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