Thursday, July 12, 2012

Nike

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History

Nike has one the most well known names and logos in the world. Nike engages in design, development, and global marketing of footwear, apparel, equipment, and accessories. The company sells athletic shoes for just about every sport in existence, including baseball, volleyball, cheerleading, and wrestling. Nike operates in over 140 countries all over the world. For over 0 years Nike has been endorsed by some of the biggest names in sports. Grossing revenues in the billions yearly, Nike has maintained its place as the leader in athletic shoes and apparel since its start in the 160’s.

In 161 Phil Knight, a graduate of the University of Oregon and a former competitive runner, made a deal with a Japanese shoe company called Tiger to import their shoes to the United States. When asked what company he represented, Knight, off the top of his head, replied “Blue Ribbon Sports”

(Becklund, 14). At the time Germany was dominating the athletic footwear market. Knight had an idea to sale the high quality shoes at low prices in the United States in an attempt to end Germany’s dominance. He began selling the shoes out of the trunk of his car. His first year’s sales reached $8000. However, he only made a $50 profit (Becklund, 14). He then decided to seek the advice of his college track coach, Bill Bowerman. Bowerman was a living legend at the University of Oregon. He was a very accomplished teacher and coach who was responsible for an exceptional track and field program at the university. All his athletes and colleagues loved him. He was even said to have “brought jogging to the United States”(Heritage/nike.com). His list of accomplishments grew even further when he joined Phil Knight as partner of Blue Ribbon Sports. Bowerman came up with an idea that changed the athletic footwear industry forever. He took a rubber compound and placed it in a waffle maker. He took the result and glued it to the bottom of some shoes. He then gave new product to a few of his runners at the university to try out. They loved the shoes. The good traction paired with the extra cushion was a success. Phil took to the road to sell their newly developed shoe to local stores and at track meets. In 166, Blue Ribbon Sports opened its first store in Santa Monica, California. Knight and Bowerman managed the store with one other employee, Jeff Johnson. Johnson, a former Stanford School of Business track runner, gave Blue Ribbon Sports a new name. He suggested that they name the company Nike, produced NI-KEY. Nike is the goddess of victory according to Greek mythology. Nike sat at the side of Zeus, the ruler of Olympia. Nike has wings and carries a palm of wreath in her hands. Her mystical presence symbolizes victorious encounters and presided over history’s early battlefields. Nike stood for victory in many aspects of the ancient Greek life including athletics (“Nike at a Glance,“ n.d).

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Around this time, when Nike was not making much of a profit, Knight also worked as an accounting teacher at Portland state University. It was there that he met Carolyn Davidson, a graphic design student. Knight offered to pay her a couple dollars an hour to do some design work for Nike (Becklund, 14). In 171 Davidson gave birth to what would become one of the most recognizable logos in the world, the Nike Swoosh. The wings of Nike, the goddess of victory, inspired the Swoosh. Although she was paid only $5 dollars for the design it became so valuable to Nike that later when Nike became a large company, they gave Davidson shares in the company (“Nike Brand Marketing,”n.d.). With a new company name and logo Nike’s luck was looking up. A trading company called Nissho Iwai allowed Nike to subcontract its own shoe line. By 17 they were selling Nike band name shoes. Soon Olympic runners were wearing Nike brand shoes. Steve Perfontaine was the first big track athlete to wear the shoes. He recruited many other runners to wear to shoes also. In 176, for the first time, many track athletes at the Olympic Trials in Eugene wore Nike brand shoes. Two years later Nike extended from track stars to tennis pros. Tennis player John McEnroe signed with Nike. The next year Nike introduced to the world a shoe with an air-sole cushion system. It was called Air Nike (Company Overview [CO]/nike.com). Sales were increasing and Nike was well on its way to becoming the giant company that it is today. Years later in the mid-eighties, Nike extends its offerings. They began to sale apparel collections that included McEnroe and Michael Jordan. Over the next decade, Nike would continue to add to its offerings.

Today, Nike is number one athletic wear company in the United States and all over the World. It has around 10 apparel factories and twelve equipment factories. Nike has three distribution centers in the United States. Two of the centers are in Memphis, Tennessee and the other is in Wilsonville, Oregon. Nike also operates over two hundreds facilities in the United States including NikeTowns, Nike Factory stores, sales and administration offices, and a sixteen building company headquarters in Oregon (CO/nike.com). Nike sells its products to approximately 18,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries in about 140 countries worldwide. Independent contractors manufacture most of its products. Almost all of its footwear products are produced outside the United States, while apparel products are produced both in the United States and abroad (CO/nike.com).

