You are on page 1of 20


0 Introduction
Reebok, also known as Reebok International Limited, is a global manufacturer of high quality athletic shoes, apparel, and accessories. From African gazelle to spiked running shoes, Reebok has been running fast for more than a hundred years, since 1958 until today. Before 90, Reebok had successfully become the leading company in athletic shoes industry. The company is facing stiff competition in the market from other athletic shoes manufacturers such as Nike, Puma and Adidas. At that time, we can see a common problem occurs between all these companies they are all aligned to a single product line, the athletic shoes.

In this assignment, we discuss the problems faced by Reebok during 80s 90s, when Nike rose to become the industry leader in athletic shoes industry. This happened when young people started to view athletic wears as casual and fashionable wears, which is a disadvantage to Reebok due to the classic design of their product which is not targeted on youth growing market. On the other hand, Nike was always design centric on their athletic shoes. Reeboks customer base is mostly the middle age athletes who want a pair of high quality, high performance, high durability and high stabilization athletic shoe. The main competitor, Nike, had their shoes designed fashionable and casual for youth market, and of course with basic requirement on sporting performance. This situation had created a fierce competition between Reebok and Nike, a comparison between performance and appearance, a war between functional product and fashion product.

During 1986s, Reeboks sales had exceeded $1.5 million, which provided the company to have very strong financial structure to invest in new sporting product technology. In 1989, Reebok had invented the new DMX technology that was

designed to increase air flow and cushion and stabilize the feet. They launched a series of high cost marketing campaign and advertisement to market the technology but eventually failed. This is due to ineffective of Reebok in decision making, which will be discussed later.

In the content component, we analyze the problems faced by Reebok which are associated to 4 different marketing mixes accordingly: product, promotion, price and place. We find out the reasons lie behind the problems and provide alternatives to effectively resolve these problems. Implementation of alternatives are also discussed and diagnosed to ensure these alternatives can be translated into actions. Decision making methods are identified respectively to each alternative to select the best that fit Reebok to overcome the problem.

In the final component, we made a clear and concise conclusion to summarize the assignment.

2.0 Contents
Problem Symptoms 1. Sales drop

From the graph above, we can see that Reebok had dominated the market in the early stage. This is due to Reeboks high quality and high performance athletic shoes which were attractive to most athletes. Afterward, Nike had a significant sales increase of $150million at 1989. Their sales then averagely increased by $50million per year until 1993, which has the highest sales. This period shows the trend that people started to view athletic wears as casual wears. Nike dominated the market because of fashionable and attractive design in their products.

2. Decrease in market share

40 35 30 25 20 15 10 5 0 Early 1980 Mid 1985 Late 1990 Reebok Nike

Another table shows that Reebok had 26.7 percent of the market, and Nike 23.3 percent at 1980s. This area indicates the domination of Reebok during the early stage. However, in 1985, Nike's market share was increased to 25 percent, against 24.2 percent for Reebok. This is the area when competition is fierce between Nike and Reebok. In 1990, Reebok had 18 percent against 35.3 percent for Nike. The significant drop of Reebok market share is a problem symptom that caused by several problems which will be discussed later.

Product Problem Reebok has always been focused on the development and invention of high quality athletic shoes. They never have had a problem in the quality (in term of comfort, cushion, stability and performance) of their shoes, contrarily, the unattractive design of the shoes is the major problem that caused Reebok to lose share in youth and female market. This is due to Reeboks target customer base is concentrated on athletes, mainly middle aged people, who prefer a more classical design than a fashionable one. The reason that caused the market loss is, the increasingly importance of outlook of athletic shoes for the youth growing market, who care more about how fashionable the shoes look instead of how functioning the shoes are. The trend that teenagers are treating athletic shoes as casual wear was obviously seen in 90s, which induced them to give up Reebok and purchase Nike, whose design is more fashionable for youth market. Since Reebok only produces high quality shoes and their customer base is mainly at athletes, the endurance and durability of the product also indirectly formed another product problem as it prevented them from purchasing another pair of new shoes. Unlike the young people, they purchase athletic shoes regularly for fashion purpose over sporting purpose, especially female. This caused Reebok to lose customers from female and youth market compared against Nike.

