Polytechnic Institute of New York University

Innovation approach comparative analysis

of Nike, Inc. and Under Armour

By Evgenii Em








This paper was prepared for Managing technical change and innovati on course (MG8653),
taught by Prof. Nov.

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Table of Contents
Introduction ................................................................................................................................. 3
Nike, Inc. ..................................................................................................................................... 3
Under Armour ............................................................................................................................. 4
Porters five forces analysis ........................................................................................................ 5
Nike, Inc. and Under Armour innovation strategies comparison ............................................... 7
Conclusion .................................................................................................................................. 9
References ................................................................................................................................. 10
















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Introduction
Nowadays, more and more people become concerned about health; they develop special diet that
include vitamins and advanced nutrition supplements, and of course they do sports. Any kind of
sports demand at least basic sports outfit: a T-shirt, shorts or pants, and a pair of shoes. Industry
of sports apparel and footwear is an important part of todays global business, where big
companies have to compete for a customer. It is rather hard to differentiate on this market,
because all the goods have to fulfill only one goal: make a person feel comfortable during a
workout. Thus, companies have to work harder to develop new innovative products to gain
market share advantage. The market of sports apparel is now dominated by several big
companies: Nike, Inc., Adidas group (which includes Adidas and Reebok), and Puma. But there
is also a new fast-growing and very promising player - Under Armour that managed to enter this
saturated market. The key success factor for Under Armour was their innovative approach in
creating sports apparel. Observing Under Armours success Nike has reconsidered their strategy
and made innovation the core part of their mission, and in 2013 Nike was announced a #1
innovative company by fastcompany.com. So now there are two key innovators on the market of
sports goods: big and powerful Nike and scientifically advanced fast growing Under Armour.
This paper represents the comparative analysis of innovation approaches of Nike and Under
Armour.
Nike, Inc.
Nike, Inc. is an American multinational company that designs, develops, and markets sports
apparel, footwear, and sports equipment worldwide. The company was founded by Bill
Bowerman and Phil Knight on January 25, 1964 as Blue Ribbon sports, and officially became
Nike on May 30, 1971.
1
There are 800 Nike stores worldwide with its headquarters situated in
Beaverton, Oregon.
2
Nike, Inc. owns Just do it and Swoosh trademarks that highly contribute
to the brand recognition. Today Nike brand is the most valuable among sports companies with a
value of 15.9 billion U.S. dollars.
3
In 2013 Nike, Inc. was rated #1 in the list of the most
innovative companies by fastcompany.com. In past two years Nike launched two new

1
http://nikeinc.com/pages/about-nike-inc
2
http://www.hoovers.com/company-information/cs/company-profile.NIKE_Inc.095b58e0d70133d6.html
3
http://net4surf.com/tag/nike-net-worth/
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technologies: Nike Fuel Band, the activity tracker that is worn on the wrist, and Nike Flyknit, the
new technology of manufacturing footwear when the upper part of a shoe is knitted from a single
wire.
4
Most of the new technologies that are used in Nike products come from their Nike Sport
Research Lab (NSLR) that is focused on biomechanics, physiology, perception and athletic
performance. Nike, Inc. is a public company that is traded on New York Stock Exchange with
total assets of $15.46 billion.
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Under Armour
Under Armour is an American sports apparel company that was founded by Kevin Plank in 1996
in Baltimore, Maryland. Under Armour is well known for using advanced synthetic materials in
their manufacturing that keep athletes cool and dry in hot conditions and warm and in cold
conditions. Also, Under Armour was among the first to develop compression outfit to boost up
the athletes muscle performance that was followed by Nike with their Pro Combat and Adidas
with Techfit compression gear. Under Armour is distributed through more than 100 brand stores
in U.S. and 4000 retailers in Europe. The success of Under Armour on the sports apparel market
is explained by their intensive innovations strategy. To fulfill goals in innovations Under Armour
has set an Innovation Center, the R&D facility which is located at Baltimore, Maryland. Under
Armour is a public company that is traded on New York Stock Exchange with total assets of
$546 million.
Although these two companies are incomparable in size, they are both highly concerned with
innovation in their business. As already mentioned Under Armour was the first to develop
compression gear for athletes that was later followed by Nike.
6
In my opinion Under Armour is
successful only because its innovative capacity, otherwise it would be already blown out of the
market by sports giants like Nike and Adidas.




