1. Siriorn Vichaiwatanapanich
Microtheme#2: Nike footwear in the US
Nike is one of the most successful companies in the sports wear market that uses the
concept of value-based pricing strategy. For a long time, it has been committed to providing
the best technology and high quality products to its customers. According to its mission
statement, Nike aims “to bring inspiration and innovation to every athlete (If you have a
body, you are an athlete) in the world”. The company proactively responds to changing trends
and consumer preferences by adjusting the mix of its product offerings as well as developing
new products, styles, and categories. With its successful marketing and pricing strategies,
Nike has become the market leader in the US footwear market with 16.2% market share in
2013.
The company mainly categorizes customers into 7 types based on sport activities
which are 1) Running, 2) Basketball, 3) Soccer, 4) Men’s training, 5) Women’s training, 6)
Nike sportswear, and 7) Action Sports. Then, Nike applies the concept of customization by
offering different functional qualities and designs of footwear based on each category. By
doing this, Nike develops a product line which allows customers sort themselves among
various offering based on their preferences. The design and function differences are intended
to customize products based on different user needs. For example, Nike’s running shoe has
different cushioning material that allows the force of impact to users’ feet to be evenly
distributed and help to reduce painful pressure points on users’ feet while running. This is the
material that used specifically in running shoes only.
Secondly, Nike also applies the concept of price discrimination by sorting footwear
based on buyer groups which are men, women, and kids as shown in Exhibit 1. This strategy
allows the company to implement fence building through 3 different groups of customers.
The company generally prices sport shoes for kids in a lower price range than men’s and

2. Siriorn Vichaiwatanapanich
women’s shoes. According to the Nike website, the price of Lebron 11 basketball shoes for
men is at $200 while Lebron 11 shoes for boys is only $140, as shown in Exhibit 2.
In addition, Nike segments the product based on user purpose, as shown in Exhibit 3.
Nike’s website offers 4 main segments of running shoes which are of the “barefoot” ride
(lightweight and flexible), neutral ride (superior cushion for a smooth ride), stability
(increased support, excellent cushioning), trial (low-profile cushioning and traction), and
racing (designed to compete at high speeds). This allows Nike to differentiate itself from its
main competitor, Adidas. As a result, Nike can charge a premium price since better expected
performance through customization is one of the most significant factors that is desired by
customers and found in Nike products.
Nike also utilizes the concept of channel segmentation and control availability, as the
company prices similar products differently through different channels. The premium product
items are only given to particular distributors, while the low price product items will be sold
at discounted prices at superstores such as Walmart. For instance, the Nike-owned store on
Newbury Street in Boston usually sells newly released product lines of Nike shoes at the full
price. On the other hand, Nike footwear sold at an outlet or at Walmart offers at a lower price
range with slightly inferior features.
The demand for overall sport footwear in the market is likely to move in accordance
with the economic condition since it is a non-durable good. Thus, I believe that the
consumer’s price elasticity of sport footwear is elastic and greater than 1. The drop in 1% of a
sport shoes price should have an impact on the sales revenue of increasing it by more than
1%. However, consumer’s willingness to pay for Nike sport footwear is high comparing to
other brands in the industry. This is supported by Nike’s strong brand recognition that offers
premium products to customers. The company builds its brand awareness through product

3. Siriorn Vichaiwatanapanich
sponsorship by the professional and well known athletic teams, college sports teams, and
celebrity endorsements. From the Mintel consumer report as of 2011 in Exhibit 4, both men
and women are more likely to buy Nike than any other footwear brand when buying athletic
shoes. 35% of total consumers reveal that they have bought Nike footwear in the last 12
months.
Different attributes of footwear are also some of the key factors that dictate consumer
willingness to pay. This is supported by the consumer survey by Mintel of 1,527 internet
users about the important product attributes when buying footwear, as shown in Exhibit 5.
This market research shows that comfort and durability are the most significant attributes that
most footwear purchasers consider, since nearly all of those surveys cite these as important
factors when buying shoes. Besides these 2 factors, 70-80% of consumers also consider
attributes such as easiness of getting on and off, style, multipurpose, and fashion.
Different groups of consumers also weight the importance of attributes differently. As
you can see from Exhibit 5, around 85% of women consider style and fashion as factors when
they are buying footwear, comparing to men at 60%. However, men care more about weather
resistance, wide availability of sizes, and brand name more than women.
Nike understands the importance of attributes that are considered by consumers;
therefore, it always focuses heavily on research and development to provide new technology
that will improve user comfort and performance. Moreover, the company also provides
aesthetic features and colors according to fashion trends. This allows the company to set a
premium price as it provides superior attribute features, in combination with strong brand
awareness in the US market.
In terms of competition, Nike is the dominant player in the footwear market with
16.2% market share in the US. The main competitors are Adidas and New Balance. Adidas

