Comparison of strategy of Nike and Adidas Essay

1.0 Introduction: Johnson, Scholes and Whittington (2005, p.9) defines strategy as the way in which an organisation plans to use its resources effectively in order to gain a competitive advantage over the long term. In other words the carefully planned guidelines that organisation’s follow, which differentiates them from other organisations. Mirow (2005,p.10) suggests that strategy of Amazon.com,Inc., a multinational electronic commerce company headquartered in Seattle, focused on providing customers with low price, convenience and a wide selection of merchandise. They focused on this strategy and started their website in 1995 as an online book retailer. They slowly expanded their products and are currently an online shopping website with the largest product supplies online earning revenues in billions. Hence we can see how important strategy is for the success of an organisation. There are three levels of strategy, which are corporate level, business  level and functional level strategy. Strickland and Thompson (2003, pp.50, 55 and 56) suggests that the corporate level strategy is the strategy which is determines the overall purpose and prospect of an organisation and reflects on how to add value to different parts of the organisation. The business level strategy provides guidelines on how to excel competitors or survive in a particular market and the functional strategy is the contribution made by the resources, people and processes to the business and corporate level strategies. Companies strive with their strategies in order to become the leader in their specific industry or market. Nike and Adidas are the top two competitors in the footwear, apparel and accessories segment of the textile industry. The focus of the latter part of this report is on how these competitors compete with each other using their strategies. 2.0 Literature review: In order to fully understand about strategy, it is mandatory to know about the five generic competitive strategies. The five generic strategies according to Strickland and Thompson (2003, p.150) are low-cost provider strategy, in which the organisation provides goods or service at a low cost, broad differentiation strategy, in which the organisation differentiates its products or services making it appeal to a vast range of customers, best-cost provider strategy, in which the organisation provides goods or services of high quality making it worth the amount they are charging which is lower than their competitors, a focused strategy based on lower cost, in which the organisations focus on a narrower buyer segment and provides them their goods or services at a lower cost than its competitors and focused strategy based on differentiation, in which the organisation focuses on a narrower buyer segment and produces product customized according to their needs. 3.0 Backgrounds of Nike and Adidas: [IMAGE URL: http://digestingdesign.wordpress.com/tag/nike/] 3.1 Company overview of Nike According to (www.nikebiz.com) NIKE,Inc. was founded in 1972 by Phil Knight and Bill Bowerman. It designs, markets and distributes athletic footwear,  apparel, equipment and accessories for a vast range of sports and fitness activities and are currently the world’s leading company in the athletic footwear, apparel and accessories segment in the textile industry. It is based in Beaverton,Oregon and has subsidiaries such as Cole Haan, which designs, markets and distributes luxury items such as shoes, handbags and coats. Their subsidiaries also include Converse,Inc. and Hurley International LLC and Umbro,Ltd. The revenue of Nike,Inc. as at May 2010 is around US$ 19014 million according to (www.biz.yahoo.com). [IMAGE URL: http://www.soccercleats101.com/2009/10/07/adidas-predator-x-get-ready/] 3.2 Company overview of Adidas Group: According to (www.adidas-group.com) Adidas, founded in 1949 by Adofl Dassler, is a sports apparel manufacturing company. Starting with athletic footwear such as running shoes and soccer shoes, they currently manufacture a wide range of products such as bags, watches, shirts and accessories. They are the second largest sportswear manufacturer, behind Nike,Inc. Adidas Group is made up of three companies, Reebok, TaylorMade Adidas Golf company and Rockport. The revenue of Adidas as at May 2010 is 14878 US$ Million according to (www.biz.yahoo.com). 