Question

Is Nike's pricing strategy for Lebron X basketball shoes smart? Nike has announced its most expensive shoe ever—the LeBron X basketball shoes, expected to sell for $315—pushing the upper limit of consumer dedication to the brand. (see ESPN news video below.) The sneaker feature built-in electronics that measure athletic performance. The president of the National Urban League urged Nike to abandon the pricy shoe saying, “It's the consumer's choice, but it's insensitive to market a $300 shoe to kids going back to school and struggling to buy school supplies.” The price on most of its other shoes are also rising 5–10% due to material cost increases. Nike's gross margins are lower than most of its competitors. Is this pricing strategy smart? The shoes are unique, and the price will raise Nike's margins, but is it insensitive to the mass market that can't really afford them? Is there a way to be sensitive to cash-strapped buyers while, at the same time, introduce an expensive new model? How would you handle the public relations backlash to these pricy sneakers?

Answer 1

In my opinion, Nike's pricing strategy to keep the price of LeBron X basketball shoes at $315 is not sensible since most of the customers belong to middle income group segment who do not have sufficient resources to buy such high priced shoes and want cheaper variants. Hence the target market for such shoes shrinks a lot. Also the prices of similar such shoes is keep high by Nike. This is not justified on the company's part since people who cannot afford even basic shoes won't be able to buy high priced shoes and they will be left out of company's target market segment. The best strategy would be to introduce cheaper variants of such shoes which can easily be afforded by the general public and would also give them a similar look and feel as the high priced shoes. The company can also keep the expensive new model as it is and target it to the higher income group segment. This way, company can keep up with its margins as a result of sale of both expensive segment and cheaper variant of it. Public relations backlash to these pricey sneakers can be handled by assuring them that cheaper variants would soon be introduced by the company and people can buy them in the near future. Also it can be assured to the public that the pricey sneakers are best in class and have ultra high quality due to which the price is high and to keep the cost in check and retain the margins, company had to keep the prices such way.