals’ ‘SWOT’ ‘Competitor’ ‘Business strategy’ of ‘Solid Strategic Plan’; ‘Industry and Market Feasibility’ ‘Product or Service Feasibility’ ‘Financial Feasibility’ and ‘5Forces Model’ of ‘Feasibility Analysis’. Now, we are going to show you the detail.
The Challenge of Entrepreneurship
The Benefits of Entrepreneurship
Surveys show that owners of small businesses believe they work harder, earn more money, and are more satisfied than if they worked for someone else. (Via Dr. José A. Torres Essentials of Entrepreneurship and Small Business Management Powerpoint) Opportunity to Create Your Own Destiny. Nike, originally known as Blue Ribbon Sports (BRS), was founded by University of Oregon track athlete Philip Knight and his coach Bill Bowerman in January 1964. The company initially operated as a distributor for Japanese shoe maker Onitsuka Tiger(now ASICS), making most sales at track meets out of Knight’s automobile. According to Otis Davis, a student athlete whom Bower man coached at the University of Oregon, who later went on to win two gold medals at the 1960 Summer Olympics, Bower man made the first pair of Nike shoes for him, contradicting a claim that they were made for Phil Knight. Says Davis, “I told Tom Brokaw that I was the first. I don’t care what all the billionaires say. Bill Bower man made the first pair of shoes for me. People don’t believe me. In fact, I didn’t like the way they felt on my feet. There was no support and they were too tight. But I saw Bower man make them from the waffle iron, and they were mine.” (Via HTTP://en.Wikipedia.org/wiki/Nike,_Inc.)
Opportunity to Make a Difference. In 1979, Nike Air cushion technology “Air”, by the inventor of the m. Frank Rudy patented, first applied on the Tailwind running shoes, the gas film in running shoes soles for the protection of the cushion. And Nike has created many print and television advertisements with Wieden+ Kennedy, Wieden+ Kennedy remains Nike’s primary ad agency. It was agency co-founder Dan Wieden who coined the now-famous slogan “Just Do It” for a 1988 Nike ad campaign, which was chosen by Advertising Age as one of the top five ad slogans of the 20th century and enshrined in the Smithsonian Institution. Walt Stack was featured in Nike’s first “Just Do It” advertisement, which debuted on July 1, 1988. Wieden credits the inspiration for the slogan to “Let’s do it”, the last words spoken by Gary Gilmore before he was executed. Throughout the 1980s, Nike expanded its product line to encompass many sports and regions throughout the world. In 1990, Nike moved into its eight-building World Headquarters campus in Beaverton, Oregon. (Via HTTP://en.Wikipedia.org/wiki/Nike,_Inc.)
Opportunity to Real Improve profits. In 2005, Nike “Air Jordan 20 generations”. Nike Free series, also in protecting the foot, like barefoot training is provided for the wearer. Nike as of May 31, total annual profits had 13.7 billion dollars, a 12% growth in the past fiscal year. On December 19, 2013, Nike Inc’s quarterly profit rose as a result of global orders for merchandise for delivery by April increased 13 percent. Future orders of shoes or clothes for delivery between December and April, rose to $10.4 billion. Nike shares (NKE) rose 0.6 percent to $78.75 in extended trading. (Via HTTP://en.Wikipedia.org/wiki/Nike,_Inc.)
Opportunity to Contribute to Society and Be Recognized for Your Efforts. NIKE Charity Organization, is a Non-Governmental Organization Headquartered in PORT HARCOURT RIVERS STATE, NIGERIA. It is autonomous and submissive to the laws of the Federal Republic of Nigeria. They are determined to achieve our dreams and purpose of giving hope to the less privilege and to discharge our duties as members of non-profit organization in accordance to our core values at National, State and Local Government levels. We are prepared to harness, strengthen and efficiently direct our efforts as much as we are out to join hands with other organizations, and individuals in the fight against the Girl Child Abuse. (Via HTTP://saccharinity.com/about_us.php)
NIKE is a consumer products company and the relative popularity of various sports and fitness activities and changing design trends affect the demand for our products. The athletic footwear, apparel, and equipment industry is highly competitive in the United States and on a worldwide basis. We compete internationally with a significant number of athletic and leisure footwear companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure footwear, apparel, and equipment. We also compete with other companies for the production capacity of independent manufacturers that produce our products and for import quota capacity.