4. Siriorn Vichaiwatanapanich
has similar strategies to Nike, also focusing on new innovative products and setting products
at a premium price. However, Nike differentiates itself through more innovative products,
segmentation, and strong brand awareness through sport celebrity endorsements as described
earlier. It also has a competitive advantage in terms of low costs of production. The company
mainly outsources its manufacturing to other countries than the US. Nike builds an extensive
network with many independent contract manufacturers around the world and works closely
with them. According to Nike’s annual report as of 2013, the company has contract factories
that produce footwear in Vietnam at 42%, China at 30%, and Indonesia at 26%.
The company has also established a supplier’s tier system which allows Nike to
manage relationship with its suppliers. By doing this, the company gains strong bargaining
power with those suppliers through the tier system and can cancel alliances with any
suppliers that fail to maintain their standards in term of quality and cost. Moreover, Nike
supports innovation within its contract manufacturers by establishing and continuing the Nike
research and development center unit within those factories, mainly first tier suppliers.
Beside, Nike also has control over the supplier chain system since the company
establishes contracts with raw material suppliers and enforces shoes manufacturers to
purchase raw materials or components only from those companies listed by Nike. For
instance, one of the biggest independent contractors in China and Vietnam is the main
supplier of the Air-Sole cushioning components used in footwear products. Therefore, Nike
can gain economies of scale and maintain a stable quality standard and shipment period
within its supply chain. All of these reasons allow Nike to produce footwear at a very low
cost without sacrificing superior quality.
This outsourcing production strategy also allows the company to gain the benefit of a
lower degree of operating leverage compared to its competitors such as Adidas and New

5. Siriorn Vichaiwatanapanich
Balance. Nike does not own any production facilities, which gives them the benefit in term of
low fixed costs and minimal investment risk. On the other hand, Adidas has its own
production facility in Germany and outsources part of its production to Asian countries,
which results in a higher degree of leverage compared to Nike. New Balance probably has the
highest degree of leverage among the 3 companies, since it has its main manufacturing
facilities in the US and United Kingdom which results in high operating fixed costs.
Nike has successfully operated its business, become a dominant player in the US
market, and effectively implement a declared price leadership strategy. In this situation, it
sets premium footwear prices that competitors in the footwear industry follow. This strategy
will stop being effective if the company fails to align its mission, operating strategy, and
other marketing strategies. First of all, the company successfully aligns its mission with the
rest of its business strategy. The company mission to bring inspiration and innovation to
every athlete in the world explains Nike’s determination to provide the highest quality
products to consumers.
Next, in terms of marketing strategy, the company has built strong brand awareness in
the market mainly through celebrity endorsements, as well as price discrimination and the
mass customization strategy to different group of consumers. It responds quickly to trends
and shifts in consumer preferences by adjusting the mix of existing product offerings as well
as developing new products, styles, and categories. Therefore, Nike can provide and capture
the value perceived by customers which consequently contributes to high revenues for the
company. Moreover, Nike’s operation and supply chain strategies have helped the company
maintain a consistent quality standard as well as achieve a low cost advantage over its
competitors. The ability to set high prices and maintain low costs contributes to the profit
maximization for the company.

