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 80¶s ± 90¶s, 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. Reebok¶s 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 1986¶s, Reebok¶s 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.


we can see that Reebok had dominated the market in the early stage. This is due to Reebok¶s high quality and high performance athletic shoes which were attractive to most athletes.0 Contents Problem Symptoms 1. which has the highest sales. Their sales then averagely increased by $50million per year until 1993. Nike had a significant sales increase of $150million at 1989.2. Afterward. 3 . Sales drop From the graph above. Nike dominated the market because of fashionable and attractive design in their products. This period shows the trend that people started to view athletic wears as casual wears.

Reebok had 18 percent against 35. This is the area when competition is fierce between Nike and Reebok.7 percent of the market.2 percent for Reebok. against 24. This area indicates the domination of Reebok during the early stage. in 1985.3 percent for Nike. and Nike 23.3 percent at 1980¶s. 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. However.2. In 1990. Nike's market share was increased to 25 percent. The significant drop of Reebok market share is a problem symptom that caused by several problems which will be discussed later. 4 .

Unlike the young people. the unattractive design of the shoes is the major problem that caused Reebok to lose share in youth and female market. 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. especially female. the increasingly importance of outlook of athletic shoes for the youth growing market. They never have had a problem in the quality (in term of comfort. The purpose is to launch direct competition to attack its competitors such as Nike 5 . they invested heavily in new technology to increase performance ± the DMX technology. contrarily. This caused Reebok to lose customers from female and youth market compared against Nike. who care more about how fashionable the shoes look instead of how functioning the shoes are. who prefer a more classical design than a fashionable one. The reason that caused the market loss is. In this case. whose design is more fashionable for youth market. the endurance and durability of the product also indirectly formed another product problem as it prevented them from purchasing another pair of new shoes. instead.Product Problem Reebok has always been focused on the development and invention of high quality athletic shoes. cushion. it has strong finance enough to invest in the designation of the product. stability and performance) of their shoes. they purchase athletic shoes regularly for fashion purpose over sporting purpose. This is due to Reebok¶s target customer base is concentrated on athletes. which induced them to give up Reebok and purchase Nike. First possible alternative to solve this problem is to shift the product quality focus to product design focus. Since Reebok only produces high quality shoes and their customer base is mainly at athletes. The trend that teenagers are treating athletic shoes as casual wear was obviously seen in 90¶s. mainly middle aged people. Reebok is the market leader in the industry before 1990 when Nike¶s domination.

The second alternative is line extension. Another alternative is to increase advertisement effort to increase sales and capture share from youth market. Puma and Adidas actually do this before Reebok). Reebok will still have to face the fact of changing trend to sustain in the market. With SWOT analysis decision making method. ankle protectors. production and human resource department. It also helps to capture young female market who are previously not in the customer base of Reebok. sports equipment and even leather shoes. watches and leather shoes division has its own marketing. stocking. protective gauntlet. To implement. watches. finance. For example. Reebok could firstly divide the company into various divisions based on output category. Moreover.and Puma. each division will be efficiently responsible in its division performance. In this case. what we see today is Nike. Reebok could take advantage of their strong finance to hire top fashionable designers from other fashion product companies by providing them with high salary. it 6 . it required large amount of money for investment in related technology. bicycles. Reebok could avoid direct competition from Nike¶s fashionable athletic shoes with line extension strategy to widen the product width by manufacturing different product category such as athletic clothing. It is a good way to explore new market and to gain new potential customers. this will not actually solve the product problem mentioned because it would only temporarily help Reebok to gain some short-term sales. this alternative is unsustainable in long term basis. The purpose is to emphasize on quality instead of design of the products to influence the consumers to be more quality-focused. To implement. we can find that Reebok is powerful at quality and technology of their product. However. each of the clothing. it is unsustainable in long term basis because the competitors would probably follow the same movement in future (in fact. We would select the first alternative for Reebok since it will actually solve the product problem faced by Reebok. In this case. However.

Reebok might have difficulty in management problems and it still had to face the competition from other leading companies in that respective industry. In this case. 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. By selecting the first alternative. Reebok could still invest in the product technology and quality using the revenue generated from this strategy. It is a good strategy for Reebok to sustain in the industry in long term basis. If the second alternative failed.7% of their revenue in hiring more than 400 celebrities.also has sufficiently strong finance for investment in. For example. 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. they must take action to invest in this region to capture back the market share. Reebok had spent over 32. Furthermore. basketball stars and soccer stars to promote their products. which do not bring positive impact. Investment in design will cost less a lot than investing in line extension. Promotion Problem Reebok¶s major promotional problem is their heavy investment in narrow range of advertisement and promotional efforts with their strong financial structure. Reebok is spending money in ineffective advertisement that does not actually promote the quality of their products. To actually solve the design problem of Reebok. The only weakness is the design of their shoes. Reebok would face serious financial problem before earning any revenue and even if it succeeded. 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. these efforts did not pay off. This is due to the failure of Reebok to encode the message ± customers 7 .