Our competitors’ product offerings, technologies, marketing expenditures (including expenditures for advertising and endorsements), pricing, costs of production, and customer service are areas of intense competition. This, in addition to rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel, and athletic equipment, constitute significant risk factors in our operations. If we do not adequately and timely anticipate and respond to our competitors, our costs may increase or the consumer demand for our products may decline significantly. (Via Nike-2013-form-10K)
Designing a Competitive Business Model
Nike’s quality , technology and brand is famous . Nike’s Air cushion technology is almost using in every basketball shoes ,it’s good for athlete’s foot . the Nike having its own core competence due to organization’s own skills and core competence it has taken a competitive advantage and now is taking a large market share. The core competence of Nike is to specialize in athlete’s foot wear and other sports items. As we know every organization has its R & D department .The R &D department of Nike is playing a vital role because of its innovations in foot wear how the consumers can feel comfort by wearing their shoes and the quality that’s the most important factor to be given in shoes and they have different categories of shoes which is running shoes nick shocks, Jordan, and other types that is targeting different type of consumers having different perceptions.
But most important thing of Nike is they don’t make shoes they design and then give their design to the production companies in Korea and china or Vietnam. Due to which they are more specialized in their innovation and in this way they have made their core competence in making innovative design of athlete shoes.
Nike believe his research and development efforts are a key factor in nis success .NIKE strives to produce products that help to reduce injury , enhance athletic performance and maximize comfort success . (Via Nike 2013 Annual Report) Nike also find many expert in chemistry, exercise physiology, engineering, industrial design, sustainability and related fields ask they advices to fixed Nike’s shoes and clothing . Nike’s air cushion shock absorption technology is famous in the basketball shoes area .Nike’s Brand shoes like LBJ , Kobe and KD has many color and types .
Sustainable Competitive Advantage
External Analysis : Nike’s brand awareness is famous all over the world ,everyone buying shoes first chose is Nike . Nike sponsored the top athletes and gained valuable coverage. , like Jordan , LeBron James , .From the Nike’s 2013 annual report will find that Nike growing up every years . Nike has many competitors , like Adidas , Puma , Reebok and so on , but Nike’s market share is more than any other . Internal Analysis :As we know ,Nike’s product is quality , Nike’s has own R&D center to creative new technology ,like air cushion shock absorber technology ,environmental technology and so on .It’s basic technology to Nike’s product .Nike always find many creative thing to put in Nike’s product ,like knitting technology in his shoes .That’s awesome . Nike has employed creative marketing and advertisement platforms in building brand awareness and equity of its diversified products. For instance, the company uses Tiger Woods a skilled golfer to build its line of golf products.
It further employs professionals in various departments that include distribution, marketing, finance, product management, research and design, information technology, and product development so as to sensitize the market of its diversified products Nike also operates an internship program every summer lasting for three months giving students an insight on the diverse brands. Other avenues Nike accomplishes diversification strategy is through mergers, joint ventures, takeovers, and acquisitions. The company also has an R&D unit called the innovation kitchen located in the main parent company in Oregon, to enable it to continue producing unique products such as the cushioning system in shoes.
Key Success Factor
Jordan Brand : Jordan brand is a big part of the Nike. Jordan’s shoes is popular in all over the world .Jordan shoes occupy the USA 10.8% market share in 2009 .Jordan shoes sales almost two times of Adidas . (Via :http://sports.sina.com.cn/k/2009-09-12/16084584096.shtml)So Jordan brand is a key success factors of Nike .) Jordan brand is popular in young people , every young people want a Jordan’s shoes it’s beautiful and comfortable .Especially Jordan’s air cushion technology , using in every basketball shoes . Technology :In addition to Nike’s own staff of specialists in the areas of biomechanics ,chemistry , exercise physiology, engineering , industrial design, sustainability ,and related fields , we also utilize research committees and advisory boards made up of athletes , coaches, trainers , equipment managers , orthopedists , Podiatrists , and other experts who consult with us and review designs , Materials , concepts for product and manufacturing process improvements and compliance with product safety regulations around the world . (Nike Annual Report ) Advertisement : Advertisements play a significant role in the athletic apparel industry, as consumers rely on catalogues and online advertisements .