Competition

Nike has a long list of competitors in the footwear market that include Converse, Puma, Fila, New Balance, and K-Swiss. Also because of Nike’s diverse products offering, it also have competitors in the athletic apparel and sports equipment like Rawlings, Timberland, Polo, Spalding, FUBU, and Tommy Hilfiger. However Nike’s biggest competitor is Reebok. Reebok, named for an African gazelle was started in 158. Within the next two decade after the company was started it began to flourish. In 18 Reebok introduced the first athletic shoe made just for women. It was for the new exercise craze called aerobics. The shoe was called the Freestyle. The shoe is now a Reebok Classic and is Reebok’s best selling shoe of all time (Company History/reebok.com). Back then Reebok was running neck and neck with Nike. Today, Nike leaves Reebok in its dust. Reebok has tried and tried to take Nike’s position. Since the late eighties Reebok’s plan was to become number one by the year 15. They failed. That year Reebok earned $.8 billion in sales, while Nike earned .87 billion. Adidas was a close third with $.1 billion (“Nike Brand Marketing,“n.d.). Nike continues to gross more than it’s competitors. But because of Nike higher prices the competition attempts to take over by entering the market with lower priced shoes. Nike shoes range from prices approximating $50 to well over $100 per pair. Nike even unveiled a $00 pair of Air Jordans in February of 00. They are the 17th edition of Air Jordans. Each pair comes in its own shimmering, silvery, metallic briefcase rather than a shoe box and have an accompanying CD. Whenever Nike releases a new shoe design it experiences temporary success because the competition will release a close substitute to the shoe (“Nike Brand Marketing,”n.d.). Even though its competitors gain by this method, Nike remains number one.

Marketing & Advertising

Nike’s advantage may be partly credited to its tendencies to use big sports names, spend more on campaigns and advertisings, and the messages incorporated in the ads. Nike uses product-oriented campaigns. Their goal is to get consumers to believe that their product is superior to the rest. In order to do so, they use famous athletes. Nike has been using athletes to sale products since the beginning. Nike associates itself with winners. Everyone from Michael Jordan, Carl Lewis, and Tiger Woods to Sheryl Swoops and Mia Hamm has sponsored Nike products. Nike ads are legendary. Nike has had a number of very successful campaign ads. Its most successful ad was perhaps the “Just Do It” ad. It was released in February of 15. Nike made millions off of this ad and continues to do so. Nike ads also tend to have some kind of positive message attached to them. They ran a series of ads with Michael Jordan and Spike Lee that expressed the message “Stay in school.” The ads were run during primetime television and targeted towards kids (Garfield, 000). Nike also introduced their P.L.A.Y. campaign that pushes kids to play sports to build confidence and stay out of trouble.

Nike’s spending on ads also exceeds that of its components. In 15 Nike spent $50 million, while Reebok spent $100 (“Nike Brand Marketing,”n.d.). Nike’s extra spending allows them to do more to boost their advertisements. Nike’s Web sites have a strong graphic distinctiveness. For instance, Nike enhanced its online campaign by running short video and sound ads, known as rich media. These ads were part of an integrated campaign that tied together Nikes offline and online ad efforts. The video and sound clips were intended to stimulate Web surfers interest and drive them to Nikes site. Nike’s main target market has been athletes and young people since it started. Since this is broad market, Nike must present itself to many audiences. Most companies create products around the market, but Nike creates the products then responds to the market that surfaces. Each Nike product has a group in mind. For this reason, Nike created “micro sites” for different sports and countries. Each site goes after its target group (Bowman, 00). There’s NikeGolf.com, NikeBasketball.com, and NikeGodess.com among others. Nike’s main site is not without it’s extras. The site permits visitors to create their own shoe and purchase it. Though Nike has been criticized for its spending, it is likely that Nike would remain the leader even if they cut back on ad spending (“Nike Brand Marketing,” n.d).

Ethical Issues

Recently, Nike has gotten into some trouble over ethical issues. Nike manufacturing has been linked to exploitation of child labor. Nike was accused of making employee work in sweatshop conditions, employing young workers in Pakistan and Cambodia, and paying too low wages. This issue has branded Nike unethical and cruel in the eyes of many Americans. Nike has been boycotted and protested for several years by many groups and individuals. Nike hired former United Nations Ambassador Andrew Young to inspect and get the factories into good shape. Andrew later reported that the factories were “lean, organized, and adequately ventilated” (Black, 00). The protesting and boycotting still goes on today.