4.0 Critical Incidents that occurred in the past: 4.1 Critical incidents that affected Nike: Nike, Inc. had gone through various incidents which had an impact on their success. According to Dermesropian, Drage, Grigaite and Lopez (2004,p.3) in 1972, Nike persuaded marathon runners at Olympic Tracks to wear their shoes which was an innovative strategy as it resulted in strong advertising when some of the runners were the top finishers and popularity of Nike continued to grow throughout the 70s. In 1979 Nike had 50% of the US running shoe market. In 1988 Nike introduced their famous slogan ‘Just do it’ and acquired a company called Cole Haan. They sponsored many famous athletes such as Michael Jordan, a famous basketball player and Tiger Woods, an excellent young golf player. During 1992 Nike acquired Canstar sports which included the hockey equipment maker Bauer and opened its first Niketown store. In early 1995 Nike acquired a license to put its logo on NFL uniforms  which resulted in strong marketing. Air Jordan [IMAGE URL: http://www.myairshoes.com/air-jordans/air-jordan-xx3-officially-unveiled.html] They launched a new brand called Jordan, in 1997, which was influenced by the famous basketball player Michael Jordan and one of the most famous shoes of that brand were called Air Jordan. Some incidents harmed Nike during 1998 as they had to cut 1,200 jobs due to the fall of sales in Asia and the demand of athletic shoes fell in 1999. Nike wanted to diversify and in the year 2000 they shifted a little towards the technological and electronic sector and introduced athletic electronics, which included MP3 players, heart monitors, and two-way radios. Products of Nike in the BCG matrix [IMAGE URL: http://www.robmillard.com/archives/BCG%20Matrix%20Big1.html] They opened their first Nikegoddess store in California in 2001. They acquired Hurley International, a distributor of action sports apparels and lost their license to put their logos on NFL uniforms to Reebok in 2002. In 2003 they acquired one of their competitors called Converse but it continued to operate independently in order to sustain the brands popular name. 4.2 Critical incidents that affected Adidas: Adidas also faced various occurrences in order to attain the title of the second largest athletic footwear sportswear and accessories manufacturer.   Adidas Samba [IMAGE URL:http://www.bestshoesmen.com/adidas.Men.Samba.Classic.Soccer.Shoe/detail.html] According to (www.adidas-group.com) Adidas registered as a company in 1949 with the three stripes logo as their trademark. (www.footballshirtculture.com) explains that in the year 1950 they produced the â€Å"Samba† all-round soccer shoes which are even now considered to be the best classic training shoe today. One of the biggest successes of Adidas was in 1952 when it was the most common shoe brand worn at the Olympic Games  held in Helsinki. They made the first track shoes with removable spikes. Emil Zatopek, in Adidas shoes, won three gold medals in one week creating a huge impact on the image of the brand. German National Team wearing Adidas in the 1954 football world cup [IMAGE URL: http://soccernet.espn.go.com/world-cup/feature?id=696762&cc=4716&ver=global] In 1954 Adidas became famous all over the world as the German national team was victorious in the football world cup for the first time, wearing Adidas shoes with screw-in spikes. In 1955 Adidas came up a shoe with exchangeable spikes which became very popular among the high jumpers. In 1964 Billy Mills won the men’s 10,000 meters wearing the new Adidas shoe which was considered the lightest shoe weighing 135 grams. In 1969 Adidas produced the world’s first injection molded multi stud soles of polyurethane, which gave a one year guarantee on the soles. Adidas began production of balls in 1961 and in 1970 their football was the official ball of the football world cup. In 1971 the famous ‘Fight of the century’ where Muhammad Ali and Joe Frazier fought with each other, both of them wore special boxing shoes designed by Adidas. Products of Adidas in the BCG Matrix [IMAGE URL: http://www.robmillard.com/archives/BCG%20Matrix%20Big1.html] Adidas Copa Mundial [IMAGE URL: http://www.footballbootroom.com/Adidas-Copa-Mundial] In 1979, Adidas produced ‘Copa Mundial’, which even today is still the world’s best selling soccer shoe. In 1986 Adidas introduced Azteca, the first synthetic world cup matchball in the world. However, in 1993 Adidas took over Sports Inc., a US based sports marketing company and Adidas was loosing US$100 million a year. Robert Louis Dreyfus had become the new president of Adidas and he downsized the German staff and went subcontracting to China. Adidas once had 70% market share in the US and it fell to 2% in 1993. In 1994 Adidas made a comeback by producing the revolutionary soccer shoe called the Predator during the