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In today’s business environment, competition is an important factor in determining the growth or decline of an organization. Competitive intensity illustrates the vigor with which organizations attempt to woo clients within a given industry. An example is seen in the 2009 case study of the golf industry.
In this paper, competition in this sector is examined from the perspective of the companies involved in the manufacture and distribution of golf equipment. The essay looks at the effects of new entrants into the market.
The author of this essay looks at the negative effects of Nike’s entry into the golf equipment industry (Gamble, 2008). The arguments made in the paper are based on the ‘threat of entry’, a strategic management concept. The impacts of this concept in the golf industry are analyzed in relation to Porter’s forces framework.
Nike’s Entry into the Market
According to Rothaermel (2012), businesses operate within a specific market segment. The organizations try to attract as many customers as possible. Under such circumstances, the businesses are perceived to be in competition. According to Gamble (2008), Nike capitalized on the fame of Tiger Woods to gain a competitive edge in the market.
In 1996, the company entered into a contract worth $40 million with the golfer. By 2000, Nike was paying Woods an endorsement fee of more than $20 million per year. Gamble (2008) argues that in spite of these promotion campaigns, Nike’s market share in the golfing equipment industry remained below the 3% mark.
The problems faced by the company at the time were attributed to its market entry strategy in 2002 (Gamble, 2008). There was a branding problem as a result of complaints from golfing clubs that were not at the same level with Woods. Consequently, the response from the market was not as enthusiastic as expected.
As a result, the revenues of the company remained low. By virtue of being a market leader in the sports industry, Nike managed to increase its competitive intensity in the golf equipment sector. The phenomenon is best explained using Porter’s threat of entry force.
Threat of Entry
As already mentioned, threat of entry is one of the strategic management concepts highlighted in Porter’s forces framework (Rothaermel, 2012). According to this model, the entry of a new entity into a market may have adverse effects on the competitiveness of existing firms. Gamble (2008) points out that the lucrative nature of the golfing industry made it easy for Nike to access the market
A new entrant increases rivalry in the market, especially when the number of potential clients is limited (Rothaermel, 2012). The scenario is evident in the case study when existing firms were forced to lower their prices to attract clients. In analyzing competition, the threat of entry concept presupposes that a new entrant drives down the profits in the industry. Gamble (2008) illustrates such a scenario using Nike’s experiences.
Threat to entry highlights the need for regulation to ensure that the market is not negatively affected by a new entrant. Gamble (2008) postulates that Nike’s entry into the market faced little resistance. The same explains the company’s unethical practice of manipulating market prices.
Conclusion
The entry of Nike into the golf equipment industry drove down the prices of commodities. According to Rothaermel (2012), this is one of the major impacts that a new entrant has on the market. The entry increases competitiveness in the industry, driving down profit margins in the long term.
References
Gamble, J. (2008). Competition in the golf equipment industry in 2009. In J. Gamble (Ed.), Essentials of strategic management: The quest for competitive advantage (pp. 279-301). London: McGraw Hill.
Rothaermel, F. (2012). Strategic management: Concepts. New York: McGraw Hill.
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