Footwear is no longer viewed as a commodity that just provides protection for feet. What was hitherto viewed as a ‘Want’ is at present a fundamental ‘Need’. Currently, the footwear trade is really a vast and dynamic operation involving tremendous economies of scale. The low-cost nations are gaining foothold in international markets top created nations to import and outsource so as to meet their needs. The athletic shoe segment is very competitive in nature with the big players similar to Nike, Adidas, Reebok and New Balance striving to retain their marketplace share plus the smaller sized players which includes Puma attempting to acquire market share. Fundamental characteristics of this competitive segment are heavy advertising, celebrity endorsements, brand awareness applications and so on. Till the 1970s, Adidas, the German sports business, was the industry leader inside the US as a consequence of its product innovation. In the 1970s and 1980s, Nike & Reebok grabbed their share by redefining the item offering and aggressive marketing. Adidas failed to retaliate. Their market place was undergoing several crises as a consequence of changes in leadership. Within the 1990s, though Adidas was revived by a turn-around specialist, it was not a challenge to Nike. Adidas expected its takeover of Reebok to give increased clout with dealers’ leverage of endorsement deals and sponsorships and access to wider consumer base. The Adidas-Reebok merger vaulted the combined entity into the second place in the American athletics shoe market place behind Nike. The takeover of Reebok doubled the German group’s North America sales. The Adidas Group’s purchase of Reebok North America showed an obvious attitude to ensuring that the Corporation’s overall objectives will be achieved. Using the acquisition, a focus on increasing the band’s apparel offerings and sharpening the brand’s image has been set. This will allow for an expansion of global position and gaining a broader presence in key markets. To emphasize this fact, Adidas has now replaced Reebok as the official apparel supplier to the American National Basketball Association for the next 10 years. With the two company’s combined strengths, an aim to widen the organisation’s overall profile and global dominance is now more than ever possible
A Marketing Case Study on Nike
Marketing and management
Converse – All Star History
The three major sportswear companies in the world are Nike, Adidas and Reebok. In August 2005, Nike was the leader in global marketplace share with 32.9% compared to the recently constituted Adidas-Reebok organisation that had 26.3% industry share. Inside the largest marketplace in the world, the United States (US), Nike had 36.3% market place share in August 2005. Following the acquisition of Reebok in August 2005, the marketplace share of Adidas-Reebok inside the US jumped to 21.1% from 8.9%.
The purpose of this study is to provide an analysis of the newest merger within the footwear and apparel industry between Adidas and Reebok. It is also to identify and further examine the ways in which the Adidas Group will achieve a sustainable competitive advantage relative to marketplace leader (Nike). We inform the reader about the nature of current marketplace standings in the industry and identify specific synergies created through the acquisition in order to evaluate the impact of Adidas- Reebok merger on the sporting goods industry.
On August 3, 2005, Adidas- Chaussure Salomon AG announced its plans to buy all outstanding shares of Reebok International Ltd.’s stock at $59.00 per share, for a total of $3.8 billion. Upon announcement, Reebok stock rose 30% while Adidas climbed 7%. As stated by Herbert Hainer, CEO of Adidas, “This is actually a once-in-a-lifetime opportunity to combine two of the most respected and well-known companies within the worldwide sporting goods industry. Together, we will expand our geographic reach, particularly in North America, and create a footwear, apparel and hardware offering that addresses a broader spectrum of consumers and demographics” (Adidas.com). A primary goal of the acquisition has been to challenge industry leader Nike for a higher share of the United States sporting goods market as well as the global sporting goods market place. The acquisition has prompted much discussion as to what the future holds for the sporting goods industry and its key players.
Athletic Wear Market Share
I- CORE COMPETENCIES & COMPETITVE ADVANTAGE
Competitive advantage is really a special edge that allows an organisation to deal with industry and environmental forces better than its competitors. Whereas, sustainable competitive advantage is one that is difficult for competitors to imitate. This distinction is essential when evaluating the acquisition and its effects.
A merger of this scale is inherently complex, dealing with issues that include global positioning of companies, corporate cultures, plus the allocation of resources. To better understand the advantages gained from the Adidas-Reebok merger, we have examined the following: Through these various analyses, we have discovered that the importance of branding is paramount for success in this industry. Our research also identifies the specific danger of competition between Adidas and Reebok.
Our analysis of the Adidas-Reebok merger shows how it will obtain a sustainable competitive advantage that may one day dominate the footwear industry both domestically and internationally. The fact that Adidas and Reebok control such different aspects of the shoe industry will help to ensure their success.
To fully understand how Adidas-Reebok will achieve a sustainable competitive advantage over Nike, the situation must be looked at from several different points. These include industrial, customer and competitor analyses, as well as a look at the different marketing strategies and changing marketing trends.
Adidas Core Competencies
- Customer focus
- Brand recognition
- Supply chain
- Collaboratively competitive
Reebok Core Competencies
- Trend Identification
- Ability to market to a niche segment
- Women’s shoe design
- Design expertise
- Celebrity relationships
Combining Core Competencies
- Adidas technology with Reebok design
- Adidas sports with Reebok women’s marketplace
- Adidas shoes with Reebok apparel
- Adidas global strength & Reebok US strength
* Blending the two cultures successfully (learning to work together)
* Protect the strengths of acquired corporation (keeping development of both organisations separate)
* Maintaining both brands (keeping established market place share)
* Capitalising on supply chain economies of scale (suppliers, manufacturing, distribution, channels)
* Nurturing the partnership between technology and design (growing market place share by combining leadership areas)
Sustainable competitive advantage
The athletic apparel and footwear industry emphasises branding more than any other competitive advantage. Through the use of advertisements, endorsements, promotions, and licensing agreements, the top companies in this industry have devoted much of their resources to brand recognition and loyalty. Adidas’ acquisition of Reebok will develop increased opportunities to achieve competitive advantage through branding. Furthermore, extended licensing agreements and contracts will allow the Adidas Group to sustain this advantage.