4
http://www.fastcompany.com/most-innovative-companies/2013/nike
5
http://www.sec.gov/Archives/edgar/data/320187/000119312511194791/d10k.htm
6
http://investor.underarmour.com/submit-an-idea.cfm
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Porters five forces analysis
1. Rivalry
Rivalry level on the sports apparel market is rather high because of several factors. First of all,
market of sports apparel is dominated by several giants like Nike Inc., Adidas group, whose total
global market share is approximately 13%.
7
Second, there is low product differentiation among
competitors which is limited to few factors: design, functionality, and materials. Another point is
that athletic apparel industry is highly saturated by companies with high innovative capacity like
Nike and Under Armour.
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2. Bargaining power of buyers
Bargaining power of buyers in sports apparel industry is moderate due to broad range of goods
presented on the market. There is a number of wholesale customers like Dicks sporting goods
and Modells sporting goods that have a certain leverage on adjusting prices, but there are also
end-customers that are reached through brand stores. Switching barriers for customers are low
due to low level of differentiation of products presented on the sports market.
3. Bargaining power of suppliers
A diverse supplier base limits their bargaining power. Manufacturing of sports goods is
concentrated in Asia (Vietnam, China, Indonesia, Taiwan) due to low labor and materials costs.
In 2012, Under Armours products were produced by 27 manufacturers located across 14
countries, of these top 10 accounted for 49% of the products manufactured.
9
Basic materials in
this industry are cotton, rubber, and polyesters that are common and any supplier that meets the
requirements of manufacturers is a potential supplier.
4. Power of substitutes
Generally, the substitute for athletic apparel could be any other casual apparel, but as they lack
some certain functionality needed for doing sports they can be barely defined as substitutes, thus,
the power of substitutes is low.

7
http://blogs.ubc.ca/erictoh/2012/10/14/do-mergers-work/
8
http://blogs.marketwatch.com/behindthestorefront/2013/10/01/nike-under-armour-forging-the-u-s-athletic-markets-new-duopoly/
9
http://www.trefis.com/stock/ua/articles/186040/under-armour-through-the-lens-of-porters-five-forces/2013-05-16
6



5. Power of complements
The most important complement for athletic apparel is athletic footwear. Most of the companies
like Nike, Adidas, and Puma have their own sports footwear lines, so the power of this particular
complement is low. Other complements that can be considered are sports equipment and sports
nutrition supplements, but their influence is rather miscellaneous, so they are not taken in
account.
6. Threat of new entrants
Entry barrier level to the industry is high, mostly because of the big competitors precision. The
new player entering the market will be facing competition with companies that have already
reached the economies of scale. Another point is that dominant players on the market have a very
high level of brand recognition, and brand loyalty as a result. But there is still a threat coming out
from casual apparel companies that can try to invade the sports apparel market such as GAP,
who has recently launched sports apparel line.
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Obviously, Nike, Inc. has better positions in the sports apparel market than Under Armour. This
can be explained by the fact that Under Armour is a rather new player on the market (since 1996)
with smaller assets and smaller market share compared to Nikes. That means that all the factors
mentioned above have a greater impact on Under Armour than on Nike. As for bargaining power
of buyers, wholesale buyers of Under Armour have a bigger leverage, mostly because Under
Armour products are distributed in Europe exclusively through retailers. Power of complements
is higher for Under Armour because their footwear line was launched in 2006 and did not have a
great success, which is contrast to Nikes success on footwear market, where they hold above
30% market share. Under Armour has become a competitive player mostly because of its ability
to innovate new technologies in their products, but because of their weak patent strategy which
does not protect their technologies with patents Under Armour may face serious threat from their

10
http://news.investors.com/business/082812-623859-gap-target-join-retail-push-into-athletic-apparel.htm
7

competitors.
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After analyzing the market of sports apparel it can be seen that Nike, Inc. is
holding a lead position on the market and tries to expand its presence on the market, while Under
Armour is a promising and fast growing niche player, but both of them are heavily concerned in
innovation in their processes and products.
Nike, Inc. and Under Armour innovation strategies comparison
As previously mentioned in 2012 Nike has launched two new-to-the-world products: Nike
Fuelband and Nike Flyknit. Nike Fuelband is an electronic bracelet that measures the users
movements throughout the day and motivates user to increase users activity. It tracks physical
activity, and calories burnt daily. Fuelband can be connected to a smartphone, tablet, or a PC and
then the data can be shared on Nike+ community.
12
With Fuelband Nike is expanding beyond the
sports apparel and footwear industry, entering the mobile devices and information technology
sectors. Fuelband can be classified as a market breakthrough innovation, because it uses a
common technology (accelerometer sensors), but in a new way: Fuelband is the first 24-hour
activity tracker that can even track users sleeping habits.
Nike Flyknit is a new-to-world manufacturing platform that was developed by Nike. This
technology is based on knitting an upper part of a shoe from just a single wire of synthetic
material and after that the shoe looks and feels more like a sock. Flyknit technology allows to
significantly reduce the weight of a shoe, as well as it cuts materials consumption, and makes
their products more environment friendly. By now this technology is used only in footwear
manufacturing, but it has a lot of opportunities to improve other Nikes products.
13
Flyknit is a
type of innovation that can be defined both as product and process innovation, because it changes
the way products are manufactured, meanwhile changing the characteristics of the final product.
These two new-to-world products are evidence that Nikes overall innovation strategy is to
expand their presence in new industries, breaking out of the athletic apparel and footwear
industry. Nikes innovation efforts are concentrated not only on new products, but also on new
manufacturing methods and environment friendly designs. The Fuelband technology was
developed in close partnership with engineers from Apple, so it features high compatibility with

