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Analysis of Nike - Case Study
Marketing Management (2020)
Hebron University
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COMPANY INTRODUCTION
Company History
1950-59: Bill Bowerman, a track coach at the University of Oregon was always seeking ways to give his athletes a competitive advantage. He experimented with track surfaces, re hydration but most importantly, running shoes. Phil knight was a one of the athletes performing for Bowerman on the track team and used his knowledge from his MBA in finance to take a proposal of running shoes to Onitsuka, manufacturing of Tiger shoes and to make him a distribute. Knight took the shoe samples to Bowerman hoping to sell, but instead Bowerman asked him to become a partner and initiate footwear designs to send to Tiger; and the partnership began.
1960-69: In 1964, Bowerman and Knight shook hands with Blue Ribbon Sports where they sold their innovative shoes of Tiger, whilst Bowerman was ripping them apart trying to see how they could make them lighter and better. As Bowerman and Knight each had full time jobs, they decided to hire Jeff Johnson as their first employee in 1965 and the company was starting to work up.
1970-79: Johnson became a very useful man as he overlooked marketing, mail order system, opening up another branch as well as coming up for the name Nike in 1971. At this time, BRS and Onitsuka wanted to part as Nike was ready to become a manufacturer of shoes and not just a distributor. They started with a new innovative shoe from a sole and a waffle iron that seemed to make a great impression, Around this time, the ‘swoosh’ originated and Nike was off to flying start. All they needed was someone to endorse their shoes. That person was Steve Prefontaine who electrified the stands from 1969 to 1973 during his college career. With exposure over Sports Illustrated and becoming an Ambassador of the company, he distributed the new creative news to many top track athletes with personal notes of encouragement. He was a great asset to the company and
known as the ‘Soul of Nike’.
1980-89: In late 1980, Nike offered its IPO, however this transition phase was hindered as some of the early pioneers decided to move on elsewhere. Even Phil Knight removed himself as President and become the CEO and chairman of the board. In the mid 80’s, Nike slipped as the industry leader, luckily however, they decided to endorse Michael Jordan, which was a huge boost for Nike. In 1987, Nike’s marketing revolution began with their new Air Max shoes and their memorable TV ad featuring the Beatles song Revolution with the tag line ‘Just do it’ coming shortly after. By 1989, Nike had regained its position as industry leader and never let it go since.
1990-99: Nike opened their headquarters in Oregon, with soccer and golf being their desired sports to excel in. They signed some magnificent players from the Brazilian national team and then decided to sign the whole team in 1995. More importantly, they signed arguably one of the best athletes of all time in any sport in 1996, Tiger Woods. Competitors laughed at Nike for signing him for $5 million dollars until he won the masters by 12 stroked in 1997.
2000-present: Nike opened up the millennium with Nike Shox resulting in cushioning and stability which landed them a gold standard in the industry. Just as Nike’s products have evolved, so has Nike’s approach to marketing. The 2002 “Secret Tournament” campaign was Nike’s first truly integrated, global marketing effort. Departing from the traditional “big athlete, big ad, big product” formula, Nike created a multi-faceted consumer experience in support of the World Cup.
At an investor meeting at its world headquarters in June 2011, NIKE, Inc. announced an increase to its fiscal 2015 revenue target to a new range of $28-30 billion, up from its previous target of $27 billion announced in May 2010. The company also increased its fiscal 2015 revenue target for the NIKE Brand to $24-25 billion, up from its previous target of $23 billion.
in any particular country 1 Economic -Sportswear is more concentrated than the overall apparel and footwear market. -This trend strengthened over the review period, and the combined share of the top 10 global players rose from 33% in 2008 to 37% in 2013. -State of the economy greatly impacts leisure goods such as sportswear
1 Socioeconomic -Consumers are looking to buy products that allow for exercise and healthy living -Consumers are becoming more and more aware of unethical practices of manufacturers including practices such as child labour and sweatshop usage
1 Technological -New technology is constantly being developed to improve products, top companies employs many specialists including engineers, athletes, biomechanics, and industrial designers to work together in the design process -E- commerce and online shopping continues to allow the industry to grow 1 Environmental -Environmentally friendly products are becoming of increasing importance to consumers, -Many of the products are being manufactured in China, Singapore and Thailand using large factories, that are very damaging for the environment 1 Legal -Players in this industry outsource to third-party contractors in countries including China, Indonesia, and Vietnam. Government legislation regulating factories or an increase in input costs, especially labor costs Implications: The industry is continuing to grow internationally. This tool indicates that this industry will remain profitable for all its major market share holders for the next several years. Globalization is helps the international brands expand worldwide, and this combined with the general trend towards healthy living looks to be very favourable for this industry’s key players.
