The History Of Nike Inc Footwear Marketing Essay

The History Of Nike Inc Footwear Marketing Essay Nike Inc., develops and designs footwear, sportswear, apparels and equipment. They make the availability of goods in Nike stores, franchisee stores and online through the website www.nikestore.com . They organize, supports and sponsors main sports around the world as they think sports is the main key for being healthy and they also sponsors high profile athletes so that the people can follow their icons. Nike has a trademark logo Just Do It. Recently, many countries faced recession followed by sharp increase of inflation. Graph 1: Inflation Rate Graph (2002-2012). (Source www.usinflationcalculator.com) Inflation defined as a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money. In other words, the inflation tells the effect on the people life financially. When they see prices in stores going up they call it inflation. Price inflation is a result of monetary inflation. http://thefaintofheart.files.wordpress.com/2012/09/metamorphosis_11.png Graph 2: Inflation rate graph for Nike. As per the data collected from Indonesian Plant, the Nike shoes Cost $20.00 to the company, $35.00 to retailer and $70.00 to the consumer. The breakdown can be found in the table below. Production labor Materials Rent, equipment Suppliers operating profit Duties Shipping Cost to Nike $2.75 $9.00 $3.00 $1.75 $3.00 $0.50 $20.00 Research and development Promotion and advertising Sales, distribution, admin. Nikes operating profit Cost to retailer $0.25 $4.00 $5.00 $6.23 $35.00 Retailers rent Personnel Other Retailers operating profit Cost to consumer $9.00 $9.50 $7.00 $9.00 $70.00 (Including VAT) Table 1: Nike shoes cost breakdown. (Source http://www-personal.umich.edu/~lormand/poli/nike/nike101-8.htm ) Nike spend approx 12% of revenue on marketing every year that includes advertisement, endorsement fee that it pays to sports league and Team. A) Due to inflation there is less demand of the Product and to overcome the company has different strategies to reduce the cost of the production. As the company has a full time employee so the company will have a fixed cost which they need to give to the employee. Instead of fixed employee they can shift to part time employee and thus reducing the cost. They can also outsource their production to a country with low labor cost. They can also lower their material cost by using cheap materials like polyurethane instead of rubber for the shoe sole. The Company also needs to look into the factors like Fixed and Variable Cost. Fixed Cost basically a minimum quantity of inputs required by the firm to be in a business at all whether or not output is produced and Variable Cost by (Begg, 9th Edition) The Cost of hiring Variables inputs, typically labor and raw materials. If the Fixed cost is more than the variable cost than there would be low level of production but if variable cost is higher than fixed cost than the production of the company increases. Q TFC TVC TC AFC AVC AC MC 0 60 0 60 1 60 10 70 60 10 70 10 2 60 20 80 30 10 40 10 3 60 30 90 20 10 30 10 4 60 40 100 15 10 25 10 5 60 50 110 12 10 22 10 6 60 60 120 10 10 20 10 Table 3: Table for Marginal Cost. By the above chart we can see that MC Graph 3: Graph for TFC and TVC. B) Nike is a globally recognized brand which produces accessories, apparels and shoes for majorly sports and fashion. Nike introduced customization of shoes and focused on each and every group age. The brand already attached to many renowned sports personality like Michael Jordan, Lance Armstrong, Roger Federer and Tiger Woods. The brand had focused on every sport around the world. Income elasticity of demand (IED) examines how the quantity demanded responds to a change in consumer incomes. IED can be calculated as, IED = (% Change in Quantity Demanded) / (% Change in Income), Consider that the original and new income of my product is $100, $200 and Original and new demand is 25, 50 units respectively. IED = ((50 25) / 25) * ((200 100) / 100), = 1 Here we can see that IED is equal to 1 thus it is a normal good and income inelastic. The price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in the price of the good or service. The PED can be calculated as PED = (% Change in Quantity Demanded) / (% Change in Price), For example we can assume the price of shoe rose from $100 to $200, resulting in demand rising from 50 to 55 units. PED = ((55 50) / 50) / ((200 100) / 100), = 0.1 Here PED The Cross-Price Elasticity of Demand (CPED) measures the rate of response of quantity demanded of one good, due to a price change of another good. The CPED can be calculated as CPED = (% Change in Quantity Demand for X) / (% Change in Price for Good Y), If CPED > 0 then they are substitute goods. If CPED =0 then they are independent goods. If CPED (http://economics.about.com/) Nike substitute good is Adidas and they are horizontally integrated. Nike decides to increase the price of Adidas shoes. If the cost of Adidas shoes increases then there would be decrease in the demand of the Adidas shoes and the demand of the Nike shoes will increase as it will cheaper then Adidas. C) Market structure of Nike is