Sustainable competitive advantage cannot be reached without the successful merging of Adidas and Reebok. The key to this success is how well they identify themselves. There is usually a very real danger of cannibalisation to occur between the two separate brands, where one brand takes away the others consumer base. However, Adidas Chairman and CEO Herbert Hainer made clear that “it is really important that each of these brands must retain their own identity.”
Hainer points out that Reebok’s focused strategy is on the engagement of youth through sports, music, and technology. Reebok, he points out, is often a lifestyle brand. On the other hand, Adidas’ focus is on superior technology and performance, coupled with a large international presence. As Hainer points out, “Adidas has positioned part of its solution range inside the lifestyle segment, but the provider relies on the performance market. Lifestyle success to an authentic organization is a bonus.”
Adidas will benefit from increased distribution in North America, where Reebok already has a significant presence. The addition of Reebok will enhance not only its position among the top US distributors like Foot Locker and Dick’s, but will also give Adidas-Reebok more power over promotions and in-store displays. Increasing its presence is the key to achieving sustainable competitive advantage, because the increased presence further engrains the most necessary advantage in this industry, brand name.
The acceleration of both brands is brought about through increased operating cash flows. Along using the increased operating capital, other synergies which include operating savings are realised. Catching up to Nike’s massive marketing budget is usually a challenge, but the increased operating costs coupled with all the synergies will help promote further brand recognition through marketing.
Reebok has an extensive line of men and women’s apparel. The new company can combine Reebok’s apparel with Adidas’ new addition of fashion designer Stella McCartney, who has created an apparel line that integrates both sport and style. This innovative move shows that Adidas continues to look for new opportunities and markets in order to gain a competitive advantage.
In the past, Adidas has not been able to expand because it had problems shipping goods to the United States. It takes them about 14 days to ship from their factories within the Far East while Reebok can ship overnight. Inside the future, Adidas will be able to take advantage of Reebok’s existing distribution infrastructure inside the U.S., while Reebok will be able to benefit from Adidas’ existing distribution infrastructure in Europe.
The Reebok brand will also acquire sustainable competitive advantage through increased brand recognition. Globally, Reebok will benefit greatly from Adidas’ distribution around the world. Coupled with all the price savings and increased cash flow, Reebok’s marketing resources could increase.
Combined R&D is helping speed development of cutting edge technologies, an important feature of the increasingly fast paced industry. Expedited research will develop higher consumer demand for innovation across all brands, putting pressure on Nike’s R&D capabilities.
II- FROM CORPORATE TO MARKETING STRATEGY
Porter’s Five Forces
Barriers to Entry – Low
Adidas and Reebok combined are able to control their costs effectively, giving them an advantage over emerging competitors in the industry. Their web sites are well- prepared and updated promotions attract online shoppers. There are many exclusive solution differences in this industry that gives brand identity an immediate competitive advantage. The Adidas and Reebok brand is well-known globally and plays a key role in consumer decision making. Selling footwear is very competitive; however, barriers to enter into this industry are quite low. Therefore, the footwear industry is broad with hundreds of retailers. Switching expense is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer buying decision.
Bargaining Power of Buyers – High
There are a large number of buyers relative to the number of firms in this industry. Therefore, companies like Adidas, and Reebok must continuously market their product and differentiate their brands against competitors, in order to increase sales and market place share. The use of online tools has helped to enhance the accessibility among users. Brand identity plays a critical role in the buying behaviour; strong identity will offer consumers trust and loyalty.
Bargaining Power of Suppliers – Low
There are many suppliers in this industry. In essence, there is very little differentiation among the suppliers which makes suppliers’ bargaining power non-existent. Leather, rubber, and cotton are commodity items and are available abundantly inside the market place place. Conglomerates including Adidas, and Reebok have a definite advantage and power over their suppliers. These suppliers become dependent on these firms as their means to survival. Additionally, Adidas, and Reebok have standardised their input procedures pertaining to the materials used, their labour force, supplies, services, and logistics. Firms are able to switch between suppliers quickly and cheaply, as a result of the globalise networks of cheap labour on various continents.
Threats of Substitutes – Low
Buyers’ propensity to substitute is low. Consumer substitutes for athletic footwear products are low because there are little alternatives to switch, some substitutes for athlete footwear could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute resulting from the performance specification of the item. For instance, a basketball player would not wear boots to play basketball. Therefore, there are no real substitutes for athletic footwear.
Rivalry among Existing Competitors – High
The rivalry among existing competitors within the footwear industry is quite high. Large firms which include Nike, Adidas and Reebok have grown immensely over the last two decades. Their global reach has expanded through all continents; this is evident using the Internet and e-commerce. Online selling has enlarged the reach for these firms allowing them to increase sales while minimising operating costs. Almost every large firm has a web site, and most of these web sites contain virtual stores which provide convenience to consumers. Most individuals in North America have access to high speed Internet and online purchasing has become the new trend for the twenty first century.
Threat of Substitute Products or Services
Threat of New Entrants
Reebok is located in the upper-left portion of the chart, identifying it as employing a price leadership strategy. It is concerned with offering affordable shoes to a very broad market.
Adidas is located inside the upper-right portion of the chart, identifying it as employing a differentiation strategy. This provider is constantly developing new technology and innovation in the industry. Examples of this include the new microchips Adidas has created to mechanically adjust the shoe’s cushioning.
