Nike vs Adidas, market and comprehensive competition analysis and case study
Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World Wide Web has enabled businesses and consumers to connect with one another to exchange and share information, anywhere and anytime. The web has provided consumers and businesses with enormous advantages by reducing the transaction time and increasing the level of convenience.
As we leap into the twenty first century, it seems as though everyone is on the Internet and more companies are establishing an online presence to maintain their competitive edge. Along with high speed Internet connections, the Internet has become an essential tool for any business to compete domestically or globally. In today’s high speed environment, one would be hard pressed to find a Fortune 500 company conducting business with either other businesses or consumers to not have its own web site . Businesses are developing web sites to provide their consumers and business partners with information and e-commerce. Large firms who have not adopted e-commerce as part of their strategic initiatives will miss out on opportunities to attain growth and competitive advantage.
Nike and Adidas are two primary footwear companies along with their competitors who have adopted an online e-commerce strategy to increase their sales and product awareness. Most importantly, companies like Nike and Adidas have invested heavily into online brand building and image development. Nike launched the nike.com web site in August 1996 primarily to provide information to its consumers. In 1996, there were no e-commerce capabilities present, however the web site served as a brand building tool for the company. In 1999, Nike redesigned their web site with expanded e-commerce functionality. Adidas launched their web site in the spring of 2000, which was later integrated with e-commerce capabilities during that summer.
1 Sizing the E-commerce market IDC forecasts that the Western European market for Internet E-commerce will rise from ECU 900 million in 1997 to ECU 26 billion in 2001. At the same time, the number of devices accessing the Web will grow from 14. 2 million by the end of 1997 to almost 58 million by the end of 2001. NUA Internet estimates that, in 1998, the European Internet population is 22% of the ...
Attaining market share is important to both Nike and Adidas. In order to maximize their market share, both Nike and Adidas have placed a great importance in developing their branding and marketing strategies on the net through web appearance and user friendly functionalities such as ease of purchase, speed, and navigation.
Nike and Adidas have adopted a merchant model which encompassed three pillars of their e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main purposes of acquiring relationships with pure-play e-tailers is to promote and market products; focus on the content to create new exposure and; gather, gain and transfer market knowledge to their business counterparts.
The Internet has proven to be a useful tool for firms such as Nike and Adidas by increasing sales and reducing cost. But most importantly their web sites have provided them with an intangible asset such as market research and consumer buying behaviors. With the data retrieve from consumers, these firms are able to analyze and monitor the buying behaviors of their consumers. The data can also be used to exploit new marketing campaigns and promotions. Furthermore, the data collected can be used to produce innovative designs and improve their research capabilities.
Although, there are perceived benefits in conducting e-business over the Internet there are also potential barriers. The major barrier of e-commerce with respect to large firms such as Nike and Adidas is the technological barrier ranging from infrastructure to security. An ongoing battle the e-commerce industry faces is security. With time and additional research and resources, this problem will be mitigated. Meanwhile, both Nike and Adidas must minimize their technological risks.
There are many companies offering similar but not identical products, this is called Monopolistic competition market, and there are also many buyers that perceive differences between these products like service, features, design and quality, so they are willing to pay different prices for them. Therefore, each firm influences each other on the extent of the product prices or has some control over ...
While both Nike and Adidas currently have an essential advantage over their rivals, there are chances that their advantages will not last forever. The Internet has redefined competition therefore changing the evolution of competition. Although, Nike and Adidas have engaged in e-commerce there are apparent gaps within their e-business strategy. E-commerce is only available in restricted regions such as the United States and the United Kingdom, therefore opportunities exists within the global market to expand. The future will prove to be very interesting for both Nike and Adidas, and those who move quickly will dominate the market.
A daring dream began in 1920 when Adi Dassler fashioned his first shoe in Herzogenaurach, Germany. In 1948, Adidas was founded along with its identifying trademark, the three stripes. From its inception, Adidas has faithfully adhered to three guiding principles embedded deep into its DNA: produce the best shoe for the requirements of the sport, protect the athlete from injury, and make the product durable. As time has passed, Adidas has evolved and is now one of the premier global leaders in sporting brands offering athletic footwear, apparel and accessories. This feat has been cultivated through continuous innovation and a broad product portfolio. With time, Adidas discovered that in order to continue to evolve further its strategy had to include the Internet. This led to the development of www.thestore.adidas.com, an e-commerce site focused on interactively profiling Adidas’s extensive product offerings accompanied by detailed product information.
