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Case Study

By Nyasha Ganda Jason Truscott David Winn

Table Of Contents

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Adidas has seen a remarkable turnaround. The external environment is analysed. as well as its capabilities and resources. and as a result analysed the situation similarly to as is shown below. and from this recommendations are derived. Adi Dressler. Dreyfus knew little about the sporting goods industry. including the general environment. technological and demographic environments. economic. particularity in Asia. After going bankrupt in 1990. The firms. a number of factors should be considered. The industry analysis is performed using Porter’s five forces model. Finally a SWOT analysis is performed. industry environment. External Environment In analyzing the external environment.Executive Summary Introduction Adidas went through turmoil since 1978 after the death of its founder. and being handed over to Robert Louis Dreyfus. as well as the industry forces. In addition with the development of new fun sports for casual sportsmen/woman sports equipment is becoming a form of lifestyle 3 of 28 . with sports equipment being used for leisure wear as well. and competitor’s environment. including the political. social. General Environment • The shoe industry is showing rapid growth and development. and competitors strategy was revealed. The entire dynamic of the sports industry is changing. World demand is increasing. global. The general environment includes the traditional factors which affect an industry.

The sports industry has two seasons and has to meet the needs of a wide combination of customers. but results in a long term competitive advantage.for use in all occasions. IN addition Adidas focuses on 5 core markets. which makes the industry more difficult and less attractive to operate in. as there is not a high threat of new entrants. which is not difficult to gain access to. 4 of 28 . but exceptionally difficult to gain a market foothold. All firms have different key technologies all achieving a similar effect of improving comfort. the threat of substitutes is high. Shoe technology changes slowly. It is certainly an interesting industry to operate in. Strategies Adidas Adidas uses the Integrated Cost Leadership Differentiation Strategy as their shoes are sold at a lower cost to their competitors. However. which is increasing including fashion conscious under 25’s and women. while still have a high technological quality focus – equal to that of their competitors. Industry Environment The use of Porters 5 forces revealed that the sporting industry is moderately attractive to operate in. and bargaining power of both suppliers and buyers is low which makes conditions easier to operate in. with intense rivalry between firms.

Through the ownership of a number of its own factories it can ensure quality and assist in further supplier technology development. Reebok Reebok utilizes a differentiation strategy as it markets itself as a trendy. It has a strong R&D department both in the development of new shoe technologies and production advancements. Nike can harness its true skills in 5 of 28 . from deliveries. customer service. An effective R&D team comprising of a number of sources to address all possible desires in a shoe. Its sporting goods quality has been lost in the eye in the consumer in the effort to clearly define itself as trendy and fashionable. Adidas has developed the capability to maximise reach through subsidiaries and licenses. As a result of these efforts to satisfy customers in all aspects. Combined with an extensive retail network. Adidas’ capabilities include its effective marketing at sporting events capturing the sporting market. with enormous sales by in America. Through outsourcing. fashion oriented sports company. including a large financial base on which to operate. Nike Nike has an exception resource pool. a premium price is charged. quality and technology. Resources and Capabilities Adidas Adidas has a number of resources.Nike Nike employs a differentiation strategy as it focuses on adding value to their customers throughout the purpose process.

Their capability in distribution to sell in 140 countries through who9lly owned subsidiaries is representative in their strength in logistics. Reeboks capabilities lie in their ability to market effectively through different mediums. Reebok and the Speciality business group with each division being responsible for different lines. they have developed the capability to sell merchandise in 80 countries quickly through a strong preordeing system. where Adidas produces for sports • Development of new sports. Extensive distribution: SWOT Analysis STRENGTHS • Strong Brand • Good Quality • Strong R&D • Global Footprint • Control European market • Licenses in countries with import restrictions • Revenue well divided between shoes and clothing WEAKNESSES • High Clearance sales • 90% of income from core products • Pre-ordered stock arrives late • Delivery with a 7 month lead time • Not regarded as a fashion brand • Not well regarded by woman and teens OPPORTUNETIES • Sports market growth by 28% – Increasing woman entering sports – Footwear used casually as well – Development of outdoor recreation sports • Greater access to USA • Development of fashionable image • Global markets THREATS • 80% of shoes sold in casual wear. may encourage new market entrants • Nike and Reebok entering the 6 of 28 . thus ensuring a differentiated product line.marketing and designing of its products. Strong innovation has led to the development of a number of new technologies to increase their competitiveness. Reebok Reebok has vast economic resources. and a business which is split into two major divisions. In addition. but primarily TV. Effective capabilities include the ability to market by using top sports personalities that appeal to the market. accounting for 70% of sales.