Adidas-Salomon SWOT Analysis (before the merger)
Adidas-Salomon was a leading player within the sports good manufacturing industry. The corporation had posted a very steady growth in its sales revenues in recent years, essentially as a result of its strong brand image. The firm had market major products and strong brand names including Adidas, Salomon Outban Mid W, TaylorMade and others which were further strengthened by its strong commitment to solution innovations. Furthermore, on the supply-chain side the company’s commitment to reduce lead time for manufacturing footwear had enabled the organization to avoid the warehousing of products.
Major player within the sporting goods industry
The company was amongst the top players within the sporting goods industry resulting from its strong brands, market-leading products and commitment to sports for meeting consumer expectations. The global sportswear market place (Euro 45 billion) was dominated by Adidas-Salomon and Nike and, at a certain distance, Reebok, PUMA and New Balance. Adidas-Salomon’s brands include Adidas, Salomon, TaylorMade and others, which had very strong brand name recognition in markets served. The company’s products served many markets and include footwear, hardware, apparel, snowboard, golf-related and other products.
Steady increase in sales revenues
Adidas-Salomon’s revenues from sales have been steadily increasing as reflected inside the last five years’ sales performance ending 2002. From E5.1 billion of sales in 1998 to E6.5 billion in 2002, the performance has improved by a CAGR of 7%. Though sales declined by 3.9% in 2003 over 2002, it was mainly on account of currency translations. The business has been able to achieve this steady growth in revenues resulting from its strong brand image, continuous commitment to product innovation that is consumer focused. Such a steady growth within the company’s revenue performance helped in maintaining a very good image for the enterprise and improved investor confidence. Additionally, the company reported an outstanding operational and financial performance within the first half of fiscal 2004. This underlined the company’s momentum, with quarter on quarter sales improvements for all brands, and a record gross margin and earnings growth of almost 40%, marking the strongest first half year performance within the company’s history.
Successful new product innovations
The corporation had consistently launched new products and this has enabled it to widen its portfolio and also enhanced its competitive position. Each corporation brand targeted a specific industry and new products were introduced based on their needs. This has helped the business achieve a greater degree of success. During 2002-2003, the provider launched ClimaCool and a3 in its running shoes category, which were big successes. The corporation sold over 500,000 pairs in a3 and over one million in ClimaCool. Furthermore, inside the basketball shoes division, the T-MAC and T-MAC were the bestselling within the US market in 2002 which has led to the release of T-MAC 4 lace less footwear for 2004. The company’s continuous commitment towards new solution innovations not only improved revenues but also helped in strengthening its relationship with its customers and attracts new customers. In May 2004 the provider introduced what the firm described as the first Intelligent Shoe – called “1″, the shoe provided intelligent cushioning by automatically and continuously adjusting itself.
Lead time improvements
The firm had considerably improved the lead-time required for footwear manufacturing through lean manufacturing principles. Earlier in 2000, the organization used to take 120 days for producing footwear; by 2003, this had been reduced to around 60 days. Such a reduction was made possible as a result of the company’s efficient implementation of lean manufacturing principles which helped in removing non-value-adding procedures and activities, improved labelling, special handling and other such activities to reduce time taken. These process improvements have helped the provider in avoiding warehousing of its footwear products.
The company had planned and implemented big advertising campaigns during 2004. The company’s immense size and strong position have afforded it the opportunity to undertake global advertising campaigns with focus on TV, print media and outdoor advertising as well as point of sale and PR activities. The campaign “Impossible is Nothing”, included top athletes from different disciplines for instance Muhammad Ali and his daughter (brand image, boxing and lifestyle), Haile Gebrselassi (brand image, running), David Beckham (brand image, football) and Tracy McGrady (brand image, basketball).
The strategy of Adidas-Salomon was lacking focus. This is because it has a very broad product portfolio, including sport performance products for athletic sports, basketball, golf, tennis, Nordic disciplines, cycling and fashion oriented products. Rival Puma has demonstrated that focus can translate into a high profitability.
Over-dependence on Adidas brand segment
While the purchase of Salomon, the French maker of ski and golf gear, steered the provider into the equipment arena, the enterprise generated 79% ($4.9 billion) of its total revenues of E6.3 billion from the Adidas brand segment in 2003, while the other two contributed to the balance. Despite a strong image for the TaylorMade and Salomon brands, they generated only about 21% of the total revenues. The company’s over-dependence on the Adidas brand segment, which mainly serves the athletes’ needs, makes the company’s overall revenues susceptible to the market conditions in this segment.
High level of long-term borrowings
Though the business reduced its borrowings by E181 million against 2002, the level of borrowings was still very high. At the fiscal year end 2003 the company’s long-term borrowings as a percentage of equity were very high at around 146%, which amounted to E1, 574 million. Such high debt level affected investor confidence inside the enterprise and makes low-cost funding of growth plans difficult. By half year fiscal 2004 strong cash flow had enabled more progress in debt reduction has been (net borrowings at June 30, 2004 were E967 million, down 39% or E616 million versus E1, 583 billion in the prior year) made but debt remained high.
2003 revenue growth was substantially below the company’s first impression from year-end 2002 order backlogs, which were up a strong 14%. As 2003 revenues growth was only 5%, significant order cancellations within the course of the first half of 2003 are evident. The provider achieved revenues that totalled E6, 267 million ($7,570.4 million), a decrease of 3.9% against the previous years revenues that totalled E6, 523 million.
