Analysis of Nike's Market, Demand, and Pricing Strategies

This report provides a comprehensive economic analysis of Nike, examining its market position, products, and services within the sportswear industry. It delves into the factors influencing the demand for Nike products, including the impact of substitute products, consumer income, tastes, and expectations, as well as demographic trends. The report also explores market equilibrium and the impact of various factors on the price elasticity of demand, offering key suggestions for pricing policies that Nike could employ. Furthermore, it provides an overview of Nike's history, mission, and value statements, highlighting its global operations and competitive advantages. The analysis considers both internal conditions and external influences, aiming to provide insights for strategic decision-making and sustainable growth.

Management Economics

Table of Contents
Introduction......................................................................................................................................1
Main Body.......................................................................................................................................1
1. Overview of Nike and its products or services........................................................................1
2. Demand and Market Equilibrium of Nike’s products including factors that influence its
demand.........................................................................................................................................2
3. Impact of factors on price elasticity of demand with key suggestions of pricing policies need
to be employed by Nike...............................................................................................................7
Conclusion.......................................................................................................................................8
REFERENCES................................................................................................................................9

Introduction
Economic analysis is one of the most important activities in businesses, that aid people to
understand how number of factors like inflation, interest rates or more, influence demand of their
products or services. In a nutshell, this concept looks at the way, government, organisations,
societies, households and individuals to make decisions regarding with when and where to invest
money, for better utilisation (Soares, Gomes and Salgado, 2017). It involves a variety of
theoretical and conceptual models, for studying the behaviour of market conditions and how
business entities respond towards same. A report is presented to perform a check-up on
sportswear industry like Nike, to assess its internal conditions, influences of external factors on
its product demand, so that recommendations could be made for further improvement. Economic
analysis in this sector, will lead to explore extent of competition and investigate if chosen
company allot its resources efficiently, to retain its brand position sustainably. Along with this,
key focus also given on factors that influences its products and decision-making policies
regarding with prices and more, to examine elasticity of same.
Main Body
1. Overview of Nike and its products or services
In Sportswear market, the famous shoe company that has marked its positions as swoosh
logo and expand its share from strength to strength, since its inception in the year 1962, is Nike.
It is headquartered at Beaverton, Oregon U.S. and founded by Phil Knight and Bill Bowerman.
Today, it has emerged as an industry leader especially, as the most competitive sports shoes
company, where its first Nike Trainer was introduced in 1972 (Mangundap, Massie and
Rumokoy, 2018). This firm has started out the production of running shoes with cushioned mid
soles then expanded into a variety of range products that are categorised as athletic footwear &
apparel, sporting goods and equipment, including recreation items and T shirts. The main
mission statement of Nike is “To maximize its profits to all shareholders through offering
products and services in such a manner, that enrich consumers’ lives” (Kornum and et. al., 2017).
Whilst, it’s value statement includes “To bring inspiration as well as innovation for every athlete
or sports person in the world.” Therefore, to achieve the mentioned goals, this firm mainly
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emphasis on providing a supportive work environment for earning higher contribution of its
employees.
Footwear industry contributes a major share in economic development, where such
products considered as a basic need of human (Grow, 2016). For manufacturing shoes, sandals
and other footwear, relatively includes labour-intensive processes, which contributes
substantially for large employment generation to both skilled and semi-skilled individuals. In
context with Nike, it operates business at worldwide level, where it has given employment to
near about 74,000 employees, who give their support to achieve its mission and vision statement,
that emphasises more on high satisfaction of its customers. In this regard, one its main product
i.e. Nike Trainers crafts its collection of footwear to perfection, with a wide range of shoes for
kids, men and women and therefore, hard to beat for other firms (Nayak, 2017). Considering
some facts like Women's footwear subsector always remains as largest, estimated to cost £4.1bn
of sales every year; similarly, men's footwear subsector also being the fastest growing out,
therefore, Nike Company focuses more on Fresh kicks with trending styles to take advantage
from the same, for enhancing its sales. For example – Chunky Boots that Stamp its mark on 2020
having features like striking shapes, thick soles and hardened details which elevate the modern
classic. Similarly, another product lies within Nike Trainer is Athleisure, which is all about
mixing the casual staples having more sophisticated pieces and dynamic look for an all-round
(PANDEY, 2017). In this regard, Smart trainers of Nike with intricate details about breathe a
breath of fresh air as well as enrich the same ready for its seasonal styling in upcoming days.