7 of 28 . The low prices lowers the bottom line. which also gives the benefit of customizing products to individual market needs. possibly by adopting a decentralized approach. Outsourcing all production would also lower costs. as quality assurance from in house production does not earn a premium from the market. and does not give additional volume. In addition retail outlets should be used as opposed to wholesalers to increase profit. France and Spain • Neglect of US market • Turbulent management after death of Adi Dresser offer greater opportunities specialty market • Licensees may decide not to produce Adidas • Brash marketing by Nike and Reebok to earn teen market Recommendations To be more effective we would recommend a number of adjustment. Poor logistics should be urgently addressed.• Various distribution channels • 1 TV advert per year • Loss of market share in Britain. so prices should be aligned with competitors. The Develop of more fashionable clothes and footwear is crucial to capture the fashion conscious market.

and competitor’s environment. The general environment includes the traditional factors which affect an industry. so as a results shoe manufactures had to find an alternative method of servicing that market. including the general environment. The industry analysis is performed using Porter’s five forces model. industry environment. The competitor environment is analyzed in question 2 of this paper. External Environment • Political Environment o There is little information on any political factors which had an impact on the shoe industry. certain countries restricted imports of shoes. social. the shoe industry was expected to grow by 28% to $55 Billion by 1998. However. including the political.Question 1 : How are changes in the external environment impacting the sporting goods industry? In analyzing the external environment. and as a result fierce competition could be expected to capture a share of this lucrative market. • Global Environment 8 of 28 . • Economic Environment o There is little information on any economic circumstances which had an impact on the shoe industry. global. economic. However. a number of factors should be considered. This implies that the shoe industry was growing rapidly. technological and demographic environments.

This is a trend that shoe firms should be prepared to embrace and develop products specifically for this niche. soccer and mountain biking. Thus sports firms need 9 of 28 . a multi purpose shoe is required by the market. However. golfing and hiking. This resulted in significantly cheaper production costs. and the development of aerobics development. o With an increasing interest in health and sports. o 80% of shoes are used in casual wear. with fun sports developing such as basketball. • Social Environment o There is an increasing trend of using sports equipment being used for leisure purposes. this equipment is less prone to fashion changes. which indicates that firms should focus on this segment. as well as being huge proportion of the world’s population. o With the development of outdoor recreation sports such as skiing. firms need to be aware of this and be prepared to take advantage of this expected growth. o Sport is increasingly no longer an elitist activity. but with a focus on authentic performance products. particularly in the under 25 age group. with 60% of production facilities being based abroad. and as a result people require quality durable multi-purpose shoes. This accounts for approximately 50% of sales. and as a result all firms have had to utilize this approach to remain competitive o With Asian demand expected to double. functional outdoor clothing is also required.o There is an increasing usage of global outsourcing.

with advances providing a long term competitive advantage. It is not rapidly changing. with the aim of increasing comfort and performance. Reebok utilizes Hexalite.to ensure that this segment is provided with quality performance products with a lesser focus o fashion. • Demographic Environment o There are two seasons in the shoe industry. 10 of 28 . and one for Autumn and Winter. with the clothing being used in all aspects of clothing wear. • Technological Environment o Sports technology is a key element of success in differentiation of products between competitors. Graphlite and Pump technology to make the shoes more comfortable. with Nike having the Air sole technology to reduce impact and shock. increase stability. Adidas utilizes Torsion technology to increase stability and strength. with one for Spring and Summer. o Sports equipment is tending to become a form of lifestyle. Thus firms have to be prepared and have different lines for the different seasons. o Typically 1-3% of sales are spent on R&D. o The mayor competitors each have different technologies providing similar advantages. thus lowering any technological differences between them. thus it is necessary for firms to develop products which are functional and can be used anytime. and improve strength. Thus all the manufacturers utilize different methods to achieve the same objectives.

