Nike Company: Effects Of Inflation On Product Prices And Potential Impact On Marketing Strategies - Essay.

Marketers frequently ask themselves these questions
1. How can we spot and choose the right market?
2. How can we differentiate our offerings?
3. How should we respond to customers who buy on price?
4. How can we compete against lower cost, lower-price competitors?
5. How far can we go in customising our offering for each customer?
6. How can we grow our business?
7. How can we build stronger brands?
8. How can we reduce the cost of customer acquisition?
9. How can we keep our customers for longer?
10. How can we tell which customers are more important?
11. How can we measure the payback from advertising, sales promotion, public relations?
12. How can we improve sales force productivity?
13. How can we establish multiple channels and yet manage channel conflict?
14. How can we get the other company departments to be more customer-oriented?

Questions:

Nike Company deals in the production and sale of athletic footwear and clothing. The company has a wide international market due to engagement in global marketing strategies that have created mass awareness. The company faces stiff competition in the market, which requires a quick and appropriate response to the different economic conditions to ensure continued sales. Nike prides in the production of high-quality products that have enhanced the brand loyalty over the global markets.

Nike Company operates in a macro environment made up various factors such as political, environmental, legal, social, technological and economical (Marketing Theories-PESTEL Analysis, 2018). The economic factor affects the company to a greater extent compared to the other components of the macro environment. The economic factor plays a huge role due to the price sensitive nature of the customers who buy Nike products. An increase in the prices of the products due to inflation results in the customers buying fewer products. The reduced purchases cause a fall in the company’s revenues. The customers also shift to other suppliers who sell the products at cheaper prices, which dents Nike’s brand. The paper will focus on the effects to the company arising from an increase in the prices of the products in the market caused by inflation (Boag, 2018).

Nike requires to have an advantage in the market to beat the other companies that sell athletic footwear and clothes. Despite Nike being a huge company with international markets, an increase in product prices could result in a reduction in the sales revenues earned. Additionally, inflation causes stiff competition in the market with other companies trying to attract customers during the period of high prices (Christopher Paul, 2018).

Nike Company also needs to come up with strategies that will ensure high sales and continued customer loyalty (Cole-Ingait, 2018). One of the strategies includes setting affordable prices for the products. The company should develop a bargain with the customers to come up with a price that results in profits and keeps the customers happy. The set price should not dig deep into the customers’ disposable income to enable buying more footwear and clothes. The company should realize that failure to charge affordably could push the customers away to buy competitor products. Therefore, with favorable prices, Nike will sell more products to the customers despite inflation causing a rise in the prices of the commodities.

Additionally, Nike should also adopt the discount strategy to enable the customers to get the products cheaply. The company can allow discounts for individual or a package of products to enhance the sales made by the company. The individual discounts could include giving a percentage reduction on a single product sold and produced by Nike (Hubert Gatignon, 2017). On the other hand, the package discount could require the customer to buy more than one product (Juneja, 2018). For example, the customer gets a discount after buying a Nike shoe and t-shirt from an authorized seller. The discounts could result in the customers buying more products due to the incentive of getting more price reductions. The discounts will result in increased sales revenue and in turn added profits at the end of the financial year.

Answer:

Furthermore, the company should also reduce the differentiations done on the products to reduce the costs of production. The more differentiation done to a product, the more resources required by the company (Maloney, 2015). The resources include such as additional employees, machinery and research and development. A reduction in the product variation undertaken by the company will reduce the costs of production due to enabling mass production of clothes and shoes. The company will not spend much time, which prevents the usage of resources in delays thus Nike will produce at low cost. Consequently, the reduced costs will enable the company to charge lower prices for the products in the market. The reduced prices will attract the customers which will result in maintaining a large market and customer loyalty (Mandviwalla, 2015).

On the other hand, the company could maintain a competitive advantage by reducing operating costs through the introduction of information systems (Dobes, 2016). The introduction of information systems will assist the company to reduce the prices of products in the market. The information systems reduce the operating costs due to the reduction of human labor used in the production. Therefore, Nike will experience a reduction in the expenses incurred towards salaries and wages, which assists in setting lower prices. The reduced prices assist in attracting more customers for the products thus resulting in an increase in the sales units and revenues over a financial year (Pyle, 2018). The customers appreciate the products sold at affordable prices thus developing a strong loyalty to Nike’s products.

The use of strategies that reduce the operating costs will assist the company to maintain a competitive advantage over the competitors by reducing the prices of goods (Wagner, 2018). During the inflation period, the customers lack the much disposable income to spend on expensive products, which makes low pricing an appropriate strategy when aiming at increasing the sale units.

The price increase caused by inflation will cause Nike Company to choose a segmentation strategy that allows selling the products affordably (Perks, 2017). The company will narrow the market segment to enable the production of fewer products. The narrowing of the market segment will aim at reducing the cost of production, which results in reduced prices of the products. Consequently, the company will maintain the customers by selling affordable. The low prices will enable the company to compete with the other players in the sportswear industry since the customers look for products that do not dig deep into the disposable income. Additionally, the narrow segment will allow the company to produce specific products for the market thus eliminating the need to increase capacity.

Moreover, corporate attention will focus towards the satisfaction of the small segment meaning that the company will not pay much salaries and allowances (Pasteur, 2018). Therefore, Nike will experience a reduction in the salaries and allowances paid to the corporates who manage various departments. Consequently, Nike will have the chance to sell the products at cheaper prices due to less fixed costs.