Strategic acquisitions and agreements
The organization made a few strategic acquisitions during 2004. In September Adidas and Stella McCartney announced a long-term partnership in New York, presenting the Adidas by Stella McCartney sport performance collection. For the first time ever a high-end fashion designer had created a functional sport performance range for women. The first collection was available in stores across the US, Japan and Europe in spring/summer 2005. It offered products for running, gym/workout and swimming as well as cover-ups. The Adidas by Stella McCartney range shows the company’s willingness to innovate inside the women’s sportswear marketplace. Adidas-Salomon acquired Valley Apparel Enterprise of Cedar Rapids, Iowa in June 2004, a producer and distributor of collegiate and professional league apparel and accessories. It served small- to mid-size retailers, like sporting goods stores, department stores, fan shops and college bookstores. It has a reputation of producing and delivering large quantities of apparel and branded accessories within hours of a team’s victory. In early 2003, the business acquired the Maxfli brand of accessories and other golf related products from Dunlop Slazenger Group through its TaylorMade-Adidas division. This acquisition has helped the provider in offering market major products in all the golf categories and has improved its global market share to 16% from less than 1% prior to the acquisition. The business also entered into a strategic agreement in June 2003 with all the INTERSPORT International Corporation (IIC), a multi-sport retailer, in order to strengthen its sales and distribution network. Specifically, the four year agreement will – in time – strengthen the company’s sport performance, casual, Salomon and other products’ sales.
Supply-chain and manufacturing initiatives
The company’s success in reducing footwear manufacturing time was likely to continue within the future also. The enterprise planned to reduce its production time further, which has helped the firm achieve faster delivery of its products to the retailers, thereby reducing inventory costs. On the supply-chain side, the industry faces a problem due to longer time to market. The total time taken is about 15 to 18 months of which 12 months are spent in creation of the solution, while the balance of the time in arranging for the raw materials, production and delivery to the retail stores. The business also planned to implement a new model for its supply chain, which will considerably reduce the time taken and improve cost efficiency, etc. This initiative helped the enterprise in serving its customers faster, thereby gaining a competitive edge over its peers.
Sponsoring sporting events
The company’s sponsorship of key sports events brought great recognition to its products. Adidas supplied more than 1.4 million products to federations, volunteers, officials and others during the 2004 Olympics. Following a successful marketing campaign at the Euro 2004 Soccer Tournament in Portugal, the corporation once again expected to achieve new record sales in football during 2004. During 2002, the provider sponsored FIFA World Cup Championship in Korea and Japan and was acclaimed as the most visible among the brands advertised during the event and was viewed by 44 billion cumulative spectators during the course of the event. Furthermore, inside the Winter Olympics of 2002, the firm sponsored over 50% of the participating athletes who won about 200 medals. Adidas has a life-time agreement with Kevin Garnett (most valuable player of the NBA 2003/2004). It also signed a six-year cooperative agreement with Chinese Football in June 2003. The enterprise sponsored the World Cup in 2006 held in Germany. Sponsorship of these events helps the firm in building its Sport Heritage, Sport Style and other such divisions. For instance, the Sport Heritage division grew into an Euro 900 million businesses and doubled its sales from 2001 to 2003.
Own retail stores
In 2003 Adidas generated 9% of group revenues in own retail outlets. A significant number of new shops did not positively contribute to earnings because the expense for new shops (of hiring of sales people and training costs and so on.) exceeded early revenues. This will begin to level out going forward and also the company will continue to open own retail shops. Management recently explained that own retail sell-through was positive inside the US in 2003 in contrast to external customers. The business is therefore planning to open 15 new US shops in the coming two years and 40 worldwide. Management expects Sport Heritage to grow again from 2004 driven by more own retail stores and no more cutting of external points of sales.
Adidas operated within a highly competitive marketplace which in many cases overlaps into other markets as sportswear retailers increasingly compete with fashion retailers. The company’s traditional competitors like Reebok, Nike and Puma made competitive levels intense, but the addition of casual footwear and apparel manufacturers which includes Tommy Hilfiger, adding a designer edge to the industry, had increased competitive levels. Companies had come under increasing pressure recently from products designed for the value conscious consumer. Adidas have long been one of the premium brands in sportswear and have charged accordingly, though this strategy is coming under more pressure as cheaper substitute products are bought by consumers adding to problems in terms of customer retention.
Foreign exchange fluctuations
The company’s manufacturing activities were mostly concentrated in China and other Southeast Asian countries. Since most of these nations transact in US Dollars, the firm incurred about 70% to 80% of its outsourcing expenditure in US Dollars, whereas, the company’s revenue generation in US dollar and other non-Euro currencies is comparatively lower. Hence, adverse changes in the exchange rate between US dollar and Euro had a negative impact on its overall revenues.
Weak global economy
The GDP of European nations have grown at a negligible rate and are unlikely to improve within the near future. Similarly, the Latin American markets that include Argentina and Brazil continue to witness weak economic conditions, while the Southeast and Middle-East regions continue to reel from political unrest. Thus, the company’s revenues were significantly affected because of these adverse economic conditions.
Impact of scandals in the US and Germany
Accounting scandals across industries in Germany and also the US have impacted upon the company’s stock performance. The weak performance of many companies inside the sports goods industry adversely affected the investor confidence inside the industry. Thus, external factors can have an adverse impact on the company’s stock price performance and might in turn affect its brand’s value.
Reebok SWOT Analysis (before the merger)
Reebok International was a important player in the sports and fitness products market place, with a particular emphasis on footwear. Its main strengths lied in its size and strong brand awareness. While footwear is clearly its core product, concerns were being raised over its comparative disinterest within the associated athletic apparel market place, which is over twice the size of the footwear market place.