as it is easy for buyers to change suppliers. o It is difficult to establish a brand. to obtain the reach to be competitive o Extensive capital requirements are necessary. and marketing to establish a firm in the industry. in terms of physical production facilities. woman rapidly became another segment in the sports industry market. and extensive. as strong brands are already well established. Firms need to be aware of this trend and cater for this need. with a trend of younger people making up a large proportion of the industry. o With the development of aerobics. as a new firm would easily have access to existing channels in department stores and specialist sports shops. o There are very low switching costs. thus it is relatively easy for a customers to buy from a new firm. specifically in the fashion segment. 11 of 28 . expensive marketing would be required to compete against them.o The age groups of the major sports buying segment is changing. Industry Environment Porters 5 forces • Threat of new entrants o Economies of scale are required to enter the sports shoe industry. o Access to distribution channels is not difficult to obtain.

• Bargaining Power of Buyers o Bargaining Leverage  There is a low buyer concentration as there are many of them. 12 of 28 . as the sports industry is lucrative thus they would wish to defend their market share. • Bargaining Power of Suppliers o Switching costs are low. thus it is easy for a firm to obtain suppliers o There are few substitute inputs to produce shoes with the essential elements of rubber. o Bargaining power of suppliers is considered to be low as it is easy to obtain supplies from a number of sources.o Strong retaliation would be expected by existing firms. However. o There are many suppliers of raw materials. thus making it easy to obtain supplies o There is a strong threat of backward integration whereby the shoe firm produces its own raw materials to ensure quality. as there are certain barriers to entry. thus the individual consumers have little power. and fabric being the main ones which are hard to substitute. there is a very small threat of forward integration as the suppliers do not posses a highly differentiated product. o Considering these factors the threat of new entrants is regarded as moderate. but not to the extent that the market is impossible to gain access to.

as they do not have a significant ability to influence the industry as individuals. they will be price sensitive. as it is easy to change between brands and sports equipment suppliers o There is a low propensity to substitute away from the industry as the products provided are highly specialized.  It is difficult to integrate backwards as consumers lack the resources to manufacture sports equipment. 13 of 28 . o Bargaining powers of buyers is believed to be moderate. thus price and design are factors which may sway buyers. • Threat of product substitutes o There are low switching costs for the consumer.  Possessing a strong brand is a differentiating factor. there are a few large retailers which buy a substantial volume.  There is a low switching costs as it is easy for consumers to change to another sports shoe brand without incurring any costs. but with 2 similarly designed shoes. thus they have a high bargaining power as they have the ability to leverage. but collectively they have considerable influence.However. thus being an influential aspect when buyers choose a product. o Price sensitivity  There are very few product differences which could be regarded as significant to sway a customer. as essentially the shoes have different technologies which produce the same effects.

o There are few product differences thus customers are unlikely to be loyal as many firms have products to satisfy their needs. thus increasing competition between firms to capture the market. There are no strategic alliances.o Counterfeits are a significant threat in the branded shoe sector. o There are low exit barriers as there are few specialized assets. as production occurs predominately in third world countries. o There is little diversity of competitors thus competition is increased due to their inability to differentiate on the basis of product. As a result there are low switching costs. being sold at a lower price. o There is rapid industry growth which would reduce the competition to take market share away from competitors as there are sufficient growth opportunities without engaging the competitors. o There are few fixed costs thus rivalry between firms is reduced. but at a perceived similar quality and performance. o The threat of substitutes has been evaluated as high. few labour agreements. as they are not constrained by the capacity of their equipment. and forced to produce large volumes to cover costs. or emotional 14 of 28 . as there are many substitutes available. • Intensity of rivalry among competitors o There are many competitors but with only a few major players who have approximately equal resources which intensifies the competition. and with extremely low switching costs it is easy for customers to change.

