SBNM 5992-A2 1

Strategy for Competitive Advantage

Case Study Analysis #1: TOMS Shoes

To: Professor Henry Balani

From: Team #1: Kristina Ensgard
Jennifer Hufnagel
Angela Koeppe
Elena Moretti
Date: September 1, 2018
Subject: TOMS Shoes: Case Study Analysis

1. Discuss the activities of TOMS in running their business and why these are important or different.

Global footwear manufacturing is a risky and difficult venture. Success in this market hinges on product differentiation, requiring a
target niche market. Currently, global footwear manufacturing is an attractive industry to potential entrants based on increased
demands and sales revenues.

TOMs is based on the promise of the “one for one” pledge: for every pair of TOMs shoes sold, TOMs would donate a pair to a child
in need.

TOMs focus and strategy is more on selling the story behind the shoe rather than depending on product features or celebrity
endorsements. TOMs does not place focus or dedicate strategy towards relying on mainstream advertising, unlike its competition
in the footwear manufacturing industry.

In his article “The Five Forces That Shape Strategy”, Porter outlines the five underlying forces that influence competition. The
piece provided by the author proved useful in examining the activities of TOMS in running the business.

Porter's Five Forces as they pertain to TOMs Shoes are as follows:

1. Rivalry of Competitors: The three main competitors quoted in the case study are Nike, Clarks and Adidas. As explained in
the case study on page 425, the footwear industry was extremely appealing, because it offered one of the highest profit
margins in the fashion industry. Consequently, each company, including TOMS, had to implement a strategy that would
allow them to thrive in the market.
 Clarks: it adopted a sophisticated design, appealing to a wealthier target of customers.
 Nike and Adidas: they developed a specific line of athletic footwear.
 TOMS: to respond to its competitors, the company tried to attract socially conscious consumers, offering products
that were priced lower, yet had good quality.
 Foreign and domestic companies.
 New entrants.

2. Threat of Substitutes: Porter describes substitute as a product/service that can perform the same or similar function in the
industry. Since there were many companies providing the same product in the footwear industry, TOMS had to
differentiate what it offered.
 The case highlights on page 427 that customers expressed their satisfaction with TOMS shoes because they
were comfortable, lightweight, yet trendy and basic.
 Because of the characteristics of the product, the shoes were immune to changing fashion trends.
SBNM 5992-A2 2
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

3. Power of Suppliers: TOMs has:

 Achieved “Economies of Scale”
 Increased technical efficiency
 Developed a cost-effective distribution system

4. New Entrants: Because demand and revenues are predicted to increase in the global footwear manufacturing industry,
incumbents like TOMs need to find ways to differentiate their position in the market. This industry currently holds and
maintains the highest profit margins in the fashion industry.
 SBNM 5992-A2 3
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

2. Articulate the vision and mission of TOMS. Does this contribute to TOMS success, why or why not?

Vision – aspirations of the company – inspire and give directions to the employees of the company
 To improve lives.
 The founder, Mycoskie believed in making a difference – to build an organization of sustainable repeated giving. He also
believed that shoes could impact children in rural communities more than medicine or food.
 The vision of making a difference contributes to TOMS ethical success by protecting children's feet from infections,
parasites and deceases. In addition, help children's self-confidence and develop into more active community members.
 Besides achieving ethical success (“to make a difference”), TOMS has been able to achieve financial success. In eight
years, Mycoskie turned his initial investment of $300 000 into a $210 million revenue.
o The financial success of Toms hinges on its foundations as a social-enterprise, and its revenues are bolstered
by the perceived “social good” accomplished through the sales of its products to socially conscious consumers.
 Why not? Less contribution? Yes but then they will lose focus on making difference? What do you guys think?
o See what I wrote in response to question #4. (Jen)
o There’s an old proverb about how it’s better to teach a man to fish then catch a fish for him to eat. The TOMS
Shoes “Buy-One-Give-One" pair model does not actually solve a social problem. Instead, it functions more like
colonialism, diving in to local economies to solve problems rather than listening and figuring out how to best
help. (Jen)
o TOMs offers short-term solutions to symptoms of poverty that fail to addresss the root causes underlying the
poverty.

Mission – How are we going to get there?