Nike has many endorsers ,like Jordan ,James ,Durant and so on. These guys bring many customers .Nike has online store ,you can buy many things in this store ,before new product star sales ,you’ll get an e-mail about this product .Nike’s advertisement not only online but also in everywhere .It’s very amazing! Adidas :Adidas is a very famous company ,it’s very popular in world too .But in these years, Adidas’s market in decrease very fast .Because Adidas’s endorsers did not famous than Nike’s endorses .Adidas’s endorses including Yao Ming ,A.I ,D.Rose and so on .But they hurt or retied .Adidas’s quality and technology is also well known .But Adidas lost because the endorses . New Balance :New Balance (I will call New Balance as NB for short ) is known as a most comfortable shoes .They has many new technology ,such as BIOSHIELD ,ABZORB EX ,REVAX ,ENCAP ,and so on .And NB is popular in young people ,you will find many young people wear NB in the street .IT’s a huge market to NB.
Building a Solid Strategic Plan
It’s a significant part of a successful business. It keeps the company to where they oriented, to meet their mission, goals and objectives, and lead it on the right way. A Strategy plan is to build a competitive advantage. It involved Vision and Mission Statement, also Objectives and Goals, SWOT Analysis, Competition Analysis and Formulate Strategies. We are going to find out what does Nike different from others, why it is unique, and what it has that others don’t. I am about to use Five Forces Model to analyze the competitive advantages for Nike.
Vision, Mission, Goal and Objective
Nike’s vision is “To bring inspiration and innovation to every athlete in the world.” The legendary University of Oregon track and field coach, and Nike co-founder, Bill Bowerman said, “If you have a body, you are an athlete.”. It’s their mission. (Via http://help-en-us.nike.com/app/answers/detail/a_id/113/p/3897) Their goal is to become and keep the number one sportswear brand all over the world. Their objective is keep down the manufacturing cost and keep their price down then they can occupied the market in some less developed countries who can become the economically dependent in the industry. (Via http://wiki.answers.com/Q/What_are_the_objectives_of_Nike_company)
Strengths As one of the ‘Fortune 500’ company, Nike has numerous strengths. It is positioned at being the number one sportswear brand globally, it Offers their products worldwide, it has a very strong marketing campaign that increases brand familiarity, and it has no factories, it uses OEM (Original Equipment Manufacturer) to get the work done. It has contracts with above 700 shops globally in about 45 different countries. it also has offices in these different countries. It has chains of retail stores like Niketown so that it can sell there. Its famous ‘Swoosh’ is instantly recognizable, and Phil Knight even has it tattooed on his ankle. Weaknesses The organization does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes. The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. Can you tell one sports retailer from another? So margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike.
Opportunities Product development offers Nike many opportunities. The brand is fiercely defended by its owners whom truly believe that Nike is not a fashion brand. However, like it or not, consumers that wear Nike product do not always buy it to participate in sport. Some would argue that in youth culture especially, Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out i.e. consumers need to replace shoes. There is also the opportunity to develop products such as sport wear, sunglasses and jewelry. Such high value items do tend to have associated with them, high profits. The business could also be developed internationally, building upon its strong global brand recognition. There are many markets that have the disposable income to spend on high value sports goods. For example, emerging markets such as China and India have a new richer generation of consumers.
There are also global marketing events that can be utilized to support the brand such as the World Cup (soccer) and The Olympics. Threats Nike is exposed to the international nature of trade. It buys and sells in different currencies and so costs and margins are not stable over long periods of time. Such an exposure could mean that Nike may be manufacturing and/or selling at a loss. This is an issue that faces all global brands. The market for sports shoes and garments is very competitive. The model developed by Phil Knight in his Stamford Business School days (high value branded product manufactured at a low cost) is now commonly used and to an extent is no longer a basis for sustainable competitive advantage.