First possible alternative to solve this problem is to shift the product quality focus to product design focus. Reebok is the market leader in the industry before 1990 when Nikes domination, it has strong finance enough to invest in the designation of the product, instead, they invested heavily in new technology to increase performance the DMX technology. In this case, Reebok should reduce their investment in technology aspect and shift to design investment to increase the range of their customer base from middle age athletics to youth growing market. The purpose is to launch direct competition to attack its competitors such as Nike

and Puma. It also helps to capture young female market who are previously not in the customer base of Reebok. To implement, Reebok could take advantage of their strong finance to hire top fashionable designers from other fashion product companies by providing them with high salary. The second alternative is line extension. Reebok could avoid direct competition from Nikes fashionable athletic shoes with line extension strategy to widen the product width by manufacturing different product category such as athletic clothing, stocking, protective gauntlet, ankle protectors, watches, bicycles, sports equipment and even leather shoes. It is a good way to explore new market and to gain new potential customers. However, it is unsustainable in long term basis because the competitors would probably follow the same movement in future (in fact, what we see today is Nike, Puma and Adidas actually do this before Reebok). Moreover, it required large amount of money for investment in related technology. To implement, Reebok could firstly divide the company into various divisions based on output category. For example, each of the clothing, watches and leather shoes division has its own marketing, finance, production and human resource department. In this case, each division will be efficiently responsible in its division performance. Another alternative is to increase advertisement effort to increase sales and capture share from youth market. The purpose is to emphasize on quality instead of design of the products to influence the consumers to be more quality-focused. However, this will not actually solve the product problem mentioned because it would only temporarily help Reebok to gain some short-term sales. Reebok will still have to face the fact of changing trend to sustain in the market. In this case, this alternative is unsustainable in long term basis.

We would select the first alternative for Reebok since it will actually solve the product problem faced by Reebok. With SWOT analysis decision making method, we can find that Reebok is powerful at quality and technology of their product; it

also has sufficiently strong finance for investment in. The only weakness is the design of their shoes. By selecting the first alternative, the threat that changing trend of teenager to view athletic shoes as casual wear can be turned into another opportunity for Reebok to explore new potential customers and market. It is a good strategy for Reebok to sustain in the industry in long term basis. Furthermore, Reebok could still invest in the product technology and quality using the revenue generated from this strategy. It is better than the second alternative because the latter required a large amount of money for investment in new product category and divisions would duplicate the use of resources. Investment in design will cost less a lot than investing in line extension. If the second alternative failed, Reebok would face serious financial problem before earning any revenue and even if it succeeded, Reebok might have difficulty in management problems and it still had to face the competition from other leading companies in that respective industry. To actually solve the design problem of Reebok, they must take action to invest in this region to capture back the market share.

Promotion Problem Reeboks major promotional problem is their heavy investment in narrow range of advertisement and promotional efforts with their strong financial structure. In this case, these efforts did not pay off. The major causes behind is due to the inability of Reebok to properly understand what an advertisement should deliver and how to enhance customers perceived value. Reebok is spending money in ineffective advertisement that does not actually promote the quality of their products. For example, Reebok had spent over 32.7% of their revenue in hiring more than 400 celebrities, basketball stars and soccer stars to promote their products, which do not bring positive impact. This is due to the failure of Reebok to encode the message customers

incorrectly decode the message as athletes are the one who brought the victory, but not the shoes. Furthermore, Reebok had made a wrong decision on advertising media during 90s when facing stiff competition with Nike it heavily and aggressively advertised the new instapump technology shoe via television and print media and expected an unrealistic sale of $100m. Reebok did not know that although it was a new technology, consumers will not actually understand the differences. Eventually, the effort failed and brought Reebok into a serious financial crisis. Although Reebok had very strong finance at that time, they should not rashly make decision on promotional activities without detailed analysis. It is expensive and devastating if the promotional activities did not meet the expectation and return. Reeboks mistake in promotional effort is a major factor that caused them to lose their market leader position in 90s.

