Analyzing of Pricing Strategy: Nike - Term Paper Example

? Pricing Strategy: Nike (Add (Add (Add Pricing Strategy: Nike Nike, Inc. is a US based sports equipments companyheadquartered near Beaverton. The company is a global supplier of sportswear and sports equipments. Bill Bowerman and Philip Knight founded the company on 25th January 1964 in the name Blue Ribbon Sports. Currently, the company is one of the leading players in the world’s sports equipment industry, and its business mainly focuses on athletic shoes and apparel. Financial reports indicate that the Nike attained annual revenue in excess of $18.6 billion for the financial year ended in 2008 despite the difficulties associated with the global financial crisis. This paper will answer the following questions regarding different aspects of the Nike’s pricing strategy. 1. How does the company create value for its market segments? Explain. The well structured marketing mix assists the Nike to create value for its market segments. Firstly, the company has a broader line of products including athletic shoes, apparel, and sports equipments. Since modern consumers are eager to get access to a wide variety of collections, this product strategy would greatly assist the company to effectively meet customer satisfaction. The company mainly practices skimming pricing strategy and product line pricing strategy so as to create value for its different market segments. Skimming pricing is a pricing strategy by which a marketer fixes a relatively higher price for its product or service and eventually lowers the price as the level of market competition increases. Such a pricing strategy allows the Nike to recover its sunk costs immediately after the products are launched into the market. In contrast, the product line pricing strategy is employed to market different products in the same product category at different price rates on the ground of the relative features or benefits. By using this pricing strategy, Nike can effectively meet the tastes and specifications of different classes of people. Finally, the improved promotion strategy also extremely benefits the firm to add value to its various market segments. Nike follows advertising, direct marketing (through e-shop), and public relations as part of its production promotion efforts. For instance, the sponsorship of Manchester United has made the Nike popular across the United Kingdom. 2. Does the company use different price offerings for different market segments? Describe these and evaluate how effective they are. While analyzing the marketing tactics of the Nike, it is evident that the company uses different price offerings for its different market segments. In addition to the above discussed pricing strategies, Nike often follows price leadership strategy and value based pricing. Price leadership strategy is mainly used in an oligopolistic market environment. It is clear that Nike is one of the leading players in an oligopolistic market (sports equipment industry), and therefore it can effectively practice a price leadership strategy. Under this strategy, the company is able to determine prices and the competitors immediately follow the changes. As Porter (1985) points out, such a pricing policy enables the company to set attractive prices for different market segments on the strength of its market dominance (p.115). The price leadership would greatly help the company to reduce the intensity of competitive rivalry and thereby save unnecessary costs associated with product promotion. In the opinion of company analysts, the price leadership would be beneficial for the Nike to avoid severe price wars. The most significant advantage of this policy is that it assists the price leader (here Nike) to prevent any other firm from rapidly and sharply reducing the price. At the same time, under value based pricing, prices are set primarily based on the product’s perceived value to the customer rather than on cost of production, market prices, or competitors pricing strategies. This pricing strategy is extremely beneficial for Nike as it is a well established and reputed company. Evidences suggest that customers are willing to pay any price for the Nike symbol regardless of the actual value of the product offered. 3. Explain how the company communicates both value and price. As discussed above, customers are ready to pay high prices for the Nike symbol on the ground of the company’s reputation in the sports equipment industry. In order to take advantages of this situation, the company follows value based pricing approach in its major market segments. It has been identified that the value based pricing is the best strategy to “align price with value delivered” (World News Inc, 2012). Since consumers greatly value the Nike’s brand image, they would not be much bothered about prevailing market prices or actual value of the product while purchasing Nike products. It is clear that the company’s improved promotional framework plays a pivotal role in communicating its value across different market segments. In addition, the Nike gives specific emphasis on the product quality in order to easily distinguish its product lines from those of competitors and thereby to facilitate value communication. The value creation process in turn would assist the company to effectively communicate its price. 4. Give examples of how the company develops policies for price objections, price increases, economic downturns, or promotions. When the company faced price objection problem with some of its products such as Nike Air Pegasus and Nike Air Pegasus 89, the company specifically focused on value creation rather than price reduction. The company maintains a good relationship with its customers and this potential strength assists the company to deal with price objections and prices increases without causing much struggle. Nike convinces its customers about the necessity of a price increase before announcing any increase from its basic product prices. To illustrate, the company (as cited in Murphy and Solsman, 2011) informed its customers on 17th March 2011 that it was going to raise prices in an attempt to offset rising costs associated with oil, cotton, labor, and freight costs. Such a strategy would assist the firm to effectively identify customer responses to the proposed price change and thereby reassess the decision if necessary. It is observed that the cost leadership has greatly assisted the Nike to effectively manage its prices during the times of economic downturn. On the ground of this strength, Nike could fix prices that would earn reasonable profits for the organization. During the 2008 global financial crisis, the company took a series of cost reduction initiatives to offer affordable prices to its customers. In case of promotions, the company mainly depends on advertisements and public relations. Nike also effectively utilizes the infinite scope of internet to promote its product across the globe. In total, the Nike practices different pricing strategies for different market segments. The cost leadership assists the company to reduce the level of competitive pressure and to ensure the smooth flow of operation. Finally, the value based pricing strategy greatly benefits the company to take maximum advantages of its brand image. References Murphy, M & Solsman, J. E. (2011). Nike plans to raise prices. The Wall Street Journals. Retrieved from http://online.wsj.com/article/SB10001424052748703818204576207003213004100.html Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. World News Inc. (2012). Value-based pricing for profit pricing to capture customer value specialchem learning on demand. Retrieved from http://wn.com/Value-Based_Pricing_for_Profit_Pricing_to_Capture_Customer_Value__SpecialChem_Learning_on_Demand Read More