Growing sales revenue
As part of a strategy to grow quality market place share, the firm continued to invest in three key product and marketing platforms: Performance, RBK and Classic. Reebok International was the second largest manufacturer of athletic shoes in the US, behind Nike. The Reebok brand continued to drive sales pushing it closer to important competitors, Nike and Adidas. Reebok had become the number two or number three brand in most of its overseas markets. It held around 10% of the global market, compared to Nike’s 34% and Adidas’ 15%. The corporation has been able to increase revenues and improve operating margins despite some challenging retail conditions in many key markets around the world in 2004.
Excellent marketing strategy
The provider employed a strategy of reinventing its brands in order to get marketplace share. In order to enhance its Reebok brand, the firm introduced a new street inspired solution collection, RBK, in 2002, followed by an effective marketing strategy which carried into 2003 and 2004. During 2003/2004, the Reebok item offerings generated healthy sell-through performance at retail. Alongside reinventing brands, the organization introduced new marketing campaigns to promote them. To support the RBK solution Reebok created a marketing campaign entitled Reebok’s “Sounds and Rhythm of Sport,” which fuses music and entertainment with sports and performance. The combination of relevant products and a new marketing campaign improved the performance of the Reebok Brand within the athletic specialty channel of distribution. Reebok has achieved positive marketplace share comparisons within the critical athletic specialty and sporting goods channels of distribution (as of October 2004).
Celebrity associated sponsorships
The corporation expanded its product offerings into more lifestyle and performance categories, introducing new item segments for both the NBA and NFL, including NBA and NFL footwear, classic lifestyle apparel and performance gear for off-the-field activities. Reebok sponsored many top athletes in tennis; Andy Roddick and Venus Williams; as well as music stars Jay-Z, Pharrell Williams and 50 Cent. Yao Zing’s impact in the Asian marketplace is hugely really important to Reebok. Affiliating itself to such globally renowned celebrities enhanced the business name among many different customer groups.
Strong women’s sector
Another one of Reebok’s strengths was its success in the women’s sector. The market place for women’s athletic shoes is larger than that for men, accounting for around 46% and 40% of the sector’s value respectively. In volume terms, the women’s sector was even more essential, 46% compared to 35%. Reebok’s market place share of women’s athletic shoe sales was around 35%, and has been boosted by its ‘It’s A Woman’s World’ marketing campaign.
‘Classics’ under fire
The corporation had come under fire from its rivals within the classics department. Inside the past Reebok has controlled this shoe category without much competition, however companies that include Nike and Adidas were coming up with their own ‘classic shoes’. Reebok were still the marketplace leaders in that area but the gap kept narrowing.
Low industry share in apparels
Reebok controlled only about 1.4% of the apparel market. This posed a problem when squaring up with its fierce competitor, Nike. The footwear market’s growth was slowing. Athletic apparel gives scope for a larger and more diverse range of products, keeping the market fast moving. The apparel market place was 2.4 times larger than the footwear market place. Nike took charge there, with its innovative designs, and contracts with sports teams and organisations throughout the world.
Danger of stockpiling products by retailers
Futures, or ordered in advance sales, represented around 60-70% of Reebok’s business. This has been valuable to Reebok in the past; however five of the company’s brands that represent around 60% global industry share could cause problems inside the future. Futures growth for these five brands was around 9.5% on a dollar-weighted basis. This growth was alarmingly fast. Reebok had to be careful as retailers may be ordering more than they can sell. This could result in a sudden cut off in orders, leaving the corporation with large inventories and a decrease in sales.
Increase average shoe price
Reebok’s average price per shoe in athletic footwear stores, which account for around 15% of the industry, was considerably lower than average. Its average price per shoe is $45, compared with an outlet average closer to $60. The company’s lower than average shoe price is partly resulting from the high percentage of standard products sold, which is itself partly attributable to its traditional position within the women’s sector. This left plenty of space for the organization to muscle in on higher priced sales, as its products and promotional efforts improve. As well as raising brand awareness, Reebok’s sponsorship deals helped the enterprise increase its average sales price.
Draw attention toward new technological developments
Reebok had started developing its item to make it more modern and has invested heavily in added technology to enhance its shoes. Reebok had a lot to obtain from a continued investment in more technologically advanced, premium products. In 2003, the business introduced new fashionable and technologically advanced products tied to new integrated marketing applications. These displayed an enhanced and prominent vector logo which ties back to the Professional athletes wearing the products on the field. This branding created a real point-of-difference for its performance products and should help to generate consumer interest at point-of-purchase. These products are supported at retail with a new performance marketing campaign, which utilises the athletes plus the vector logo in new and creative ways. This campaign included television, print and in-store marketing packages.
Encourage a strong brand push in Europe
The enterprise planned to enhance its European market, recruiting new management talent and initiating an aggressive program to regionalise this business utilising a consistent brand image throughout Europe. Reebok executed unified solution, marketing, and sales strategies across all borders in Europe, thereby presenting the Reebok Brand in a more relevant and consistent manner.
Exploit Nike’s lack of high profile sponsorship
Nike, the world’s most successful sportswear brand and footwear producer struggled to fill the void vacated by Michael Jordan. This was the first time in a long time that Nike did not have an eminent sports star to spearhead their marketing drive. This has left an opening for the likes of Reebok to exploit, particularly in the basketball arena. The organization took the Chinese sensation from Nike, Yao Ming, hoping to increase market share by 10% to 30% by 2006.
Over reliance on footwear sales
Footwear is Reebok’s largest division and the company relies fairly heavily on the footwear market. That was a competitive field experiencing much slower growth than in previous years and, like most other producers, Reebok felt that it must do more to increase sales. Reebok had also to be aware that the marketplace for more expensive footwear was slowing. This could ultimately force prices down, should this trend continue for a significant period of time. Together with the company so reliant on footwear, it risked losses, whereas other competitors such as Nike can fall back on their apparel division.
