Nike Inc. Five Forces Analysis (Porter’s Model)

Nike Inc. Five Forces Analysis Porter, competition, buyers, suppliers, substitution, new entrants sports shoes case study
A pair of Nike Air Max Classic shoes. Nike Inc.’s Five Forces Analysis shows that the external factors in the industry environment highlight the significance of competition, customers, and substitutes. (Photo: Public Domain)

Nike Inc. continues in its growth path as a leading player in the global sports shoes, apparel and equipment market. A Five Forces Analysis of Nike Inc. reveals the most significant forces shaping the company’s strategies. Michael Porter developed the Five Forces Analysis model to understand the effects of external factors on businesses. In Nike’s case, these five forces point to competition as one of the most significant external factors. Founded in 1964, the company manages to retain its leading position in the international industry environment. However, the forces and corresponding external factors enumerated in this Five Forces Analysis must remain among the strategic considerations of Nike Inc.

Nike Inc. enjoys a top position in the global athletic shoes, equipment and apparel market. A Five Forces Analysis, based on Michael Porter’s model, points out that competition, customers and substitutes are the most important external forces in Nike’s industry environment.

Overview: Nike’s Five Forces Analysis

There are a wide variety of external factors that determine the strengths or intensities of forces impacting Nike Inc. However, based on this Five Forces Analysis, the following are the intensities of these forces currently influencing Nike’s performance and industry environment in the athletic footwear, equipment and apparel market:

  1. Competitive rivalry or competition (Strong Force)
  2. Bargaining power of buyers or customers (Moderate Force)
  3. Bargaining power of suppliers (Weak Force)
  4. Threat of substitutes or substitution (Moderate Force)
  5. Threat of new entrants or new entry (Weak Force)

Recommendations. Nike Inc. must prioritize strategies that address competition, which is highlighted as the strongest force in this Five Forces Analysis. Nonetheless, the bargaining power of customers and the threat of substitutes are also significant. A recommendation is for Nike Inc. to prioritize investment in product development to ensure competitive advantage. Based on this Five Forces Analysis, it is also recommended that Nike Inc. must implement strategies to attract and retain more customers, so as to minimize the effects of substitution in the sports footwear industry environment.

Competitive Rivalry or Competition with Nike Inc. (Strong Force)

Competition determines how Nike Inc. maintains its share of the sports footwear market. This element of the Five Forces Analysis shows how competition influences the industry environment and the performance of individual firms. The following external factors create the strong force of competitive rivalry in Nike’s case:

  • Low market growth rate (strong force)
  • High aggressiveness of firms (strong force)
  • Moderate number of firms (moderate force)

The low market growth rate is partly due to firms’ high market penetration and market saturation. This condition creates a strong force, as Nike and other companies compete for a market that grows slowly. In relation, firms are highly aggressive in competing for bigger market shares. Also, there are only a moderate number of firms that significantly impact Nike. Based on this element of the Five Forces Analysis, the external factors that lead to strong competition requires Nike Inc. to focus on market development and product development to ensure competitive advantage and a growing share in the global athletic shoes, apparel and equipment market.

Bargaining Power of Nike’s Customers/Buyers (Moderate Force)

Nike’s customers directly affect business performance. This element of the Five Forces Analysis shows how consumers determine business competitiveness and the industry environment. In Nike’s case, the following external factors contribute to the moderate bargaining power of customers:

  • Low switching costs (strong force)
  • Moderate substitute availability (moderate force)
  • Small size of individual buyers (weak force)

The low switching costs make it easy for customers to buy sports shoes other than those from Nike. The moderate availability of substitutes also enables customers to buy other products instead of always buying from Nike. However, the small size of individual customers minimizes their individual forces on the company. These external factors lead to the moderate bargaining power of customers. This element of the Five Forces Analysis shows that the force of customers is a major consideration in Nike’s strategies for the athletic footwear, apparel and equipment market.

Bargaining Power of Nike’s Suppliers (Weak Force)

Suppliers affect Nike’s business through the availability of raw materials. This element of the Five Forces Analysis tackles suppliers’ influence on firms and the industry environment. In Nike’s case, the following external factors create the weak bargaining power of suppliers:

  • High overall supply (weak force)
  • Large population of suppliers (weak force)
  • Moderate size of individual suppliers (moderate force)

The high supply minimizes the effects of individual suppliers’ actions on Nike’s business. Similarly, the large population of suppliers reduces the impact of individual suppliers’ demands on large companies like Nike Inc. The moderate size of individual suppliers supports a moderate degree of suppliers’ influence. Nonetheless, this element of the Five Forces Analysis shows that Nike experiences only a weak force representing the bargaining power of suppliers. As such, suppliers are among the least significant concerns determining Nike’s strategies in the sports shoes, equipment and apparel industry environment.

Threat of Substitutes or Substitution (Moderate Force)

Substitutes pose significant threat against Nike’s performance as a leading player in the global athletic shoes market. This element of the Five Forces Analysis identifies the force of substitution on the business and the industry environment. The following are the external factors that maintain the moderate threat of substitution against Nike Inc.:

  • Moderate availability of substitutes (moderate force)
  • Moderate performance per price of substitutes (moderate force)
  • Low switching costs (strong force)

The moderate availability of substitutes imposes a moderate force against Nike, as customers have considerable alternatives to Nike’s products. In relation, customers have a moderate likelihood of considering substitutes because of the moderate performance of substitutes compared to Nike’s sports shoes, apparel and equipment. The low switching costs further add to that likelihood. Nonetheless, this element of the Five Forces Analysis shows that substitutes exert only a moderate force against Nike Inc.

Threat of New Entrants or New Entry (Weak Force)

New entrants or new firms can disrupt Nike’s industry environment. This element of the Five Forces Analysis identifies the extent of new entrants’ influence on firms in the sports shoes, apparel and equipment market. The following external factors contribute to the weak threat of new entrants against Nike Inc.:

  • High cost of brand development (weak force)
  • High economies of scale (weak force)
  • Moderate cost of doing business (moderate force)

The high cost of brand development makes it difficult for new entrants to succeed in competing against large firms like Nike Inc. Also, the high economies of scale provide Nike with a competitive edge against new entrants, considering the company’s global production and distribution network for its athletic shoes, apparel and equipment. The moderate cost of doing business further limits new entrants’ ability to disrupt the industry environment. Based on this element of the Five Forces Analysis, the threat of new entry is a minor concern for Nike Inc.

References
  • Burke, A., van Stel, A., & Thurik, R. (2010). Blue ocean vs. five forces. Harvard Business Review88(5), 28-29.
  • Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review24(1), 32-45.
  • Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change15(5), 213-229.
  • Nike, Inc. Form 10-K, 2015.
  • Roy, D. (2011). Strategic Foresight and Porter’s Five Forces. GRIN Verlag.
  • U.S. Department of Commerce. The Retail Services Industry in the United States.