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VRIO analysis of Nike

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About Nike:

Nike (NYSE: NKE) is the global leader in the sports shoes and apparel industry with a strong presence worldwide. Apart from being

known for its great product range, the brand is also known for its great marketing strategy and techniques.

Nike’s popularity and marketing position rests on several factors that include product quality, marketing, customer engagement, a global distribution network and a strong focus on innovation. 

The pandemic hurt businesses worldwide across all industries including sports shoes and apparel industry. It disrupted supply chains and led to temporary closure of outlets across several regions worldwide. However, despite the negative impact of the pandemic on its supply chain and distribution network, the company experienced a solid growth in its net revenues and profits.

Its growth in fiscal 2021 was mainly driven by the company’s use of its Nike Direct platform for driving sales and revenues. As the company could not utilize its physical sales channels fully during the pandemic, its focus on the use of digital channels grew leading to significant growth in sales and revenues compared to previous year.

While its revenues grew by 19% compared to the previous fiscal, the company experienced a solid 126% growth in net income over the previous fiscal.

Whenever we compare Nike with the rival brands in the industry like Adidas and Puma, we can note that Nike has a stronger competitive advantage. Nike is ahead of the others in several areas including brand image, market share, customer loyalty, and several more. It has a larger set of core competencies and therefore enjoys a stronger competitive position compared to others.

In this post, we will conduct a VRIO analysis of Nike and analyze its core competencies. We will also analyze if Nike has a sustainable competitive advantage and which core competencies have helped it acquire the most significant competitive edge.

What is a VRIO Analysis?

VRIO is an acronym that stands for valuable, rare, imitable and organized. These four terms represent the four properties of resources and capabilities that allow them to generate a sustainable source of competitive advantage.

A source of competitive advantage can be sustainable or temporary. When a core competency satisfies all the four requirements, it gives rise to a sustainable source of competitive advantage. Otherwise, the result is temporary advantage or competitive parity.

Apart from it, not all resources and capabilities give rise to a competitive advantage. They alone are not a source of competitive advantage. They have to be bundled together in unique ways to derive a competitive advantage from.

While everything that a company owns can be classified as a resource or capability, not all that a company owns is a source of competitive advantage for it.

A VRIO Analysis of Nike Inc.

Core competenciesValuableRareInimitableOrganizedAdvantage
Brand ImageYesYesYesYesCompetitive Advantage
MarketingYesYesYesYesCompetitive Advantage
Customer experienceYesYesYesYesCompetitive Advantage
Product InnovationYesYesYesYesCompetitive Advantage
Product rangeYesNoNoYesTemporary advantage
Product qualityYesYesYesYesCompetitive advantage
Technology
YesYesYesYesCompetitive advantage
ManufacturingYesYesNoYesTemporary advantage

Brand image:-

Any firm’s brand image is a significant source of advantage for it. Let’s take for example Walmart, which is known for its lower prices and has a customer friendly image.

Its brand image is a key driver of sustainable competitive advantage for the firm. In the case of Nike too, the firm’s image drives higher popularity and loyalty worldwide.

Nike has also maintained the image of a customer friendly, innovative, and quality focused brand. Its image is a significant driver of competitive advantage for the brand. 

The company’s image is superior compared to its rivals and has been strengthened by the company’s continued focus on quality, innovation and customer experience.

The stronger a brand’s image in the market, the more customers feel drawn towards it. Nike’s marketing strategy has also played a key role in strengthening its image worldwide. Its brand image is a source of sustainable competitive advantage for the firm. 

Marketing:-

Marketing has helped several firms beat the competitive pressure and gain a significant edge over their rivals. Successful marketing strategies have helped firms differentiate their brand from the rivals and grown their market dominance. Nike is one of the most well known marketers globally.

Its marketing strategy has a central focus on encouraging athletes to achieve the impossible. Its swoosh logo and the Just Do It slogan have made it a leading name in the world of marketing. However, apart from advertising, promotions, and sponsorships, there are other elements in its marketing strategy too including a strong focus on product quality and athlete friendly innovation.

Nike’s market dominance however, is not a result of excellent quality or great products only but marketing has played a significant role in helping it win the global market. Overall, it is one of its leading core competencies that have helped it build a sustainable source of competitive advantage and a unique market position.

Customer experience:-

Nike’s focus on customer experience has also played a key role in helping the brand gain a superior edge over its rivals. Customer experience is noted as one of the key factors that drive higher customer loyalty and market dominance for businesses.