Diverted from historical markets
Reebok’s original success stemmed from the women’s aerobics marketplace within the 1980s. It has since become apparent that the firm has shied away from its roots. Reebok’s women’s products represent only 25% of its athletic apparel volume. The women’s apparel sector actually accounts for around 40% of industry sales, which suggests that Reebok risked losing out in the key market that transformed them into a global corporation.
Potentially expensive new solution marketing
Until recently Reebok had not focused on either the men’s or the women’s apparel market place for several years. Before it can build up sales significantly in this area, it had to instil confidence back into consumers that it is good at producing more than just ‘classic shoes’. This process could’ve proven to be both time consuming and costly.
Adidas-Reebok SWOT Analysis (After the merger)
* More products for different customers
* Increase in product line
* Acclivity in market place share
* Now both upper and middle priced markets are covered.
* Shared R&D, Patents, technology & innovations
* Differing values among management
* Complexity of joining two corporate cultures
* Both companies belong to different nations
* Reduction in costs
* Decreased competition
* Cross-over promotion by sponsored athletes
* Enter to new market/Segments
* Nike’s possible acquisition of Puma.
* Danger of cannibalisation between the two separate brands.
Post merger performance
* 7th March, 2007 -Adidas Group’s motto is “Impossible Is Nothing.” But since the No. 2 sporting-goods maker announced in August, 2005, that it would snap up rival Reebok for $3.8 billion to get a firmer footing within the U.S. and challenge industry leader Nike (NKE), the corporation has yet to prove that the combo will work.
* True to its mantra, however, Adidas says it’s racing flat-out to make its tie-up with Reebok a winner. The enterprise has closed factories in Indonesia and is repositioning the Reebok brand to widen its appeal. “Our focus this year will be on getting Reebok back onto a growth track,” Adidas Chief Executive Herbert Hainer said in a statement. “It’s going to take time, but we’re moving inside the right direction.”
* As part of that move, the corporation is ramping up its sales and marketing efforts. It’s reducing reliance on low-traffic, shopping-mall-based outlets and placing Reebok apparel and footwear in higher-end department stores and larger sporting-goods ventures. Adidas has also enlisted star NFL quarterback and Super Bowl MVP Peyton Manning, actress Scarlett Johansson, and other famous faces to help launch a series of new products planned in the second quarter.
* The provider says it expects these efforts to increase sales of the Reebok brand this year in the “low-single-digit” range. Adidas expects its gross margin in 2007 to be between 45% and 47%, thanks to “improvements in all three brand segments.” For the group, the enterprise expects sales in 2007 to grow in the “mid-single-digit” range.
III. CREATING CUSTOMER VALUE, SATISFACTION
An annual report produced by Interbrand (2006), in cooperation with BusinessWeek, ranking the top 100 global brands shows that Adidas was ranked 71st and Nike 31st. The ranking is based on brand value, which is defined as “the dollar value of a brand, calculated as net present value, or today’s value of the earnings the brand is expected to generate within the future”. Given that this puts both brands ahead of corporations like Shell, Porsche, and fashion brands including Armani, Burberry and Levis, it signifies the strength of the two brands. Indeed, Adidas and Nike are the only sportswear companies in the top 100 global brands. The positions of the two companies during the previous five years had been relatively stable, with Adidas ranked at 70th, 68th, 67th, 69th, and 71st between 2001 and 2005 respectively, and Nike ranked at 34th, 35th, 33rd, 31st and 30th over the same period.
Customer loyalty has been a important focus of strategic marketing planning and delivers an really important basis for developing a sustainable competitive advantage – an advantage that can be realised through marketing efforts. It is reported that academic research on loyalty has largely focused on measurement issues and correlations of loyalty with consumer property in a segmentation context.
Many studies have been conducted on brand loyalty. However, in these entire studies brand loyalty (e.g. repeat purchase) has been measured from the behavioural aspect without considering the cognitive aspects. However, brand loyalty is not a simple uni-dimensional concept, but a very complex multi-dimensional concept. However, it does not clarify the intensity of brand loyalty, because it excludes the possibility that a consumer’s attitude may be unfavourable, even if he/she is making repeat purchases. In such a case, the consumer’s brand loyalty would be superficial and shallow – rooted.
After careful examination consumer non-durables report (based on the ASQ Analysis of Quality & Customer Satisfaction With Manufacturing Non-Durable Goods), we anticipate that the acquisition of Reebok by Adidas along with the challenge for Adidas/Reebok—a combination of very different business cultures—would be to maintain quality as it attempts to go toe-to-toe with sales leader Nike. The acquisition was completed at the end of January 2006 without a hitch as far as Reebok’s perceived quality. The 2.4% acquire by Reebok that quarter, coupled with a similar drop by Nike, puts Adidas-Reebok perceived quality firmly ahead of Nike.
Nike also stumbles in comparison to Adidas-Reebok in terms of value. Consumers are much more likely to believe they get value for the money spent on Adidas-Reebok compared to Nike. And although Adidas-Reebok captures a significantly higher customer loyalty score than Nike, both companies are vulnerable on this score — with Nike posting the lowest and Adidas-Reebok the second lowest customer loyalty marks of any of the manufacturing non-durables companies.
Unlike the food processing segment, where manufacturing skills represent core competencies of the business, the athletic shoes segment’s core competencies are creating, marketing and distributing global brands. Manufacturing is almost entirely done by subcontractors operating primarily in countries where labour costs are low.
In this business environment, in addition to the usual challenges of supply chain management (at which Adidas and Reebok both excel), there is the added complication of addressing social responsibility issues such as fair labour practices and safe working conditions in cultures very different from the United States. A company’s performance inside the area of social responsibility may also affect how consumers perceive the quality of the company’s products, since these issues are of growing concern to many consumers. While both companies have made strides in this area, they have been consistent targets of critics, along with the high visibility of these issues may contribute to the fact that the athletic shoes category has the lowest perceived quality score among all manufacturing non-durables.