6. Siriorn Vichaiwatanapanich
Nike has been successful in operating its business and capturing the biggest footwear
market share in the US because it has a sustainable competitive advantage with its
outstanding business strategy. As described earlier, the company has a low cost advantage
through its production and supply chain strategy. Then the company positions itself as a
premium brand, differentiates products with high technology through R&D, and implements
a price leadership strategy which in turn results in strong financial performance. This is
indicated by footwear revenue growth from 2011 to 2012 at 15% and from 2012 to 2013 at
11%.
According to Exhibit 6, the key financial data of Nike compared to its main
competitor, Adidas. Nike revenue as of 2013 was $26.29 billion, which is greater than Adidas
revenue at $18.62 billion. Although Nike’s gross margin is lower than Adidas’, Nike has a
higher operating margin at 14%, compared to Adidas’ at 8%. This can be explained by the
fact that Nike outsources all of its production to its independent contract manufacturers while
Adidas has its own factory that incorporates fixed costs. Therefore, the operating expense of
Adidas is higher than Nike and results in Adidas’s lower operating margin of 8%. Finally,
Nike has a higher net profit margin at 10.2%, which is a lot greater than the net profit margin
of Adidas at 3.6%. This financial information demonstrates that Nike has a sustainable
competitive advantage over its competitor.
In conclusion, Nike’s management team understands the importance of brand
awareness and applies valued-based pricing that allows the company to maximize its
profitability in the long run. Nike has established a pricing strategy that consistently complies
with its mission statement, operation strategy, and marketing strategy. For these reasons, I
would recommend that the company maintains its current pricing strategy for its footwear
products in the US market.

7. Siriorn Vichaiwatanapanich
Exhibit1: Nike website homepage
Exhibit2: Price differences of LeBron 11 basketball shoe between for kids and for men

8. Siriorn Vichaiwatanapanich
Exhibit 3: running shoes segmentation
Exhibit4: Brands of athletic/sports shoes bought, by gender, October 2010-November 2011
“Please indicate brands of shoes bought in the past 12 months.”
All Male Female
Base: adults 18+ who
bought sneakers or
athletic shoes
14,145 5,911 8,234
% % %
Nike 35 37 33
New Balance 20 22 19
Adidas 15 18 12
Skechers 14 9 19
Reebok 11 12 11
Asics 6 5 7
Converse 6 7 6
Puma 5 5 5
K-Swiss 4 3 4
Vans 4 4 5

9. Siriorn Vichaiwatanapanich
Airwalk 3 2 3
Avia 3 3 4
Fila 3 3 2
Keds 2 1 3
Saucony 2 2 3
Brooks 1 1 2
L.A. Gear 1 1 1
Rockport 1 2 1
Under Armour 1 1 1
Wilson 1 1 0
Other Brands 27 27 28
Exhibit 5: Important product attributes when buying footwear, by gender, February 2012
“Thinking about footwear qualities/attributes, please indicate how important each of the
following are to you. Please select one per row.”
Base: 1,527 internet user aged 18+ who have purchased footwear in the past 12 months
All Male Female
Base: internet user aged 18+ who
have purchased footwear in the
past 12 months
1,527 707 820
% % %
Any important:
Comfortable 97 96 98
Durable/sturdy/long-lasting 94 94 94
Easy to get on/off 80 80 80
Stylish 77 67 86
Multipurpose (ability to wear for
many occasions, such as
appropriate for work and special
events/parties)
77 74 80
Fashionable 74 63 84
Classic, timeless shoes that won’t
go out of style
67 58 75
Weather proof 59 67 53
Wide sizes 50 60 41
Brand or designer name 46 52 41
Functional/weight loss (such as
FitFlops or ShapeUps)
34 33 35
Customization (creating your own
elements)
26 29 24

10. Siriorn Vichaiwatanapanich
Exhibit 6: Nike VS Adidas financial data comparison
Nike Adidas AG
Market Cap: 64.37B 24.37B
Employees: 48,000 42,540
Qtrly Rev Growth (yoy): 0.08 -0.07
Revenue (ttm): 26.29B 18.62B
Gross Margin (ttm): 0.44 0.49
EBITDA (ttm): 4.09B 1.78B
Operating Margin (ttm): 0.14 0.08
Net Income (ttm): 2.68B 678.42M
Net profit margin 10.2% 3.6%
Direct competitor comparison from Yahoo finance as of 2013

11. Siriorn Vichaiwatanapanich
References
"NIKE, Inc. Introduces 2015 Global Growth Strategy." Press release distribution, EDGAR
filing, XBRL, regulatory filings. N.p., n.d. Web. 10 Feb. 2014.
<http://www.businesswire.com/news/home/20100505007051/en/NIKE-Introduces-2015-
Global-Growth-Strategy#.UvmTsJWYbIU>.
"Nike Inc. Cl B." NKE Annual Income Statement. N.p., n.d. Web. 10 Feb. 2014.
<http://www.marketwatch.com/investing/stock
"Nike: Marketing Strategies." Nike: Marketing Strategies. N.p., n.d. Web. 10 Feb. 2014.
<http://www.slideshare.net/PareshAshara/nike-12906460>.