2. Industry Economic Traits
2 Market Size and Growth Rate
In 2012, the global sportswear market grew by more than 7%
International market exceeds S$244 billion, 80 billion in US alone.
23% total value growth predicted in global sportswear to 2017
2 Number of Buyers
The number of buyers is large enough that no one buyer contributes accounts for a significant fraction of overall market demand. All ages and genders are buyers in this industry.
2 Buyer Needs and Requirements
Buyers look for brand recognition, which allow known brands such as Nike, Under Armour and Adidas to maintain competitive advantage over smaller competitors
2 Numbers of Rivals
Dominant players are Nike, Under Armour and Reebok, there are also smaller independent rivals such as ASICS and counterfeiters.
2 Degree of Product Differentiation
Products of all major rivals are mostly identical. Products are becoming less differentiated. “Look-alike” products or rivals are causing heightened price competition.
2 Product innovation
Top players in the industry invest significantly in R&D to constantly improve their products and make them make they more adaptable to the different sports and overall health and exercise
2 Pace of Technological Change
3 Ability to market effectively in DTC platforms
o Needed to bind the customer to the brand or will lose customers to competitors
4. Strength of the Industry Competitive Force
Porter’s 5F’s
Implications: This tool indicates that this industry is conducive to high profitability. For the foreseeable future, competition will remain among the top industry players.
Threat of New Entrants Low 4. In order to pose a real threat to the - industry’s main players, there would need to be significant capital investment in order to establish distribution and supply chain management internationally
Bargaining Power of Suppliers 4. Low Sportswear and athletic shoes are - manufactured by third-party contract manufacturers developing countries, including Vietnam, China, Bangladesh and Indonesia Costs of changing suppliers is - .significant
Threat of Substitute Products Low to 4. medium Only real threat comes from counterfeit - products which has been improving steadily over the years and has threatened to dilute brands and have consumers with no desire to find the authentic
Buyer Bargaining Power 4. Low to Medium Companies in just industry use - wholesale and direct-to-consumer channels -Major competitors have strong brand reputation which keeps customers intrigued Customers do have the choice between - elite brands and could switch between top recognized brands if price, style
Competition From Rival Sellers 4. Medium to High The global market for athletic footwear, - apparel and equipment has intense competition, the main competitors are .Adidas, Under Armour and Nike Constant changes in consumer - preference forces companies to adapt quickly or risk losing market share
5 Driving Forces
5 Changing societal concerns, attitudes and lifestyles
o People are choosing healthier lifestyles
o Women particularly are now buying sportswear
5 Product and marketing innovation
o Constant battle among competitors to have the most innovative gear
o Use of athlete sponsorship becoming prominent- battle for top athletes 5 Increasing globalization
o International markets are becoming more and more appealing and barriers to entry are getting less and less and there is a growing middle class in places like China
As a whole, these driving factors are causing the demand for the industry’s product to increase. The combined impacts of the driving forces are leading to higher profitability for industry competitors. Strategies of industry players need to continue to take advantage of the consumer interest being active and wearing the most innovative sportswear.
6. Strategic Group Map
Strategic Map Analysis
Where is the best spot?
The best spot on the map to be is the top right section because the company that is closest to that area will be able to demand the highest price for their product and as a result, have the best margins.
Nike Adidas Under Armour Current Strategy
-Nike is the leader in value share of the market (15%) -Competitive advantage lies in their brand recognition and awareness -Nike Invests significantly in product innovation
Adidas has a significant value share of the market (10% ) - global brand key marketing sport in most global markets. It has strong ties throughout the sport, notably with world governing body FIFA. - Investing heavily in more retail space and innovation
Under Armour has 1% value share of the market -Looking to make strong gains in women’s sportswear, have invested heavily into its creative talent with women’s product
Objectives Focused on maintaining their high rate of product development and increasing their DTC sales
Key objectives are to maintain segmented position, grow retail share, keep up innovation pace
Currently meeting their objectives and growing in terms of sales, but they still need to improve their brand awareness considerably Capabilities Strengths – Nike has an incredibly strong brand and tech reputation that justify high price of products Weaknesses- Highly dependent
Extremely strong brand portfolio, strong multi- brand strategy which allows is to operate at almost any point in the
Strengths- perceived as an athlete-oriented producer. Has a high level of credibility Weakness- Lacks the
on third party sellers market Weaknesses- extremely dependent on third party retailers,
scale that Nike and Adidas have in manufacturing Assumptions Will be able to extend into China, Nike is currently struggle to get into Chinese market but are trying
Will be able to create such high quality products that it will not be threatened by counterfeiting
will be able to maintain their quality that gives them such a great reputation as they expand
difficulty than their competitors in getting into China and other major markets in Asia.
