Overview of Business Strategy
Writing an essay, an essay report, or a case study on the business strategy of Nike is one of the common assignments in business school.
When executing such assignments, you are required to demonstrate extensive knowledge about business strategies as well as Nike.
Rightly, a business strategy can be viewed as a plan implemented by a firm with the sole purpose of beating its competitors.
Business strategies are also referred to as generic strategies and are usually credited to the works of Michael Porter.
Per se, effective analysis of the business strategy of Nike requires an understanding of the respective generic strategies.
The common types of business strategies include:
1. Cost Leadership Strategies
This example of a business strategy requires the firm to price its products at the lowest possible cost.
Such pricing is essential in enabling it secure and sustain its leadership position. By employing this strategy, the firm seeks to appeal to cost-conscious customers.
The firm is supposed to align its activities, including raw materials procurement, marketing, and distribution to the interests of price-sensitive customers.
Ways used to realize low costs may entail cutting down on operational costs, economies of scale, and optimum use of assets.
These strategies are usually suitable for large firms.
Some of their challenges include risk of poor customer retention, low shocks to economic fluctuations and increasing prices, and ability to produce quality products at below average industry product price.
2. Differentiation Strategies
This is another example of a business strategy key to Nike business strategy analysis.
It entails developing unique features or unique selling point for a product.
Usually, differentiated products are offered to customers at a higher price.
As such, differentiation could be a critical business strategy of Nike, which is the opposite of cost leadership.
Adopting this strategy would require the firm to target customers who are less price sensitive and instead, more quality conscious.
Note that the initial costs in this strategy are significantly above industry average.
For this reason, product prices are at a premium. The strategy requires high levels of customer loyalty.
Markedly, even smaller companies can adopt this business strategy model.
3. Focus Strategies
This also an important strategy in Nike business strategy analysis.
It entails focusing on a selected audience within a small market that is characteristic of specialized needs.
The idea is to target customers with unique needs.
In applying this, the business strategy of Nike could involve focusing on markets with limited competition.
Such markets are the basis of a competitive advantage.
The firm could either charge a premium or keep the product price below the industry average.
This strategy could assume two approaches that include 1) focused cost strategy and 2) focused differentiation strategy.
Nike as a Business
The firm’s business proposition, performance, and environment are critical in the analysis of the business strategy of Nike.
This is because they entail the critical forces that are influencing the firm’s decisions.
You need to understand the objectives of the firms, its financial performance, and industry environment for the evaluation of the business strategy model employed by the firm.
1. Objectives
The objectives of the firm are critical in the effective analysis of Nike’s business model.
These objectives could be extrapolated from the firm’s mission and vision statements. Nikes mission statement is:
“To bring inspiration and innovation to every athlete in the world.”
On the other hand, Nike’s vision statement is:
“To remain the most authentic, connected, and distinctive brand.”
2. Performance
Also, the analysis of the business strategy of Nike requires you to adequately appreciate the firm’s financial performance.
Note that the company has enjoyed continuous growth since its formation.
It is quite profitable as illustrated in its 2019 financial data, where it had revenues of about $39 billion and a net income of about $4 billion.
3. Environment
The environment is also an important factor to consider in the analysis of the business strategy of Nike.
Among other things, Nike’s business environment can be defined by some of the below elements.
-Sports footwear and apparel.
-Need for quality in enhancing customer loyalty.
-A market for men’s, women’s, and children’s products.
-A market with competitors like Reebok, TaylorMade, Adidas, Abercrombie, Old Navy, and Fitch.
-Need for collaborations and partnerships for business success.
-The important role of Innovation and technology in market domination.
The Business Strategy of Nike
Nike has employed two key types of business strategies to secure market leadership.
These strategies include differentiation and cost leadership.
The firm has managed to combine these strategies in its products and processes.
1. Differentiation
For the business-level strategies, it is arguable that Nike applies something close to the differentiation strategy.
Nike’s business model is primarily founded on this strategy, may it be investment on technology or production.
As the main business strategy of Nike, differentiation has focused on developing unique products for the customers.
This has ensured that different sets of customers are brought on board. This strategy is realized through:
1.1 Innovation and new technology
Technology has been the foundation of the business strategy of Nike.
The firm has invested intensively in R&D, which has made it renowned for some trademark innovations and revolutions.
Per se, technologies in design and materials defines the firm’s business strategy model.
Some core technologies and innovations by Nike include the auto-lacing shoe, i-pod pace and distance tracking tech, and the tech where air bags replace foam.
Rightly, innovation is one of Nike’s success factors. It has ensured that the firm remains ahead of the curve when it comes to new products.
Consequently, the firm sets pace and trend, where other companies can only copy. This can be exemplified by its Flyknit shoe.
1. 2 Diversification
This is one of the most characteristic business strategies of Nike.
It is the foundation of its differentiation strategy. Note that despite its insistence on quality products, the firm has managed to offer products to almost everyone.
Diversification as an example of a business strategy is evident in the firm’s range of products that include apparel and sports equipment for golf, soccer, baseball, basketball, cycling, cricket, ice hockey, auto racing, track and field, tennis, surfing, yoga, etc.
In addition, Nike ventures into casual clothing and accessories like jeans, shirts, jackets, hats, socks, backpacks, watches, purses, sunglasses, wallets, purses, belts, scarves, hairbands, etc.
Further diversification is seen in its ownership of the Converse, Hurley, and Jordan brands.
2. Cost Leadership
This another key business strategy of Nike.
Although the firm currently does not give much emphasis to the strategy, it was particularly critical during its earlier days.
Some of the cost leadership strategies employed by the company include:
2.1 Economies of scale
As the world’s leading producer of sports equipment and textiles, the firm has managed to take advantage of economies of scale.
This results from its ability to purchase in bulk, which is critical in securing huge discounts.
As well, due to its giant size, it is able to control the prices of the raw materials.
2.2 Outsourcing
Outsourcing is at the center of Nike’s business model.
This strategy has managed to give the firm an edge against its major competitors.
Particularly, it enables it to greatly reduce its production costs.
Note that Nike outsources its processes from Asian countries which enables it to: 1) remain lean, 2) secure cheap source of labor, and 3) be flexible in case of product price changes.
This is an important business strategy of Nike.
This is because it enables the firm to easily relocate its operations to cheaper locations as an effort to drive their marginal costs down.
2.3 Effective negotiation with suppliers
Nike’s enormity to its suppliers gives the firm an advantage in negotiations.
It purchases products in high volumes and selects manufacturers based on lowest cost considerations.
Further, its suppliers are extremely dependent on the firm. All this enables Nike to enjoy low production costs.
