Question

Supply and Demand Conditions and Price Elasticity of Demand of the Nike company.

Answer 1

Nike is one of the favorite brand in footwear & apparel industry. It also engages in designing, developing & marketing of equipment & services. Nike has broad range of products in athletic & sports apparel & footwear which comprise major part of its business. It sells its products through exclusive retail stores as well as online selling & through independent distributers. This industry relies heavily on innovations & creativity which Nike has successfully demonstrated.

Nike faces tough competition from other brands like Adidas, Reebok, Puma & Under Armour. This has led to availability of vast range of products in athletic & sports category which affects demand due to price sensitivity. Nikes productivity has increased due to maximizing the utility of their inputs & driving down waste. Demand is affected by taste of people & prices of products. Nike operates under law of demand by keeping prices low & offering high quality.

Nike has changed its production patterns by creating sustainable supply chain that focuses on quality improvement. It has outsourced its factories & production units to third parties which have successfully kept the production & manufacturing costs low. But the quality of products is still maintained high. Most of it production unit are located across United States, China, Thailand & Vietnam. This has led to a decrease in production costs & increase in supply for Nike products.

The price elasticity of demand is the responsiveness of quantity demanded to change in price. It is measured by dividing percentage change in the quantity demanded of a product by the percentage change in the products price. The price elastic of demand can be determined by some factors. First the availability & closeness of substitute products to which people will switch easily. As Nike has other competing brands the customers can easily switch to them. This creates relatively elastic demand for Nike products. Nike follows the theory of price elasticity of supply, which is the individual’s response of the quantity supplied to a change in price. This is determined by the amount that costs rise as output rises. If there is less costs to produce extra output, more no of firms will be willing to produce & supply become elastic. Since Nike has created a supply chain mechanism it has reduced its cost to produce extra output & gain a supply advantage.