Community Service

Since its start, Nike focused its community involvement on education and endeavors benefiting youths. At Nike, giving is not just a part of what they do; it is a part of who the company is. Nike’s commitment to the community is shown by the Nike foundation. Its mission is to promote youth action on and off the field. The Nike foundation supports and empowers young people. In partnership with youth and community organizations this foundation attempts to connect young people to decisions that impact their lives by presenting them with tools, resources, and opportunities such as cash grants (Community Affairs [CA]/nike.com). Nike gets its employees involved in giving back as well. Nike matches employee contributions to any non-profit organization. The company contributes products to non-profit organizations serving young people and disaster relief efforts around the world (CA/nike.com). Nike is also associated with a number of other programs that aids the community. Wings of America is a program for American Indian youth in the United States and Canada. For ten years Nike have taken part in Wings of America’s idea that running promotes self-esteem and leadership in kids by donating cash and products. Self Enhancement, Inc (SEI) in Portland, Oregon provides academic individual support to inner city youths. Nike also offers cash and product donation to that cause. Another program that Nike backs is SMART. This stands for Start Making A Reader Today. It is a program where volunteers read with students to improve their reading and comprehension. Nike offers many volunteer hours and a cash commitment to SMART (CA/nike.com).

Environmental Responsibility

Nike also prides it self on being environmentally conscience. Nike seeks partnerships with ecologically responsible suppliers. Nike Environmental Action Team (NEAT) representatives assist those facilities that do not meet Nike’s standards. Nike has production related employees who regularly visit factories in Central and South America to conduct inspections as well as full time Corporate Responsibility Compliance staff who oversee factory compliance (Environment/nike.com). Nike’s Air to Earth is a program that educates fourth through ninth grade kids on environmental issues. In partnership with the North American Association for Environmental Education (NAAEE), Eco Educators, and The National Step, Nike urges students to think about the Earth preservation and learn the benefits of it. Nike most fascinating environmental program is perhaps its Reuse-A-Shoe program. Nike collects and recycles old athletic shoe of any kind, not only Nike. They cut the shoes into layers and then grind them into what they call Nike Grind. The grind material is then put into one of three groups outsole rubber, mid-sole foam, and upper fabric. The outsole rubber becomes football, baseball, and soccer fields and weight room floors. The mid-sole foam is used for playground surfacing tiles and synthetic basketball and tennis courts. The upper fabric is used as padding underneath hardwood basketball flooring (Environment/nike.com). Nike continues to research ways to eliminate the amount of materials used in the original making of their shoes and other products because this is their ultimate goal.

Future Predictions & Recommendations

Nike’s fiscal year ended /8/0. Reports showed that revenues rose 7% to $7.71 billion. Net income increased 7% to $4. million. Also there were increases in apparel and footwear sales in the U.S. and Europe and equipment sales only in Europe (“Nike Reports Third…,” 00). Of these results, Philip Knight, CEO of Nike, said, As expected, this quarters results reflect the growing strength of both our brand and our business around the globe. This quarter, our U.S. footwear business regained momentum in the marketplace as consumers thoroughly embraced our high-end performance product. Internationally, despite geopolitical uncertainty, our business continued to perform well. We continue to focus on profitability, as evidenced by another quarter of strong gross margin expansion. Overall, I am confident in our ability to achieve sustainable, profitable growth over the long term” (“Nike Reports Third…”, 00). Nike also reported worldwide futures orders for athletic footwear and apparel, to be delivery between March and July 00, totaling $4. billion. This is 5.8 percent higher than orders reported for the same period the previous year (“Nike Reports Third…”, 00). Given these results, it safe to say that Nike’s revenues and Net income will continue to increase for the next year. They received more orders this year than usual, so they should profit more. Based on previous financial information alone Nike looks good for the future. However, it still has other things to be concerned about. Nike needs to be concerned with their prices compared to the competition’s prices. They need to look at the possibility that customers may not remain brand loyal and they may buy cheaper shoes, especially in this time of recession. What Nike should do is either lower prices, or continue to stress that their brand is worth spending more on because of its higher quality. Nike also needs to address the lingering child labor and low wages issues. Americans are appalled by the issue of child labor and has expressed concern over the working conditions in the foreign factories. Nike should take immediate actions in order to resolve all the activism it faces. If Nike does not resolve this it can prove damaging for the companys image in the long run.

For 0 years, Nike has had the Midas touch. Everything it touches turns to gold. It came from humble beginnings to number one. Nike surrounds itself with winner therefore it is a winner. It has prided itself on providing the best quality of shoes and athletic wear to all athletes, excluding no one. Even after his death the famous words of Nike co-founder Bill Bowerman still presides over the company. “If you have a body, you are an athlete.”



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