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Evaluate these two options and recommend which one is most suitable for Nike to maintain its global competitiveness. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Question 2
Evaluate these two options and recommend which one is most suitable for Nike to maintain its global competitiveness.
Worked Solution & Example Answer:Evaluate these two options and recommend which one is most suitable for Nike to maintain its global competitiveness. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Step 1
Focus on cost competitiveness
Answer
By locating in countries such as Indonesia, Nike can reduce its operating costs, including rent and labor expenses. These cost savings can be passed on to customers in the form of lower prices, helping Nike maintain its leadership in the sports footwear market, which had $22.3bn of sales globally in 2018. Lower prices could attract price-sensitive customers, especially in developing economies where disposable incomes are lower, thereby increasing sales for Nike.
Cost competitiveness may result in higher profits, thus providing potential dividends for its shareholders and funding future investments. However, relying solely on cost competitiveness is risky, as it can lead to reduced product quality perceptions, impacting brand loyalty.
Step 2
Focus on differentiation
Answer
Nike Flex offers an opportunity for Nike to differentiate its brand through customized production. By allowing customers to design their own shoes, the brand can create a unique selling proposition. This differentiation could enhance brand loyalty by making customers feel more connected to the product.
Additionally, Nike has already established itself as a strong brand, and enhancing its product offerings can help sustain its competitive edge. Collaborating with Flex may allow Nike to innovate in response to customer needs swiftly, ensuring that they stay relevant in the market. However, this strategy is likely to be more successful in affluent markets compared to those with lower average incomes.
Step 3
Recommendation
Answer
In conclusion, while cost competitiveness may provide short-term gains, focusing on differentiation through innovative partnerships like Flex would be more beneficial for Nike in the long run. Building brand loyalty through customization can help Nike adapt to changing consumer preferences and maintain its global position, especially in emerging markets where customers value unique products.