What enabled Adidas to be the Market Leader in

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adidas Case Study
By: Ray Moorman
Dan McLinden
Tom Anderson
Kyle McDaniel
Jeremy Smiley
Primary Question for adidas
Does adidas's corporate strategy, including
recent acquisitions and restructuring, stay
true to its brand while positioning itself to
improve shareholder value and challenge
Nike as the leader of the global sporting
goods industry?
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Secondary Questions
What enabled adidas to be the market leader in the past?
How did adidas lose the lead to Nike?
What has the adidas brand represented in the past and what
does it represent today?
How has adidas' corporate strategy changed over time,
specifically before and after the 2005-2006 restructuring?
Have adidas' acquisitions helped improve their position
against the competition?
What role do developing countries have in adidas's future
success and how is adidas positioned in those countries?
Should adidas be concerned about losing North American
market share to Nike?
Is there another corporate strategy adidas should be
pursuing?
What enabled adidas to be the
Market Leader in the past?
Product
Innovation
Analysis – adidas was an
early entrant into athletic
shoe industry. They
developed many of the
features still present in shoes
today.
Strong presence in Olympics
and soccer.
Created a strong brand based
on high quality, innovative
products that top athletes
choose to use in training and
competition.
Track and Field
• 1925:studs
and spikes
• Arch
support
• 1949 –
molded
rubber
cleats
• 1952 screw in
spikes
Soccer
• 1954 –
screw in
spikes
• 1963- Began
producing
soccer balls
• 1967 –
athletic
apparel
Results
• Over 700
patents
• Strong
reputation
among top
athletes
• 1970 –
leading
brand in
consumer
jogging
shoes
Marketing
Innovation
•Developed strong following
with top track and field athletes.
Gave shoes to
German
athletes in
1928
Olympics
•Applied this same model years
later with soccer shoes and
apparel.
75% of track
and field
athletes
wearing adidas
in 1960
Olympics
•Successful because adidas was
creating innovative, high quality
products.
•Product innovation
enabled marketing
innovation.
•Different than Nike –
marketing is what set them
apart from the start.
2 stripe (and
later 3 stripe)
brand
78% of athletes
wearing adidas
at 1972
Olympics
How did adidas lose the lead to
Nike?
How Did adidas Lose US Market Share to Nike?
Nike
adidas
Nike emerging in the 70’s
Innovative leader dies in1978 –
quality declines, innovation drags
Aggressive launch new styles –
going after youth and fitness craze
Dedicated to competitive athletes
Large endorsement contracts –
sign Michael Jordan
Passed on Michael Jordan
Focused, aggressive, dedicated
leadership
8 years of management and
ownership changes
Outsourcing of manufacturing to
Asia
Costly German manufacturing
facilities
How has adidas's corporate
strategy changed over time,
specifically before and after the
2005-2006 restructuring?
adidas’s Evolving Strategy
Return to form via
restructuring…
Loss of focus…
Adi’s
leadership…
Focused on athletic
footwear/apparel.
Success factors are
marketing and
product innovation.
Focused on Puma, while
Nike underestimated.
Tries to catch up via
acquisitions which
yields product breadth
instead of
specialization.
Design and
Innovation,
differentiated image
for brands, improved
retail and supply
chain
Back to Basics
• POS
experience
• Able to
educate
customers
• Various
setups:
• Mono
brand
• outlet
• ecomm
• team
shops
Supply Chain Efficiency
• Partner
with
Sporting
events
• Notable
athletes to
sponsor
• Superior
Customer
service
Controlled Retail
• 1 major
product
innovation
expected
per year
from each
business
unit
Brand Differentiation
Product Innovation
adidas’s Current Strategy
• New styles
quick to
market
• Low
production
costs
• Responsive
to market
place
Improved advertising, marketing,
manufacturing efficiency
What has the adidas brand
represented in the past and what
does it represent today?
adidas’s Brand
Company
Time Period
Brand
Success?
Dassler Brothers’
Shoe Factory
1920s → 1940s
Innovative athletic shoes for world
class athletes
adidas
1950s → 1970s
Athletic apparel and innovative
footwear for the world class athlete
and recreational jogger.


adidas
1980s → mid 1990s
N/A – Lack of quality and innovation.
No definable brand essence.
adidas-Solomon
1998 → 2005
N/A – Footwear, apparel, and wide
range of sports equipment. No
definable brand essence.
adidas AG
2005 → present
Performance enhancing athletic
footwear/apparel for competitive
athletes and stylish comfortable
footwear/apparel for casual lifestyle.