2. Demand and Market Equilibrium of Nike’s products including factors that influence its
demand
After being introduced the business in footwear sector, the incorporation of Nike trainer with
Swoosh logo, has literally lent wings to Nike’s growth at world-wide level. It’s first brand has
launched at Olympic trials in The United States in 1972, where Steve Prefontaine the famous
athlete has become first sports person to wear Nike shoes (Ranjan, 2016). This would help in
advertising its brand at international level, especially among sports lovers, therefore, also
considered as keynote of Nike’s growth strategy. Celebrity endorsements after then, have helped
in boosting its sales, by increasing demand of its products specifically that categorised under
Nike Trainers more effectively. Along with this, volume of business also has expanded through
Nike’s alliances with numerous subsidiary sports goods such as Nike Air Huarache, Nike Air
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Presto, Nike Lebron Soldier IX Basketball shoes and more. During 1970s, this firm has
developed a variety of the sophisticated sports shoes and distribute in global markets that
enhances, its world-wide presence (Soares, Gomes and Salgado, 2017). Furthermore, Nike has
also remained at forefront by superiority of its footwear product and as consistently popular
brand among athletic footwear lover, with the closest competition with Reebok. In addition to
this, superior product quality with high comfort has made Nike Trainer as the most preferred
brand and made possible to expand its brand internationally as well, within European, Asian and
division of Australian market (Mangundap, Massie and Rumokoy, 2018). In the American
markets, Nike has remained on position of industrial leader especially, in athletic shoe market.
As per views of Charlie Denson (the President of Nike) the success of this company has a great
deal to do with the human spirit power via establishment of making an emotional connection
with its consumers. The strategic alliance of Nike with NBA including endorsement with
celebrity promotions also have reaped in getting the rich rewards for in international
marketplace. But still, a number of factors present that influences its demand and market
equilibrium either positively or negatively, as explained below –
 Price of substitutes - For Nike Trainers, the impact of substitute products is considered
as moderate, because it is one of the demanded and large competing brands, where many
competitors like ADDIDAS, REEBOK and more, used to make similar or matching
products (Kornum and et. al., 2017). Along with this, a number of brands in local and
global markets are available on relatively low priced shoes but fails to beat quality and
features of Nike shoes. Therefore, at some extent price of substitutes is moderated in
terms of quality and design of Nike trainers.
 Price of complements – Since co-branding is considered as the excellent way for
growing business without making investment in expensive marketing campaigns.
Therefore, utilising this strategy and take benefits from reputations and customer base of
other companies, Nike has also formed a partnership with Apple Company (Grow, 2016).
It has developed a footwear like known as Nike+, while Apple introduced a microchip to
fit into sports shoes that records the progress when people activate its features from
iPhone. This would help both companies in boosting demand of each other products,
where reducing price of this Apple’s microchip increases demand of Nike Trainers
among consumers, for availing advantages of both during fitness exercise.
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 Consumer Income – This factor highly impacts on demand and pricing policies of any
product in a marketplace, where increase in inflation period leads to raise income status
of people as well and vice versa (Nayak, 2017). In context with Nike, as it targets mainly
the sports lover group of customers, therefore, changes in its price from 2008 to 2016 can
be examined throughout the given Figure 1. As per this figure, it has evaluated that in
2008 Summer Olympics, Nike Products was available in range of $10, but year by year
endorsement from athletes, football players etc. aid to increase price from $10 to $40. So,
this factor shows that impact of income of consumers is moderate for price of Nike
Trainers in footwear market.
Figure 1: Changes in price of Nike Products
 Consumer tastes & preferences – This factor highly influences demand of footwear in
market, where people to achieve fitness and keep themselves healthy, demand more for
such shoes that lies under their comfort requirements (PANDEY, 2017). Therefore, to
build effective customer loyalty, Nike concerns more on design & quality as well as on
advancing features of shoes that meet satisfaction level of consumers. Along with this,
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manufacturing shoes as per consumer taste and preferences, aid Nike as a world’s leading
designer, marketer and distributor or a range of sports as well as fitness activities.
 Consumer expectations of price - Looking ahead, as Nike emphasis on comfort features
of its Nike Trainers and other athletic shoes, so, it helps in earning a high competitive
image over its rivals like ADDIDAS, FILA, Skechers, ASICS, Reebok, Adidas, Puma.
But increasing competitions, where number of these branded companies offering similar
type of quality and comfort shoes products, consumers mostly expected that Nike to
remain competitive, will offer its products relatively on Low price (Ranjan, 2016). On
contrast, considering pricing strategies of Nike as shown in Figure 2, it has been
evaluated that being able for charging higher prices for shoes, makes Nike as one of the
key differentiators from its rivals. In terms of brand power, it is also ranked as #1 Sports
Brand, with strong image in footwear market, by introducing innovative high class shoes,
high-profile of endorsements from athletes, etc. So, all these factors lead Nike has
positioned its trainers at higher price points in the given sector.
Figure 2: Nike's pricing strategies
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 Demographics – Currently, Nike primarily operates in Europe, America, Middle East,
Australia, Africa and Asia Pacific market, that makes it easy for this firm to reach
targeted audience and grab their attentions towards its products. With little negative
aspects, the constrained resources, high population growth, good economic state,
heightened connectivity and more, of these countries results in increasing demand of
shoes, that gives advantage to Nike to easily avail large market share by offering high
quality of products to them (Nayak, 2017). From the below figure 3, it has been analysed
that however, its growth profit margin has fluctuated from 2014 to 2016 continuously,
but still Nike doesn’t make any compromise with its pricing policies and offer its
products on significant price rates.
