This blogpost comments on Ben Lee’s blogpost #3 that dealt with continuously increasing prices for basketball shoes.
an example for a LeBron sneaker, the top model of Nike’s sneakers, with this particular model priced at over $249.00
Ben identified Nike’s strong perceived brand value as its PoD allowing Nike to retain sales despite raising prices. He argues that the demand for specific Nike sneakers is relatively inelastic, allowing them to raise prices without affecting quantity demanded.
Taking our discussion a bit further and after more research, my conclusion is that Nike’s competitive advantage is shown through loyal customers and a hype for new sneaker releases (similar to lululemon’s strong customer base predicated on the yoga hype).
It is remarkable that Nike is able to retain such high profits with little effort – although they do claim that technical innovations give them an edge over competitors such as Adidas. On the bottom line, however, this year’s sneakers are not very different from last year’s, so it has to be the strong brand loyalty that keeps Nike at the top of the market. Despite this, to remain competitive, the company has to increase efficiency in its production processes – thereby cutting costs.
I personally would not buy shoes that are triple the price of substitute products. This reflects the possibly greatest challenge for the company that it will have to face in the future: finding ways of generating demand for a product that could be categorized as a ‘luxury good’ – the art of generating a need for it where no need is inherent.
