Nike recently allowed retailers to advertise 25% discounts all year, a controversial move for a premium brand like Nike. While Nike is not legally allowed to dictate retailers' prices, they can still set rules for retailers' Nike promotion. And so, this move strongly suggests that Nike is losing pricing power.
Their main competitor, Adidas, is experiencing strong growth, and have had a number of successful product launches lately, such as their "athleisure" clothing line, where they basically created a new trend and made comfortable pre-game sportswear fashionable. Analysts find Nike is falling behind, which the falling pricing power is attributed to. Without continuously setting new trends and improving their brand, the luxury of Nike will be hot air, and customers will move to Adidas' cheaper products.
That being said, Nike's brand lies in its price, and therefore, reducing the price to hold on to its market share is a poor choice. While the lower price level is currently disguised as discounts, year-round discounts will deplete the perception of value that customers get from a high price point. Eventually, customers will see through it and instead of perceiving a bargain, they're perceiving lower value.
However, Nike's reaction is very common. Lowering prices is very easy and has an immediate effect, which is desirable for managers whose salaries are often based on short-term performance. But it's also almost always the wrong thing to do. What Nike, and other firms, should be doing is to identify attributes that customers truly value, and take this insight to Product Development. This enables them to develop products with sufficiently high willingness to pay and keep prices constant, instead of lowering them.
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