Nike Pricing Strategy

Business / By / September 4, 2023

Nike leverages its brand equity and product differentiation for premium pricing, aiming to maintain market share, profitability, and brand loyalty. However, it faces challenges such as price competition, global market variation, consumer perception, and sustainability considerations.

1. Factors:

  • Brand Equity: Leveraging Nike’s strong brand reputation to influence pricing decisions.
  • Product Differentiation: Pricing based on unique features and performance of Nike products.
  • Target Market: Understanding customer preferences and willingness to pay in specific market segments.
  • Competitor Analysis: Analyzing pricing strategies and positioning of competitors.
  • Cost of Goods Sold: Considering production and manufacturing costs in pricing.

2. Pricing Strategies:

  • Premium Pricing: Setting higher prices based on brand image and product quality.
  • Price Skimming: Introducing products at high prices and gradually lowering them.
  • Promotional Pricing: Using discounts and promotions to boost sales.

3. Benefits:

  • Brand Loyalty: Building strong customer loyalty through premium pricing.
  • Market Share: Maintaining a significant share in the athletic footwear and apparel market.
  • Profitability: Achieving sustained profitability through optimized pricing.

4. Challenges:

  • Price Competition: Managing intense price competition in the sportswear industry.
  • Global Market Variation: Adapting prices to diverse regional and country-specific markets.
  • Consumer Perception: Ensuring pricing aligns with customer value perception.
  • Sustainability: Balancing ethical and sustainable practices with pricing decisions.

Key Highlights

  • Brand Equity Leverage: Nike utilizes its strong brand reputation to influence its pricing decisions.
  • Product Differentiation: Pricing is based on the unique features and performance of Nike’s products.
  • Target Market Understanding: Nike comprehends customer preferences and willingness to pay within specific market segments.
  • Competition Analysis: Competitors’ pricing strategies and market positioning are analyzed to maintain competitiveness.
  • Cost of Goods Sold Consideration: Production and manufacturing costs are taken into account when determining pricing.
  • Pricing Strategies: Nike employs strategies such as premium pricing, price skimming, and promotional pricing.
  • Premium Pricing: Higher prices are set based on the brand’s image and the quality of Nike products.
  • Price Skimming: New products are introduced at high prices and gradually lowered over time.
  • Promotional Pricing: Discounts and promotions are used to stimulate sales.
  • Brand Loyalty Benefit: Nike’s premium pricing contributes to building strong customer loyalty.
  • Market Share Maintenance: Nike aims to sustain a significant share in the athletic footwear and apparel market.
  • Profitability Achievement: Nike strives for sustained profitability through well-considered pricing.
  • Price Competition Challenge: Nike faces challenges in managing intense price competition within the sportswear industry.
  • Global Market Variation: Adapting pricing to varying economic conditions and customer behaviors in different markets.
  • Consumer Perception: Ensuring that pricing aligns with customers’ perceptions of value.
  • Sustainability Concerns: Balancing ethical and sustainable practices with pricing decisions for long-term success.

Pricing Related Visual Resources

Premium Pricing

premium-pricing-strategy
The premium pricing strategy involves a company setting a price for its products that exceeds similar products offered by competitors.

Price Skimming

price-skimming
Price skimming is primarily used to maximize profits when a new product or service is released. Price skimming is a product pricing strategy where a company charges the highest initial price a customer is willing to pay and then lowers the price over time.

Productized Services

productized-services
Productized services are services that are sold with clearly defined parameters and pricing. In short, that is about taking any product and transforming it into a service. This trend has been strong as the subscription-based economy developed.

Menu Costs

menu-costs
Menu costs describe any cost that a business must absorb when it decides to change its prices. The term itself references restaurants that must incur the cost of reprinting their menus every time they want to increase the price of an item. In an economic context, menu costs are expenses that are incurred whenever a business decides to change its prices.

Price Floor

price-floor
A price floor is a control placed on a good, service, or commodity to stop its price from falling below a certain limit. Therefore, a price floor is the lowest legal price a good, service, or commodity can sell for in the market. One of the best-known examples of a price floor is the minimum wage, a control set by the government to ensure employees receive an income that affords them a basic standard of living.

Predatory Pricing

predatory-pricing
Predatory pricing is the act of setting prices low to eliminate competition. Industry dominant firms use predatory pricing to undercut the prices of their competitors to the point where they are making a loss in the short term. Predatory prices help incumbents keep a monopolistic position, by forcing new entrants out of the market.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Bye-Now Effect

bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye bye” before ordering, the average price per meal rose to $45.

Anchoring Effect

anchoring-effect
The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision.

Pricing Setter

price-setter
A price maker is a player who sets the price, independently from what the market does. The price setter is the firm with the influence, market power, and differentiation to be able to set the price for the whole market, thus charging more and yet still driving substantial sales without losing market shares.

Read Next: Pricing Strategy.

Connected Business Concepts

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Dynamic Pricing

static-vs-dynamic-pricing

Geographical Pricing

geographical-pricing
Geographical pricing is the process of adjusting the sale price of a product or service according to the location of the buyer. Therefore, geographical pricing is a strategy where the business adjusts the sale price of an item according to the geographic region where the item is sold. The strategy helps the business maximize revenue by reducing the cost of transporting goods to different markets. However, geographical pricing can also be used to create an impression of regional scarcity, novelty, or prestige. 

Price Sensitivity

price-sensitivity
Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Price Elasticity

price-elasticity
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

economies-of-scale
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

diseconomies-of-scale
In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

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About The Author

Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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