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. A possible alternative is to do better analysis and diversify unnecessary cost of a single effort into other different types of promotional effort. During the race. Reebok¶s mistake in promotional effort is a major factor that caused them to lose their market leader position in 90¶s. On the other hand. the participants are given a pair Reebok¶s athletic shoes which should be returned after the race. comfort and performance of Reebok¶s shoes. delivering benefits. It is expensive and devastating if the promotional activities did not meet the expectation and return. 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. consumers will not actually understand the differences. 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. it would cost the company¶s blood when it fails to meet the target. When spending too much in a single promotional activity. In this case. Eventually. When Reebok want to promote the quality. Firstly. the promotional effort should be more tangible. One example to implement is to set up a racing campaign worldwide to promote the quality of the shoes. Reebok could divide the money spent on single advertisement into different activities. they should not rashly make decision on promotional activities without detailed analysis. Furthermore. participants could actually feel the quality. Although Reebok had very strong finance at that time.incorrectly decode the message as athletes are the one who brought the victory. Reebok did not know that although it was a new technology. but not the shoes. To diversify the promotional efforts. the effort failed and brought Reebok into a serious financial crisis. For 8 . Reebok had made a wrong decision on advertising media during 90¶s when facing stiff competition with Nike ± it heavily and aggressively advertised the new ³instapump technology´ shoe via television and print media and expected an unrealistic sale of $100m.

instead of spending heavily in hiring celebrities to promote the products. The benefits such as increased sales. Furthermore. which are not attainable by applying the second alternative. In first alternative. the racing campaign we mentioned above can possibly be further expanded into a tradition event in each region. When the benefits are greater than the cost. public relation and sales promotion. We select the first alternative based on the cost-benefit analysis decision making method. Reebok could simply reduce the sponsorship and advertising effort on celebrities to reduce cost. However. the increased sales and larger market share in future will definitely cover these heavy costs. However. sponsorship. This could help Reebok to reduce operational cost and thus channel them into product design or technology development.example. which permanently reminds the consumers that Reebok is a high quality athletic brand. A reduce in advertising and promotional cost will not align to achieve these objectives. These benefits are significantly important to help Reebok to sustain in the sport industry in a creative manner. a direct cutting of promotional cost would not create these benefits. in second alternative. To implement. 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. Second alternative is to cut promotional and advertising cost. 9 . increased market share. increased brand awareness or increased brand image should be greater than the promotional cost. Reebok diversifies single type effort into different promotional activities to further enhance these benefits. Reebok should simultaneously diversify the cost into advertisement.

The causes would be the quality. Besides hiring a large number of celebrities or sporting stars to promote their products. Reebok failed to have their products launched cost effectively and thus lose some potential customers such as teenagers or young people. Since the current trend at that time is to treat athletic wears as casual wears but not actually for sporting purpose. while still serving the athlete customers who actually wanted a pair of high performance but expensive shoes. All these had lead to high operational cost for Reebok. Reebok also hired about 500 unnecessary employees to run the company during this period. Reebok is forced to set the price high. Unfortunately. To cover these costs and enjoy a proper rate of profit margin. It also helps to maintain the high quality image of Reebok¶s product. 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. 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. Moreover. Reebok could 10 . durability. 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. Reebok was heavily boosting its promotional activities and investing in technology during that time to enhance their products. 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. In this case. which eventually caused them to face serious financial crisis. performance and stability of Reebok¶s products. this prestige pricing strategy became the major problem of Reebok.Price Problem Reebok had the most expensive price for each pair of athletic shoes during 80¶s. To implement this.

