Product Differentiation at Nike

Ways Nike Differentiates Its Products

The athletic apparel market is one that is competitive and highly dynamic.  Products must be distinct, bleeding edge and top-of-line for any firm to have a chance at grabbing a hold of any competitive advantage more less sustaining one.  Nike, being the world leader in this market, takes these customer perceptions to heart and continually produces products that separate itself from the pack.

The product differentiation attributes that Nike pays great attention to are the uncanny product features and the timing of introducing their products to market.  Creating new technologies in material and designs that are continually updated to reflect consumer preferences create a niche that others try to copy but never can sustain Nike's pace.  Plus Nike always seems to be ahead of the curve in introducing their newest products just as the market begins to crave them.  New products like the recently released Flyknit shoes that blend a new knitted pattern of yarn and fabric into a lightweight, breathable running shoe just as soon as summer starts creeping into the public's psyche is a good example.

Another big part of Nike's product differentiation strategy is its relationships with its customers.  Being the worldwide leader of athletic textiles for the better part of half century has given Nike a sort of "high ground" in the market.  Customers feel that Nike's reputation in athletics is somewhat superior over all others and by default pick their products more often than not just because of this.  Also Nike is well known for their great marketing techniques with many of the world's most well known athletes serving as spokes models, witty ads and commercials, and the "Just Do It" slogan that is synonymous with the brand.  Additionally, Nike reaches out to the consumers with product customization offerings to further offer a different product experience as well; i.e. the NikeID brands of clothing, equipment and footwear that allow customers to modify the colors, materials and even monogram their products however they see fit. 

Not to be overlooked, Nike engages in many linkages with other firms and has a diverse product mix.  The Nike brand is seen around the world through the linkages they have with most every sport on the planet.  The Nike Swoosh is on everything from NCAA college footballs to Olympic sports uniforms pushing the brand out there into every sport's athletes' or wannabe athletes' brains.  Nike even cross links with non-athletic companies to implement new avenues for their consumer, for instance with the Nike+ run tracking software made in conjunction with Apple's iPod and iPhone.  As one can imagine, more often than not Nike will not only be on one "part" of those performing athletes, but more likely that person will be outfitted in a complete Nike product mix from head to toe.  Consumers will find that they like one product from Nike, say shoes, and then see another offering, like sunglasses, and automatically correlate the former's high performance to the latter rather than pursue an unknown brand.

     

                                            Nike ID                                                                                    Nike+

Nike most definitely has a sustained competitive advantage with these strategies in place and will continue to be an innovative market leader as long as they continue to utilize them.

Cost Leadership at Nike

Nike's Cost Leadership Strategy

Nike has a moderate cost leadership strategy within its industry.  There are a few different choices in the marketplace for buyers to obtain athletic shoes, apparel and the like, however Nike's products are distinct for a variety of reasons that enable them to derive economic profit from other means than simply controlling costs.  With that said, the hypercompetitiveness of the few rivals Nike has means that they do have to do their best at minimizing said costs as to maximize their market share and margins.

Nike has significant economies of scale.  As the world's largest producer of athletic textiles and equipment, Nike dwarfs the competition.  A caveat to their manufacturing processes, Nike outsources all of these processes to many Asian countries that does three things, (1) keeps Nike as a company very lean, (2) provides a cheap labor source, and (3) if a manufacturer/supplier increases costs, Nike can simply relocate to a cheaper option further driving down their marginal costs.  Other companies without Nike's clout can't match this ability.  Also considering the worldwide demand that Nike has, the distance to market from suppliers is negligible and not a source of a diseconomy of scale.

Nike has a long history within the sports world that dates back to 1972, which enabled them to assemble a large knowledge base throughout the years.  This knowledge continues to be dynamic within the industry through an innovative Research and Development department that continually creates new advantages in athletic performance (for instance, Nike's recently released Nike Free Gym+ women's shoes that mimic being barefoot for exercise classes such as yoga and the Nike Hypercool 2.0 line of sweat wicking performance clothing to cool athletes as they perform).  These advantages set Nike's products apart and drive customers to them.

                    Nike Free Gym+ women's shoe                                 Nike Hypercool 2.0 Pro Combat Top

Nike definitely has low cost access to factors of production.  The enormity of Nike in respect to their suppliers gives them a huge advantage in production negotiations.  Due to their high volumes for products, the cut-throat low cost nature of selecting a manufacturer, and coupled with the fact that Nike's suppliers depend so heavily on them for their own success that they have little to no bargaining room toward raising prices, allows Nike to continuously enjoy low costs of production.

Nike's hardware and software technology implementations of using the not only using the best materials but creating them in a vertical fashion and housing an innovation culture from the top down, allow Nike a first move advantage into cost savings. However most of these advances only bring definite savings for a short time due to competitive parity within the industry, their creative nature definitely does benefit over the long run.

Evaluating Nike's Strengths and Weaknesses: The Resource-Based View

VRIO Framework of Nike

In determining the true resource-based, internal sources of Nike’s competitive advantages, a VRIO Framework is necessary. By singling out those internal resources that are heterogeneous (difference between Nike’s resources and the competitions) and immobile (the competition’s ability to mimic Nike’s resources), we can see where Nike’s true strengths and weaknesses lie.