o The Rivalry among competitors is considered to be high. o Concentrates on five core products whilst having with a strong focus on soccer. the company “strives to be a global leader in the sporting goods industry with sports brands built on a passion for competition and a sporting lifestyle. again showing a differentiated focus.barriers which could prevent a firm from exiting the industry or a geographic segment. Our strategy is simple: continuously strengthen our brands and products to improve our competitive position and financial performance. thus forcing competition to increase due to their inability to differentiate on the product basis. o Adidas markets its products at sporting events showing a differentiated marketing approach 15 of 28 . Question 2: What are the strategies of Adidas. This is supported by the fact that their products are cheaper compared to the other industry participants whilst it also looks at other different markets as a sports leader. According to Adidas. as there are few differences between them.” Reasons o The company stresses performance and quality not fashion showing a differentiated focus. Nike and Reebok? Adidas Adidas uses the Integrated Cost Leadership Differentiation Strategy.

It markets itself as a trendy. o By offering support and sales personnel training to the 14 000 strong retailers Nike has a differentiation focus with regard to customer service. Nike Nike employs a differentiation strategy as it focuses on customers who perceive value in its products compared to the other products that are produced and marketed by competitors. with Research and Development expertise and a strong marketing leverage with top sport stars to differentiate the product. Reasons o Consistent manufacturing of attractive products o Rapid responses to the unique customers desires o Through excellent inventory management and consistent production planning Nike is able to respond rapidly and deliver and on time to retailers and distributors showing a differentiated distribution strategy o Makes use of a strong brand. fashion oriented sports company. Reebok Reebok utilizes a differentiation strategy.o High technological focus – tension technology and the use of new materials showing a differentiation focus o Goods are priced lower than competitors thus showing a cost leadership strategy. Reasons 16 of 28 .

o Retain a differentiated focus by charging a premium as  They operate in 140 countries and emphasizes different elements in each market.  Distributes through specialty retailers.o Through Reeboks focus on branding in sport and fitness. sports stores and department stores and clothes through specialty shops  Utilizes concept stores that sold a collection of Reebok’s footwear and clothing o Enhances its brand image by signing sports stars for sponsorship Question 3: Compare the Resources and Capabilities of Adidas. • Gross profit 38%. Nike and Reebok. such that they are ranked as the number 1 sports and fitness brand o The firm has separate divisions for athletics and sports thus ensuring the complete differentiation of different lines of equipment and apparel. Adidas Resources • Europe represents 32% of worldwide sales in sporting and footwear sales and Adidas is the leader in this market. Net profit 5% 17 of 28 . they have differentiated themselves. Reebok emphasizes the use of high-quality retailers and avoiding lower margin merchandisers and discount outlets.

This built the brand through event marketing rather than individual athlete endorsements.• A strong R& D division o Adidas was the inventor of “Torsion Technology”. of which 75% of the marketing budget was spent on promotion. o A large resource budgets accounted for Adidas spending $60 million on advertising in Europe which accounted for on average 6% of sales. Adidas supplies team athletes with products and benefited from the resultant coverage.12% of the footwear and 7% of the textiles are produced in-house. o Product innovation is primarily focused on the creation of new footwear and textiles. and endorsements were made with national sporting associations rather than individuals. Outsourcing of production was divided between Asia (70%) and Europe (30%) Capability • Effective Advertising o Adidas’ strength is in international and Olympic events in which participants were amateurs. which is a system of a pair of cross supports running from the front to the back of the shoe. allowing movement and at the same time maintaining strength and stability. • Effective Production o They however wanted to maintain a certain level of company owned production to ensure quality and hence kept factories in France and Germany. 18 of 28 .

U. were the most important subsidiaries representing 43% of total sales. Net profit 11% 19 of 28 . Germany. o Adidas delivered to its subsidiaries with a seven month lead-time.S. and U. Prague.o T.V. provided representation and quality assurance. o Adidas also had its own brand shops in Eastern European countries e. resulting from considerable sourcing and production in Asia. Argentina and Japan (18% of sales). Licensees paid royalties to Adidas and distributed the Adidas brand whilst Adidas provided guidelines on prices. Budapest. Moscow and Riga. o Licenses are granted in countries with restrictions on imports e. France.g. On average 50% of products were pre-ordered and the remaining 50% consisted of on-demand re-ordering.g. They leveraged their capabilities in distribution through subsidiaries and licensees. However Adidas wasn’t considered reliable and half the re-ordered stock consistently arrived late. Nike Resources • Gross profit margin (38%). advertising was covered by a single spot which stressed the quality of Adidas products and ran for a year without review.K. • Effective Distribution networks o Adidas utilized various methods to ensure maximum coverage to gain market share.