Competitors are developing alternative brands to take away Nike’s market share. As discussed above in weaknesses, the retail sector is becoming price competitive. This ultimately means that consumers are shopping around for a better deal. So if one store charges a price for a pair of sports shoes, the consumer could go to the store along the street to compare prices for the exactly the same item, and buy the cheaper of the two. Such consumer price sensitivity is a potential external threat to Nike. (Via Nike 2013 Annual Report,
http://www.quality-assurance-solutions.com/swot-analysis-nike.html, http://www.ukessays.com/essays/marketing/account-management-provides-special-treatment-in-marketing-administration-marketing-essay.php http://www.marketingteacher.com/swot/nike-swot.html)
Analyze the Competition. Nike has some competitive Direct competitors- Adidas, New Balance and Li Ning. They offer the product that Nike does, and all of these companies have different key success factors. Adidas, is the most competitor od Nike with do doubt, they compete with Nike for No.1 sportswear branding for over 40 years But in these years, Adidas’s market in decrease very fast .Because Adidas’s endorsers did not famous than Nike’s endorses .Adidas’s endorses including Yao Ming ,A.I ,Derrick Rose and so on .But they hurt or retied .Adidas’s quality and technology is also well known .But Adidas lost because the endorses; New Balance is known as a most comfortable shoes .They has many new technology ,such as BIOSHIELD ,ABZORB EX ,REVAX ,ENCAP ,and so on .And New Balance is popular in young people ,you will find many young people wear New Balance in the street .
IT’s a huge market to New Balance; Some Significant competitors like Under Armour and Skechers, they offer similar products like apparel or footwear, they compete with Nike in some fields. Some Indirect competitors like The North Face or Columbia, both of them are the most of the famous outdoor brand, they offer windbreaker or accessories that Nike does. They have impacts to Nike in some mutual markets. Conclusion: Nike does perfectly in quality and endorsement, they almost signed all significant players and teams all over the world. Adidas has no most strength but all factors are averaged. New Balance does best in technology, it can makes sneakers more comfortable. (New Balance has never signed any endorsers since it founded, so its score is little bit lower)
Nike uses Business Simulation Strategy. It has no factories, it uses OEM (Original Equipment Manufacturer) to get the work done, and it doesn’t has stores mostly. It offers products to Franchised retailers, and let them sell the products. It saved money from factories and rent, so its overhead is low. No shop, no labors,. quantity of materials, low too. If a supplier increases costs, Nike can easily change a new one with lower cost, Nike can do this because of its ability. Nike definitely has low cost access to factors of production. The enormity of Nike in respect to their suppliers gives them a huge advantage in production negotiations. Due to their high volumes for products, the cut-throat low cost nature of selecting a manufacturer, and coupled with the fact that Nike’s suppliers depend so heavily on them for their own success that they have little to no bargaining room toward raising prices, allows Nike to continuously enjoy low costs of production.
Nike’s hardware and software technology implementations of using the not only using the best materials but creating them in a vertical fashion and housing an innovation culture from the top down, allow Nike a first move advantage into cost savings. However most of these advances only bring definite savings for a short time due to competitive parity within the industry, their creative nature definitely does benefit over the long run. Nike reduced costs by cutting some of its endorsements. Company research suggested the endorsement by the Italian soccer team, was not achieving the desired result. Michael Jordan, LeBron James, Kobe Bryant and a few other endorsers were retained while some other like Italian soccer team, were eliminated, to saving over $100 million. Nike does incredible in cost control. (Nike 2013 Annual Report)
Differentiation strategy by Nike is used to gain market share advantage in the broad foot ware market. Aside from foot wear, the company boasts of products such as clothing, equipment, and even accessories. The strategy is achieved by producing consumer goods and services that customers perceive to be of high quality or have added unique features. This has been achieved by the company innovating state of the art athletic shoes that are publicized through dramatic “guerrilla” marketing. Marketing of the different products is designed to coerce customers that Nike’s shoes are not only superior but also a high fashion statement which is a necessary part of a lifestyle based on athletic or sporting interests.
The company has also differentiated itself by using highflyers that are best used in distinguishing sporting disciplines hence enabling the company reach its target market, for instance, the Brazilian national soccer team or even Michael Jordan. Also, Nike is different from others in their Ads. They show not only their technology but also leading endorsers like Michael Jordan, LeBron James, Kobe Bryant and Cristiano Ronaldo in their Ads of new products. At the same time, their Ads are also very creative and with imagination, make people who watched them unforgettable. (Via Nike 2013 Annual Report) Focus.