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Advantage of Economies and Diseconomies of Scope
Student’s Name
Institutional Affiliation
Course
Instructor
Date
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Advantage of Economies and Diseconomies of Scope
Nike's manager consideration of expanding into production of sports beverage will be a
good idea because of the economy of scope. Nike is a well-known brand in the world of sports
for the output of sports wears ("Nike Purpose: Purpose Moves Us", 2021). The investment into
the already established brand in the sports sector will be shared among two types: clothes and
beverages. The ideas of having sports drink with Nike brand will have a more significant
opportunity to compete with other companies who have to produce sports beverages, and it will
present a cost benefits because it does not need to invest in the coming up with a new brand.
Creation of New brand altogether will require a more excellent investment from production to
marketing of the product to the introduction of the product in the market.
Nike is known to progress and to protect sports itself with their products ("Nike Purpose:
Purpose Moves Us", 2021). The relationship the brand has built over the years with athletes and
production of the quality products across all the ages and different sports provide the company
with economies of scope in the market. The idea to introduce sports drink will have a ride on
their brand trusts hence the cost of producing two products together will be much less than of
growing the sports drink brand different under another brand then there are economies of scope
between the two products (Froeb et. al., 2015).
Cost (Sport wears, Sport drinks) < Cost (sport wears) + Cost (sport drinks)
Nike will want to exploit the economies of scope present by producing both products for
athletes, driving force to take up a sports drink. Nike can derive economies of scale from the
brand name and their distribution network all the world by distributions these products together.
Once the Nike brand appears on that beverage and has a separate distribution network, there will
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be easy flow and more excellent marketing for the product without extra additional costs. The
lower costs to produce beverage will pressure the traditional competitors in the sports world as
they have one product.
The production of both products may have diseconomies of scope, especially if the costs
of producing both products jointly is higher than the cost of producing the products separately
(Froeb et. al., 2015). Nike will want to reduce the expenses by pairing down the product line.
Nikes customers' more significant part places large orders that are cheap and easy to package for
distribution than many smaller orders that take up much time and resource end costing extra.
The company using the 80-20 rule of the thumb as 80% of the profits come from the around 20%
of its customers may want to reduce the costs associated with the smaller. The discount on the
price for sports wears and sports drink for larger will allow the company to consolidate small
orders into large one minimizing the costs of package and distribution.
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Reference
Froeb., McCann., & Ward. (2015). Managerial Economics (5th ed.). Cengage Learning.
Nike Purpose: Purpose Moves Us. Nike Purpose. (2021). Retrieved 30 January 2021, from
https://purpose.nike.com/.

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1 Advantage of Economies and Diseconomies of Scope Student’s Name Institutional Affiliation Course Instructor Date 2 Advantage of Economies and Diseconomies of Scope Nike's manager consideration of expanding into production of sports beverage will be a good idea because of the economy of scope. Nike is a well-known brand in the world of sports for the output of sports wears ("Nike Purpose: Purpose Moves Us", 2021). The investment into the already established brand in the sports sector will be shared among two types: clothes and beverages. The ideas of having sports drink with Nike brand will have a more significant opportunity to compete with other companies who have to produce sports beverages, and it will present a cost benefits because it does not need to invest in the coming up with a new brand. Creation of New brand altogether will require a more excellent investment from production to marketing of the product to the introduction of the product in the market. Nike is known to progress and to protect sports itself with their products ("Nike Purpose: Purpose Moves Us", 2021). The relationship the brand has built over the years with athletes and production of the quality products across all the ages and different sports provide the company with economies of scope in the market. The idea to introduce sports drink will have a ride on their brand trusts hence the cost of producing two products together will be much less than of growing the sports drink brand different under another brand then there are economies of scope between the two products (Froeb et. al., 2015). Cost (Sport wears, Sport drinks) < Cost (sport wears) + Cost (sport drinks) Nike will want to exploit the economies of scope present by producing both products for athletes, driving force to take up a sports drink. Nike can derive economies of scale from the brand name and their distribution network all the world by distributions these products together. Once the Nike brand appears on that beverage and has a separate distribution network, there will 3 be easy flow and more excellent marketing for the product without extra additional costs. The lower costs to produce beverage will pressure the traditional competitors in the sports world as they have one product. The production of both products may have diseconomies of scope, especially if the costs of producing both products jointly is higher than the cost of producing the products separately (Froeb et. al., 2015). Nike will want to reduce the expenses by pairing down the product line. Nikes customers' more significant part places large orders that are cheap and easy to package for distribution than many smaller orders that take up much time and resource end costing extra. The company using the 80-20 rule of the thumb as 80% of the profits come from the around 20% of its customers may want to reduce the costs associated with the smaller. The discount on the price for sports wears and sports drink for larger will allow the company to consolidate small orders into large one minimizing the costs of package and distribution. 4 Reference Froeb., McCann., & Ward. (2015). Managerial Economics (5th ed.). Cengage Learning. Nike Purpose: Purpose Moves Us. Nike Purpose. (2021). Retrieved 30 January 2021, from https://purpose.nike.com/. Name: Description: ...
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