Figure 3: Gross Profit Margin of Nike
Apart from all above mentioned factors, the biggest factor that creates threat for demand
and market equilibrium of Nike products would be recession period. During this period, Nike’s
growth seems to be adversely affected with an economic downturn in sales. Currently, due to
outbreak of Corona (COVID-19) virus, Nike’s experiencing the pinch of global economic
recession especially in Asian market (Grow, 2016). Financial crises at global level indicates a
high decrease in demand of its products in athletic footwear market. However, to remain in
leading position, if this firm offer its prices relatively at low price, then it would help in keeping
its sales stable.
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3. Impact of factors on price elasticity of demand with key suggestions of pricing policies need
to be employed by Nike
The world elasticity is generally associated with a meaning of describing things which have
a stretchy quality. In economy, as per law of demand, people used to reduce demand of those
products whose market price is high at current period. Similarly, expecting price to be raise in
upcoming periods, raise demand of particular items high (Kornum and et. al., 2017). In this
regard, when elasticity comes in pricing policies of an item then it helps in measuring how
customer respond or sensitive towards changes in price. In other words, price elasticity of
demand defines how much demanded quantity of a product changes with fluctuations in price
rates. Now, to determine elasticity or inelasticity of shoe product, a number of factors can be
considered whether price of shoes is elastic or inelastic. In context with Nike, it can be
determined by commencing on some of the factors as explained below –
Necessity or Luxury – It is considered as first factor of price elastic of demand, where
necessities refer to more inelastic as compared to luxuries. With respect to shoe market, for an
instance, cowboy boots, are not measured as necessity item for public (Mangundap, Massie and
Rumokoy, 2018). Therefore, if price of such shoes rise then impact on demanded quantity will be
moderated. But if price of sports shoes that has become necessity for most of the individuals
today, where to make them fit and do exercise on regular level they prefer to buy such shoes that
comes under their comfort requirement. So, this factor of necessity apart from being luxurious in
market, make pricing demand policy of Nike’s products as elastic.
Inflation – It is another main factor that influences price of a product highly at a certain
market place, where, in case of increasing price of shoes, leads to decrease the demanded
quantity of same (Soares, Gomes and Salgado, 2017). This reflects that pricing demand of Nike
Trainers and other footwear as elastic. But price and revenue earned by Nike seems to move
generally in same direction of economic condition where it operates business, so, it reflects that
it was inelastic. The reason behind inelasticity of shoe product, is quality and comfort features
offered by Nike and makes them expensive in marketplace, therefore, it would raise up its
demand in sports lover highly.
Substitution: Consider the price of a certain good within footwear industry such as black
Nike Air Jordan basketball shoes is to increase. But as there are many substitutes of Nike trainers
present that perhaps to be 60 or more, therefore, people will likely be more sensitive or
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responsive, towards change in price of same. In this regard, concerning on economic terms,
demand for particular shoe seems likely be more price elastic as compared with others.
From all over analysis, it has been analysed that primary focus of Nike is athletic
footwear which is designed mainly for specific sport and leisure use like running, basketball,
football, tennis and other recreational uses (Ranjan, 2016). Therefore, all these features make
Nike expensive in shoe market, where people instead of price, focuses more on comfort and
innovative features of its shoes. Therefore, it is better for Nike to make pricing policies as
inelastic in marketplace, by taking higher or suitable charges of shoes.
Conclusion
It has concluded from all over this report that for dealing and operating business sustainably
in footwear industry, it is essential for firms to focus on quality and features of their products,
despite of pricing policies. Through conducting economic analysis on its business, they can
evaluate easily the factors that highly influences demand of their products, so that strategies can
be made accordingly to cover a large market share. In context with Nike, offering the best quality
of footwear at large scale, aid this firm to become a market leader in given industry and retain its
business position for longer time.
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REFERENCES
Books and Journals
Ranjan, W., 2016. The Financial Performance Analysis of Nike Inc: with Special Reference Year
2015 Annual Report. Europian Journal of Business and Management. 8(18).
PANDEY, B. C., 2017. Nike Inc-Complete Analysis: SWOT, PESTLE and Marketing strategy.
BookRix.
Nayak, T., 2017. " Just Do It"@ Ad Campaign: The Case of Nike Inc. Globsyn Management
Journal, 11.
Grow, J. M., 2016. Stories of community: The first ten years of Nike women’s advertising. The
American Journal of Semiotics. 22(1/4), pp.167-196.
Kornum, N. and et. al., 2017. Interplay between intended brand identity and identities in a Nike
related brand community: Co-existing synergies and tensions in a nested system. Journal
of Business Research. 70. pp.432-440.
Mangundap, B. C., Massie, J. D. and Rumokoy, F. S., 2018. Comparative Research of Consumer
Purchase Intention Towards Original And Counterfeit Product Of Nike Shoes In
Manado. Jurnal EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi. 6(1).
Soares, M. S., Gomes, M. C. R. and Salgado, A. C. P., 2017. “Bonde dos Nike Fit”: Ideological
and Identity Issues towards a Graffiti in the City of Juiz de Fora/Brazil. American
Journal of Linguistics. 5(1). pp.1-6.
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