Nike Inc.Footwear and Apparel Industry

Bo Ament, Colin Best, Brendan Coughlin, Darrien Horn, Chase Frerking, Daniel Jones, Dylan

Morgret, Aaron Platts

STRATEGIC CONTEXTWhy is it important?▪Understand the setting and constraints over time

▪Shaping force of current strategizing

Historical Context

• Strategic History

External Context

• Strategic Group Analysis• Five Forces Analysis• Macroenviromental Analysis

Blue Ribbon Era

Nike Era, The Swoosh

Shoe Revolution/E

xpansionJust Do It Era Reestablishi

ng Nike

STRATEGIC HISTORY: BLUE RIBBON ERA

STRATEGIC HISTORY: NIKE ERA, THE SWOOSH

Blue Ribbon Era

Nike Era, The Swoosh

Shoe Revolution/E

xpansionJust Do It Era Reestablishi

ng Nike

Blue Ribbon Era

Nike Era, The Swoosh

Shoe Revolution/E

xpansionJust Do It Era Reestablishi

ng Nike

STRATEGIC HISTORY: SHOE REVOLUTION/EXPANSION

STRATEGIC HISTORY: JUST DO IT ERA

Blue Ribbon Era

Nike Era, The Swoosh

Shoe Revolution/E

xpansionJust Do It Era Reestablishi

ng Nike

Blue Ribbon Era

Nike Era, The Swoosh

Shoe Revolution/E

xpansionJust Do It Era Reestablishi

ng Nike

STRATEGIC HISTORY: REESTABLISHING NIKE

EXTERNAL CONTEXTStrategic Group AnalysisFive Forces AnalysisMacroenviromental Analysis

STRATEGIC GROUP ANALYSIS

FIVE FORCES ANALYSIS OF THE FOCAL STRATEGIC GROUP IN THE FOOTWEAR

INDUSTRY

FIVE FORCES ANALYSIS

Rivalry Among Existing FirmsRivalry (Moderate) Strategic Group Profitability (Moderate)

Determinates

Sub-Determinates

Strength of Sub-

DeterminatesStrength of

DeterminatesStrength of

Force (Rivalry)

Explanation

Number of Firms - - High Four firms in strategic group; oligopoly; price

war Concentratio

n - - High Low CR4 = 98%

“Price War” - - Low Low

- Industry rivalry focused on marketing and contracting top athletes; premium products

- 50% of shoe sales greater than $85 are Nike

Industry Growth - - High Low

- Footwear industry up 25.94% from YAGO- Athletic footwear grown average of 8.6%

last 3 years- Note: UA growing faster thanks to

marketing budget

Product Differentiatio

n

Functional Differences Low

Moderate Moderate

- Little functional differences among SG - Loyal customers willing to pay premium

prices - Young market = dominance of premium

shoe marketBrand/

Psychological Differences

High

Switching Costs - - High High

- High switching costs due to high psychological/brand differentiation

- Online dist. has greatly lowered switching costs

Exit Barriers

Low salvage value Low

Moderate Moderate

- Nike contracts all manufacturing; low P&E commitment

- Nike committed to carry on Bowermann’s legacy

- Older execs, most with company since 1970s

Escalation of commitment/em

otional attachment

High

Threat of New EntrantsThreat of New Entrants (Moderately Low) (Moderately High)

DeterminatesSub-

Determinates

Strength of Sub-Determinates

Strength of Determinates

Strength of Force Explanation

Economies of scale - - High Low

Capital requirements - - High Low

Product differentiatio

n among existing firms

Functional Differences Low

Moderate ModerateBrand/

Psychological Differences

High

Switching costs - - High Low

Access to critical

resources

Access to distribution channels for

new entrants

Moderate

Moderately High

Moderately HighAccess to

necessary inputs for

new entrants

High

Threat of New EntrantsThreat of New Entrants (Moderately Low) (Moderately High)

Determinates

Sub-Determinates

Strength of Sub-

Determinates

Strength of Determinat

eStrength of

Force Explanation

Retaliation

History of existing firms lashing out

High

High LowResources by

existing firms to fight back

High

Existing firms likelihood to lower prices

Moderately High

Government Policy

Government regulation of

entry Low

Moderate ModerateGovernment regulation of

focal strategic group

Low

Patent production for existing firms

High

Threat of Substitute Products

Threat of Substitute Products ( ) Industry Profitability ( )

Determinates Sub-Determinates

Strength of Sub-Determinates

Strength of Determinate

Strength of Force Explanation

Substitute products easily

available

Substitute Product #1

Substitute Product #2

Bargaining Power of SuppliersBargaining Power of Suppliers (Low) Strategic Focal Group Profit

(High)Determinates Sub-

DeterminatesStrength of

Sub-Determinates

Strength of Determinate

Strength of Force Explanation

Concentration in Supplying

Industry relative to

Concentration in focal industry

Moderately Low Low

Supplier sells unique

product that is a small

percentage of its sales

Importance to buyer Low

Low LowFocal firms to choose from Low

Switching costs for buyers Low

Threat of forward

integration by supplier (C^3)

Cash: Supplier has cash

reserves to forward

integrate

Moderately Low

Low LowCare: Supplier is

motivated to forward

integrateLow

Competencies: Supplier has the competencies

to forward integrate

Moderately Low

Bargaining Power of BuyersBargaining Power of Buyers (Moderately High) Industry Profitability (Moderately

Low)

Determinates

Sub-Determinat

es

Strength of Sub-

Determinates

Strength of

Determinate

Strength of Force Explanation

Concentration in

buying industry

relative to concentration in focal

industry

Moderately Low

Moderately Low

Bargaining Power of BuyersBargaining Power of Buyers (Moderately High) Industry Profitability (Moderately

Low)

Determinates

Sub-Determinat

es

Strength of Sub-

Determinates

Strength of

Determinate

Strength of Force Explanation

Concentration in

buying industry

relative to concentration in focal

industry

Moderately Low

Moderately Low

Volume Purchase of Buyers

Five Forces Analysis

Focal Strategic Group vs Industry ROA

Five Forces Analysis – Threats and Opportunities

• Threats • Opportunities

Sources

• http://www.bidnessetc.com/20791-athletics-footwear-industry-hurdles-sight/

• http://markets.on.nytimes.com/research/markets/usmarkets/industry.asp?industry=53223

• http://www.businessinsider.com/nike-outbids-under-armour-for-kevin-durant-2014-9

• http://blogs.marketwatch.com/behindthestorefront/2014/04/17/nike-was-awarded-540-patents-in-2013-heres-what-that-means-for-investors/