The company will target a smaller market during the price hike caused by inflation (Suzanne de Treville, 2018). The company could specifically target the active athletes unlike during normal prices when Nike aims at also satisfying the inactive athletes. The active athletes represent a smaller market for the products, which gives the opportunity to reduce the operational costs incurred during the production. Nike will use fewer resources such as machinery and human capital due to the reduction of the output quantity (Thompson, 2018). The available resources will go towards satisfying the smaller target market, which enables the company to offer discounts and price reduction to the customers. The company comfortably offers products at reduced prices due to the decreased variable and fixed expenses. The fixed expenses reduce when the company decreases the amounts of salaries and expenses that go to machinery. Therefore, Nike will have the power to compete in the market with cheap and high-quality products that target a small group of active athletes (Olsen, 2018).

Potential impact on marketing strategies

The price increases will affect the positioning of the company due to the need to develop a new strategy (Wagner, 2018). The company will have to position in the market as one that sells high-quality products at cheap prices to allow the customers to buy the products. Most of the times, the customers associate low pricing with poor quality products, which calls for the company to undertake steps that still convince the market that the products uphold the original Nike quality. Nike will have to lead in the market as a company that provides high-quality products at affordable prices compared to the competitors. The company will take the position by setting low prices for the products and giving discounts to the customers (Krishnan, 2018).

Nike should engage in premium branding to ensure sales during the inflation (Smet, 2018). Premium branding will create a perception among the customers that the products uphold high-quality thus demand more prices. The customers will go ahead and buy the products even when sold expensively due to the association with the premium brand. Nike should conduct marketing that convinces the customers that the products last longer and provide more comfort compared to other products. The customers will have a psychological perception that the products have the mentioned qualities due to the high prices. Therefore, the customers looking for high-quality products will opt for the Nike products. Consequently, Nike should ensure customer satisfaction by offering unique and elegant packages for the products and offering full-time customer support to the customers (Porter's Five Forces, 2018).

Additionally, Nike should engage in celebrity marketing to raise the company’s social perception as a premium brand (Siu, 2018). The association with popular celebrities such as musician and great footballers will result in the followers buying the products at high prices. As a result, Nike will sell more products at high prices to the customers who have a perception that the products should actually sell high. Therefore, Nike will have the power to compete in the market having a better competitive advantage than the other players in the market.

The high prices have various effects on the customers’ behavior in the product market (Cole-Ingait, 2018). The company should come up with strategies that ensure that the customers continue buying the products even at high prices. The company should understand that during inflation, the customers lack the much disposable income to spend on products. Therefore, the sale units and revenues drop compared to when the economy does not suffer from inflation. The customers respond to inflation by portraying various behavior such as the reduction of purchases, staying off some products that sell expensively and buying the expensive products for prestige.

The high prices of products caused by inflation result in the customers buying less of the products. (Boag, 2018) The reduction in the purchase amounts arises from the customers experiencing a reduction in the disposable income since other products also rise in the prices. The Nike products also experience difficulties in the market since the customers buy fewer products than before the inflation. The customers end up looking for products that sell cheaply and avoid the Nike products that sell at a premium due to the celebrity status attached. The reduction in purchases causes a decrease in sales units and revenues earned by the company.

Competitive advantage

Furthermore, the customers respond by avoiding the Nike products due to the premium brand characteristic that puts a high price on the sportswear (Dobes, 2016). The customers due to lacking adequate funds to spend during the inflation, end up settling for cheaper products thus avoiding the Nike products. The customers do not wish to incur high expenses beyond the available disposable income. Therefore, customers avoid spending much on luxurious good, which includes the Nike premium products.

Furthermore, the high prices have the impact of pushing customers to buy products from other suppliers who sell at affordable low prices (Krishnan, 2018). Therefore, Nike will lose the number of customers who buy the products, which results in a decrease in the revenues earned by the company. The customers search the market for suppliers selling at lower prices and offering discounts for the products sold in the market.  Nike should make decisions to reduce product prices and offer discounts to customers to enable more purchases during the period of inflation that causes a decrease in disposable income.

During inflation, the company has the opportunity to increase sales units and revenues (Christopher Paul, 2018). The customers would require the company to supply high-quality products at affordable prices by offering discounts and price reductions. Therefore, Nike has the opportunity to increase sales by offering low-cost products that uphold high quality to ensure customer satisfaction. Nike should understand that the customers prefer spending less on products, which calls for a price reduction. The introduction of price reduction strategies such as discounts will offer the opportunity to increase the market size and open up the opportunity to discover new global markets.

Moreover, Nike has the chance of increasing the brand equity of the products during the high prices caused by inflation (Juneja, 2018). The opportunity to increase the brand equity comes in the company selling high-quality products at affordable prices. The customers search the market for high-quality products that sell affordably to accommodate the available disposable income. Therefore, Nike products selling at low prices will attract more customers to buy the products, which enhances the brand position of the company. Nike will have the opportunity to compete in the market and have a strong brand position as the means for competing in the market. Consequently, the company will increase the awareness of the products among the customers, which reduces the amount of finance invested in marketing activities.

The company has the opportunity of growing customer loyalty in the market (Mandviwalla, 2015). The company can take advantage of the hike in prices to offer affordable high prices in the market. Nike should understand that customer loyalty plays a huge role in increasing the market share, sales, and revenues. The company can exploit the opportunity by offering high-quality products in the market and engaging in marketing to create awareness about the reduced prices. The customers will respond to low prices and high-quality products by developing loyalty to the company’s products. Therefore, Nike will experience an increase in the market size, sales units, and revenues.

Therefore, in conclusion, Nike should focus on offering low prices to the customers to allow more purchases during the period of low disposable income. The customers respond by choosing the product above the rest offered by competitors. Consequently, Nike will maintain a high level of sales and revenues during the period of high prices. 

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