Value – Does Nike’s resources and capabilities enable the firm to respond to environmental threats or opportunities? Yes, Nike has been the global leader of the athletic textile industry for some time, garnering much experience and know-how along the way. The massive vertically integrated nature of Nike, from research and development to the manufactured finished product, has allowed them to pursue totally new markets in a first mover fashion (casual clothing fashion lines like the Cole Haan) or enter established markets and ward off competition threats with their market leader superiority (Nike Dri-Fit sweat wicking material versus Under Armour Charged Cotton sweat wicking material). By utilizing their knowledge base, Nike can use their resources and capabilities to exploit numerous market opportunities.

 

Ad for Cole Haan/Nike

Rarity – Are Nike’s resources currently controlled by only a small number of competing firms? Yes, Nike’s ability to invent and reinvent their entire product list for the better is unmatched in the industry. Granted others might be able to gain temporary competitive advantages due to a micro-focused view on one particular market segment (for example CCM hockey equipment), but Nike’s resources and capabilities allow it to move swiftly to either copy or make better that original company’s attempt at competitive parity (Nike-Bauer hockey equipment merger).

Imitability – Do firms without a resource face a cost disadvantage in obtaining or developing Nike’s resources? Yes, the ingenuity of Nike’s products involves tried and true knowledge developed through the extensive research and development labs housed within the company that is expensive to duplicate. Even if a competitor does successfully imitate Nike, they then have to fight the market perceptual dominance that Nike has over its customers within its market. The Swoosh is all powerful within the market and therefore unique in its industry. 

Organization – Are Nike’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources? Most definitely. Nike’s leadership has organized the company in such a way that its innovative nature consistently produces sustaining profitable results within the market. Being ahead of the curve of the athletic footwear market some 50 years ago gave it a foothold into not only shoes, but all things athletic. Sustained competitive advantages will continue as long as Nike continues on this path.

In conclusion, it is apparent that Nike has a sustained competitive advantage. The distinctive competence within Nike’s resources and capabilities allow it to be risky and innovative but at the same time remain profitable with current and traditional offerings. Unless extreme unanticipated changes within its market occur, Nike will be a market leader from now and into the future.

Evaluating Nike's Environmental Opportunities

Industry Structure

    

Nike’s industry structure can be diverged into many categories, but its main designations are that of mature and multinational industries.  The athletic textile (apparel, footwear, and accessories) industry is by and large a mature industry considering its slowing market growth coupled with a steady demand of repeat buyers, increasing competition internationally amongst a few large competitors, and a definite slowdown of the introduction of different, specific products.  Nike has a sustainable presence as the market leader basically due to its continuous refinements of all of its products through its innovative research and development processes of testing and putting into practice sustainable products with now a creative, “green” genesis, i.e. in the 2010 World Cup, making the jerseys out of recycled plastic bottles while not compromising performance.

Brazil Soccer Jersey made out of Recycled Plastic Bottles

Also Nike is a large, multinational conglomerate that is spread out companywide across six major geographic areas – North America, Western Europe, Eastern/Central Europe, Greater China, Japan, and Emerging Markets.  Even their affiliated brands operate in a similarly collaborative way as multinationals.  Mainly the operations of each focus on local tastes and operations can be maintained more effectively within each market at each center headquarters.  This allows each geography the flexibility to rapidly change without much bureaucracy.  For instance, Nike outsources all manufacturing processes so that all “branches” have even further flexibility in a labor crisis, shortage, or negotiations.

Environmental Threats as Opportunities

Nike didn’t get to be the market leader by not exploiting certain industry opportunities along the way.  Its leadership has effectively neutralized certain threats continuously over the company’s lifespan mainly using entry, rivalry and substitute threats to their advantage.

Nike has sufficiently erected barriers to new entrants by exploiting their global economies of scale and reducing production costs through outsourcing, but mainly their focal point is their novel product differentiation techniques.  By continually revamping current products through lighter materials (the Nike Free shoes that mimic barefoot walking) and specialty lines (2012 Black History Month shoe collection) as well as reinventing new products that change the way we’ve always used their predecessors (pedometers in relations to Nike+ FuelBand), Nike’s innovations allows them stability at the top of the market for now and into the future.

Nike+ FuelBand Introduction Video

Furthermore, Nike establishes their dominance through neutralizing rivals and substitutes through this same innovative verve that shortchanges new entrants.  Rivals attempt to copy Nike’s technology leader status with substitute products but through Nike’s large capital investment in research and development, they move rapidly as second movers to eliminate any discrepancy there is or ever was created.  Not only copying an idea that wasn’t originally theirs, but changing the public’s mindset into believing that they were the creators of it (much like they did with their Dri-Fit fabric in response to Under Armour’s sweat-wicking fabric) is commonplace.  Also they use their mighty bankroll to drive out rivals from lucrative partnerships, such as Nike becoming the official uniform provider to the NFL this upcoming season (a 5-year, $1.1 billion sponsorship) effectively taking away a key branding opportunity from Reebok (who is owned by Nike’s main competitor, Adidas).  

Nike/NFL Uniform Change Promo Video