soccer world cup in the USA. They went public in 1995 and acquired the Salmon Group which consisted of the brands TaylorMade, Mavic  and Bonfire in 1997. The new company is named Adidas-Salmon AG. They were the first sporting goods company to chosen as the official sponsor of a soccer world cup in 1998 when they sponsored the 1998 FIFA World cup in France. Adidas Predator Mania [IMAGE URL: http://www.produktenews.ch/newsflashartikel.cfm?key=179710] In March 2002 Adidas launched ClimaCool a footwear with a ventilation system and introduced the new Predator Mania boots and jerseys with the dynamic layering concept in the 2002 FIFA world cup with their own official ball called the Fevernova. They sold over 6 million footballs and more than 1.5 million jerseys and half a million of the Predator Mania that year. In 2006 Adidas became the official partner, supplier and licensee for the FIFA world cup to be held in 2006, 2010 and 2014. They acquired Reebok International in the same year. 5.0 Comparison of the strategies of the companies: 5.1 Strategies of Nike: In order to become the world’s leading designer, marketer and distributor of athletic footwear, apparel and accessories, Nike followed many strategies. Their corporate level strategy, according to Dermesropian, Drage, Grigaite and Lopez (2004,p.15) is their focus on innovation and emphasis on their research and development department in order to be profitable in the long run and they do their best to produce footwear, apparel and athletic equipment that reduce or eliminate injury, help in athletic performance and maximize comfort. They continue to expand their operation in the USA, Asia Pacific, Europe, Middle East, Africa and the American regions trying to reach as many customers as possible. Their business level strategy is a combination of the best cost provider and broad differentiation strategy, but more emphasis is put on the best cost provider strategy. They rely heavily on strategic outsourcing and most of their products are manufactured outside the United States. One of the main reasons behind their success following the cost leadership strategy is their extensive network structure that allows them to cancel their alliance with any company that fails to maintain their standards. They work very closely with their suppliers which allow them to produce their goods at a very low price and of superior  quality with the newest technology which makes them the market leader and the rest have to try producing similar goods close to their standard in order to survive in the market. They work very hard in their marketing strategies and which one of the primary reasons behind its success. Fig.1Fig.2Fig.3 Players who wear Nike – Fig.1) Cristiano Ronaldo [IMAGE URL: http://s702.photobucket.com/albums/ww24/bleedingblue97/?action=view ¤t=Cristiano_Ronaldo_Manchester_United.jpg&newest=1 Fig.2) Michael Jordan [IMAGE URL: http://www.ionlinephilippines.com/2009/12/michael-jordan-look-alike-michael-jordan-imposter-video/] Fig.3) Tiger Woods [IMAGE URL: http://www.dailyworldbuzz.com/tiger-woods-still-has-support-of-nike-gatorade-and-gillette/4970/] Nike hired famous basketball player Michael Jordan, tennis player Serena Williams and Tiger Woods who signed a seven year contract in order to be the spokesperson of Nike. In 2003 they spent around US$ 32.4 million on Net TV commercials and another US$ 39.8 for magazine ads. In order to become the market leader one has to follow a rigid and innovative strategy but to remain as the market leader the strategy has to be sustainable. According to (www.bizjournals.com) on a report published by Nike, suggest that they have planned five major programs in order to keep their corporate level strategy sustainable. In order to sustain in the long run Nike is now emphasizing more on the concerns about global warming. They have decided to focus more on their product design process, eliminating toxics and wastes wherever possible, start a GreenXchange web marketplace to share intellectual property which have been designed to act as a catalyst in green development, establish a lean manufacturing and human resource management in order to acquire a more equitable supply chain, establish a social program which combines education and sports programs for the third world countries and establish a new group call the Business for Innovative Climate and Energy Policy. 