How To Deal With Nike'S Low Price Strategy?

Lian Jie Jie research and arrangement: the new and vast two or three tier urban market in China is undoubtedly the "next piece" strategic highland striving by more and more international giants.

But considering that most of the international brands in China are pricing strategies based on the consumption level of the first tier cities, the low level of consumption in the two or three tier cities will hinder them from entering and conquering this particular market.

It is for this reason that it has first become a place for domestic brands to expand actively.

However, an analysis released recently by UBS Securities has taken the Chinese sports apparel industry as an example, making an interesting assumption: if those international first-line brands, such as Nike, Adidas, etc., choose to launch footwear products with lower price for the two or three tier cities, what kind of impact will they have on domestic brands?

If Nike "sinks", cost control starts with dealers.

At the beginning of May this year, Adidas announced its first quarter results, showing that sales in the Greater China region decreased by 15% compared with the same period last year. At the same time, Nike predicted that in the next five years, the annual revenue of the emerging markets including the Greater China region will grow at a rate of around 10%.

This means that, on the one hand, the first-line market that has been familiar with these international brands has gradually become saturated. On the other hand, they must adjust their sales channels and product mix as soon as possible, so as to get into the two or three tier cities with low consumption level, rather than the natural promotion of consumers' ability to wait and wait.

However, according to the report of UBS, the "perfect price" of footwear in the two or three tier cities is now between 170-250 yuan, while the price of shoes sold by Nike (the first tier international sports brand in China) is in the range of 400-1000 yuan. The difference between the 150 yuan is the main reason that hinders their business from entering the two or three line market.

By contrast, at present, China is actively focusing on the development of several domestic brands in the two or three tier cities, and its pricing basically fluctuated by around 50-70 yuan in the range of 170-250 yuan (see chart 1).

However, if Nike achieves the lowest price of footwear products by 300 yuan, even though it is still slightly higher than the "perfect price", the idea of "buying more than 50 yuan for a pair of Nike shoes" is likely to drive the consumers who buy the brands of high-end sports shoes such as Lining, Anta and XTEP to take the lead in the shift.

Therefore, a prerequisite for solving the problem is whether Nike can make a pair of sports shoes at 300 yuan.

According to a further analysis by UBS, it is assumed that under the current pricing strategy, the price of Nike's cheapest sneakers is 395 yuan (excluding discount), so the distribution cost is the largest (134 yuan / double) in the cost, which is about 1/3 of the selling price.

The next is the total production cost (95 yuan / double, including raw materials, labor and management costs).

Next is Nike's profit - 78 yuan / double (see chart 2).

If Nike adjusts the price of the cheapest sneakers to 298 yuan (excluding discounts), the first thing that will be compressed will be the sales management fees of dealers, with a compression rate of 36%.

The second is the total cost of production, which is compressed by about 26%.

Although the unit profits of Nike and suppliers may also decline, the rapid growth of sales volume after entering the two or three tier cities can offset the decline in unit profits (see chart 3).

For dealers, because a large part of the original 134 yuan / double sales management fee comes from the expensive shops rent in the first tier cities, if the pfer cost to the shops is only equivalent to that of the first tier cities 1/3, but sales may be 50% of the two or three tier cities in the first tier cities, then the target of reducing the sales management expenses of the 36% dealers is likely to be achieved (see chart 4).

More precise value positioning, the way out for domestic brands?

There is no doubt that the adjustment of the sales channels and product mix of Nike, Adidas and other international first-line brands will bring a great impact on the domestic high-end sports brand. The natural promotion of the consumer level of the two or three tier cities will soon make the small domestic brands with a total price of 150-250 yuan / double in the face of further pressure to further improve their performance.

But the UBS report also points out that in general, the scale of China's sports shoes market, including famous brands and general brands, will reach 69 billion yuan in 2010, and by 2020, the market size of the famous brand sneakers may reach 297 billion yuan.

In other words, in the next 10 years, the annual compound growth rate of China's sports apparel industry will still reach 15.7% (see chart 5).

So, for domestic brands, how can we grasp the development opportunities in the two or three line cities? If we only look at the budget of brand marketing, the budget of other domestic brands will be between 350 million and -5 billion yuan, except for the marketing budget of Lining and Anta, which are the two high-end sports brands in China. (see chart 6).

This means that the latter will be at a disadvantage for a long time in terms of brand exposure and popularity.

Therefore, for these brands, how to use their early understanding of the two or three line market to accumulate the understanding of the local market to make the limited brand marketing budget really on the cutting edge has become the key to their two or three line cities.

It is worth noting that compared with consumers in the first tier cities, consumers in the two or three tier market follow a completely different logic to the recognition of a brand.

The main consumer of sports apparel industry is about 16-35 years old young people.

In the first tier cities, people of this age group not only have more abundant and mature brand cognitive ability, but most of them are eager to highlight their distinct personality in the vast crowd.

Therefore, in the positioning of brand appeal, it is more necessary for businessmen to give a slogan of independence and even extreme slogans to attract their attention and popularity.

But in the two or three tier cities, young people of this age group will still be more influenced by the people around them. Their pursuit of individuality will still leave the impression of traditional consumption concept.

At the same time, because of the relatively limited consumption ability, how to get them to pursue their own personality and a better life at a lower cost will be the main direction of efforts to win the brands recognized by some consumers.

It is also for this reason that Anta, "PEAK," and "bravery", such as "PEAK" and "bravery", are likely to become more and more sophisticated in online shopping, while the international brand sales channels continue to sink.

In the long run, this kind of value proposition must be further refined, and more accurately lock consumers in a certain part of the two or three tier cities with stronger commonalities.

In this way, the domestic brands can truly establish their niche market and share their own "cake" with the international brands.