Ronaldo (soccer) and Michael Jordan (basketball) . • Production o By utilising outsourcing of production and manufacturing agreements meant that Nike was able to harness their core competencies.• America accounted for approximately 50% of worldwide sales and Nike is the leader with 32% of the market sales worth $3. They also developed the Air-Sole technology by using air in the soles to reduce the shock of impact. trainers and other experts to review designs. materials and concepts for product improvement. China. and behave like a marketing and design group. o Most of the extensive advertising budgets ($280 million) was spent on television spots targeted at young customers.4 Billion in 1992 • Effective R&D o Strong R&D team which consists of research committees and advisory boards made up of coaches. Taiwan and Thailand for manufacturer because of the cheaper labour costs Capabilities • Effective Marketing and advertising o Nikes ability to leverage athlete endorsements meant that the company chose top athletes with brash personalities.John McEnroe and Andre Agassi (tennis). athletes.which particularly appealed to the young market and portrayed the image Nike were seeking. They sold a 20 of 28 . utilising Indonesia. This was claimed to allow athletes to train longer and educe the risk of injury.

o Nikes strategy was to sell merchandise through different channels to different target segments. and securing retail accounts. This strategy had considerable impact on inventory management. Net profit 8% 21 of 28 . This was possible due to the strong demand for Nike products and consequently.S. production planning. and for the mass consumers in shoe stores. o Nike developed the Nike Town concept.000 retail accounts in the U. 77% of Nike footwear products were pre-ordered in 1992. and about $100 million in Europe. They sold shoes for athletes in spots shops.lifestyle. fashion and fun. Reebok Resources • Gross Profit 40%. o By harnessing their capability in the career management of sports stars to promote Nike acted not only as a shoe company but as a sports company • Extensive Distribution o Nike sold its products to approximately 14. and in as many as 80 counties resulting in a huge footprint. Nike further pioneered the future in preorders. a combination of sports and music. On average Nikes advertising budget accounted for 10% of sales and in 1992 they spent $180 Million in the U.000-square-foot mall with 14 stores that sold equipment for 25 different sports. They then used these spots along with the athletes and one catchy slogan “Just do it”.S. a 20. for amateurs in department stores.

stability and strength. the company’s strength lay in its trendy shoes.S. Freestyle captured the vast majority of the female sporting market and branded Reebok as a fitness company rather than a performance company. Although Reebok had developed its own technology it was not branded as a sporting company.• Reebok has harnessed their resources through two major divisions within the business. and $10 million in Europe. They effectively used their resources to optimise their ability to create advertisements to appeal to their customers. $25 million in Asia. • Product research and Development o Reeboks rise to success was fuelled by innovation which lead to the production of the first aerobic/dance shoe “Freestyle” designed for women. “Tinley” running and cycling performance clothes and “Weebok” for toddlers and infants. The Speciality Business Group included “Above the Rim” basketball clothes. Reebok and the Speciality Business Group. The Reebok division was responsible for designing. Capabilities • Effective Marketing and Advertising o With an advertising budget of $85 million in the U. Instapump. Of this 60% was used in television and the remaining 40%in media. 22 of 28 . Graphalite) which increase shoe comfort. Reebok had exceptional reach. Hexalite. However. producing and marketing the sports shoes and accessories. despite having developed a strong line of technological innovation (Pump.