reducing promotional efforts or reducing the quality of the product to cut price. if Reebok offers low-price athletic shoes. This strategy can be implemented by launching layoffs to cut operational cost. When customers¶ perceived quality worth the price. there are also drawbacks to this alternative. It can help Reebok to capture other portion of customers who like to do a price-quality comparison. If Reebok is forced to do so. In this case. the pricing problem faced by Reebok is consumers not willing to pay so much for a pair of high quality athletic shoes. However. they just wanted an affordable one for fashion and casual purpose. Reducing the quality has risks of being noticed which might cause customer dissatisfaction and possibly bring negative impact on the brand image. increasing the quality of the product does not meet the need of the consumers and thus will not actually solve the problem. 11 . they are more satisfied and thus develop brand loyalty to Reebok. further enhancing the quality of product forces the customers to adapt to the price. The third alternative is to further enhance the quality of the product. some customers might perceive Reebok as a low quality brand. It helps Reebok to retain loyal customers especially when facing the invasion from Nike. If operational cost can be cut in this way. Reebok has highest quality of athletic shoes which caused the price to be so expensive.simply use medium-quality materials and technology on these medium quality products. Reducing quality is not suggested but always the best choice for most firms because cutting operational cost is a difficult task. it should slowly reduce the quality over a long period of time to minimize the chance of being noticed the differences. The purpose is to balance the price to quality ratio in case to increase customer satisfaction. a firm will not likely to have the price cut because they want to enjoy a higher profit margin. previous owners of the product will dissatisfied with the depreciation they suffered due to the price cut. The second alternative is to cut price to gain market share. For example. However. Furthermore.

It helps to increase market share but affect the image of Reebok due to low-price low-quality drawback. It does not have significant drawback that might affect the products. How is the effectiveness of the alternative? For first alternative.We implement the Starbursting decision making method to select the best alternative. they want a pair of good quality athletic shoes in a fair price. What are the resolved problems and drawbacks? Q3. the customers will also be increased from working people with high income to teenagers and youth market. the reduced quality does not deliver better benefits to them. It helps to maintain Reebok¶s high quality image while capturing a larger market share by widening customer range and customer purchase intention. regardless the intention is for fashion. the alternative does not actually solve the actual problem. Who are the customers? Q2. Previous owners would also dissatisfy with the depreciation. A score is given to each alternative and the highest one will be selected. Below is the decision making process: After implemented the alternative. casual or sporting purpose. customer loyalty or customer satisfaction. which is too expensive for people without income or low income. Why would customers buy Reebok now? Q4. The alternative actually solved the pricing problem. Customers are now buying Reebok because of the better perceived benefits. Customers are now buying Reebok because of the lower price. It helps to retain customer and enhance customer loyalty. For second alternative. However. the customer range will be increased from working people with high income to teenagers and youth market. Q1. The method is carried out by asking a series of critical questions that related to the problem and answer them respectively with each alternative. 12 .

There is no significant drawback and it helps to increase customer satisfaction. Although a price cutting and further enhance the quality would also be suitable. we select the first alternative because it actually solved the pricing problem faced by Reebok while helps to increase market share and sales. It forces consumers to adapt to the price. Customers are still buying Reebok because of the old reason .they want a pair of high quality athletic shoes. It does not solve the actual problem that customers are not willing to pay high for a pair of high quality athletic shoes. 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 should understand that Reebok should strive to serve the different needs of customer. As a result.For third alternative. 13 . the customer range is still fixed in the same area. not forcing the customer to adapt or reduce perceived benefits especially when Reebok is facing stiff competition with Nike.

which adds risers to increase fitness level. Furthermore. Reebok would face serious distribution problem just like what they had faced. Since Reebok is a global leading brand during that time. Relationship between the two parties then started to deteriorate and affects the sales of Reebok¶s product. Reebok could establish its own shopping website to allow customers to place order via online (This had been 14 . Reebok could sell their products through shopping channel such as Jusco. Reebok was spending a lot of money in technology investment and high quality materials. At 1982. On the other hand. 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. which eventually leaded to success. to reduce chance of injuries and to stabilize the feet. Nike was putting effort to build long term relationship with these retailers. The first alternative is to diversify marketing channel from exclusive distribution into selective or intensive distribution. The reasons that Reebok will over rely on retailer to sell their products is due to the high operating cost of Reebok. In 80¶s. However. When the relationship between them went wrong. this technology was denied exclusively by the largest retailer of Reebok. Furthermore. The difficulty in management is also a reason that prevented Reebok from having its own outlets. Foot Locker was the main and largest reseller of Reebok. Since it is difficult for Reebok to build its own outlet.Distribution Problem Reebok¶s major problem in distribution channel is their over reliance on retailers to sell their products. Reebok invented the aerobic shoes technology. it is impossible for Reebok to build its own outlets globally. another retailer will help to cover the loss. Walmart and Tesco. If relationship with one retailer went wrong and affected sales. Reebok was putting heavy efforts in advertising and promoting their products such as hiring celebrities and sponsoring soccer stars. To implement this. the Foot Locker.

