Background
Nike was established by Bill Bowerman, a field and track coach at the University of Oregon with his former student Phil Knight in 1964, and the company then was named Blue Ribbon Sports (Kim, 2020). The growth of the company started to pick up in 1966 when they opened their first retail outlet, and the growth skyrocketed in 1972 when the Nike brand shoe was launched; following this, the company was renamed Nike Inc. In the late 1980s, Nike consistently expanded its business as well as diversified its product line by having numerous acquisitions that included other shoe companies like Cole Haan and Converse Inc (Kim, 2020).
In the 1990s, Nike faced the greatest challenge that was almost tarnishing the then 30-year-old company’s image and affecting its bottom line negatively. Sweatshops almost killed Nike by damning reports that Nike’s global supply chain was supported by child labor in places such as Cambodia and Pakistan (The Fashion Law, 2019). Sales dropped, and the company was portrayed in the media as a company that exploited and deprived workers of the basic wage in an effort to expand its profits (Kim, 2020). It laid business strategies that involved monitoring and audits for oversea manufacturers of its ware in order to meet United States health and safety standards that were strict.
The early 21st century was a turning point for Nike, and part of its success is owed to what it innovated during this time. Nike had begun selling sports- technology accessories that included portable heart-rate monitors together with high-altitude wrist compasses (Ingle & Turner, 2021). The technology came up with Nike Triax C5, which was unisex, offering something that other competitors did not. It was a good watch that had heart rate functionality, making them a marketing leader.
Nike’s Business level-strategy
The greatest strength for Nike is that it uses a business-level strategy that resembles a differentiation strategy which has made the company differentiate itself from other competitors such as Adidas and build its brand image among its target customers. Offering quality products is one of the ways Nike is differentiating itself from other competitors. For instance, Nike ID and college sponsorships enhance perceptions to their customers that the product they provide unique and specialized for the customer wants and needs (Ingle & Turner, 2021). Holding to the fact that their products have higher prices, customers see value in their products because of the company’s personalized procedures.
In addition, to be differentiated by high quality, the company does not utilize a focus strategy, and it’s involving itself in a wide market segment that ranges from shoes and clothing to sporting equipment sold worldwide. With all this diversification, they outstanding to be the best in the industry. Mottos such as swoosh and ‘Just Do It’ are also some of the attributes giving their product uniqueness and quality in the eyes of customers, separating their products from competitors.
By focusing on a differentiation strategy, Nike is making a lot of investments in technology innovation to be at the top of the competition. With a mission to bring inspiration and innovation to every athlete in the world. The company has invested intensively in research and development, making it renowned for trademark innovations. Innovations such as auto-lacing shoes, distance tracking tech, and i-pod pace are some of the core technologies for the success and an opportunity for Nike to remain ahead of other rivals in the industry when it comes to new products (Childs & Jin, 2018). The company’s vision to remain most authentic and connected with a distinctive brand contributes to the creation of game-changing technologies and products to be connected to its athletes and consumers. As a result, innovations such as Nike Flywire Support systems are some of the innovations making them distinctive and connecting with their customers by setting standards for the industry. Further, to get more insights about innovation, Nike has established Nike Sport Research Lab, a premier center the company uses for advanced R&D. More importantly, to be the most innovative in the sports field, the company is collaborating with research committees and advisory boards composed of coaches, athletes, trainers and other experts for improvement of their product.
Nike also differentiates itself as a business-level strategy by outsourcing. Outsourcing is at the center of the business model for Nike, and the strategy is giving them an edge against its major competitors like Adidas. In particular, this strategy has enabled Nike to reduce its production cost-effectively. Thus part of the success for Nike lies in this strategy. Manufacturing work is being outsourced to contractors in Vietnam, China, Indonesia, and Taiwan. And today, there are over 500,000 people involved in the production of Nike footwear worldwide (Childs & Jin, 2018). Thus outsourcing to these Asian countries has significantly enabled Nike to remain a sports market leader, secure a cheap source of labor, and have flexibility in prices since they can be regulated in different parts they operate. The company is also relocating its operations to attractive locations through outsourcing to drive its marginal cost down as opposed to its competitors.
