Answer to Question #186815 in Microeconomics for Mehak

Question

How does nike manage their cost of production and became successful?

Answer 1

Nike makes more of its profits by marketing shoes for more than the cost of production. Therefore, the company sells its product at a cost higher than that of production. In this way the company gets profits.

Nike company uses Robots instead of manual labor to help in the production of their products. The use of automated machines reduces the cost of production where less money is used to pay workers.

Labor is a significant production expense that businesses try to reduce by using low-cost Asian labor. Nike manufactures most of its products especially sneakers in Asia where the cost of labor is low.

Nike prefers dealing with famous athletes and celebrities by giving them shoe deal contracts. This helps will them market their products at a higher price. For example, Nike partnered with NBA superstar Lebron James for a maximum shoe deal contract. The cost of a single Nike Lebron shoe goes for around $150. Millions of these have been sold worldwide and the firm is still making large profits.

Nike has been able to boost profits by creating media buzz while maintaining stocks well below demand.