Nike has pursued both differentiation and low-cost strategies to build its competitive advantage in the athletic footwear and apparel industries. Originally focusing on innovating new shoe designs and marketing them aggressively, Nike grew its market share dramatically. However, sales began declining in the late 1990s. In response, Nike expanded into new product categories and acquired other brands to complement its offerings. It has also changed its business model to focus on developing products for broader market segments. These strategic changes have helped Nike increase its profits and market share in the industry.

1. 142 Part 3 Building and Sustaining Long-Run Competitive Advantage EXPLORING THE WEB
Visiting the Luxury-Car Market General Task Enterthe Websitesofthreeluxury-carmakerssuchas
Search the Web for a company pursuing a low-cost Lexus (www.lexususa.com), BMW
(www.bmwusa strategy, a differentiation strategy, or both. What .com), or Cadillac
(www.cadillac.com), all of product/market/distinctive-competency choices which compete in the
same strategic group. Scan has the company made to pursue this strategy? the sites to determine
the key features of each How successful has the company been in its incompany's business-level
strategy. In what ways dustry by using this strategy? are their strategies similar and different?
Which of these companies do you think has a competitive advantage over the others? Why?
Nike's Business-Level Strategies Nike, headquartered in Beaverton, Oregon, was and champion
its products. The company has consisfounded over 30 years ago by Bill Bowerman, a tently
pursued this strategy and many other sporting former University of Oregon track coach, and Phil
stars, such as Tiger Woods and Serena Williams who Knight, an entrepreneur in search of a
profitable are part of its charmed circle. business opportunity. Bowerman's goal was to dream
Nike's strategy to emphasize the uniqueness of up a new kind of sneaker tread that would
enhance its product paid off; its market share soared and its a runner's traction and speed, and he
came up with revenues hit $9.6 billion in 1998. However, 1998 the idea for Nike's "waffle
tread" after studying the was also a turning point, for in that year sales bewaffle iron in his home.
Bowerman and Knight made gan to fall. Nike's $200 Air Jordans no longer sold their shoe and
began by selling it out of the trunks like they used to, and inventory built up in stores of their car
at track meets. From this small begin- and warehouses. Suddenly it seemed much harder to ning
Nike has grown into a company that sold over design new shoes that customers perceived to be
sig$12 billion worth of shoes in the $35 billion athletic nificantly better and Nike's stunning
growth in sales footwear and apparel industries in 2004..31 was actually reducing its
profitability-somehow it Nike's amazing growth came from its business had lost control of its
business strategy. Phil Knight, model, which has always been based on two origi- who had
resigned his management position, was nal functional strategies: to innovate state-of-the-art
forced to resume the helm and lead the company out athletic shoes and then to publicize the
qualities of of its troubles. He recruited a team of talented top its shoes through dramatic
"guerrilla" marketing. managers from leading consumer products compaNike's marketing is
designed to persuade customers nies to help him improve Nike's business model. As that its
shoes are not only superior but also a high a result, Nike has changed its business strategies in
fashion statement and a necessary part of a lifestyle some fundamental ways. based on sporting
or athletic interests. A turning In the past, Nike shunned sports like golf, socpoint came in 1987
when Nike increased its market- cer, rollerblading, and so on and focused most of its ing budget
from $8 million to $48 million to per- efforts on making shoes for the track and basketsuade

2. customers its shoes were the best. A large part ball market to build its market share in this area.
of this advertising budget soon went to pay celebri- However, when its sales started to fall, it
realized ties like Michael Jordan millions of dollars to wear that using marketing to increase
sales in a particular
Chapter 5 Business-Level Strategy and Competitive Positioning market segment can only grow
sales and profits so in-line and hockey skates; and Official Starter, a lifar; it needed to start to sell
more types of shoes to censor of athletic shoes and apparel whose brands inmore segments of the
athletic shoe market. So Nike clude the low-priced Shaq brand. Allowing Converse took its
design and marketing competencies and to take advantage of Nike's in-house competencies
began to craft new lines of shoes for new market has resulted in dramatic increases in the sales of
its segments. For example, it launched a line of soccer sneakers, and Converse has made an
important conshoes and perfected their design over time, and by tribution to Nike's profitability.
34 2004 it had won the biggest share of the soccer mar- Nike had also entered another market
segment ket from its archrival Adidas. 32 In addition, in 2004 when it bought Cole Haan, the
dress shoemaker, it launched its Total 90 III shoes, which are aimed in the 1980s. Now it is
searching for other possiat the millions of casual soccer players throughout ble acquisitions. It
decided to enter the athletic apthe world who want a shoe they can just "play" in. parel market to
use its skills there, and by 2004 sales Once more, Nike's dramatic marketing campaigns were
over $1 billion. Nike made all these changes aim to make their shoes part of the "soccer
lifestyle," to its product line to increase its market share and to persuade customers that
traditional sneakers do profitability. Its new focus on developing new and not work because
soccer shoes are sleeker and fit the improved products for new market segments is foot more
snugly. 33 working. Nike's profits have soared from 14% in To take advantage of its
competencies in design 2000 to 25% in 2007 , it makes over $1 billion profit and marketing,
Nike then decided to enter new a year. market segments by purchasing other footwear companies
that offered shoes that extended or com- Case Discussion Questions plemented its product lines.
For example, it bought 1. What business-level strategies is Nike pursuing? Converse, the maker
of retro-style sneakers; Hurley 2. How have Nike's business-level strategies changed
International, which makes skateboards and Bauer the nature of industry competition? NOTES 1.
Derek F. Abell, Defining the Business: The Starting Point 2. R. Kotler, Marketing proaches
[e.g., F. Scherer, Industrial Market Structure of Strategic Planning (Englewood Cliffs, N.j.:
PrenticeCliffs, N.j.: Prentice-Hall and Economic Performance, 2nd ed. (Boston, Mass.: Hall,
1980), 169. E. Kami, "Free Compe-Hall, 1984) and M. R. Darby and Houghton Mifflin, 1980)],
Porter's model (Porter, Fraud," "Jornal of Lapecition and the Optimal Amount of proach.
Consequently, this model is the one developed here, and the discussion draws heavily on his

3. defini- 4. Michael E. Porter, Competitive Advantage: Creating and tions. The basic cost-
leadership/differentiation dimenSustaining Superior Performance (New York: Free Press, sion
has received substantial empirical support (e.g., D. C. Hambrick, "High Profit Strategies in
Mature 5. R. D. Buzzell and F. D. Wiersema, "Successful Share Capital Goods Industries: A
Contingency Approach," Building Strategies," Harvard Business Review, Academy of
Management Journal 26 (1983): 687-707. January-February 1981,135-144 and L. W. Phillips, 9.
Porter, Competitive Advantage, p. 37. D. R. Chang, and R. D. Buzzell, "Product Quality, Cost
10. Ibid., pp. 13-14. Position, and Business Performance: A Test of Some Key 11. D. Miller,
"Configurations of Strategy and Structure: Hypotheses," Journal of Marketing 47 (1983): 26-43.
Towards a Synthesis," Strategic Management Journal 7 6. Michael E. Porter, Competitive
Strategy: Techniques for (1986): 217-231. Analyzing Industries and Competitors (New York:
Free 12. Porter, Competitive Advantage, pp. 44-46. Press, 1980), 45. 13. Charles W. Hofer and
D. Schendel, Strategy Formulation: 7. Abell, Defining the Business, p. 15. Analytical Concepts
(St. Paul, Minn.: West, 1978).