Nike’s Key functional level strategy
The leading functional strategy for Nike is an intense focus on research and development. To achieve its business goals of being a distinctive and bringing innovation to each athlete in the world with a low-cost competitive advantage is through effective use of R&D. With the development of R&D at Nike this had complemented other business-level strategies giving the company a leader strategy in R&D more than any other company in the industry, and this has differentiated its athletic shoes from its competitors. The product, as a result, has become the favorite of celebrity athletes. Recently analysts have evaluated Nike’s research and development laboratories far and away from the best in the industry (Witte, 2021). Focus on R&D set in 1979 when the company introduced the air-cushioning system, and ever since then, R&D has played a dominant role in transforming the company’s solid market position in the industry.
The Head of Nike’s R&D department has also developed a shoe whose entire heel is a visible airbag. The shoe was readied and produced as the Nike Air 180 engaged 186 athletes from Alaska and tested for 90 days in all types of terrains. After trial, Nike 180 drove great interest from retailers, and orders were beyond expectation, making Nike a leader in the sports industry (Witte, 2021). In pursuit of their mission to innovate for everyday athletes, eight years ago, Nike expanded the Nike Sports Research Lab (NSRL) housed in the Mia Hamm building to become big enough to allow for cooperation among athletes, innovators, and researchers as they work towards developing products to wear every day. This has given the company a competitive advantage over other competitors in the industry. The company is making huge profits as more than 80% of everyday athletes from different backgrounds come to the lab, and as a result, the brand’s product is outstanding in the market. For instance, the picture below shows NBA players wearing Nike shoes as compared to other brands.
Recommendations
I would like to propose that Nike needs to reconsider its strategy of outsourcing. According to Gallimore (2021) outsourcing is a dynamic strategy and might not be the best solution for every business. With Nike outsourcing its manufacturing process to other manufacturers can lead to what I pointed out in the background about unethical business practices where the company was accused of child abuse. This can result again if the company outsources to other manufacturers who may not follow ethical business standards; hence this may tarnish the name of Nike again. We suggest that Nike establishes its own manufacturing centers where it can control and monitor effectively that ethical standards are maintained. Also, with outsourcing, a weakness has resulted in Nike Company. Now customers are facing the problem of counterfeit goods since many other manufacturers have taken advantage of manufacturing fake products. Thus establishing their own manufacturing plants will improve and work towards maintaining the quality of products and earning a wide customer base.
Nike should also look into its pricing strategy. The company does not give much emphasis to pricing, and to some extent, it is charging higher prices than its competitors. For instance, their rival Adidas is getting strong hence a threat for its lower prices. Nike, therefore, needs to consider their pricing strategy and lower their prices as its competitor Adidas will have customers move from Nike to the cheaper products of Adidas. Lowering the prices slightly will have customers truly value their products, holding in mind that their products are of quality due to intense innovation. Customers, as a result, will be willing to pay because of the quality and attractive prices.
References
Childs, M., & Jin, B. (2018). Nike: An innovation journey. In Product innovation in the global fashion industry (pp. 79-111). Palgrave Pivot, New York.
Gallimore, D. (2021). Nike’s approach to outsourcing | Outsource Accelerator. Outsource Accelerator. Retrieved 2 May 2022, from https://www.outsourceaccelerator.com/articles/nikes-approach-to-outsourcing/.
Ingle, S., & Turner, G. (2021). Tested: heart rate monitors. the Guardian. Retrieved 2 May 2022, from https://www.theguardian.com/sport/2004/aug/18/thegear.georginaturner1.
Kim, M. (2020). How Phil Knight made Nike a leader in the sport industry: Examining the success factors. Sport in Society, 23(9), 1512-1523.
Sweatshops Almost Killed Nike in the 1990s, Now There are Modern Slavery Laws – The Fashion Law. The Fashion Law. (2019). Retrieved 2 May 2022, from https://www.thefashionlaw.com/visibility-is-central-to-a-successful-supply-chain-heres-what-brands-need-to-know/.
Witte, R. (2021). TechCrunch is part of the Yahoo family of brands. Techcrunch.com. Retrieved 2 May 2022, from https://techcrunch.com/2021/10/26/nike-sport-research-lab-lebron-james-innovation-center/.
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