 To sell the shoes and the story behind it “to make a difference”. Consumers don’t just wear TOMS shoes – they also tell
the story. Encouraged consumers to connect personally with the brand.
 Product differentiation - focus on quality, price and image. TOMS shoes were priced lower than the competitors,
appealing, trendy, basic and comfortable.
 Marketing – social media and ‘word of mouth’ – 2 million Facebook likes and 2 million Twitter followers
 Expansion of mission - by developing a new line of eyewear products for individuals with sight-related illness.
 Maintaining online shop – save money on retail locations and negotiate with well-known locations like Nordstrom and
Nieman Marcus.
 SBNM 5992-A2 4
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

3. What are the ways that TOMS demonstrate its commitment to corporate social responsibility?

Consumers consider more than quality goods and services when choosing a brand. Many prioritize corporate social responsibility
(CSR) and hold companies accountable for affecting social change with their beliefs and profits.

CSR is usually achieved through various responsibilities:

 Environmental:
 Philanthropic
 Ethical
 Legal

TOMS was established in 2006 when its founder Brian Mycoskie witnessed hundreds of children walking barefoot in Argentina. He
decided he wanted to make a change and created a company that would pursue a specific social mission while making profits. The
company demonstrates its commitment to CSR in different ways.

Cause Marketing: TOMs mitigates needs to produce goods in time with highest standards or perform charitable work in the most
effective manner.
 Vague; more information is needed regarding the standards utilized for their shoe production operations at their
manufactoring facilities.
o Is TOMs solving one social issue while creating another?

TOMs is a “for-profit social enterprise”. Under this type of structure, it is a privately held for-profit social enterprise with a
commitment to its social mission unlike how nonprofit organizations or benefit corporations are mandated to function (legally,
managerially, ethically, accountability, etc.).

TOMs CSR Business Model Structure:

 For-Profit structure
 “One-for-One" Giving Model
 Nonprofit subsidiary

TOMs CSR Compliance:

 Factory Selection Process
 Audit Report Analysis
 Environmental Sustainability

Focusing on Environmental Aspects:

 The case study emphasizes on page 428 that the firm has partnered with several environmental organizations, including
"Surfers against sewage”
 Moreover, TOMS decided to incorporate recycled bottles into its products and to utilize organic cotton in order to reduce
the use of pesticides that negatively affect the environment
SBNM 5992-A2 5
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

Looking at Philanthropic Aspects:

 TOMS vision is “one for one”, which spread an inspiring message to the stakeholders, who turned to the company
because of the message it sent. As highlighted on the case study on page 425, many shoppers affirmed that they buy
TOMS shoes because of the story behind it.
 TOMS was able to prove its commitment to CSR through a new business model it implemented: for every item purchased
by a customer, a similar one was donated. As stated on the case study on page 429, this different approach also allowed
TOMS to survive the recession of 2008.
 The company has installed plants in Argentina, Ethiopia and China, which correspond to some of the main beneficiaries
of the donations.

Considering Ethical Aspects:

 The company stresses the attention on inclusion and diversity, hiring young, multilingual and innovative employees.
 TOMS is also a member of the American Apparel and Footwear Association (AAFA) and it has registered with Fair Labor
Association (FLA), to ensure treating its employees fairly and ethically.

Examining Legal Aspects:

 The case study states on page 428 that TOMS uses third party factory audits to ensure that the company is abiding by its
rules.
 It has introduced a Supplier Code of Conduct. The company applies a policy of terminating the relationship with suppliers
who violate the code.
 As explained on page 428 of the case study, the firm enforces labor standards such as minimum labor age, maximum
work hours and non-discrimination.
 The company protects its workers from physical, sexual, verbal and psychological harassment in accordance with the
country’s legally mandated standards.

The case study calls the attention to the fact that for the commitment demonstrated by TOMS, Forbes placed the company among
the “18 most inspiring companies of 2011”. As described by Porter in the article “what is strategy”, a company needs to create a
competitive advantage that is sustainable and that is a continuous activity, rather than a static view of the competition. To make the
commitment to CSR sustainable, TOMS collaborates with over 100 of giving partners.
 SBNM 5992-A2 6
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

4. What are the issues that TOMS has today or might have in the future? (Jen)

TOMS built a brand around the “Buy-One-Give-One” charity model to raise awareness about the impact a pair of shoes can have
on a child’s life.