Appendix B- Internal Analysis
- Financial Analysis
US$ in millions 12 months ended May 31, 2019
May 31, 2018
May 31, 2017
May 31, 2016
May 31, 2015
May 31, 2014 Revenues 39,117 36,397 34,350 32,376 30,601 27, Cost of sales (21,643) (20,441) (19,038) (17,405) (16,534) (15,353) Gross profit 17,474 15,956 15,312 14,971 14,067 12, Demand creation expense (3,753) (3,577) (3,341) (3,278) (3,213) (3,031) Operating overhead expense (8,949) (7,934) (7,222) (7,191) (6,679) (5,735) Selling and administrative expense (12,702) (11,511) (10,563) (10,469) (9,892) (8,766) Operating income 4,772 4,445 4,749 4,502 4,175 3, Interest income 82 70 27 12 6 5 Interest expense (131) (124) (86) (31) (34) (38) Interest income (expense), net (49) (54) (59) (19) (28) (33) Other income (expense), net 78 (66) 196 140 58 (103) Income before income taxes 4,801 4,325 4,886 4,623 4,2 05 3, Income tax expense (772) (2,392) (646) (863) (932) (851) Net income 4,029 1,933 4,240 3,760 3,273 2, Based on: 10-K (filing date: 2019-07-23), 10-K (filing date: 2018-07-25), 10-K (filing date: 2017-07-20), 10-K (filing date: 2016-07-21), 10-K (filing date: 2015-07-23), 10-K (filing date: 2014-07-25).
Receivables turnover
An activity ratio equal to revenue divided by receivables.
Nike Inc.’s receivables turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. Payables turnover An activity ratio calculated as cost of goods sold divided by payables.
Nike Inc.’s payables turnover ratio decreased from 2017 to 2018 and from 2018 to 2019. Working capital turnover
An activity ratio calculated as revenue divided by working capital.
Nike Inc.’s working capital turnover ratio improved from 2017 to 2018 and from 2018 to 2019.
Figure 1: Nike Inc., consolidated income statement, US$ in millions
Source of (Figure 1-4) : Stock Analyses on Net, Financial statements
analysis and common stock valuation, link: stock-analysis-
on.
Period Ending: Nov 30, 2019 Aug 31, 2019 May 31, 2019 Feb 28, 2019 Period Length: 0 Months 0 Months 0 Months 0 Months Cash From Operating Activities 130639459033893 Cash From Investing Activities -788 -348 -264 - Cash From Financing Activities -1868 -1010 -5293 - Net Change in Cash -1396 -1020 217 -
- In Millions of USD (except for per share items)
Table 2: Quarter Nike report
Period Ending: May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 Period Length: 0 Months 0 Months 12 Months 12 Months Cash From Operating Activities 5903495538463399 Cash From Investing Activities -264 276 -1008 - Cash From Financing Activities -5293 -4835 -2148 - Net Change in Cash 217 441 670 -
- In Millions of USD (except for per share items) Table 3: Annual Nike report
Source (Table 1, Table2): Investing, link: investing/equities/nike-financial-summary.
Nike Financial Summary 2019
For the six months ended 30 November 2019, Nike Inc revenues increased 9% to $20. Net income increased
28% to $2. Revenues reflect Greater China segment increase of 21% to $3, North America segment increase of 100% to $8, Comparable Store Sales (Growth- %), NA increase from -2 to 0%, Online Sales - North America increase of 27% to $1. Net income benefited from Merchandise Margins, Total - % increase of 2% to 44%.
10. Analysis of Nike’s Business Strategy
10 Introduction
Developing an effective strategy that aligns with the company vision is vital to success. There are internal and external aspects to consider when designing and implementing strategies. Customers, competitors, the culture within the company, and the employees are a combination of internal and external factors, and all are important to business strategy (Lofgren, 2018).
A strategy is a plan that requires examining areas of potential risk and opportunity. With every opportunity, there is a potential risk, but it is crucial for a company to assess whether the chance to grow outweighs the risk. Strategies are not meant to be perfect and will need to be designed to adapt to the changing environment. Companies that are looking for new innovative ways to improve their strategy are on the path to long-term success (Porter, 1996). Several business strategies exist, and executives have the opportunity to utilize these strategies to gain a competitive advantage in their industry. There are different components to consider before selecting and implementing a business strategy.
10 Business Strategies at Nike
Cost-leadership and Differentiation are generic strategies that define the strategic position of an organization, but
Analysis of Nike - Case Study
Course: Marketing Management (2020)
University: Hebron University
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