Nike Inc - DOC by linzhengnd


									                               Nike Inc. in 1998
Assessment of Nike’s Differentiation

How does Nike create value? Why do people pay a premium for Nike products?
There are two broad reasons why consumers pay a premium for Nike products: 1)
performance expectations; 2) fashion and/or image.

If people pay more for Nike because they believe they are technically better, how do they
develop this belief?

Are Nike products better?

If Nike products are better, how do people know Nike is better?

If image and fashion are why people are paying more for Nike, then what is it, more
specifically, that leads them to pay more?

Threats to Nike

What are the most important threats to Nike?

How would you rank these threats in importance?

Resource Analysis of Nike

We do not have enough data on Nike’s competitors to conclusively address Nike’s
advantages and disadvantages, but we can draw some reasonable inferences.

Assess Nike’s resources. Does Nike have a competitive advantage? Are those
advantages sustainable?
Nike has no shortage of valuable resources. Some of the most important are below:
    Technology and Technological Skill: Nike has been a leader in technology from
       the beginning. The waffle trainer was an important innovation in its time as was
       its air technology. Moreover, Nike is very good at creating technology “stories”
       that describe why a technology may lead to better performance. More recently,
       Nike has promoted technology as a differentiator not just in shoes but in apparel
       and other products, particularly golf. Nike enjoys economies of scope over most
       of its competitors in research and development. In running shoes, for example,
       competitors such as Brooks and Asics are much more focused on the running
       market while new Nike developments may be transferable to a much broader
       product line (i.e. running, basketball, baseball, soccer, football, and golf). If there
       are economies of scale in development, Nike also has an advantage here. The
       company spent $106.7 million dollars on R&D in 1998. In contrast, New Balance
       was sixth in athletic footwear sales in 1996 with $200 million. Thus, Nike is able
    to spend much more than its competitors on R&D and its R&D cost per shoe are
    likely much lower.
   Design: Nike not only produces products that have plausible technological
    advances, but they also tend to have edgy designs that appeal to lead customers
    and capture broad attention. Nike products are rarely accused of being stodgy.
    Historically, one can argue that Nike has had a design edge on its competitors. It
    is not clear how sustainable this advantage is or how one can even quantify it.
    Design receives more emphasis, generally, than it once did and third party design
    firms such as IDEO are regularly employed by firms in the leisure industry to help
    firms make their products more attractive, but Nike clearly has world-class ability
    when it comes to design for its target markets.
   Value Chain Management: From its management of multiple tiers of overseas
    suppliers to programs like the Futures program to its almost ubiquitous
    distribution in retail outlets, Nike appears to excel in its management of the value
    chain. The case does not have data, however, on how competitors compare on
    these activities other than to suggest that other firms are trying to implement
    programs like Futures.
   Marketing: Nike’s strength in marketing is undeniable. In part because of its
    tremendous investment in advertising, Nike is one of the most recognized brands
    in the world and the swoosh one of the most familiar symbols. Nike also has a
    knack for outpacing its competitors in endorsements. One professional athlete
    told me that Nike does the best scouting in the world. I think the comment was
    made partly in jest, but the company has an extraordinary record of making deals
    with up and coming stars that become the dominant figures in their sport.
    Michael Jordan and Tiger Woods stand out in this regard. Nike has also
    aggressively sought endorsements of teams, which has made the swoosh ever
    more visible. The industry trend towards less spending on endorsements suggests
    that other firms are finding that the benefits of endorsements have not measured
    up to the high costs. Specifically, Reebok’s non-renewal of Shaquille O’Neal
    (who in 1998 was arguably the most dominant player in basketball) suggests that
    many endorsement deals are probably losers for the company. Yet, Nike’s top
    endorsements have had an enormous positive impact. This is likely due to 1)
    Nike’s ability to choose the right stars to endorse; 2) its ability to create, promote,
    and manage the image of its stars.
   Culture: It is clear that Nike has a strong culture that places a premium on
    authentic athletes, competitive success, and superior performance of its products.
    The culture is deeply embedded in Nike’s history and is a reflection of Phil
    Knight and Nike heroes such as Prefontaine, John McEnroe, and others. Given its
    social complexity, competitors cannot easily duplicate the Nike culture.
   People: Phil Knight not only founded Nike, but he has led it through multiple
    transitions that have resulted in dramatic growth and success. He is by far the
    most visible executive in the industry. No one else comes close to his record of
    accomplishments. Another interesting issue here is Nike’s historical policy of
    hiring the most talented people that they can find regardless of industry
    background. Their policy of hiring the most talented and competitive people that
    they can find combined with their culture may also be a source of competitive
       advantage. As talented, competitive people identify with the Nike culture and
       develop loyalty they may be more likely to join Nike and less likely to leave (and
       try to fully appropriate the value of the knowledge they have gained). Thus, it is
       possible that Nike has a talent advantage that is difficult for competitors to
       imitate. A few key managers have left Nike for competitors, but it was somewhat

How has Nike managed to develop such world class capabilities in multiple areas?

How has Nike developed resource advantages in so many areas?
Usually path dependence plays a big role in answering the above question for most
companies. Wal-Mart for example, developed its extraordinary skills in logistics and
distribution largely because of a set of historical conditions that it had to respond to early
in its history. Nike’s early success is to some extent a function of timing. It came along
at just the right point in history – when the baby boomers were turning to fitness.
Nevertheless, Nike deliberately chose a different path than its competitors at key points in
time with respect to emphasis on technology and design, marketing, endorsements, etc.
One explanation is that the intense competitive culture combined with its preference for
talented people with diverse backgrounds facilitated Nike trying different things than
competitors and developing different skills.

Nike’s Opportunities

What are Nike’s best opportunities for profitable growth?

What is Nike’s optimal scope? Or, what is the limit to where Nike should engage in


You have been asked to present your recommendations to Phil Knight, what are you
going to tell him?


This case highlights a number of important lessons:
           1. Nike illustrates very different ways in which companies can differentiate
               their products (brand, image, technology, performance, product features)
               and sustainability issues that arise with each.
           2. Nike shows that underlying differential performance in product markets
               there are likely to be distinctive resources that are valuable, rare, and
               difficult to imitate. It shows the applicability of VRIO analysis to
               differentiation issues.
           3. Finally, Nike is a classic example of how a firm develops distinctive
               resources and then leverages them into new markets. Nike began as a
               running shoe company that was driven to make the best performing
             running shoes possible. The competitive culture that permeated Nike was
             likely at the root of how they develop world class resources and
             capabilities in multiple areas.

Exhibit 1: Transferability of Nike’s Advantages in New Markets

Resource                    Advantage Transferable         Advantage Transferable
                            to International               to Sports Equipment
Technology development      Yes                            Aggressive approach and
                                                           commitment to
                                                           technological advantage is
                                                           transferable, but they
                                                           probably do not have
                                                           specific technological
                                                           advantages in many
                                                           potential markets
Design                      Yes, but there is a risk of    Yes
                            cultural differences
Value Chain Management      Yes, but likely to encounter   Probably
                            differences in distribution
                            and retail.
Marketing                   Global reputation is an        Yes, but association with
                            advantage. To the extent       running and basketball
                            that sports products are a     could be a liability in
                            global market and user         marketing to the golf
                            demands and tastes are         market, for example.
                            homogenous, Nike’s
                            advantages should transfer
                            well. U.S. identity could
                            hamper Nike in some
Culture                     Highly individualistic,        Yes.
                            competitive Nike culture
                            may not translate well to
                            other countries.
People                      Yes                            Yes

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