Porter's Five Forces Analysis of Nike
NIKE FIVE FORCES ANALYSIS
Nike is the largest sports shoes and apparel brand globally. The company sells a vast range of products including athletic gear and equipment for men and women. The brand has seen a lot of profitable growth in the recent years. It is because of the athleisure trends and for the high demand during the Olympics. Nike’s Just do it slogan and the Swoosh logo set it apart from the crowd of brands. In history, it has kept signing the best athletes for endorsing its brand and products.
Here is a Porter’s five forces analysis of Nike. Michael E Porter had developed this strategic tool in 1980. It analyses five important forces that affect the state of competition in an industry and its profitability. These forces are there in every industry and market. The tool can be used to understand the state of competition and overcome the competitive pressure.
- Nike Five Forces Analysis
Bargaining power of suppliers: low
The bargaining power of Nike’s suppliers is low. The company has outsourced its entire production to external suppliers. There are 191 factories in 14 countries that make footwear for Nike (as of 2021). A large part of its footwear supply chain is located in Vietnam, Indonesia and China mainly. There are 344 apparel factories in 33 countries that manufacture apparel for the company.
While individual suppliers are small in size, they do not have the ability of forward integration either. This reduces the chances of competition from suppliers. Moreover, the number of suppliers is high and they are scattered throughout the world. It is why individual suppliers cannot exert any pressure on Nike.
The brand sets standards for its suppliers to comply with. If a supplier does not adhere to the standards, Nike can easily switch to another. However, in such a case, the supplier would be losing a major source of revenue. Overall, Nike holds strong control over its suppliers and audits them regularly through third party auditors for compliance.
“Nike requires its finished goods suppliers to verify they are sourcing materials from vendors that are compliant with Nike's Restricted Substances List (RSL) and with the principles and guidelines outlined in Nike's Code of Conduct. Nike is also working towards mapping and understanding impacts further up the supply chain, to develop standards for upstream suppliers of contracted manufacturers. Nike's Supply Agreements also explicitly require Suppliers to comply with all local and country-specific labor laws” (Nike Supply chain disclosure).
Thus, the overall bargaining power of Nike suppliers is low.
Bargaining power of buyers: low to moderate
The bargaining power of Nike’s buyers is low to moderate. The number of its competitors is not so small if not very large. Apart from Adidas and Under Armour, there are other competitors like Puma and Reebok. There are many other local and international brands also that compete with Nike. The switching costs for customers are low.
To some extent this force is moderated by the quality and marketing of Nike’s products. Nike focuses on performance and design. It is why it has been able to build good customer loyalty. This reduces the bargaining power of individual buyers which is low to moderate. However, Nike still heavily focuses on customer satisfaction and customer experience and invests a huge sum in R&D as well as marketing.
Threat of substitutes: low to moderate
The threat of substitute products is moderate for Nike. It is because a large number of competing brands make similar or matching products. There are several brands in local and international markets that make lower priced shoes compared to Nike. These brands offer lower priced substitute products for Nike.
To some extent this threat is moderated by the quality and design of Nike products. Overall, the threat from substitute products is moderate. Nike is a world famous brand and its strong brand image and focus on quality have helped the company mitigate the threat from substitutes to a large extent. Its marketing has also played a central role in helping the brand gain an edge over its rivals.
Threat of new entrants: Low
The threat of new entrants for Nike can be considered low to moderate. It is because while the investment for starting the business is not very large, still there are other considerations that prevent the entry of new players. Any new competitor may have to start at a local or small level initially. Apart from production, there are marketing, distribution and supply chain management that would require heavy financial investment, skilled workers and time.
Building a brand image and equity are also difficult. These factors moderate the threat from the new entrants. For any new brand, it is not possible to create the kind of brand image like Nike overnight. It takes time, efforts and capital investment. Nike’s strong position in the market mitigates the threat to a large extent. Based on these factors the threat from new entrants is low. While investment for production may be low, becoming a famous brand can be time consuming and requires a lot of capital investment.
Level of competitive rivalry: Strong
The level of competition in the sports shoes industry is strong. Some of the major competitors of Nike are Adidas, Under Armour and Puma. The industry has grown saturated and the existing players are engaged in tough competition for deeper market penetration and to snatch away market share from each other. Brands invest a lot in marketing and innovation. Nike itself relies heavily on digital technology for sales, distribution and customer engagement. The number of top players and direct competitors of Nike is low. However, that makes the competition even intense.
Overall, the level of competition in the industry is quite strong. Nike's competitive edge helps it mitigate the threat arising from competitive pressure to a major extent. Nike is the market leader and the most popular brand in the sports shoes industry. It has maintained a strong focus on market research and product innovation and invests aggressively in these areas to maintain its superior position in the market and its competitive edge. Apart from these things, its quality, popularity and brand image, make it difficult for the rivals to shake it from the number one position.