Initially, what started as Blue Ribbon Sports in 1962 became Nike Inc. in 1972, based in Beaverton, Oregon. Nike was named for the Greek winged goddess of victory. The founders were Bill Bowerman, a track & field coach and Phil Knight, a runner under Bowerman. From their modest start, Nike has grown to be a global leader in the sporting goods industry. It is recognized as the world’s leading designer, marketer and distributor of athletic footwear, apparel, and accessories for a wide variety of sports and fitness activities. For Nike, an established and growing organization, a strong Internet presence felt like a natural extension to their already globally focused strategy. Today www.niketown.com, Nike’s e-commerce site offers a unique experience, products and product information for its potential and existing customers.
Describe how marketing techniques are used to market products in two organisations In this task I will describe how marketing techniques are used to market products in two different organisations in this case NHS and Nike. NHS The NHS was found by Aneurin Bevan on the 5th of July 1948 when he opened the Park hospital in Manchester; his ambition was to break a high standard of healthcare to ...
ANALYSIS OF E-COMMERCE
Attaining market share is important to both Nike and Adidas. In order to maximize their market share, both Nike and Adidas have placed a great importance in developing their branding/ marketing strategies on the net through web appearance and user friendly functionalities. The analysis below represents the web site positioning map which identifies some of the key performance criterion in determining the web site positioning strategy for both Nike and Adidas. The upper right quadrant indicates a high rating in both web site appearance and user friendly functionalities. While the lower left quadrant indicates both a low web site appearance and user friendly functionalities. It’s apparent in the figure below that Nike has the most favourable web site with both high web site appearance and user friendly functionalities. However, Adidas web site is slightly more favourable in user friendly functionalities while lagging on overall in web site appearance in comparison to Nike’s web site.
OVERALL COMPANY VALUE CONFIGURATION
The value curve below illustrates an evaluation of Nike and Adidas’s focusing on the company as a whole but with the focal point of e-commerce extension.
The inputs to the e-commerce value configuration for both Nike and Adidas are: Brand Image, Price, Web site design, Service, and Innovation. Analyzing the graph, Nike.com has a slight edge over its arch rivals Adidas. Adidas with growing popularity has narrowed the gap from previous years. The brand image for both Nike and Adidas is immense; however Nike has attained a considerable competitive advantage due to its reputation for quality and innovation. In terms of e-commerce, both Adidas and Nike are analogous, however, Adidas’ web site is a bit more user friendly and navigation is fairly easy. The functionalities are identical in both cases. Overall, Nike’s continued efforts in innovation coupled with its brand image, is a unanimous leader of the athletic footwear and apparel industry. In terms of the e-commerce portion of the industry, Adidas with its web site design and functionality has narrowed the gap between the market leaders and the market follower. Nike.com’s value proposition is an easy to use web site that is highly interactive, secure as well as its reputation and brand image of their product. For Adidas.com, similar to Nike, the value proposition is an interactive web site that is secure and easy to use. For the soccer industry, Adidas.com positions itself as the leading brand in apparel and footwear.
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The value chain configuration for both Nike and Adidas is supply chain. The value configuration has multiple components. To the right is a table which summarizes these components and the respective percentages for a $100 product (footwear).
Because the operations of both companies are similar, the table below only lists Nike’s value chain breakdown. Adidas’ value chain although slightly different, is similar in nature in comparison to the industry. Essentially, the breakdown of the value chain indicates for both Adidas and Nike that the cost to produce and sell an item over the Internet costs these companies almost 50% of the price of the item.
Administration and Overhead4.6%
Net Factory Price25.1%
Shipping, Customs and Finance3.9%
Net Landed Price29%
Warehousing and distribution0.8%
Direct Ship Allowance0.2%
Research and Development0.2%
Other costs of sale0.1%
Total Cost of Goods Sold31%
Sales and discounts4.6%
Total Nike Cost48.5%
Financial Analysis of Nike and Adidas
Below is the Nike and Adidas stock performance comparison in Euros. There is no question Nike is the market leader in not only the product aspect but also the financial aspect of this industry. However, over the last few years, Adidas has been slowly eroding the market share from Nike. The financial comparisons of both companies indicate Nike having a substantial financial advantage over Adidas. The operating margin and return on assets is slightly lower for Adidas. This could be indicative of the market leader and market follower relationship. Adidas needs to improve in both operating margin and return on assets to gain ground on Nike.
Internal and External factors in NikeMelena GillihanUniversity of PhoenixInternal and External factors in NikeBateman and Snell (2007) state that, “Management is the process of working with people and resources to accomplish organizational goals” (Chap.1, pg 16.) In order for this to work and run smoothly the four functions of management come into play; leading, controlling, organizing ...