Nike has focused on customer experience at every point from marketing to sales and other areas like production and after sales service. It has introduced a large number of apps for its customers worldwide.

The company’s exclusive focus on customer experience has helped the brand connect with millions of customers worldwide and drive higher customer satisfaction. The industry is replete with examples, where companies have built a sustainable source of competitive advantage by focusing on customer experience. 

Product innovation:-

Any company that wants to win in the market needs to maintain a strong focus on manufacturing superior quality products that can gain higher popularity and attract higher sales. Product quality is a key factor that drives higher popularity and sales for businesses worldwide.

Nike has maintained a steady focus on product  innovation, which is a key reason that its products have continued to outperform the rivals worldwide.

Through research and development, the company has introduced several technologies that have differentiated its products from rival brands and helped it strengthen its competitive edge in the market. Nike notes in its annual report –

“The proliferation of NIKE Air, Zoom, Free, Flywire, Dri-Fit, Flyknit, Flyweave, FlyEase, ZoomX, Air Max, React and Adapt technologies, among others, typifies our dedication to designing innovative products.”

In this way, focusing on product innovation has made Nike a market leader and is a source of sustainable competitive advantage for the firm. It has created a dedicated sports research lab for research and development and to bring superior quality products to the market. 

Product range:-

Nike has focused on bringing innovative products for athletes that help them improve their performance and excel in their respective fields. It has introduced a large range of products, which are mainly targeted at various sports and athletic activities like basket-ball, soccer, running and more.

Its large product range is also a leading source of advantage for the firm. By offering higher variety in terms of its product range, the company is able to attract customers with diverse needs and preferences.

However, its rivals like Adidas, Puma, New Balance, Skechers and other local and international sports shoes and apparel brands have also introduced  a large range of products.

It is why its vast product range does not offer a sustainable source of advantage for the firm. However, by continuously refreshing its product range, the company is able to draw existing as well as new customers.

Product quality:-

One of the key factors that can help a company gain market dominance is product quality. Superior product quality helps companies attract more customers, gain superior word of mouth and build higher customer loyalty.

Most of the leading companies across various industries have established themselves as market leaders on the basis of product quality. Nike has also maintained a strong focus on product quality, which has helped it maintain the attractiveness of its products and customer loyalty.

The excellent quality of its products is a key reason that the brand is able to charge premium prices and still enjoy superior demand and higher customer loyalty.

Technology:-

Digital technology and other latest technologies like AI have become a source of competitive advantage across several industries including the sports shoes and apparel industry. In the case of Nike also, digital technology has emerged as a key source of competitive advantage for the firm helping it gain a significant edge over its rivals in the industry sector. 

Nike has released several apps and websites to help its customers gain awareness of products and technologies and for customer support and service.

Its focus on technology has helped it beat the pressures created by the pandemic and accelerate the pace of innovation. Its investment in technology over the recent years paid off during the pandemic.

The company was able to improve its sales and profits despite economic turbulence and supply chain disruption caused by the pandemic. Overall, technology has become a key source of sustainable competitive advantage for the firm.

Manufacturing capabilities:-

Nike has maintained a large base of suppliers and manufacturers. It has virtually outsourced all its production to external suppliers and manufacturers. There are fifteen independent contract manufacturers located outside the United States that supply all the footwear to Nike.

191 footwear manufacturing factories located in 14 countries supply footwear to the company. While the company has outsources its entire production operations, it does not have any negative impact on product quality.

The company maintains rigorous production standards, which has helped it maintain strong customer loyalty and popularity. However, while it is a rare capability, it is not entire inimitable and a source of temporary competitive advantage for the brand.

Nike has to continuously invest in improving its manufacturing capabilities to maintain its market dominance.

A few last words about Nike:

Nike has remained a market leader for long and its international dominance is challenged by very few players including Adidas and Puma. However, Nike has consistently remained ahead of its rivals in various areas and that is why it is considered the winner of the game.

Nike’s dominant market position is supported by several factors including its excellent marketing strategy, a strong focus on product quality, superior customer experience, production technologies and other factors.

Nike is a premium brand and is able to charge premium prices for its products due to their excellent quality and superior functionality. It has focused on customer needs and carries out research and development to bring improved products for athletes to the market.

Overall, Nike’s edge over its rivals is quite strong and while its rivals have also invested in digital technology over the recent years, Nike’s creativity differentiates it from others and has helped it achieve superior results.