Comparison between Nike and Reebok

Introduction and Overview of the two companies selected

The rivalry between Nike and Reebok has been one riddled with strong competition. As consumer products brands, their overall relevance is based heavily on the niche they occupy in the consumers mind related to their products. Here both companies used dramatically different strategies in order to compete effectively in a highly competitive market.

Started in 1964 by Phil Knight and Bill Bowerman, , Nike was originally name Blue Ribbon Sports. And operated primarily out of Eugen Oregon. Here, the brand slowly transformed itself into the company we recognize today as a dominate sports apparel company. Nike spends heavily on it brand, investing billions of dollars into advertising and marketing. Here, the company attempts to position itself as a premium consumer products brand that provides the highest quality goods and services. They also heavily leverage brand and athlete sponsorships to better compete in the apparel market. The strategy here is to align the Nike brand with the world’s preeminent athletes. By doing so, Nike hoped consumers who identify with the athletes greatness would associate their achievements with the Nike brand, thus creating even stronger demand for companies apparel (Azam, 1999).

Reebok however looked to position itself as a much more affordable option for consumers. Founded in 1958, their price points where much lower than Nike, but this was made up by higher sales volume. Reebok much like Nike invests heavily in its brand , research and development. However it focused its products on hockey, running, football and basketball.

SWOT Analysis – Nike

Strengths

· Very strong pricing power

· Very strong brand and brand awareness

· Conservative balance sheet allowing for heavily capital investment into future products

· Very strong research and development team

· Experience and tenured management team

· Strong Free Cash Flows. Access to low cost debt due its cash flow reliability

· Global Prescence and diverse product offerings

Weaknesses

· Large size could potentially be a hindrance to capitalizing on changing consumer trends

· Negative reputation for using sweat shop and other low-cost labor sources . Poor labor conditions in foreign countries

· Retailers still have a strong influence on how and which products are showcased in stores

· The company still has a large dependence on the United States market

· Business is dependent on favorable economic conditions

Opportunities

· Emerging markets, particularly China

· Wearable technologies and the ability to acquire market leaders in this space

· ESG apparel and the ability to capitalize on this growing consumer trend

Threats

· Counterfeit products, particularly in china and India

· Lower cost alternatives within the apparel industry

· Dramatic changes in consumer preferences

SWOT Analysis – Reebok

Strengths

· Lower price point and higher consumer accessibility

· Global presence and diverse product offerings

· In-house design teams

· Larger target market due it’s lower price point

· Lower cost manufacturing and production

Weaknesses

· Large size could potentially be a hindrance to capitalizing on changing consumer trends

· Less brand loyalty from consumers than rivals in the industry

· Less brand awareness than competitors in the space

Opportunities

· Emerging markets, particularly China

· Wearable technologies and the ability to acquire market leaders in this space

· ESG apparel and the ability to capitalize on this growing consumer trend

Threats

· Counterfeit products, particularly in china and India

· Lower cost alternatives within the apparel industry

· Dramatic changes in consumer preferences

Nike SWOT Overview

When comparing the Nike and Reebok, the most apparent difference is that of the brand image and brand awareness. Nike has much stronger brand that Reebok. As a result it is better able to charge premium prices for its apparel products. These higher prices are justified due to the niche the brand occupies in the consumers mind. For one, Nike invests very heavily in branding, advertising and marketing. These investments have made the brand synonymous with sports and apparel. Consumers who want to perform their best often default to Nike as their product of choice due to this advertising. This is accomplished through Nike’s masterful job of leveraging sponsorships and endorsements with the world’s best athletes. Through sponsorships Nike is often associated with the many of the world’s best athletes. Consumers wanted to emulate these athletes often purchase the products in an effort to “feel” as though they are the athlete. The most notable of which is Michael Jordan and how many children purchased his shoes in an effort to “Be Like Mike.” Nike capitalized on this trend with very comprehensive advertising campaigns geared specifically to this athlete. With exclusivity rights, Reebok cannot properly compete against these aggressive marketing and business tactics. As a result, Nike is able to charge premium prices for its products due to their association with great athletes and the amount of money spent on quality.

Likewise, the strong brand and consumer success often forces retailers to carry a larger assortment of Nike products to better address higher consumer demand. This higher demand is again associated with a very strong and robust advertising campaign on the part of Nike. As the retailers are forced to hold more inventory and dedicated more premium shelf space to Nike, they are indirectly reinforcing the image of the brand to the consumer as well. This flywheel of elements often reinforces one another creating a dominate market position (Sadal, 2015).

The company however is still without its weaknesses and threats. First, it still must content with negative publicity for its labor actions in the past (Wilsey, 2015). In addition, the company is stills beholden to retailer shelf space decisions. In addition, its sales are heavily contingent on the ability of retailers such as foot locker, foot action, and dicks sporting goods to display their products in meaningful ways and locations. In addition, Nike must content with counterfeiters, both internationally and domestically looking to capitalize on the brands popularity. These counterfeiters, could potentially tarnish the brand and lower the brands reputation with lower quality goods (Kazi, 2011).

Reebok SWOT Overview

Reebok as compared to Nike is the lower cost producer. By being the lower cost producer, the company is better able to expand its addressable market. Due to the higher price point of Nike, many consumers are priced out of the market. These consumers are lower to middle class families that cannot afford to purchase high priced shoes. Reebok addresses this market much better than Nike by producing quality lower cost shoes for consumers. This ultimately results in much higher sale volume and potentially more brand awareness of the product. However, a weakness of this approach is that consumers due to the lower price point may perceive Reebok as lower quality as compared to Nike in the marketplace. Reebok attempts to circumvent this through endorsement deals and sponsorships similar to Nike. However, due to the business being low margin, the ability to attract a high number of large-scale athletes is heavily reduced. Here, the weakness of Reebok compared to Nike begins to manifest itself. Due in part to lower margins the company cannot afford to make large investment in endorsement deals that don’t pan out financially. The company can therefore support only a handful of athletes. Likewise due to the lower margins the company could potentially get outbid by Nike who typically is much larger and has more financial resources. As result of getting outbid for endorsement deals, the company ultimately losses the branding that the athlete would provide over the duration of the contract. Exacerbating the issue is that Nike can then leverage this athlete to enhance their own brand and sales figures. This can become a severe weakness over time as Nike is able to attract more higher profile athletes to build its brand (Brookes, 1995).

Much like Nike, Reebok faces still competition for counterfeit producers looking to profit from the brand. In the case of Reebok this is much less of an issue as the brand is not seen as a very high-end product and therefore is not subject to a large degree of counterfeiting from China and India. Likewise the company has a very strong opportunity within international markets similar to that of Nike. Here, international markets are very compelling due to the rising middle class of both India and China. Both markets tend to have a large desire to purchase American made products, which presents a strong opportunity for Nike and Reebok. The ability for Reebok to capture a dominate position in China can ultimately help it compete better on the international stage with Nike.