Despite its success, however, the Toms business model is currently facing two existential flaws that threaten to undo the
company’s social impact and business success.

1. The Toms buy-one-give-one model does not actually solve a social problem. First, the Toms “Buy-One-Give-One”
model does not actually solve a social problem. Rather, the charitable act of donating a free pair of shoes serves as
little more than a short-term fix in a system in need of long-term, multi-faceted economic development, health,
sanitation, and education solutions. So, what’s the problem with giving away shoes when the company is at least
doing something to promote good? It’s simple: problem occurs when that “something” is potentially doing more harm
than good. An increasing number of foreign aid practitioners and agencies are recognizing that charitable gifts from
abroad can distort developing markets and undermine local businesses by creating an entirely unsustainable aid-
based economy. By undercutting local prices, Western donations often hurt the farmers, workers, traders, and sellers
whose success is critical to lifting entire communities out of poverty.

That means every free shoe donated actually works against the long-term development goals of the communities we
are trying to help.

The fact is, Toms isn’t designed to build the economies of developing countries; it’s designed to make western
consumers feel good. This can be seen in the company’s origin story as proudly depicted on the Toms website. This
story details how founder Blake Mycoskie saw the problems barefoot children in Argentina faced, serving as the
catalyst for him to launch Toms. The problem here is that Mycoskie didn’t ask villagers what they needed most or
talk to experts about how to lift villages out of long-term poverty.

Instead, Mycoskie built a company that “felt good,” and that was good enough for him and Toms’s nascent
consumers.

2. Toms isn’t designed to build the economies of developing countries; it’s designed to make western consumers feel
good. Herein lies the second flaw: from a business perspective, Toms is at risk. Research with leading consumer-
facing companies has shown that there is a finite and unpredictable market for the feel-good value proposition –
consumers are fickle when it comes to committing to brands based on nonfunctional attributes. Toms’s core value to
its customers is being replicated by an increasing number of companies who can promise the exact same return:
feeling good about your purchase.

Without a stronger, more differentiated and less replicable product offering, Toms will likely fall out of fashion in the
coming years.

And it is here where the real peril lies. Those “helped” by Toms are, in the long-term, no more able to afford shoes or address
the real social, economic, and health issues that they face than they were before. Once their free shoes wear out in a couple
years, the children Toms “helped” will be just as susceptible to the health and economic perils associated with bare feet as
they were before.
SBNM 5992-A2 7
Strategy for Competitive Advantage
Case Study Analysis #1: TOMS Shoes

The world doesn’t need another advocacy day, and it most definitely doesn’t benefit from “a day without shoes”. The
world needs practical, long-term solutions – the kind that only business can engineer. The good people at Toms should
keep their shoes on; they’ll need them if they’re going to find solutions to these intractable problems. Toms can do more
and do better.

Instead of advocating their “One Day Without Shoes” campaign, they could instead consider (as well as
encouraging/challenging their consumers) doing the following:

1. Better understand the problem: The Toms website points out that those without shoes are at risk of contracting
hook worms and suffering from other debilitating injuries and diseases. However, a new pair of shoes alone will
not eradicate hookworm or protect thousands living in landfills from harm. Instead, Toms needs to find out what
will. Surely more cost-effective, enduring solutions exist that will help those in need not only cover their feet, but
also be able to afford shoes and other necessities that improve long-term quality of life issues.

2. Create a solution, not a band-aid: There’s a difference between a quick-fix and a cure. Toms has donated more
than 1 million shoes to date. But to what end? Instead of asking “ How many shoes can we give away? ” Toms
should be trying to figure out “ How many lives can we change? ” For many individuals and families across the
globe, a free pair of cloth shoes is nice, but bare feet may be the least of many challenges they face on a day-to-
day basis, none of which will be resolved by a pair of Toms.

3. Innovate business models, not marketing campaigns: The Buy-One-Give-One model is clever, simple, and
consumer-friendly. But the real impact of business often comes behind the scenes and without the luster (or
façade) of a marketing campaign. Toms should ask: “ How can we use the whole of our business–including our
jobs, our supply chain, our market penetration–to make a difference?” Companies like Oliberté Shoes try to solve
the same problems as Toms, but with a different approach: Oliberté manufactures shoes in developing countries,
thereby providing an economic boost where it’s needed most.