The Nike Files

In the world of athletic shoes and apparel, we can typically see a trend in pricing.  There have historically been prices that customers have become familiar with for certain types of shoes.  This can be attributed to tacit collusion. Nike commands the market in athletic shoes, yet its prices are not outrageous compared to its competition.  Why is this?  A simple answer is that the incentive of Nike's competitors to "cheat" in the short-term is not greater than the long-term benefits of cooperation.  Meaning that competitors know that if they undercut Nike on comparable products they will experience short-term financial gains, but that Nike and other competitors can lower future pricing in order to squeeze out the non-cooperative firm. Nike also understands that it must keep its pricing competitive in order to maintain its market share in the industry.  Any increase in price that consumers perceive as unjustified will create a decrease in market share f...

Nike does not have the overhead that comes with owning ad operating its own manufacturing facilities.  Instead, Nike chooses to contract its manufacturing out to specialists, saving enormous amounts of money.  The decision to do so is both financial and strategic. Financially, Nike is not responsible for the day-to-day operations of the plant.  They don't directly pay the employees.  Nor do they pay for the purchase and maintenance of the equipment involved in the manufacturing process.  This frees up money for the most important of Nike sustaining its competitive advantage - innovation. By employing the option to contract, Nike does not have to physically mass produce the products and can spend more time developing new or improved technologies and products.  They are also not tied to a plant if there is an advance in manufacturing technology that would allow them to produce their products more efficiently, or even push the envelope of what can be done....

Over the years, Nike has established an enormous loyal customer base.  No matter what sport they play, athletes have gravitated toward Nike.  Nike has been achieved the reputation of being a quality manufacturer and provider of athletic shoes, apparel and equipment that continue to give athletes the edge that they need when game time arrives.  The willingness of Nike to listen to the consumer about what they want and need also has a lot to do with this loyalty. Nike understands that its reputation is on the line whenever an athlete laces up for competition and is wearing that swoosh.  That is why Nike continues to push the envelope when designing its products.  Nike doesn't just want to produce the best products, they want to produce the best products that people want to wear.  After all, this is what earned Nike the reputation of being the best. One of the ways that Nike gives customers what they want is through the NikeID program.  This program i...

Nike has positioned itself as a leader in athletic footwear, apparel and equipment.  In doing so, Nike has continued to grow its product line and the technologies used in these products.  Because of the large volume of units that Nike produces each year, it has been able to successfully reduce production costs and sustain healthy profit margins. Because Nike produces so many units each year, it is effectively able to reduce the threat of suppliers.  Meaning that the suppliers of raw materials used in the production of Nike's goods are not likely to increase prices for its products because Nike can likely acquire the same goods elsewhere at a competitive price.  Suppliers that sell a large volume to a particular firm value that relationship and will typically try to accommodate that firm, knowing that losing that business could be detrimental. A relationship between a successful firm and its supplier(s) can be viewed as symbiotic.  If Nike continues to grow t...