A possible alternative is to do better analysis and diversify unnecessary cost of a single effort into other different types of promotional effort. When spending too much in a single promotional activity, it would cost the companys blood when it fails to meet the target. In this case, Reebok should channel these cost into different kind of promotional activities and create a portfolio where the success of one will cover the failure of another. On the other hand, Reebok should also make detailed analysis instead of blind forecast to properly understand how the advertisement should be conducted and what message should be delivered. When Reebok want to promote the quality, the promotional effort should be more tangible, delivering benefits. One example to implement is to set up a racing campaign worldwide to promote the quality of the shoes. Firstly, the participants are given a pair Reeboks athletic shoes which should be returned after the race. During the race, participants could actually feel the quality, comfort and performance of Reeboks shoes. It not only helps to deliver and promote the intrinsic benefits a customer could receive but also indirectly competes with competitors in term of quality. To diversify the promotional efforts, Reebok could divide the money spent on single advertisement into different activities. For

example, instead of spending heavily in hiring celebrities to promote the products, Reebok should simultaneously diversify the cost into advertisement, sponsorship, public relation and sales promotion. Second alternative is to cut promotional and advertising cost. This could help Reebok to reduce operational cost and thus channel them into product design or technology development. However, it does not actually solve the promotional problem faced by Reebok because the purpose of advertising and promotion is to create brand awareness and increase market share. A reduce in advertising and promotional cost will not align to achieve these objectives. To implement, Reebok could simply reduce the sponsorship and advertising effort on celebrities to reduce cost.

We select the first alternative based on the cost-benefit analysis decision making method. The benefits such as increased sales, increased market share, increased brand awareness or increased brand image should be greater than the promotional cost. In first alternative, Reebok diversifies single type effort into different promotional activities to further enhance these benefits. When the benefits are greater than the cost, the increased sales and larger market share in future will definitely cover these heavy costs. However, in second alternative, a direct cutting of promotional cost would not create these benefits. Furthermore, the racing campaign we mentioned above can possibly be further expanded into a tradition event in each region, which permanently reminds the consumers that Reebok is a high quality athletic brand. These benefits are significantly important to help Reebok to sustain in the sport industry in a creative manner, which are not attainable by applying the second alternative.

Price Problem Reebok had the most expensive price for each pair of athletic shoes during 80s. Unfortunately, this prestige pricing strategy became the major problem of Reebok. A high price will result in a narrow customer range, where teenagers or nonworking young people are not able to purchase a pair of Reebok thus lead to lower sales. The causes would be the quality, durability, performance and stability of Reeboks products. To cover these costs and enjoy a proper rate of profit margin, Reebok is forced to set the price high. Moreover, Reebok was heavily boosting its promotional activities and investing in technology during that time to enhance their products. Besides hiring a large number of celebrities or sporting stars to promote their products, Reebok also hired about 500 unnecessary employees to run the company during this period. All these had lead to high operational cost for Reebok, which eventually caused them to face serious financial crisis. In this case, Reebok failed to have their products launched cost effectively and thus lose some potential customers such as teenagers or young people.