Chile. Belgium. Canada. further adopting a single global logo strengthening their global brand position. Santa Monica and New York that sold a selection of Reeboks footwear and clothing Question 4: Do a SWOT analysis of Adidas Strength o Strong brand of performance and quality o High quality 23 of 28 . o They utilised the resources available to them in the advertising department to launch their first global campaign “Planet Reebok”. gaining increased visibility on playing fields and sporting arenas worldwide through endorsement arrangements of prominent stars in a multitude of sports. France and Germany. • Production o Outsourcing is the major form of production accounting for 80%. o Reebok further had concept stores located in Boston. • Extensive distribution o Reeboks utlised their capbabililty in logistics to distribute and market their products in 140 countries through wholly owned subsidiaries in Austria.S.o They further made a strong strategic push in the sports market. although some of the clothing and footwear components were still done in the U.

thus if market changed rapidly and Adidas could not adjust they would have no income 24 of 28 .o Strong Research and Development in products and materials utilized in production o Strong culture of winning within the organization o Global footprint o Control the European sector of the shoe industry o Sold licenses to give access to additional countries with import controls  To produce according to specifications to ensure quality. showing weak production planning o Core products accounted for 90% of revenue. and secondary product such as sports bags o Regarded a genuine sports brand o Strong soccer focus and reputation o Popular with middle aged men o Various distribution means to gain market share. o Revenue well diversified between clothing and shoes o Makes use of event advertising which shows their premium quality Weaknesses o High clearance sales (30%). provide technicians  Check up to ensure brand was well represented o Covers a broad range of sports. with the industry average being 10%.

indicating greater opportunities for expansion due to  Increasing number of woman entering the sports or leisure market. Opportunities o The sports market that was expected to grow by 28 percent to $55 billion by 1998. so offering the firm a larger possible customer base  Athletic footwear was no longer reserved for professional exercise and competition but also has become a part of leisurewear. as little English possibly spoken • Centralized management approach.• • Pre-ordered stock often arrived late to retailers Strong German influence. which results in all geographic segments receiving the same marketing material and products. thus the leisure market can be exploited 25 of 28 . France and Spain Turbulent organizational and management changes after the death of Alfred “Adi’ Dassler. • • • • Delivery with 7 month lead-time Not regarded as a fashion brand Not well regarded by woman and teenagers Only one advert on TV which is used globally. which may not be appropriate to each region. could be regarded as a negative factor to foreigners. which suggests that marketing in certain regions I not well targeted. • • • Neglect of the American market which is the largest market Loosing of market share in Britain.

this is possible o Endorse athletes to further enhance the premium quality sports image o Greater advertising to appeal to the younger generation. However. where Adidas makes most of their sales in the sports shoe segment 26 of 28 . jogging and hiking which was encouraging growth of functional outdoor clothing.. and this is increasing. if regarded as better quality. and fewer clearance sales o Global markets offer the firm more opportunities to obtain critical resources for success o Developing an internet distribution channel o Can make use of E-Commerce and E-Business to improve distribution as well as selling direct o Changing the Adidas image to one of an attractive leisure sports wear company while retailing their performance image Threats o 80% of shoes are used for casual wear. which will allow greater inventory control. skiing. and marketing o Deliver faster to reduce lead time. and woman o Greater control of licensees to control prices. Development of outdoor recreation sports such as golfing. o Greater access into the USA o Develop more of a fashion image o Price shoes higher to match competition.

More effective distribution channel to achieve this • Focus on USA as such a large market. eroding their market share o Nike and Reebok moving more into Europe o Licensees may decide not to produce Adidas o New entrants into the leisure shoe industry such as Timberland o Brash marketing campaigns from Nike and Reebok that were supported by huge budgets that were targeting women and teenagers with lower quality. more fashionable products. street soccer.o The development of new markets such as street baseball. which could erode market share Question 5: What should Adidas do to become more competitive? • Design more fashionable clothes and footwear to capture the a larger share of the leisure market • • • Increase price of apparel as under priced compared top rivals Utilize own production facilities in hard to reach countries Deliver pre-ordered stock on time through faster delivery to reduce leadtime and clearance sales. 27 of 28 . as well as attempt to gain a first move advantage in the emerging markets. o Nike and Reebok further entering the specialty market. which may encourage more competitors to enter the market.

chains for mass consumers. • Outsource the rest of production to Asian firms. 28 of 28 .• Use decentralized approach. as they mark-up by a 100% as opposed to 20% when they sell to the wholesaler. as the additional quality control does not allow a premium to be charged for this. department stores for amateur products. in terms of marketing and production so that each can respond faster to changing trends • Change Adidas image to one of a fashion designer as well as producing high quality sports products. with each country organizing itself. • Open more retail outlets. for example. • Have more distribution channels to target different segments.