and The Sport Authority Inc. it is time consuming. We applied the Decision Tree analysis method to make selection between these alternatives. 15 . It helps to develop brand loyalty and allows Reebok to have highest management control on each of these outlets. Building own retail outlets required high capital costs to purchase inventories. The chance of failure is high. will manually collaborate with Reebok for the incentive. It is an effective and efficient method to reduce the reliance of Reebok on single retailer. With own outlets. Reebok will become extremely competitive in the industry.done by Reebok at 1990¶s). if Reebok provides incentive to any retailers who is capable of selling 600 pair of shoes in each month. if it succeeded. however. It investigates the possible outcomes of choosing each option. receiving warranty or making complaints. other retailers such as Finish Line Inc. Another reason that prevented this strategy to work is due to the difficulty in management. For example. It also helps to form a balanced picture of the risks and returns associated with each possible course of action. Reebok¶s business can be easily identified by customers and thus lead to larger market share. The second alternative is to build own retail outlets. this alternative is unrealistic although Reebok has strong finance to support the implementation. However. hire human resources and renovate. customers will receive benefits such as convenience in shopping. Since Reebok is a global brand. Another way to implement this strategy is to design a retailer reward. Furthermore. expensive and difficult to manage each outlet.

the chance of failure is high but it might also bring high return. In this case. Even if it succeeded Reebok will still have to face the management conflicts. Although it might actually reduce the reliance of Reebok on retailer or other marketing channel. For second alternative. It helps Reebok to diversify the distribution channel and thus reduce the degree of reliance. since we consider the business should be on continuing basis in future. but not on single retailer.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. we do not suggest this alternative because it might collapse the whole organization. the difficulty in implementation together with high cost lead to high risk of failure. we would suggest alternative one for Reebok. 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. 16 . Since the cost is low and the return level is fair enough.

They 17 . They should diversify single promotional effort into different activities. This can be done by simply using medium-quality materials in medium-quality products. The promotion problem faced by Reebok is the over-spending in narrow range of promotional activities which did not pay off.0 Conclusion Concluding above analysis and information. This happens because Reebok is focused on product quality. They should also ensure the audience actually perceives the benefits in the message. 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 inability of Reebok to make detailed analysis. This is due to high organizational costs and global position of Reebok which caused them to have difficulty in building own retail outlets. The distribution problem faced by Reebok is the over-reliance on retailer to sell their products.3. 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 is due to the changing trend that people are starting to view athletic wears as casual wears. Reebok is facing sales drop and decrease in market share since 1989 where Nike rose to become the market leader. This can be done by setting up a racing campaign which allows the participants to actually feel the performance while putting efforts in advertisement. The product problem faced by Reebok is the unattractive designation of the shoes which leaded to loss in youth and female market share. sponsorship. This is due to the high quality materials and technology used in Reebok¶s products. They should produce medium-quality products that meet the needs of these low or non-income customers. They purchase fashionable athletic shoes (Nike) instead of high performing athletic shoes (Reebok). This can be implemented by hiring design experts from other fashion product companies. public relation and sales promotion.

extend to which the problem is solved and difficulty level in implementation. we are able to match different situations with different marketing strategies for a company to solve problems in a theoretical way. We are then required to find out the causes behind these problems and thus develop possible alternatives. Although we did not practically apply them.should diversify their marketing channel rather than relying on single retailer such as Foot Locker. we have learned how to conduct detailed analysis on a company. 4Ps problems and eventually environmental factor such as competitors. It is better to learn how to evaluate the effectiveness of each strategy than merely understanding the theories. After the identification. return rate. 18 . the best alternative is to invest more in product design. Lastly. we are able to select the best alternative that actually benefits Reebok but not blindly select the alternative with highest return. They are risk level. In this assignment. the second step is to analyze the problems associated with these symptoms. we learned to properly apply marketing theories in real business situation. For example. cost level. We also learned how to make a good decision when facing difficult problem framing. Furthermore. we applied different decision making method to select the best alternative. For example. We should first identify the symptoms via available figure data such as annual reports and sales reports of the company. With SWOT analysis. By evaluating these criteria for each alternative. we have developed several criteria when choosing among similar alternatives for distribution problem. We can start from considering internal and external problems. 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. This can be done by designing reward system which provides incentive to retailers who are capable of hitting target to attract more distribution channel.

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