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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 establishing operations in countries like Indonesia, Nike can reduce its operational costs, including rent and labor expenses. This reduction allows Nike to offer lower prices to customers, positioning itself as a cost leader in the market. Given that Nike was a market leader in sales at $22.3bn in 2018, maintaining competitive pricing against rivals like Adidas and Asics is crucial. Lower prices can also attract consumers from lower-income demographics, expanding Nike's customer base.
Additionally, the cost benefits from operating in low-wage countries increase profit margins. Nike can leverage these margins to reinvest in shareholder dividends and future innovations, thereby enhancing long-term business sustainability.
Step 2
Focus on differentiation
Answer
Nike’s collaboration with Flex introduces the ability to innovate in product offerings, which allows Nike to differentiate its brand in the competitive footwear market. Through initiatives like Nike Flex, the company can create unique features and designs that resonate with customers, thereby increasing brand loyalty and perceived value.
Moreover, differentiation helps Nike to stand out in saturated markets, offering distinct products that cater to specific consumer needs. This approach can be beneficial in markets with varying income levels, enabling Nike to position products as premium or standard based on local consumer behaviour.
Step 3
Recommendation
Answer
While both options hold merits, focusing on differentiation may provide greater long-term strategic benefits for Nike. Establishing a clear identity through unique product lines and customer engagement can foster brand loyalty and allow for premium pricing strategies. Cost competitiveness is essential, especially in emerging markets, but solely relying on this strategy could hinder brand development and quality perception in the global market.
Expanding the transformative nature of partnerships, like that with Flex, and emphasizing product innovation can help Nike adapt to consumer preferences while maintaining profitability. Therefore, a strategic blend of both options would likely be most effective, but positioning differentiation as the primary strategy seems to align better with Nike's long-term objectives.