that it should be available for every age groups and it will maintain a leading position to its competitors. Nike will make it sure that the goods are available at all stores around the world and it will make sure that it will fulfill the change in demand of the customers. They will also make sure that the quality products are reached to the customers at cheap costs. The main competitors of Nike are Reebok, Adidas and Puma. Reebok http://www.buyerden.com/media/text_img/Reebok_Logo.gif: Reebok main strategy is that to change the peoples mindset about the word fitness and to bring fitness around the world and they want to declare themselves as the world fittest company. They target is to invest more in marketing strategy rather than the infrastructure. Adidas http://preview.thenewsmarket.com/Previews/ADID/StillAssets/197410.jpg: Adidas focuses on marketing its products as they think that products are a selling goods. They spent huge amount of its revenue on marketing their product. They hire famous designers for the designing of the shoes. Puma http://www.roanokestar.com/imgs/home/puma%20logo.gif: Puma targets female group and female dominant region. They fulfill the demand of the customers on the perception of customers image rather than their needs. They also target middle-upper class group through there advertisement and it reflect it on there marketing strategy. Nike has different strategies with respect to his competitors The mission is to provide availability of products at every marketable place and exceed from all leading athletic companies. The company targets to be in a lead by providing quality products and innovative designs for all age groups. The Company guarantees the availability of every kind of products at all leading market and stores. To meet the changing demands of customers. Value the stakeholders, laborers and other communities in the executing of every strategy and decision. The company focuses on providing quality products on low prices to have bigger share in the market. (http://marketingmixx.com/) Graph 5: Profit prediction after the strategy. D) Nike segments its market according to demographic location as they wants their products to be available at every corner of the world as they treat every customers as equal. Nike make sure that the availbility of products for every age groups. They focuses on the sports as they think that sports make the people live their life in the healthy manner. Nike main product is Footwear and they try to innovate and designs their footwear according to sports and age groups. Nike make it sure that the products are available at every market place so that the customer can go and a grasp on a quality Footwear. They also target to provide their footwear with low cost in the country were the economy is low. The company will focus on different pricing strategies to attract customers. Nike will target on marketing through advertisement like television featuring high profile athletes using our product etc. There will be offers for every customer like buying a product will get discount in their next purchase. There will be loyalty cards where the customers can convert their buy into redeemable points. Special offers will be available for students like they can get extra discount into the existing discount if they show there student Identity card. E) Nike focuses on vertical integration to produce their products. The main parts of Nike footwear are upper (top of the shoes), midsole (the cushion of the shoes) and the outsole (lower sole). Nike outsource to different company to build these segments which led to low build cost. The company focuses on both local and global markets. Nike has earned its maximum of its revenue from North America, followed by Europe and a small share from countries like China and Japan. They are now targeting markets like South America, Russia, India and Pakistan for more revenue as there is a gradual rise in the economy of these countries. Due to inflation, there are fewer sales of products and therefore there is low output. Nike has suffered a lot due to that. Due to inflation there is a increase in the cost of material and the transportation of Nike. To Overcome Nike has decided that they will try to increase their product price and decrease their marketing budget. If the company is new to a particular country there is a lot of help provided by the government of the country like the government may exempt the taxes until unless they start making the profits. F) To overcome the foreign exchange losses, the company will invest in a country where currency is cheap. To do so the company needs to look into the big picture of the world economy like investing in the countries like Qatar, China, Argentina, Srilanka, India, Iraq etc as their Gross Domestic Product(GDP) are growing gradually. The gradual growing GDP of these countries ensures that their economy is stable and there are opportunities for the company to invest in these countries. If companies invest in countries like India they will have cheap labor, cheap raw materials as maximum of raw materials are exported from Asian countries, cost of production will go down means increase in profits.