11
http://www.trefis.com/stock/ua/articles/186040/under-armour-through-the-lens-of-porters-five-forces/2013-05-16
12
http://www.fastcompany.com/most-innovative-companies/2013/nike
13
http://www.fastcompany.com/most-innovative-companies/2013/nike
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iOS devices. Thus, it can be inferred that Nikes innovation development process is somewhat
open to partnerships and collaboration with other companies.
14

Under Armours innovation strategy is more focused on developing smart hi-tech athletic
apparel, which boosts up the athletes performance. Their first product was #0039 Compression
T-shirt that creates a certain amount of pressure on the athletes body that boosts muscle
performance and wicks moisture keeping athlete cool, dry, and light. The idea of creating such a
T-shirt came from the founder of Under Armour Kevin Plank, when he was playing football in
University of Maryland team. During the football games his cotton T-shirt was soaked in his own
sweat, which was very uncomfortable for him, so he came up with idea of creating a better T-
shirt that would keep him dry and light.
15
Thus, #0039 T-shirt is a great example of demand pull
innovation that became a basis for multimillion company. Today Under Armour keeps the
strategy of innovating products that are needed by customers: on their web-site anyone can make
a suggestion of a new idea, which is analyzed and in some cases implemented in Under Armour
products.
16

In 1996 Under Armour pioneered the industry of athletic compression apparel and they keep one
of the lead positions in this segment of sports apparel market today. In this perspective Under
Armour managed to utilize the first mover advantage due to their dominant position in this
segment 60% market share.
17
One of their latest products Armour39 is a line of athletic
apparel with a built-in performance tracker that measures heart rate and calories burnt. The data
collected during the workout can be transferred to a mobile device or PC so that user could see
how he performed. It differentiates from Nikes Fuelband by providing more accurate data, but
on the other hand it cannot be used as a 24-hour performance tracker. This indicates that Under
Armour is following Nikes approach in expanding into mobile device and information
technologies industry.



14
http://www.businessweek.com/stories/2006-05-23/apple-and-nike-running-mates
15
http://usatoday30.usatoday.com/money/economy/story/2012-07-09/under-armour-kevin-plank/56065684/1
16
http://investor.underarmour.com/submit-an-idea.cfm
17
http://www.fool.com/investing/general/2013/11/13/under-armour-hasnt-even-begun-to-realize-its-poten.aspx
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Conclusion
This paper a brief comparison of the innovative approaches used by Nike and Under Armour. By
analyzing the industry of sports apparel through Porters five forces it can be determined that this
industry is highly competitive, and both Nike and Under Armour have to constantly modify their
innovation approaches to keep up with the dynamic environment. It is undoubted that Nike has a
better position on the market, while Under Armour faces difficulties that are amplified due to
their smaller size.
Comparing innovation strategies of Nike and Under Armour it is clearly seen that both of them
are innovating but in slightly different ways. Nike uses innovation to expand to new markets
such as information technologies and mobile devices, and to enhance manufacturing techniques
to improve product features, while cutting material consumption and becoming more
environment friendly. Under Armour concentrates their innovation efforts on improving their
core product compressive athletic apparel, where it has a dominant position. Overall, Nikes
innovation strategy can be defined as extensive development of new markets through innovative
products, while Under Armours strategy is to intensively develop the most successful market
segment by implementing new technologies and materials in their products.










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References
1. http://nikeinc.com/pages/about-nike-inc
2. http://www.hoovers.com/company-information/cs/company-
profile.NIKE_Inc.095b58e0d70133d6.html
3. http://net4surf.com/tag/nike-net-worth/
4. http://www.fastcompany.com/most-innovative-companies/2013/nike
5. http://www.sec.gov/Archives/edgar/data/320187/000119312511194791/d10k.htm
6. http://investor.underarmour.com/submit-an-idea.cfm
7. http://blogs.ubc.ca/erictoh/2012/10/14/do-mergers-work/
8. http://blogs.marketwatch.com/behindthestorefront/2013/10/01/nike-under-armour-
forging-the-u-s-athletic-markets-new-duopoly/
9. http://www.trefis.com/stock/ua/articles/186040/under-armour-through-the-lens-of-
porters-five-forces/2013-05-16
10. http://news.investors.com/business/082812-623859-gap-target-join-retail-push-into-
athletic-apparel.htm
11. http://www.trefis.com/stock/ua/articles/186040/under-armour-through-the-lens-of-
porters-five-forces/2013-05-16
12. http://www.businessweek.com/stories/2006-05-23/apple-and-nike-running-mates
13. http://usatoday30.usatoday.com/money/economy/story/2012-07-09/under-armour-kevin-
plank/56065684/1
14. http://investor.underarmour.com/submit-an-idea.cfm
15. http://www.fool.com/investing/general/2013/11/13/under-armour-hasnt-even-begun-to-
realize-its-poten.aspx
16. http://usatoday30.usatoday.com/money/economy/story/2012-07-09/under-armour-kevin-
plank/56065684/1
17. http://investor.underarmour.com/submit-an-idea.cfm
18. http://www.fool.com/investing/general/2013/11/13/under-armour-hasnt-even-begun-to-
realize-its-poten.aspx