The first alternative is to produce supplementary medium-quality athletic shoes to fit the needs of other potential customer who is not willing to pay so much for a pair of high quality athletic shoes. The purpose of doing this is to increase market share while not cutting the price and not affecting the image of high-quality Reebok products. Since the current trend at that time is to treat athletic wears as casual wears but not actually for sporting purpose, the lower price of mediumquality products could help Reebok to capture potential customers such as youth market who do not have high income and their intention to purchase is for fashion and casual purpose, while still serving the athlete customers who actually wanted a pair of high performance but expensive shoes. It also helps to maintain the high quality image of Reeboks product. To implement this, Reebok could


simply use medium-quality materials and technology on these medium quality products. The second alternative is to cut price to gain market share. It can help Reebok to capture other portion of customers who like to do a price-quality comparison. When customers perceived quality worth the price, they are more satisfied and thus develop brand loyalty to Reebok. It helps Reebok to retain loyal customers especially when facing the invasion from Nike. However, there are also drawbacks to this alternative. For example, if Reebok offers low-price athletic shoes, some customers might perceive Reebok as a low quality brand. Furthermore, previous owners of the product will dissatisfied with the depreciation they suffered due to the price cut. This strategy can be implemented by launching layoffs to cut operational cost, reducing promotional efforts or reducing the quality of the product to cut price. Reducing quality is not suggested but always the best choice for most firms because cutting operational cost is a difficult task. If operational cost can be cut in this way, a firm will not likely to have the price cut because they want to enjoy a higher profit margin. Reducing the quality has risks of being noticed which might cause customer dissatisfaction and possibly bring negative impact on the brand image. If Reebok is forced to do so, it should slowly reduce the quality over a long period of time to minimize the chance of being noticed the differences. The third alternative is to further enhance the quality of the product. Reebok has highest quality of athletic shoes which caused the price to be so expensive; further enhancing the quality of product forces the customers to adapt to the price. The purpose is to balance the price to quality ratio in case to increase customer satisfaction. However, the pricing problem faced by Reebok is consumers not willing to pay so much for a pair of high quality athletic shoes; they just wanted an affordable one for fashion and casual purpose. In this case, increasing the quality of the product does not meet the need of the consumers and thus will not actually solve the problem.


We implement the Starbursting decision making method to select the best alternative. The method is carried out by asking a series of critical questions that related to the problem and answer them respectively with each alternative. A score is given to each alternative and the highest one will be selected. Below is the decision making process: After implemented the alternative, Q1. Who are the customers? Q2. What are the resolved problems and drawbacks? Q3. Why would customers buy Reebok now? Q4. How is the effectiveness of the alternative?

For first alternative, the customer range will be increased from working people with high income to teenagers and youth market. The alternative actually solved the pricing problem, which is too expensive for people without income or low income. It does not have significant drawback that might affect the products, customer loyalty or customer satisfaction. Customers are now buying Reebok because of the better perceived benefits; they want a pair of good quality athletic shoes in a fair price, regardless the intention is for fashion, casual or sporting purpose. It helps to maintain Reeboks high quality image while capturing a larger market share by widening customer range and customer purchase intention. For second alternative, the customers will also be increased from working people with high income to teenagers and youth market. However, the alternative does not actually solve the actual problem. It helps to increase market share but affect the image of Reebok due to low-price low-quality drawback. Previous owners would also dissatisfy with the depreciation. Customers are now buying Reebok because of the lower price; the reduced quality does not deliver better benefits to them. It helps to retain customer and enhance customer loyalty.

For third alternative, the customer range is still fixed in the same area. It does not solve the actual problem that customers are not willing to pay high for a pair of high quality athletic shoes. There is no significant drawback and it helps to increase customer satisfaction. Customers are still buying Reebok because of the old reason - they want a pair of high quality athletic shoes. It forces consumers to adapt to the price. As a result, A1 Q1 (Who) Q2 (What) Q3 (Why) Q4 (How) TOTAL 3 3 3 3 12 A2 3 1 1 2 7 A3 1 2 3 1 7

From above analysis, we select the first alternative because it actually solved the pricing problem faced by Reebok while helps to increase market share and sales. Although a price cutting and further enhance the quality would also be suitable, we should understand that Reebok should strive to serve the different needs of customer, not forcing the customer to adapt or reduce perceived benefits especially when Reebok is facing stiff competition with Nike.


