Perhaps the greatest opportunity for Nike rests in its appeal to the younger generation of athletic apparel purchaser. Nike has strategically positioned itself toward this market. The fact that more young consumers are purchasing athletic apparel for themselves allows Nike to effectively target this market because of their existing position. While the younger market will play an important role in Nike?s future success older generations provide a good opportunity for growth as well. The increasing understanding that individual health is an important factor in people?s lives should present substantial growth opportunity for Nike in the non-teen market.
Nike?s Threats
The main threat that Nike faces is internal in nature. An attitude of complacency with respect to their success and growth could derail Nike as quickly as the absence of that attitude propelled them to the top of the athletic apparel market. As the old saying goes its easier to scale the mountain than it is to stay on top. Without continual effort and diligence Nike runs the risk of losing what has worked so hard to achieve. As an industry leader, with over 40% of the market, Nike makes a good target for all of its competitors. Without a continued emphasis on innovation and aggressive marketing Nike could lose the edge which has enabled their prodigious growth in such a short period of time.
Another internally based threat for Nike is that it has to this point in time sufficiently diversified its corporate structure. Without diversification Nike could face a shift in comer preferences that they are ill-equipped to handle. The new non-traditional sports as represented in the X-games are a prime example of this. Activities such as in-line skating, skateboarding, snowboarding, and free-style BMX biking are gaining popularity with the 10-18 year old market. To this point in time, other than in-line skating, Nike has yet to address this market in the same manner as many of their competitors.
From a financial perspective Nike has seemed to be financing more of its operations lately with long-term debt. In the years 1989-1996 Nike was relatively debt free. Over the last two years the amount of long term debt has risen to almost 400 million dollars (see long-term debt chart). Revenues and profit have not risen in response to this greater accumulation of debt and Nike might face some serious problems in the future if this trend continues. In 1994 the ratio of long-term debt to net income was 1.74%, by 1998 that ratio had jumped to 94.94%.
Some of Nike?s competitors such as Tommy Hilfiger, Polo, Nautica, and Liz Claiborne pose a more serious market related threat to Nike. The athletic apparel that they manufacture, is of similar quality to that of Nike and the name brand appeal has a higher fashion related status attached to it.
An area where Nike has had traditional strength that of celebrity endorsement poses a serious threat if steps are not taken to rectify what is becoming a bad situation. When Michael Jordan was the primary spokesperson for Nike there was little concern regarding bad publicity related to his actions. Since his retirement from the NBA Nike has found itself with a large group of athletes with questionable behavior patterns. People like Latrelle Sprewell, Dennis Rodman, and Roberto Aolomar are but a few of the athletes that endorse Nike products. The personal and professional lives of these athletes project a negative image on the type of people Nike associates its product line with.
Recommendations for Nike
The first recommendation I would have for Nike is to put more effort into cleaning up its corporate image. With the negative publicity surrounding the labor controversies in third world countries and the shameful behavior of some their celebrity endorsers Nike needs to change the public?s perception of it as a massive unfeeling corporate giant. The current stigma that Nike has acquired based on its foreign production facilities is the first place to start. More comprehensive control mechanisms need to be instituted to make sure that the criminal behavior on the part of some of its supervisors does not occur in the future. Further higher wages and better working conditions must be instituted and after implementation Nike should advertise these changes in whatever way possible. From a purely pragmatic standpoint it won?t help if Nike makes the needed changes if no one else knows about them.
Another recommendation is that Nike should expand on its PLAY (participate in the lives of youth), program. This type of community outreach program develops good will and engenders support from the buying public. The image that Nike should try and project is one of a corporation with a conscience. By emphasizing this type of program and de-emphasizing the celebrity spokesperson method of developing name recognition Nike will insulate itself from the negative stereotype of just being concerned with superstar athletes. A further benefit of this strategy would be that the parents of children would be more likely to purchase products from a company that doesn?t seem self-involved and focussed on only the bottom line. A large segment of the buying public wants the products that they purchase to be manufactured by corporations with a commitment to community and the values that help to enrich the lives of the youth of the world.
The overall marketing strategy of Nike is where I would next suggest change needs to be made. The average consumer is less likely to identify with the superstar athlete today than in past generations. Professional sports is filled with athletes that earning many millions of dollars per year for an activity that most people view as a pastime. The general perception of a factory worker making 30 thousand dollars a year is that Nike has to charge higher prices for its products because they are paying so much to their celebrity endorsers. Many people do not see the need to pay $150 for a pair of basketball shoes just so their children can wear the same brand as a professional star. Nike should put more emphasis on marketing to the average consumer. Emphasis on quality and innovation, concepts that served Nike well in the past have given way to style and brand appeal. What Nike needs to do is trim their roster of corporate endorsement contracts and limit the people they sign to the types of athletes that exemplify the values and ideals shared by the majority of the consumers they are trying to reach. Unfortunately for every Tiger Woods Nike also has ten Latrell Sprewells.
A greater focus on quality is perhaps most important for Nike?s sustained growth in the future. In general people do not mind paying more for a product if they are convinced that they are getting quality in return. In recent years it seems that Nike has just taken the same basic models of shoes and other products, redesigned the color scheme, and increased the price. This strategy worked mainly because of the enormous brand loyalty that Nike enjoyed compared to its competitors. This technique however is not going to work forever as consumers switch to other athletic shoe manufacturers offering the type of innovations that made Nike the dominant name in the business.