Michael Porter has provided a model which identifies the most powerful driving forces within industries or company to run it well. It was created as the framework to analyses the company and then develops strategies for the development of company by these five forces the overall image or position of the company is analyzed economically and physically by profitability and consumers or customers remarks or feedback.
• Threat of new Entrants
• Supplier’s Bargaining power
• Threat of Substitute products and services
• Buyer’s Bargaining Power
• Rivalry among existing competitors
So Porter’s Five Forces will be applied for the evaluation of NIKE to check the company’s overall position and charm in future.
Introduction of Nike
The Nike is analyzed by Porter’s Model when it move towards Asia and introduced itself . It was based on two factors according to the Porter’s Model. The company can become the leader by managing its financial cost and operational. By this strategy companies can low their cost. And company can maximize its profit and Nike planned well its strategy to position itself there in ASIA by implementing master cost leadership strategy. By this NIKE earned so much profit by lowering labor cost, direct access to the suppliers and by its low tariff rates.
This strategy is implemented by some value ad-ones to the consumer or the buyer. It contains more than one attributes to value the customer or buyer by offering it. According to the Porter the companies require extra cost for advertisement to maintain itself.
Nike implemented differentiation strategy in ASIA also the marketing activities to compete with its competitors .By this company became able to produce high quality products at low cost, innovation and awareness of products also increased by this.
PORTER’S FIVE FORCES FRAMEWORK
BARGAINING POWER OF SUPPLIERS
If suppliers are powerful then they can influence or impact the company too much. Strong buyers require
• Significant cost
• Supplier’s power to meet buyer’s power
• Brand should be powerful
• Desire and devotion of suppliers
• Customers need and targeted customers
Nike is strong at all and has potential suppliers All over the world .In 2000 NIKE has
Distribution and sub-contractors mastery, cheap labor and raw materials, low Tariff and duties of a country, Nike had 565 contract factories in 46 countries. The bargaining power of suppliers was comparatively very low.
BARGAINING POWER OF CUSTOMER OR BUYER
[large]Bargaining power largely depends over the customer’s consumption capacity and it plays vital role in making company’s position better in the market. Nike has several brands and product lines to attract a lot of customers having affordability and reliability in their products. Nike at one time started producing high quality expensive products for its customers but at that time customers went against them and media also portrayed a wrong image. At that time Nike image was badly affected. Several clients sent their recycled Nike shoes to the CEO of the company to display their displeasure towards Nike’s activities in Asia. The largest menace business had been that its products were exciting at very great price which could have activated the customer’s need to alter to the low price brands. So when buyers carry such huge bargaining power company has to modify its operations and products according to the needs of the customers.
THREAT OF SUBSTITUTES
The company has many brands and substitutes to compete with any other substitute but in 2000 when the company faces criticism by media the company engaged in marketing activities to overcome the negative impact on consumers but it give palace to sale of some substitutes in market. But it was for the limited time because NIKE is the name of Victory. Nike has several competitors who produce substitutes for their products:
• Direct competitors of NIKE are :
Adidas, Fila, Puma, Reebok, New Balance, and One, Umbro
• Indirect competitors of NIKE are:
Non-athletic footwear brands, Crocs, K-swiss, Converse, Sketchers, Timberland.
Company had made very strategic change and it enters into the partnership with President Clintons Apparel Industry Partnership (AIP).The Company also introduced its Corporate Social Relationship Strategy to give strength to itself . It also participated in the Fair Labor Association which has aim to monitor the working conditions of all companies. Several steps are taken by this company regarding environment and need of time.
THREAT OF NEW ENTRANTS
Now days the company has no threat from the new entrants but in 2000 it had faced some situation. Regarding this but overall Nike was a market leader with 45% global market share at the time of criticism and has strong position. Now company has developed its name and market so it has no major threats regarding new entrants. Another major reason that no new entrant is possible that easily is that the cost of production is really very high. So those who are already operating are enough to deal with customer needs. For successful business operation one needs to have high capital which is not accessible easily. The new entrants don’t typically have high capital in the start which results in their market catastrophe.
RIVALRY BETWEEN EXISTING FIRMS IN THE INDUSTRY
Rivalry is the time when different company uses its strategies to pace up and to step forward and compete. It contains:
• Price Reduction
• Brands Introduction
Although Nike Is best in all but in 2000 when it was the tough time for the Nike. Competition of Nike with its instant competitors like Adidas, Puma, and Fila was very intense. All of the competitors were busy in creating differentiation in their products for the customers. In comparison to the competitors Nike carries a very strong position in the market and thus has very strong brand identity and brand loyalty as well. Celebrity endorsements initiative of Nike was one of the leading things happening to attract ore clients, while it made cutting edge for its customers. But rivalry goes on and healthy rivalry causes Nike to improve day by day.
• Nike Annual Reports (2003 & 2005)
• Annual ranking of America’s largest corporations, Magazine: Fortune 500 (2005): cnn.money.com
• www.nikebiz.com (Investor Relations)
• Strategic Management Concepts and Cases; Fred R. David, 10th Ed.
• 10 STEP Marketing Plan for NIKE, Tanya Marie Labrador, October 2010
• Nike 2003 DuDavid Deprey and Jaime Rodriguez Bus 411, May 2006 sting Nadeau, Donatas Sumyla,
• Michael E. Porter. (2008). “The Five Competitive Forces that Shape Strategy”, Harvard Business Review, January, p.86-104.