Market Cap16.36 Billion13.97 Billion240.81 Million
Revenues10.70 Billion6.523 Billion 482.62 Million
Return on Assets11.97 %5.3%N/A
Return on Equity 20.12%21.1 %N/A
Below is a figure extracted from a study conducted at Cornell University, which illustrated the distribution of market shares in the U.S. and in foreign markets. This research was conducted in 1998, since this time, Adidas has comfortably moved to the second spot in this highly competitive industry. For Nike to successfully remain as the market leaders, it must continue to innovate and produce leading edge designs that attract the diverse markets. One important point to highlight is the market share Adidas has gained since 1998. Adidas evolved from a minor player in the industry to the second biggest company in the industry.
Footwear Market Share
SWOT Analysis for Nike.com & Adidas.com
Position Market Leader Market Follower
Strong management team and good corporate strategy in both North American and overseas markets
First movers advantage in e-commerce
Brand recognition and reputation
Trademark “Just Do It”
Diversity and variety in products offered on the web (footwear, apparel, sporting equipment, etc.)
Strong control over its own distribution channel
Strong customer base
Strong financial position with minimal long term debts
Innovative designs in footwear enabling consumers to design their own shoes online
Brand reputation and recognition
Diversity and variety in products offered on the web (footwear, apparel, sporting equipment, etc.) Adidas even offers items not available in its retail stores
Emerging brand name
Pricing strategy is competitive to Nike’s
Merger with Salomon will allow Adidas to gain a strong foothold in the Skiing Industry
Ecommerce provides customers with the convenience to buy the products they need instantly from the convenience of their offices, homes and anywhere provided they can access a computer connected to the internet. Business competitive edge improves because they can trade on the global market place. It also gives businesses recurring revenues based on recommending products to customers, through goods ...
Secondary web sites (i.e. soccerevolution.com to simply promote soccer, Adidas leads the market in this sport)
Negative image portrayed by poor working conditions in its overseas factories
E-commerce is limited to USA
The direct sale to consumers is creating conflicts with its own resellers
Currently available supply chain, manufacturing, and fulfillment technologies aren’t easily integrated with online build-to-order systemsNot known for its research and development leading to innovative designs
The e-commerce is limited to USA, however, has planned to expand to Canada and international in the near future
Online customer service not “helpful” or easy to find
Increasing demand in the industry for products available online
Increase female participation in athletics
E-commerce will reduce the cost of goods sold thus improving the “bottom line”
New technology and innovation to stay on top of market needs
Expand e-commerce to global markets
Possibility of outsourcing the web development and e-commerce to a third party developer
Growing interest in the sport of Basketball. Partnering up with other retailers to sell basketball footwear and apparel
Growing reputation in non-basketball sports will boost e-business
E-commerce will reduce the cost of goods sold thus improving the “bottom line”
Expand e-commerce to global markets
Collaborate with other online retailers to offer Adidas products
Negative image due to “sweatshops”
Economic downturn in North America and Asian Countries
Increase in the price of providing technological solutions (e-commerce)
Strong competition from some of its major challengers in all branches of the business
Continuing challenges in import/export duties
Negative image created by the sponsored athletes (i.e. Kobe Bryant and his sexual assault case)
Increase in the Price of Raw materials
Nike’s strong reputation in the footwear and apparel industry
Continuing challenges in import/export duties
Threats to free trade and foreign currency fluctuations
Possibility of distress from growing beyond its capabilities
Losing serious ground to Nike in the Soccer industry, which Adidas has a stronghold on
Both Nike.com and Adidas have strong positions in the footwear and apparel industry. Integrating e-business to its existing line of business is a key advantage to both companies relative to its competitors. For Nike, to overcome the potential threats, they must continue to be innovative and explore opportunities globally. Furthermore, Nike must focus their energy towards reducing the channel conflict caused by the introduction of e-commerce to Nike’s strategy. Nike.com must balance out its efforts to reassure traditional retailers while expanding its own line of business through e-commerce. Very similar to Nike, for Adidas to overcome some of the potential threats they must continue to improve their strategic position in the industry by increasing their e-commerce reach to the global markets. For both companies, it’s important to increase the market “pie” rather than increase their market share away from their retailers. Furthermore, the information, such as demographics and preferences, collected from directly selling to the end consumers should be used to market new goods and products.
