Nike Inc. is examined in this Five Forces analysis (Porter’s model), in terms of the intensity of competitive rivalry, customers’ bargaining power, suppliers’ bargaining power, the threat of substitution, and the threat of new entry in the industry environment. These five forces are competitive forces based on external factors that shape the sporting goods company’s strategies. Strong competition affects the attainment of Nike’s corporate mission statement and corporate vision statement. This Five Forces analysis reflects external trends impacting the growth of the sports shoes and equipment business organization. Such trends relate to the PESTEL/PESTLE analysis of Nike Inc. For instance, economic trends influence competition among manufacturers and sellers of sportswear.
Nike’s market position as a leading global business depends on strategic effectiveness in addressing the five forces affecting the industry environment. The external forces of competitors, buyers, suppliers, substitutes, and new entrants challenge the athletic shoes and apparel company. The business strengths enumerated in the SWOT analysis of Nike Inc. help overcome such challenges noted in this Five Forces analysis.
Overview: Porter’s Five Forces Analysis of Nike Inc.
Based on the sporting goods industry and external factors examined herein, this Five Forces analysis determines the following intensities of the forces that define Nike’s competitive situation:
- Competitive rivalry or competition – Strong force
- Bargaining power of buyers or customers – Moderate force
- Bargaining power of suppliers – Weak force
- Threat of substitutes or substitution – Moderate force
- Threat of new entrants or new entry – Moderate force
The intensities of the five forces indicate a competitive market, with rivalry among incumbent companies, like Nike Inc., strongly influencing the industry. This competitive analysis shows that the sporting goods company must prioritize competition and place the least priority on the bargaining power of suppliers, although all five forces are significant in strategic planning. For example, to address competitive rivalry, Nike’s generic strategy for competitive advantage and strategies for intensive growth can focus on product development to integrate the latest technologies and advances in materials, such as rubber and textiles. This approach can increase the desirability and profitability of the company’s sportswear and equipment. Moreover, Nike’s organizational culture or corporate culture can enhance service quality at company-owned NikeTown stores, as part of strategies to attract and retain more customers. This Five Forces analysis describes competitive challenges, although the industry remains attractive, especially for innovative sporting goods businesses.
Competitive Rivalry or Competition with Nike Inc. (Strong Force)
Competition among sportswear firms determines market share. This element of the Five Forces analysis shows how competition influences the industry environment and the performance of athletic shoes and equipment businesses. The following external factors create the strong force of competitive rivalry in Nike’s case:
- High marketing aggressiveness of sporting goods firms (strong force)
- Large number of shoes, equipment, and apparel companies of various sizes (strong force)
- Low market growth rate (strong force)
Nike faces the aggressive marketing strategies of competitors, such as Puma, Adidas, Under Armour, ASICS, New Balance, and Lululemon. Many large, medium, and small companies saturate the athletic shoes, apparel, and equipment market. In Michael Porter’s Five Forces analysis model, this external factor imposes a strong force on Nike Inc. Furthermore, the low market growth rate linked to market saturation makes the sporting goods industry a strategically challenging business environment. Nike’s marketing mix or 4P counteracts the strong force of competitive rivalry resulting from the above-mentioned external factors.
Bargaining Power of Nike’s Customers/Buyers (Moderate Force)
Customers affect Nike’s sales performance. This element of the Five Forces analysis shows how buyers or consumers influence business competitiveness in the industry environment. The following external factors contribute to the moderate bargaining power of customers on Nike:
- Low to moderate buyer switching costs (moderate force)
- Moderate availability of substitutes to Nike’s sporting goods (moderate force)
- Low buyer concentration (weak force)
Low to moderate switching costs make it easy for customers to buy from Nike’s competitors. The moderate availability of substitutes also enables customers to buy alternative products, such as non-athletic footwear, instead of buying from the company. In the Five Forces analysis framework, this external factor equates to the moderate bargaining power of buyers on Nike’s business. Easy access to brick-and-mortar and e-commerce businesses adds to the strength of customers’ power. However, the low buyer concentration reflects the small size of individual buyers and their sportswear purchases, which weakens buyers’ influence on Nike and leads to the overall moderate force of customers’ bargaining power in this Five Forces analysis.
Bargaining Power of Nike’s Suppliers (Weak Force)
Suppliers affect sportswear companies’ access to materials. This element of the Five Forces analysis tackles suppliers’ influence on sporting goods firms. In Nike’s case, the following external factors create the weak bargaining power of suppliers:
- High supply availability for sporting goods manufacturing (weak force)
- Low to moderate supplier concentration relative to Nike (weak force)
- Moderate number of suppliers (moderate force)
High availability of supply weakens the bargaining power of suppliers on the company’s access to materials. Also, the low to moderate supplier concentration means that many suppliers are relatively small in comparison to the sporting goods giant’s supply chain. The Five Forces analysis model relates these external factors to the weak force of suppliers on Nike’s business environment. On the other hand, the moderate number of suppliers equates to their moderate bargaining power over sporting goods businesses. The combination of these factors leads to the weak bargaining power of Nike’s suppliers.
This element of the Five Forces analysis shows that suppliers’ power is a low-priority issue for the sports shoes and clothing company. Nike’s organizational structure or corporate structure affects supply chain management and how suppliers use their bargaining power on the company. In relation, improving Nike’s corporate citizenship status may enhance relations with suppliers, who may want to improve their own corporate social responsibility statuses in collaboration with the company.
Threat of Substitutes or Substitution (Moderate Force)
Substitutes can reduce Nike’s market share. The Five Forces analysis model considers substitution as a contributor to the weakening of firms in the sporting goods industry environment. The following external factors contribute to the moderate force of the threat of substitution against Nike:
- Moderate availability of substitute shoes, apparel, and equipment (moderate force)
- Moderate price-performance ratio of substitutes (moderate force)
- Low to moderate buyer switching costs between sporting goods and substitutes (moderate force)
The moderate availability of substitutes imposes a moderate force against Nike, as customers have alternatives, such as non-athletic footwear and casual clothing. Also, many substitutes have a moderate price-performance ratio, which means that alternative shoes and clothes have considerable quality and performance that satisfy customers. In the Five Forces analysis model, these two external factors lead to the moderate threat of substitution against firms competing in the sporting goods industry. Furthermore, the low to moderate switching costs mean that customers can switch from Nike products to substitutes with relative ease. Thus, the combination of the external factors in this element of the Five Forces analysis makes the threat of substitution a moderate force on the sporting goods company. In this regard, the product design component of Nike’s operations management focuses on product improvement to address the threat of substitutes.
Threat of New Entrants or New Entry (Moderate Force)
New entrants or firms disrupt Nike’s industry environment. This element of the Five Forces analysis identifies the extent of new entrants’ competitive influence in the sports shoes, apparel, and equipment market. The following external factors create the moderate threat of new entry against Nike Inc.:
- High cost of brand development (weak force)
- High economies of scale in sporting goods production (weak force)
- High-level access to distribution channels (strong force)
Strong brands, like Nike, are costly to develop, with brand development efforts often involving advertising and sponsorship. Also, high economies of scale in manufacturing sporting goods challenge the growth of new entrants. In the Five Forces analysis model, these two external factors are barriers that weaken the threat of new entry against Nike and its competitors. However, new entrants can access advertising and distribution channels for their athletic products. For example, new firms can distribute their products through Amazon, Costco, Walmart, Home Depot, Target, and eBay; reach target customers through apps on Apple’s App Store and Google Play; and advertise on Facebook, Google, and other networks. The combination of the external factors in this element of the Five Forces analysis leads to the moderate threat of new entry against Nike Inc.
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