Assignment MGT300: Information Technology in Business
Title: Nike Sneakers
INTRODUCTION
The main purpose of this assignment is to discuss and to know the competitors of a product in a market that had been chose. Besides, I was assign to do some research about the cost strategy that had been used by this company in making sales of its products. An organization can follow Porter’s three generic strategies when entering a new market whereas Porter’s Five Forces will describe the barriers to entry for a new technology. Therefore, in this assignment, I choose one of sneakers industry as my topic for my assignment which is NIKE. Nike has always ruled the athletic apparel business with new styles and affordable performance gear. This company had previously divided the brand into three segments which are footwear, apparel, and equipment.
Nike Company use broad differentiation as their generic strategies. Broad differentiation is one of the three generic strategies in creating a business focus. Broad differentiation is consists of low cost and broad market. The price of this sneaker is at a high price because of a high quality of materials that had been used in making this sneaker. Although the price is high, it still affordable by most people to purchase it as compare to his current competitor which are Reebok, Adidas, Converse, and New Balance. Nike currently enjoys a 47% market share of the domestic footwear industry, with sales of $3.77 billion (Dusen, 1998). Because of many people preferred to choose Nike as their brand for footwear, and the price of sales is high, the company is placed under broad market and high cost.
DISCUSSION
Nike's new chief executive, Mark Parker explained to investors at Nike's annual analyst conference how the company aims to grow to $23 billion in revenue by 2011 by redefining Nike's relationship with its fast-changing, digitally driven consumer, and adding 100 new company stores worldwide in three years (Holmes, 2007).
The Porter’s Five Forces Model helps determine the relative attractiveness of an industry and includes the five forces which are buyer power, supplier power, threat of substitute products or services, threat of new entrants and rivalry among existing competitors. Rivalry among existing competitors achieving a highest cost position means that a company’s competitors will hesitate to compete on the basis of differentiation (Jaquier). The current competitors of Nike are Reebok, Adidas, Converse, and New Balance. They are competing with each other in the market. Because of increasing in supplier power, the buyer power is decrease. Buyer of the Nike sneaker is customers not only who involve in sport such as athletic but also for person who are not involve fully in sport. By making and adding some different on their goods, the number of customers can be increased and it can monopoly the market. “Product differentiation occurs when a company develops unique differences in its products with the intent to influence demand” (Baltzan & Phillips, 2010).
Achieving the high cost position provides more profit to the company especially after sales. The switching cost for this company is low because people still purchase their products even though the price is high. Nike’s buyers still stick to that brand because of the quality of sneaker which is last longer and comfortable when using it. The supplier power of Nike is low because the buying power is high. It means that, the volume of products to produce is in a big quantity. Treat to substitute the product is not existence because people only use sneakers during their sport. Treat of new entrants is low because it already exist the strong and well established brand name such as Nike, Reebok, Adidas, Puma, and other.
The Porter’s three generic strategies are consists of broad cost leadership, broad differentiation, or a focused strategy. Nike Company applies broad differentiation in setting the product in market. Differentiation involves making products or services different from and more attractive than the competitors. “Organizations need a good research, development and innovation, the ability to deliver high-quality products or services and also the effectiveness of sales and marketing in order to make a success of a generic differentiation strategy” (About Us: Mind Tools, 2010). Differentiation strategies are focus in different kind of market segments. A company can earn fully above returns when it implements a broad differentiation strategy. In this broad differentiation, Nike is making some differences on their products, so that they are able to concurred the market area and win against their competitors easily.
Although Nike products are higher priced, it has done a great job of driving the perceived value of their products over the years through multi-product branding (About Us: Money Instructor). They are adding some additional value to their products so that it will be more different with their competitors such as making a light sneaker with multiple functions. In this generic strategic, their sensitivity on cost is low. They are focusing more on their products’ differences from their competitors. “With the introduction of dri-fit several years ago, they created the market for a type of specialty sweat resistant sportswear that enhanced performance. However, as long as Nike is first to market with these new product introductions, it will continue to enjoy the prestige and profits associated with an industry leader” (Smithson, 2007).
CONCLUSION
As a conclusion, Nike products are high price, and are in a broad market. Many people are already known about Nike when someone mentions about that brand. Nike has a higher level of consumers who have associated themselves with the brand, and will pay the higher price point to own something with the Nike Swoosh on it. Their customers already believing their products and stick to that product as they had experienced it themselves. Nike Company is a company that only gives and produces high quality of goods and products. This company is using broad differentiation as their generic strategic. In this generic strategic, the company are less or not sensitive about the changes of price in their products whether to increase or decrease. Nike Company is adding some different functions to their products in order to beat their competitors such as Reebok, Adidas, Converse, New Balance and other. Therefore, Nike is facing no or less problem during their sales such as when they want to increase their customers because their customer preferred their products more than their competitors’ products.
BIBLIOGRAPHY
About Us: Mind Tools. (2010). Retrieved February 19, 2010, from Mind Tools Web site: http://www.mindtools.com
About Us: Money Instructor. (n.d.). Retrieved January 25, 2010, from Money Instructor: http://www.moneyinstructor.com/art/pricingstrat.asp
Baltzan, P., & Phillips, A. (2010). Business Driven Technology. New York: McGraw-Hill/Irwin.
Dusen, S. V. (1998). About Us: Carolina. Retrieved January 25, 2010, from The University of North Carolina Web site: http://www.unc.edu
Holmes, S. (2007, February 7). About Us: Bloomberg Business Week. Retrieved February 19, 2010, from Bloomberg Business Week: http://www.businessweek.com
Jaquier, B. (n.d.). About Us. Ecofine. Retrieved January 25, 2010, from Ecofine Website: http://www.ecofine.com
Smithson, B. (2007, June 19). About Us: Seeking Alpha. Retrieved February 19, 2010, from Seeking Alpha Web site: http://www.seekingalpha.com
Prepared By:
Syahida Abd Aziz (2011)
Diploma in Business Studies
Universiti Teknologi Mara (UiTM) Perlis
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