PORTER’S FIVE FORCES
Barriers to Entry – Low
Due to the large scale of both Nike and Adidas, these firms are able to control their costs to retain performance advantage over emerging competitors in the industry. Their web sites are more sophisticated and enticing to browse, both contributed to their large marketing budgets. The capital injection into web site development is high and must be updated frequently with new promotions and added features to attract online shoppers. There are many proprietary product differences in the industry therefore brand identity has an immediate competitive advantage. The Nike and Adidas brand is well renowned globally and plays a major role in consumer decision making. Selling footwear online is highly competitive; however, barriers to enter into this e-commerce industry are quite low. The capital requirement for setting up an online shop is comparatively lower than setting up a traditional bricks and mortar establishment. Therefore, the online footwear industry is highly abundant with hundres of online merchants. Switching cost is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer buying decision, (i.e. price sensitive consumers).
Another major barrier is security. Although, Nike and Adidas have invested millions of dollars into their web site, there is an industry wide problem of securing data over the Internet medium. Hackers may potentially lacerate into the site and could retrieve sensitive data such as consumer profiles, credit card numbers, and other corporate data. They could even redirect the company’s web site traffic to another web site similar to the case of Nike in June 2000. Nike experienced a hijacking of its web site. The traffic from www.nike.com was redirected to a server at a Scotland-based Web hosting company
Bargaining Power of Buyers – High
There are a large number of buyers relative to the number of firms in this industry. Therefore, companies like Nike and Adidas must continuously market their product and differentiate their brands against competitors, in order to increase sales and market share. The use of online tools has helped to enhance the accessibility and intimacy among users. For example, Nike’s “nikeid.com” link allows consumers to customize and design their own footwear by permitting customers to specify the desired colours and the option to personalize the footwear with their name. Brand identity plays a critical role in the buying behavior; strong identity will offer consumers trust and loyalty. Many online buyers are price sensitive and switching cost is low for the buyer.
Bargaining Power of Suppliers – Low
There are many suppliers in this industry. In essence, there is very little differentiation among the suppliers which makes suppliers’ bargaining power non-existent. Leather, rubber, and cotton are commodity items and are available abundantly in the market place. Conglomerates such as Nike and Adidas have a definite advantage and power over their suppliers. These suppliers become dependent on these firms as their means to survival. Additionally, Nike and Adidas have standardized their input procedures pertaining to the materials used, their labor force, supplies, services, and logistics. Firms are able to switch between suppliers quickly and cheaply, due to the globalize networks of cheap labor on various continents. Additionally, inputs are readily substituted and there are an abundant number of suppliers available.
Threats of Substitutes – Low
Buyers’ propensity to substitute is low. Consumer substitutes for athletic footwear products are low because there are little alternatives to switch, some substitutes for athlete footwear could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute due to the performance specification of the product. For instance, a basketball player would not wear boots to play basketball. Therefore, there are no real substitutes for athletic footwear.
Rivalry among Existing Competitors – High
The rivalry among existing competitors in the footwear industry is quite high. Large firms such as Nike and Adidas have grown immensely over the last two decades. Their global reach has expanded through all continents; this is attributed to the emergences of the Internet and e-commerce. Online selling has enlarged the reach for these firms allowing them to increase sales while minimizing operating costs. Almost every large firm has a web site, and most of these web sites contain virtual stores which provide convenience to consumers. Most individuals in North America have access to high speed Internet and online purchasing has become the new trend for the twenty first century. Competition is fierce in the footwear industry and those who dominate or lead the market do so with high capital expenditures, aggressive sales and marketing strategies, and strong brand identity.
Nike and Adidas have adopted a merchant model which encompassed three pillars of their e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main purposes of acquiring relationships with pure-play e-tailers is to promote and market products; focus on the content to create new exposure and; gather, gain and transfer market knowledge to their business counterparts. Nike has landed a deal with Fogdog Sports which will sell their entire Nike product line on its web site. Adidas signed an agreement with SportsLine.com and Sports.com. The benefits of building relationships with these pure-play e-tailers are to provide global reach and coverage. Fogdog.com, Sports.com, and SportsLine.com have the initial coverage in the US, UK and eventually in Asia. Nike and Adidas will also operate their traditional bricks and mortar establishments, while selling their specialty products on their e-commerce web sites. This business model is referred to as “bricks and clicks.” The primary goals of operating a bricks and click site is to increase sales, reduce cost, increase market reach, applying competitive pressure, promoting new products, improving customer service, and progress in addressing user concerns. Additionally, Nike and Adidas have included an affiliate link which allows consumers in varies regions to locate affiliated store locations such as Foot Locker and Champs.