5.2 Strategies of Adidas: The strategies of both these sports giants are very similar but Adidas  focuses more the broad differentiation strategy. According to (www.adidas-group.com) the corporate level strategy of Adidas also focuses on innovation, trying to produce new products, services and processes in order to cope up with the competition. In 2009 the Adidas Group strategically decided to move from a vertically integrated brand structure into a functional multi-rand structure for the Reebok and Adidas brands. This created a global sales function which were responsible for commercial activities and a global brands function which were responsible for the marketing of both brands. The global sales function was also split into two departments, wholesale and retail, which catered to the various needs of both these business models. This was done in order to sustain their corporate level strategy for the long run so that these divisions could emphasize and work hard in their respective departments in order to make the most of their efforts. This led to the elimination of regional headquarters and moved towards more direct communication between the local markets and the global functions. They implemented a multi-brand strategy by having a diverse brand portfolio which allowed them to cater all segments of the market from players to almost everyone. This helped them to keep a unique identity and concentrate on their core competencies. Adidas focused their investments in the best marketing and distribution channels in different countries by critically evaluating the consumer buying behaviors and their constant struggle to secure prime shelf space. They have also embraced e-commerce in order to become more efficient and appeal to more customers and make purchasing much more easily accessible for them. Their supply chain is closely communicated and hence it helps them to customize their products which appeal to a wide range of customers. The organizational culture of Adidas group obligates employees to be innovative. This culture forces them to produce goods which are highly innovative and with the use of the latest technology their products have a very good quality. According to (ar2001.adidas-salomon.com) using latest technologies they produce products which enhances performances of players and they focus on sports such as football, tennis, basketball and even training shoes which are used by anyone with the ability to run. Their new technologies have lead to the production of Climacool, a shoe with a ventilation system and a ­3 a shoe with an energy management system that guides and drives an athlete’s foot  through each stride. Fig.4Fig.5Fig.6 Famous players who wear Adidas – Fig.4) Zinedine Zidane [IMAGE URL: http://s670.photobucket.com/albums/vv70/tomdavies99/?action=view ¤t=09_zinedine_zidane_dpa_300.jpg&newest=1] Fig.5) Kaka [IMAGE URL: http://soccerpitch.co.za/tag/real-madrid/] Fig.6) Kobe Bryant [IMAGE URL: http://family-fitness.mattters.com/2010/7/2/couldnt-wait] Adidas Trefoil logo [IMAGE URL: http://free-extras.com/images/adidas_logo-658.htm] Adidas has world class players who wear their products such as Zinedine Zidane of France, Alessandro Del Piero of Italy and Kobe Bryant an NBA champion who is a style icon for basketball lovers. They also concentrate on their classic items, reintroduce and redesign them under their Trefoil logo. 5.3 Comparison of the strategies of Nike and Adidas: According to (http://comparisonz.com) Nike and Adidas have almost similar strategies but different implementation methods. Both the companies concentrate heavily on technology and strive to produce new and innovative products. Nike focuses on the American markets whereas Adidas focuses on the European market. Nike does not have any production plants as they only design, distribute and market their products and hence they outsource to various countries in Asia, mainly Taiwan and Korea, which outsource their production to China, Indonesia and Vietnam. Adidas on the other hand, carry out all their production in Germany and recently has adopted Nike’s outsourcing policy by outsourcing to Asian countries. Nike and Adidas both follow a premium pricing strategy which according to Kotler (2003, p.272) is a strategy where companies charge a premium price for their products. Their competition is always intense and according to Anderson (2010) during the world cup 2010 Nike launched the popular â€Å"write the future†, three minute advertisement featuring world cup stars which was a major hit on Youtube and Adidas replied with their two minute video with celebrities like Snoop Dogg  and Daft Punk into a famous scene from the movie Star Wars. Nike sponsored nine teams whereas Adidas sponsored 12 teams. World’s Largest LED by Nike [IMAGE URL: http://johannesburgbc.ning.com/profiles/blogs/nikefootball-delivers-the] Even