Nike Analysis

Since being founded in 1962, Nike has grown from a small fledgling shoe retailer into a world-wide corporate giant. During its first year, sales for Nike were $8000, but as of November 30th, annual sales for Nike were over 12 billion dollars. (hoover) Although Nike already dominates the sporting world, there are many opportunities for growth. According to our research, key strategic challenges facing Nike are increased competition from Adidas with their technological shoe, the Adidas One, and a potentially fatal inability to enter a new growth market such as the extreme sports market. Our recommendations to help Nike confront these challenges consist of developing a product to remain competitive with Adidas, and also an aggressive move into the extreme sports market.

Our first recommendation for Nike is to develop a shoe that will compete with the new, technologically advanced Adidas One running shoe. The Adidas One, which will be available in March 2005 at a cost of $250 dollars, is a high-end, high-tech athletic shoe. Features of the Adidas One running shoe include sensors that measure how much compression is put on the heel of the shoe with each step, a microprocessor that can adjust the cushion of the heel based upon roughness or softness of the terrain, buttons that allow for different comfort levels to be set, and a lithium-ion battery that last about 100 hours. (time-sporting life) With their new shoe, Adidas threatens to capture some market share in the running shoe segment. This stands to be a substantial amount of lost profits if Nike is not able to compete. Fortunately, Nike is already well established in the athletic shoe industry. It should be able to utilize its strength of brand equity compete effectively with the Adidas One. According to market research from NPD Group, ÐŽorunning is heart and soul of the athletic shoe industry.ÐŽ± Americans last year spent over 4.5 billion dollars on running shoes, accounting for 25 percent of all money spent on athletic shoes and making them the top category in athletic footwear. (Knight Ridder Tribune)

We recommend that Nike produce a shoe that not only exceeds the technological capabilities of the Adidas One shoe, but also offers a more affordable approach to high tech footwear. Currently it is estimated that serious runners buy an average of 3 to 4 pairs of shoes per year. At 250 dollars per pair, the average runner will spend almost 1000 dollars per year on running shoes. (Oregonian) Nike can eliminate the threat of lost market share posed by the Adidas One shoe by offering a lower cost alternative. The Nike shoe will include a processor chip that is sold separately. By using existing research and development personnel, Nike will not only show its loyalty to employees, but its superior technological capabilities. Instead of purchasing a new shoe at 250 dollars, customers can purchase a replacement pair for 75 dollars and move the chip to the new pair of shoes. Although the initial cost to the consumer will be slightly higher, we see the long run cost benefit to consumers being high enough to draw away a majority of the competitionЎЇs market share.

In order to create this shoe, Nike must implement the following actions. To begin with, funding to research and development must be increased to ensure that the technology employed in the chips and shoes will exceed that of Adidas. Next, Nike will need to allocate a certain amount of space in each of its main production plants in order to gear up for a mass rollout of the new product. Also, the product must be tested to ensure quality and safety. Another beneficial step is to offer a limited introduction of the product to a small test market to gauge customer satisfaction. The next step is to use NikeЎЇs strength in promotion to attract a top track star to endorse the new running shoe. Nike must use their celebrity endorsement along with an aggressive advertising campaign comprised of television, radio, magazine, and outdoor advertisements. The final steps are to rollout the product on a large scale and then evaluate product success.

Along with ensuring dominance in the high-tech shoe market with a new product, we also recommend that Nike make an aggressive move into the extreme sports market. Harvey Lauer, president of American Sports Data states ÐŽothese new sports are an authentic slice of the wider youth culture and not just a fadÐŽ± (Raymond). ÐŽoYouth culture consists of over 58 million Americans between the ages of 10 and 24. Horizon Media Research estimates its annual buying power to be more than 250 million dollars.ÐŽ± (American demographics, Raymond) To cater to the youth culture, ESPN holds a summer and winter X-games each year. These events create an opportunity for Nike to gain exposure by advertising to the youth culture. Established companies such as: Billabong, Burton, Birdhouse, Element, and K2 already understand the importance of advertising to the youth culture to gain a slice of their 250 million in spending power. Nike can use its strength in promotion to compete with these companies and muscle its way into the market. X-games competitions include skateboarding, snowboarding, rollerblading, BMX, wakeboarding, luge, and other extreme sports. ÐŽoEach year the X-games draw hundreds of competitors, thousands of fans, and millions of television viewersÐŽ± (Marshall). According to an article in the Columbian, by John Marshall, since 1997 to present, snowboarding has grown by 87 percent and skateboarding by 57 percent. These statistics show that the extreme sports market is real, substantial, and continuing to grow.

To capitalize upon this growth, we recommend that Nike move to gain a portion of the market for extreme sports. In order to implement this recommendation, Nike must first budget completely all expenses related to four important tasks: sponsorship, advertisement, endorsements, and products for the new market. The first and most important task to focus on is sponsorship. After budgeting expenses, Nike must meet with ESPN and negotiate a contract for sponsorship of the X-games. If Nike were to become the primary sponsor of a high profile event such as the X-games it would give Nike the same recognition that it receives from sponsoring events such as the Olympics and TennisЎЇ US open. ÐŽoYou couldnЎЇt watch the Olympics, Tour De France, TennisЎЇ US Open, or most any other major sporting even without seeing NikeЎЇs commercials on the tube or its logo plastered on athletes apparelÐŽ± (Watson, 2004). The next two tasks are advertising and endorsements. In order to implement our recommendation,