APPARENT EFFECTIVENESS OF E-BUSINESS
Nike’s ability to realize the potential of the Internet has placed them in the e-commerce leadership position among other sporting goods companies. Through its initiative to be the first to market with its e-commerce web site launch back in 1999, Nike was able to understand early on what its 14 million visitors demanded and enabled itself to become established while competitors scrambled to join, simultaneously creating a temporary competitive advantage as a result. By continuously relying on innovative companies to redesign the site, Nike acquired the luxury of owning a site that’s every bit as inspirational as it is informational, an important milestone for a market leader. Today, Nike’s store enables online consumers to design key elements of the shoes they purchase. This program is the first time a company has offered such mass customization of footwear. All this online success has not come without a price. Significant amounts of money were involved and a constant chilled reaction was received from its channel partners like Footlocker and Sports Chek with each site redesign as latest design contained e-commerce – leaving some companies without Nike products to sell online.
Adidas’s approach to e-commerce was that of a follower since Nike was first. As a result, Adidas relentlessly pursued innovation and refreshing content to differentiate itself from Nike. Adidas also realized that in order to be successful it has to be fully committed to this initiative. That’s why it included adidas.com as part of its three pillar strategy along with pure play e-tailers, bricks and clicks. The final result is a web site that successfully portrays Adidas’s product portfolio in an interactive and informational manner. The e-commerce presence required Adidas to adjust internally to be able to fully support and commit to this initiative. With Nike being first to the punch there was no room for mistakes and experiments. The final product had to be attractive and able to compete. Also, just like Nike, Adidas had to consider the channel conflicts adidas.com created.
Nike and Adidas seem to follow similar online strategies but Adidas experienced a greater transformation from being a minor, insignificant player back in 1998 to the number two position in the athletic footwear and apparel industry. Part of this success is due to Adidas’s ability to thoroughly leverage the Internet as a marketing and e-commerce medium, most of it at the expense of Reebok. In the Nike’s case the online strategy ensured its strong leadership position in the intensely competitive market. Both Adidas’s and Nike’s strategy seem to be well ahead of their competition contributing to their e-commerce success. No other athletic footwear company is able to outshine these two firms when it comes to e-commerce, at least for now and in the near future as this task would involve large infrastructure investment and more importantly thorough commitment.
Although both Nike and Adidas currently have a significant advantage over their rivals, chances are this will not last forever. The Internet is a medium that is redefining competition and markets in sectors that previously did not embrace it. With time more firms that deal with athletic footwear and apparel will join the Internet rush providing customers with more choices. As more and more people engage in e-commerce it will become more relevant to show how and why a product is superior to the competition as opposed to more promotional e-commerce sites found today. Also, there will be an increased emphasis on customization and differentiation of products, something Nike already pioneered with the shoe with your name. At this point in time both Adidas and Nike are not slowing down with their continuous web site innovations setting a high standard for the rest of the industry.
An interesting issue with such development is the increased channel conflict it presents. As Nike and Adidas begin to significantly increase their online sales they might be reluctant to sell their products through smaller online retailers. Currently all retailers are already nervous of how this will affect their ability to sell Nike and Adidas products online. Nike holds a lot of leverage because of its significant market share and could choose to exclude certain retailers without suffering decreased sales. Adidas does not hold as favourable position as Nike but still has leverage over certain smaller retailers. But it is a fine balance as the larger retailers would not want to be eliminated and could combine efforts to ensure that they are not eradicated from selling athletic footwear form main firms. The future should prove to be interesting and full of developments. It will be full of successes, failures and partnerships (between suppliers and retailers).
LIST OF REFERENCES:
*Adidas, Annual Report 2002
*Adidas, Annual Report 2001
*Nike, Annual Report 2002
*Nike, Annual Report 2001
*Industry Sector Analysis of Sporting Goods, U.S. and Foreign Commercial Service, 1998
*Multex Fundamentals / ProVestor Plus Company Report, Nike Inc., October 2003
*ShoeStats 2002, AAFA, January 2003
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*http://www.urlwire.com/newsarchive/062499.html, October 2003
*http://www.adidas-salomon.com/en/news/archive/2000/2000-07.asp, October 2003
*http://www.adidas-salomon.com/en/overview/welcome.asp, October 2003
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*http://www.adidas-salomon.com/en/investor/reports/default.asp, October 2003
*http://www.adidas-salomon.com/en/overview/history/default.asp, October 2003
*http://www.cybersource.com/solutions/success_stories/nike.xml, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=1, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=15, October 2003
*http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=1999&month=06&letter=d, October 2003
* “Nike – Channel Conflict.” Graduate School of Business, Stanford University, February 2000
*Belch & Belch. “Advertising and Promotion.” McGraw-Hill Irwin. New York. 2001. p.493
*”Companies point fingers over Nike Web site hijacking.” Computerworld. June 30, 2000