Nike, the market leader, on the other hand, has programs in place to provide oversight of working conditions and human rights issues in addition to managing supplier production quality at its contract manufacturers. Originally using third-party monitors, Nike now handles these functions internally. The firm measures its overall performance with a balanced scorecard that includes compliance measures in addition to cost, delivery, and quality measures. The corporation has become an advocate for bringing into better alignment the codes of conduct of various compliance and monitoring organisations.
For companies the size of Adidas and Reebok, monitoring can be a major undertaking. Adidas-Reebok new business contracts with 41 footwear manufacturing plants and another 543 apparel manufacturing plants. Adidas-Reebok was the first footwear program to be accredited by the Fair Labour Association.
The athletic shoes industry falls 1 percent to 76, dragged down mostly by the performance of Nike. Reebok and Nike were tied in last year’s measurement, but they have moved in opposite directions by equal amounts this year. Reebok climbs 4 percent to 78, while Nike slipped to 72. The six point advantage Reebok enjoys over its nearest competitor is unusually large in any industry, surpassed only by Google in search engines, eBay in Internet auctions, and Wachovia in banks.
Reebok’s acquisition by Adidas may have contributed to Reebok’s increase in satisfaction. The combined brands led to a near doubling of U.S. sales, rivalling Nike in industry share. Price increases eroded satisfaction across the industry last year, but this year Reebok has a large advantage in value for the money as perceived by its customers.
Adidas-Reebok Customer Relationship Management (CRM)
Adidas-Reebok new corporation is driving future success by engaging consumers with unique interactive item approaches and rewarding point-of-sale experiences. Adidas and Reebok brands must be competitive in this environment where consumers make their final purchase decisions based on availability, convenience and breadth of item offering.
There are examples what Adidas-Reebok has done:
* Item performance excellence
Adidas Group website gives their potential customer possibility to zoom in on the product and also to see full information even its technology. Consumer also can choose colour and size easily, the website also offer product preferences by consumer behaviour.
* Price performance excellence
Adidas-Reebok has offered discount for specific solution or promotional in their website.
* Transactional excellence
Process of buying is quite easy and easy to understand by customer. Adidas-Reebok also provide their websites with solution tracking and account managing, so that customer cans easily tracking their order and or review their cart.
* Relationship excellence
In managing their relationship with consumer, Adidas-Reebok gives them services to subscribe their newsletter. Customer can contact Adidas-Reebok through easy steps and if they aren’t satisfied together with the solution, they can refund it and also the procedure of refund is explained in their website.
To manage their relation with small retailer, Adidas-Reebok offer “Affiliate Program” by giving them procedure to get commission in sales.
The Adidas Group, with its wide assortment of solution lines, is challenged by an increasing individualisation of demand. There is a tendency towards an experience economy, a design orientation, and, most importantly, a new awareness of quality and functionality that demands durable and reliable products corresponding exactly to the needs of the buyer. Consumers with increasing purchasing power are increasingly attempting to express their personality by means of individual solution choice. As a result, Adidas was forced to create solution programmes with an increasing number of variants. This development makes forecasting and planning for Adidas more difficult than ever. The result? High overstocks, an increasing fashion risk, an enormous supply chain complexity, plus the necessity to provide often large discounts to get rid of unwanted products. Adidas realised that implementing made-to-order manufacturing, instead of made-to-stock variant production, could become a promising option to manage the costs of variant explosion and broad item assortments. Adidas’ management board decided to head towards mass customisation (MC). The programme development started inside the mid- 1990s, resulting within the mass customisation solution range mi Adidas. It was launched in test markets in 2001, and introduced, on a wider scale, in 2002. The programme provides consumers together with the opportunity to create unique footwear to their exact personal specifications in terms of fit, function and design in specialised retail stores or at selected events. The shoes are offered in selected markets MC can be seen from the Adidas perspective as an approach to improve both its operational performance and its competitive position by providing higher customer value. From market research studies and customer surveys we know that consumers love the system, and even make appointments to buy shoes. Other benefits to Adidas are outlined in the box below. However, these benefits come at a expense, as MC also brings a number of challenges. This process is called the elicitation of a mass customisation system. The supplier has to interact using the customer to obtain specific information to define and translate the customers’ needs and desires into a concrete item specification. However, instead of just listening to the customer, in many cases customers are performing this design (configuration) activity by themselves on a tool supplied by the manufacturer. The selling process turns into a co-design process.
IV. ANALYSING BUYING BEHAVIOUR
The sportswear market can be split into two separate markets: sports clothing and sports footwear. The mass-market for sportswear initially developed within the 1980′s using the growth of the training shoe market. This was initially passed off as a fad. However, during the late 1980′s and in the 1990′s, the sportswear marketplace grew rapidly. Inside the early 1990′s, the sports clothing industry overtook sports footwear, and since the early 2000′s, there has been a steady sales ratio of 70% clothing to 30% footwear within the overall sportswear marketplace. Between 2000 and 2004, the overall sportswear market grew by 16.2%. However, during this period, sales of sports clothing grew 18.9% in contrast to sports footwear, which grew by 10.4%. One of the reasons for this is that price deflation of 13% occurred between 2000 and 2004, which encouraged consumers to increase the number of garments and pairs of footwear they buy each year.