Distribution Problem Reeboks major problem in distribution channel is their over reliance on retailers to sell their products. At 1982, Reebok invented the aerobic shoes technology, which adds risers to increase fitness level, to reduce chance of injuries and to stabilize the feet. However, this technology was denied exclusively by the largest retailer of Reebok, the Foot Locker. Relationship between the two parties then started to deteriorate and affects the sales of Reeboks product. On the other hand, Nike was putting effort to build long term relationship with these retailers, which eventually leaded to success. The reasons that Reebok will over rely on retailer to sell their products is due to the high operating cost of Reebok. Reebok was spending a lot of money in technology investment and high quality materials. Furthermore, Reebok was putting heavy efforts in advertising and promoting their products such as hiring celebrities and sponsoring soccer stars. Since Reebok is a global leading brand during that time, it is impossible for Reebok to build its own outlets globally. The difficulty in management is also a reason that prevented Reebok from having its own outlets.

The first alternative is to diversify marketing channel from exclusive distribution into selective or intensive distribution. In 80s, Foot Locker was the main and largest reseller of Reebok. When the relationship between them went wrong, Reebok would face serious distribution problem just like what they had faced. Since it is difficult for Reebok to build its own outlet, it should select several or more resellers to sell their products in case to prevent conflicts which would affect the sales and operating process of Reebok. If relationship with one retailer went wrong and affected sales, another retailer will help to cover the loss. To implement this, Reebok could sell their products through shopping channel such as Jusco, Walmart and Tesco. Furthermore, Reebok could establish its own shopping website to allow customers to place order via online (This had been

done by Reebok at 1990s). Another way to implement this strategy is to design a retailer reward. For example, if Reebok provides incentive to any retailers who is capable of selling 600 pair of shoes in each month, other retailers such as Finish Line Inc. and The Sport Authority Inc. will manually collaborate with Reebok for the incentive. It is an effective and efficient method to reduce the reliance of Reebok on single retailer. The second alternative is to build own retail outlets. With own outlets, Reeboks business can be easily identified by customers and thus lead to larger market share. Furthermore, customers will receive benefits such as convenience in shopping, receiving warranty or making complaints. It helps to develop brand loyalty and allows Reebok to have highest management control on each of these outlets. However, this alternative is unrealistic although Reebok has strong finance to support the implementation. Building own retail outlets required high capital costs to purchase inventories, hire human resources and renovate. Another reason that prevented this strategy to work is due to the difficulty in management. Since Reebok is a global brand, it is time consuming, expensive and difficult to manage each outlet. The chance of failure is high, however, if it succeeded, Reebok will become extremely competitive in the industry.

We applied the Decision Tree analysis method to make selection between these alternatives. It investigates the possible outcomes of choosing each option. It also helps to form a balanced picture of the risks and returns associated with each possible course of action.


Chance of success Extent to which the problem is solved

High Medium Medium Low Easy

Alternative 1

Return Cost Implementation

Chance of success Extent to which the problem is solved

Low High High High Difficult

Alternative 2

Return Cost Implementation

From the analysis above, the first alternative has higher chance of success and it is easy to be implemented. The extent to which the problem is solved is at medium level because Reebok will still have to rely on retailers and shopping channel to sell their products, but not on single retailer. It helps Reebok to diversify the distribution channel and thus reduce the degree of reliance. Since the cost is low and the return level is fair enough, we would suggest alternative one for Reebok. For second alternative, the chance of failure is high but it might also bring high return. Although it might actually reduce the reliance of Reebok on retailer or other marketing channel, the difficulty in implementation together with high cost lead to high risk of failure. Even if it succeeded Reebok will still have to face the management conflicts. In this case, since we consider the business should be on continuing basis in future, we do not suggest this alternative because it might collapse the whole organization.

