Price is one of the essential inherent of the 4P’s in marketing (Kotler, 1997). Developing an appropriate price is one of the most difficult challenges a business faces as consumers are more likely to react to this variable. There are numerous pricing strategies available at a firm’s disposal. Strategies like Price bundling, Market skimming pricing, Penetration pricing, Value pricing, Cost Plus pricing, etc. to name a few (Lamb, Hair and McDaniel, 2008) . However, businesses should take into account their cost, target market and competitors before deciding on the pricing strategy they would like to adopt. Moreover, demand elasticity plays a pivotal role in ultimately deciding the final price of the product. The pricing strategy employed by the firm and the actual price of the product eventually impact the consumer’s decision on whether or not to purchase the product.
According to Nike’s mission statement, its aim is to constantly innovate and inspire every athlete around the globe (Anon, 2015). Nike, one of the most successful firms in the sportswear market, decided to move away from the conventional pricing strategy. Nike since then, adopted an altogether a new path to their pricing model, the consumer value model depends on the dissolution of how much a buyer would be willing to pay for each product. According to Nike’s CFO Don Blair, the firm’s strength lies in its products and innovation and hence commands a higher price compared to its competitors. Moreover, Nike is able to expedite growth in the U.S. footwear market single-handedly, helping the firm carve a niche in “value added” competitive advantage against its rivals.
In the advent of 2013, a pair of trainers in the United States cost $66.85. Nike, though it operates in both the lower and the premium models, it’s seen unprecedented growth in premium footwear models. In the above picture we can clearly see the price differentials between Nike and Adidas.
Previously, Nike followed the pack and adopted the originally used “cost-plus” model. In this model firms generally added a mark-up value to the original cost of the product. This kind of pricing strategy worked well as the firm’s were guaranteed a certain percentage of profit if consumers paid for the product. Consumers now are more than willing to pay for sneakers due to the global brand image that Nike has developed. This is why Nike finds the consumer value equation so effective. Over the past few years, Nike’s selling price has increased in global markets. Nike with its varied product categories is trying to expand the horizons of brand premiums even further.
In the above graph we can see the positive impacts the new pricing strategy has bestowed on the firm. We can see how the value of the firm has increased in heaps and bounds over the years.
In the above Graph we see the upward trend in average selling price and unit sales in footwear and apparel worldwide over a period of 2 years.
Furthermore, The Forbes Fab 40: The World’s Most Valuable Sports Brands 2014 ranks Nike as the no. 1 sports brand across the globe. Nike with its immaculate brand image, innovative products, and high-profile endorsements from world-class athletes, has strategically located its products at the premium price levels in the market.
In 2014, Nike’s selling prices on footwear increased on average by 5% worldwide and 4% in North America. On the other hand selling prices for apparel increased by 4%. Whereas, in the first quarter of 2015, average selling prices in footwear increased by 7% worldwide and average selling prices for apparel increased by 3%. Prices of footwear further increased by 9% in North America. Whereas, Apparel prices further rose by 3%. Contrary to the increase in prices, worldwide unit sales increased, growing by 11% and 8%, respectively.
Moving ahead in its venture, Nike is expected to continue with its premium pricing strategies. For example, constant product developments will accredit Nike to charge higher premiums. In 2013 alone Nike filed around 540 patents. It is more or less likely to add a range of premium products to its apparel basket. These will probably result in both top-line and margin improvements.
Nike faces the risk of stagnation in key markets across the globe. Slowdown in markets across the globe especially in Europe, Japan, and Brazil may impact Nike’s ability to continue with price-hiking strategies.
Only time will tell if Nike can lead the pack of brands or will a new brand emerge and dethrone Nike.
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