Consumers of sports apparel in the US and their socio-demographic profiles
The Keynote Report on the Clothing and Footwear Industry (2006) revealed that an important characteristic of sportswear consumers is the bias towards men, in contrast to most clothing and footwear markets where women spend more and buy more frequently. A survey undertaken by NEMS Industry Research survey on behalf of Keynote (2006: 93) found that the most widely used outlet for buying sports, leisure or casual clothing or footwear was a sports shop, with 55% of consumers stating this. The survey also found that sports shops were used by 72% of 16-19 years olds, 49% of 20-24 year olds, and 72% of 25-34 year olds.
A survey of consumer attitudes towards sportswear was undertaken by BMRB Access, for Keynote, in June 2007. Based upon a representative sample of 1,016 adults, the key findings were:
• 36% of respondents believed that sports brands like Nike or Adidas offer better quality than most other clothing or footwear;
• 58% of respondents within the 25 – 34 age group believed that sports brands like Nike or Adidas offer better quality than most other clothing or footwear;
• In 2006, when asked which brands consumers had bought in the last year, 36% had bought Adidas, 39% had bought Nike, and 31% had bought Reebok;
• In 2004, when asked which brands consumers had bought in the last year, 40% had bought Adidas, 44% had bought Nike, and 36% had bought Reebok;
• In 1998, when asked which brands consumers had bought within the last year, 48% had bought Adidas, 37% had bought Nike, and 35% had bought Reebok.
There is also a new trend in consumer behaviour and women are getting a bigger influence in all buying decisions and more and more companies realise this and redirect their advertising towards women. This, as well as their increased interest for sports, should make women an obvious target for Adidas-Reebok and their advertising. Women are responsible for about 80% of individual consumer spending and they can therefore no longer be ignored by a brand of Adidas-Reebok size. If Adidas wants to attract women to buy their products they have to make sure that their brand is appealing to women as well.
An already existing brand can be harder to gender since the consumer might have preconceived notions. Therefore the customer needs to be convinced and learn to connect certain values together with the brand and even change already set values. Communication and advertising have the power to create associations with a brand and make the brand more interesting to the consumer. Women are more susceptible to marketing than men are and this makes marketing an excellent tool when attempting to change the values of a brand. What women want and find attractive have changed enormously during the last decades. To reach out to women and to achieve success, Adidas-Reebok has to understand these changes and follow the marketplace development so that their communication can be adapted to the “modern” woman.
Brands and the values they bring to the consumer have become more and more important to both companies and consumers. We think that Adidas mainly created the Stella McCartney line not to sell clothes, but to build their brand. The values from this line will spill over not only to the other Women collections but to the brand as a whole.
By choosing Stella McCartney as a collaborator, Adidas are taking a short-cut into the consciousness of women. They are able to adopt the brand associations that are connected with Stella McCartney and merge them with their own brand associations. This is not unusual for companies to do and we think it will prove to be very effective. Both Adidas and Stella McCartney are brands that include very strong values.
Adidas is known for their high tech functional clothes as well as the perceived quality is high. Stella McCartney is a trendsetter and famous for her designs, the combination of the two brands and their brand associations is very interesting and sure to get attention. Adidas call their new positioning “perfect fusion of performance and style”. The customers that feel loyalty towards Stella McCartney are likely to transfer that loyalty to the new line and this will increase the tolerance for and the positivism towards Adidas.
In order to further analyse whether or not Adidas’ acquisition of Reebok resulted in a sustainable competitive advantage over rival and current industry leader, Nike, a customer analysis must be formulated. One way in which the merger is supposed to lead to a sustainable competitive advantage is by increasing the amount of exposure of the two brands globally. This increase in exposure occurred through a larger distribution chain created from combined resources of the two companies.
Adidas-Reebok strategy towards consumer buying behaviour
In an effort to distinguish itself from the competition, each firm has developed exclusive relationships with hugely recognisable organisations and individuals. Reebok had the exclusive rights to market its products for the NBA, NHL, NFL, plus the WNBA. Similarly, Adidas had obtained contracts with professional European soccer clubs that include Chelsea, Bayern Munich, Real Madrid, and AC Milan. On the other hand, without an established superstar, Nike’s current endorsements lack the influence they once held together with the likes of Michael Jordan. “At the moment, virtually none of the current NBA stars wear Nike. In my eyes, this is the reason Nike was prepared to spend an outrageous amount of money for an 18-year-old,” claims Adidas CEO Herbert Hainer.
While there are many possible avenues to exploit in terms of sales opportunities for these companies, the marketplace is hugely segmented in such a way that it is imperative for the three to engage in target marketing. For example, in this market of athletic shoes, a firm can either offer an all-purpose cross-trainer shoe or a running shoe and a basketball shoe. While the cross-trainer shoe has broad appeal for all consumers it does not satisfy any consumer’s needs in particular. In contrast, the running shoe and basketball shoe combination will each satisfy a particular industry segment but will have modest appeal to the other segment. This is the point where the particular companies must decide whether they will individually follow a niche market place or a full-line strategy. In order to make this decision, the firms must weigh the price of offering an additional product and the revenue generated by doing so.
By utilising Porter’s generic strategies framework (previously discussed), the methods employed by Adidas-Reebok to compete for customers inside the industry become easily apparent. While both Nike and Adidas make use of a differentiation strategy to attract its customers, Reebok concentrates its efforts on a broad expense strategy approach. The differentiation strategy of the two companies, Nike and Adidas, can be seen in action by examining the various productions of both these companies.
Nike currently incorporates its Shox technology in many of the athletic shoes it produces. All of Nike’s past Shox shoes have had the same standard platform: a four-column Shox unit in the heel for cushioning and a mesh/synthetic upper. In addition to the Shox technology, Nike has innovated online purchasing by allowing customers to customise their own shoes through NIKEiD.com. These methods can be seen as an attempt by Nike to differentiate itself from the competi