3.0 Conclusion
Concluding above analysis and information, Reebok is facing sales drop and decrease in market share since 1989 where Nike rose to become the market leader. This is due to the changing trend that people are starting to view athletic wears as casual wears. They purchase fashionable athletic shoes (Nike) instead of high performing athletic shoes (Reebok). The product problem faced by Reebok is the unattractive designation of the shoes which leaded to loss in youth and female market share. This happens because Reebok is focused on product quality. Reebok should channel their investment in product technology into product design to capture portion of youth and female market in order to compete with Nike. This can be implemented by hiring design experts from other fashion product companies. The promotion problem faced by Reebok is the over-spending in narrow range of promotional activities which did not pay off. This is due to the inability of Reebok to make detailed analysis. They should diversify single promotional effort into different activities. They should also ensure the audience actually perceives the benefits in the message. This can be done by setting up a racing campaign which allows the participants to actually feel the performance while putting efforts in advertisement, sponsorship, public relation and sales promotion. The pricing problem faced by Reebok is the prestige pricing strategy which leaded to loss in low or non-income customers. This is due to the high quality materials and technology used in Reeboks products. They should produce medium-quality products that meet the needs of these low or non-income customers. This can be done by simply using medium-quality materials in medium-quality products. The distribution problem faced by Reebok is the over-reliance on retailer to sell their products. This is due to high organizational costs and global position of Reebok which caused them to have difficulty in building own retail outlets. They

should diversify their marketing channel rather than relying on single retailer such as Foot Locker. This can be done by designing reward system which provides incentive to retailers who are capable of hitting target to attract more distribution channel.

In this assignment, we have learned how to conduct detailed analysis on a company. We should first identify the symptoms via available figure data such as annual reports and sales reports of the company. After the identification, the second step is to analyze the problems associated with these symptoms. We can start from considering internal and external problems, 4Ps problems and eventually environmental factor such as competitors. We are then required to find out the causes behind these problems and thus develop possible alternatives. Lastly, we applied different decision making method to select the best alternative. For example, we first identified Reebok sales drop in 1985 as symptom which caused by the designation of product that leaded to customer loss in youth and female market. With SWOT analysis, the best alternative is to invest more in product design. We also learned how to make a good decision when facing difficult problem framing. For example, we have developed several criteria when choosing among similar alternatives for distribution problem. They are risk level, cost level, return rate, extend to which the problem is solved and difficulty level in implementation. By evaluating these criteria for each alternative, we are able to select the best alternative that actually benefits Reebok but not blindly select the alternative with highest return. Furthermore, we learned to properly apply marketing theories in real business situation. Although we did not practically apply them, we are able to match different situations with different marketing strategies for a company to solve problems in a theoretical way. It is better to learn how to evaluate the effectiveness of each strategy than merely understanding the theories.

4.0 References
1. Anonymous, Reebok Inc. Company Profile,, Accessed 18, July, 2010

2. Business Week, Reebok and Adidas,, Accessed 27, July, 2010

3. Anonymous, A history of Reebok, emmc_0001_0001_0_00245.html, Accessed 27, July, 2010

4. Boston Globe (1991), Reebok annual report gives new meaning to bottom line, An article about Reebok, Accessed 12, July, 2010

5 Craig Borysowich (2000), Pros & Cons in Alternative Evaluation,, Accessed 12, July, 2010

6. Foot Locker Inc., About Foot Locker,, Accessed 10, July, 2010

7. Gary Warnett, Nike Sportswear Journal 2,, Accessed 17, July, 2010

8. Reebok International Limited, About Reebok,, Accessed 10, July, 2010


9. Robert Harris (1995), Decision Making Techniques,, Accessed 18, July, 2010

10. Marketing Teacher Ltd., Nike SWOT analysis,, Accessed 12, July, 2010

11. Mind Tools Ltd., Decision Making Techniques,, Accessed 10, July, 2010

12. Nancy E. Landrum & David M. Boje, Strategies in athletic footwear industry,, Accessed 10, July, 2010

13. Nike, Inc., About Nike,, Accessed 12, July, 2010

14. Solepedia, Reeboks profile,, Accessed 18, July, 2010

15. Yahoo Inc., Foot Locker Competitors Analysis Table,, Accessed 18, July, 2010