though Adidas was the official sponsor of the World cup 2010, Nike attached an LED display to a 30 story skyscraper in Johannesburg where soccer fans could write short messages using popular social networking websites such as Twitter and Facebook and Nike put up 100 messages on the side of the walls every night. Adidas adiPURE III Nike Tiempo Elite [IMAGE URL: http://soccerlens.com/shirts/nike-vs-adidas-buying-football-shoes-in-2010/6410/] Umair (2010) compares the constant rivalry between Nike and Adidas using their products. During the world cup Nike launched an Elite series for the 2010 world cup called Nike Tiempo Legend Elite which had customized shoes worn by famous football players such as Christiano Ronaldo and Cesc Fabregas. Adidas on the other hand, launched a new collection called Adidas Adipure for the world cup 2010 which also had customized shoes worn by famous players such as Kaka and Lionel Messi. In soccer Adidas shoes are worn by famous players such as Zinedine Zidane, Kaka and Lionel Messi, whereas Nike shoes are worn by Christiano Ronaldo, Wayne Rooney and the original Ronaldo. In basketball Nike shoes have been used by Michael Jordan and Adidas shoes have been worn by Kobe Bryant. 6.0 Future Plans of Nike and Adidas: It is easy to become the market leader or the market challenger for organisations but sustainability is the primary concern and hence organisations focus of the sustainability by coming up with strategies that will make their position sustainable in the long run. According to (www.environmentalleader.com) Nike’s future plans are to focus on the environment and production of eco friendly products. They mentioned in their 2005 and 2006 Corporate Responsibility Report that they will become carbon neutral by 2011 by reducing their Caron Dioxide emissions. They have decided  to design all Nike brand footwear in ways through which they can reduce waste production during product design and packaging. They will eliminate the use of volatile organic compounds and use more environmental friendly material in their products and be carbon neutral by 2011. Adidas on the other hand became the official sportswear partner of the London 2012 Olympic Games. The London Organising committee for the Olympic Games and Paralympic Games (LOGOC) has few regulations which all of its partners are obligated to follow. These obligations are focused towards the environment. Adidas, being a partner of LOGOC has to follow all these regulations as their future plans are to be the official sponsor of almost all major events in the world, and in order to achieve this goal their strategy is to produce environment friendly goods as well. They have to ensure that all their products are produced with environment friendly materials, which would protect the human health and the environment and their packaging should also be produced with materials that can be recycled. Hence we can see that both the future plans of Nike and Adidas are quite similar. 7.0 Conclusion: The main element that determines an organisation’s success or failure is the strategy it follows. Any industry is vast and the competition is also fierce and in order to survive in the competition organisations must devise innovative strategies. Nike and Adidas have started their journey decades ago and they have struggled but sustained their positions; Nike as the market leader and Adidas as the market challenger. Various incidents have occurred in the past to both the companies which were both good and bad, but it was the strategies that helped them survive and sustain their positions. The strategies of both these companies are quite similar and Adidas is not far behind from Nike, but any small mistake by Nike, might make them the market challenger and Adidas the market leader. Nike has to be very careful while implementing their strategies because Adidas is very close to becoming the market leader. Nike’s initial strategy of being just the product designer, distributor and marketer gave them the competitive edge against Adidas, because their investments were low compared to Adidas as they have production plants, but Nike should be very careful to sustain their market position. 8.0 List of references: Books: Johnson,G., Scholes,K. and Whittington,R.(2005) Exploring Corporate Strategy: Text and Cases. Seventh Edition. Prentice Hall. Thompson,A.A., and Strickland,A,J.(2003) Strategic Management Concept and cases. 13th edition. McGraw Hills. Kotler,P. ( 2003)Marketing Management, Eleventh Edition, Pearson Education. Websites: (2010) NIKE, Inc. 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