TBD, but
trending

adidas is most successful when it has a clear definable brand essence.
A Closer Look at Brand Today
adidas AG
adidas
Sport Performance
Innovation
 Endorsements
 Sponsorships (UEFA and Olympics)
 80% of branded sales 2007
 10% increase in sales in 2007
Sport Style
 20% of branded sales 2007
Small R&D = large profit
 1% decline in sales in 2007
adidas Overall
Europe – Market leader, low growth
NA – Small market share, low growth
Emerging – Market leader, high growth
Sport Performance and Europe give the most sales,
but Sport Style and emerging markets present the
most opportunity.
A Closer Look at Brand Today
 Bad reputation (quality, innovation, styling)
adidas AG
Reebok
 Loyal following in women’s general fitness
Endorsements strengthening
Sponsorships (NFL, MLB, NHL)
Rockport casual men’s shoes
~7% decline in sales in 2007 (NA and Europe)
Strong growth in Latin America and Asia in 2007
Reebok has baggage from past, but the necessary
changes have been made. US is stagnant but other
markets show promising growth.
A Closer Look at Brand Today
adidas AG
TaylorMade
 Sales in overall industry have declined
Product innovation
Endorsement contracts with PGA Tour pros
Leader in drivers, fairway woods, hybrids
Weak in irons, wedges, putters, balls
Strong growth in apparel and golf shoes
Performance has been strong overall, but changes in
the industry have caused recent declines.
The Importance of Brand Identity
adidas is not a manufacturer.
95% of production is
outsourced.
adidas, at its core, is an R&D
and marketing firm.
Brand image is adisas’s most
important asset.
Have adidas’s acquisitions helped
improve their position against
the competition?
Salomon Acquisition: Was it
Successful?
Product Line Before
Product Line After
Athletic Shoes
Athletic Shoes
Athletic Apparel
Athletic Apparel
Ski Equipment
Golf Clubs
Bicycle equipment
Winter Sports Apparel
•Conclusion: Paid 1.5bn to diversify product line. Surpassed Reebok
as world’s 2nd largest sporting goods company, however…
adidas’s Stock Price
60
Stock Price (in euros)
50
40
Adidas Stock Price
30
20
10
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
•Stock price fell soon after acquisition in 1998, Salomon divested
except for Taylor-Made Golf line. adidas overpaid for acquisition.
adidas after Salomon was divested
Product Line
Before
Athletic Shoes
Product Line
After
Athletic Shoes
Product Line
After Divestiture
Athletic Shoes
Athletic Apparel
Athletic Apparel
Athletic Apparel
Ski Equipment
Golf Clubs*
Golf Clubs
Bicycle
equipment
Winter Sports
Apparel
•Net addition was TaylorMade golf
TaylorMade-adidas Golf Sales by
Product Line
350
300
250
Sales 200
(in millions)
150
Metalwoods
Apperal
Footware
100
Other Hardware
50
0
2004
2005
2006
2007
Year
Conclusion: TaylorMade/adidas has been able to keep sales up
through athlete endorsements even though USGA rules have limited
tech advances & an industry decline in the number of golfers.
2007 TaylorMade/adidas Golf Sales
Breakdown
MetalWoods
Other
Hardware
31%
MetalWoods
42%
Apperal
Footwear
Other Hardware
Footwear
9%
Apperal
18%
Conclusion: Use adidas’s
marketing model of track &
field/soccer shoes to gain
more sales in footwear &
apparel.
SWOT Analysis for Reebok
Weaknesses
Strengths
•Strong in hockey, football and baseball
•Loyal female customer base
•Past success in marketing
•Strong stable of professional athlete
endorsements
•Poor reputation for quality and
innovation
•Greg Norman golf apparel brand
•Limited distribution channels
Opportunities
• Encouraging sales growth in Latin
America and Asia
•Economies of scale with adidas supply
chain and distribution
Threats
• Possibility of cannibalization if sold in
same place as adidas products
• Still third in market share in its
strongest market, North America
Reebok
Acquisition
•On paper it looks like Reebok’s
product portfolio, endorsements
and relationships round out
adidas and together they can join
forces to overtake Nike.
•Issue is can management
overcome Reebok’s reputation
for poor quality and lack of
innovation?
•Can two companies come
together with such different
cultures and focus?
•adidas – product
innovation and commitment
to quality
•Reebok – marketing focus
adidas
Reebok
Basketball
Hockey
Running
Baseball
Soccer
Football
What role do developing
countries have in adidas's future
success and how is adidas
positioned in those countries?
adidas is a global player
•43% of sales from Europe,
which is slowest growth
market
•Encouraging that #1 in
developing eastern
European market, Russia
expected to be most
profitable market in
Europe by 2010
•2006 acquisition of Reebok
not enough to overcome Nike
in North America
•Growing number of sales in
Asia market, fueled by adidas
success in China.
•Strong demand and
large population
Net Sales by Geographic Region
6%
Europe
22%
43%
North America
Asia
Latin America
29%
Net Sales in Emerging Markets
2500
2000
1500
Asia
1000
Latin America
500
0
2000 2001 2002 2003 2004 2005 2006 2007
Analysis – strong growth trend in sales in two very attractive emerging
markets. Growth may be result of adidas brand strength in soccer, world’s
most popular sport.
Regional Footwear/Apparel Markets
Region
Size
Market
Growth
Rate
adidas Sales adidas Sales
Growth
adidas
Position
North
America
$42.5 billion
3%
$2.9 billion
5%
#2 behind
Nike
Europe
N/A
2% (20%
Eastern
Europe)
$4.3 billion
8%, mainly
in Russia
#1
Asia
3.2 billion
people
13% (South
and Central)
15% (China)
$2.2 billion
17%
#1
Latin
America
N/A
N/A
$657 million
39%
#2 behind
Nike
Analysis – adidas is strong in several developing markets (Eastern Europe,
China) but its focus and acquisitions have been geared towards overtaking
Nike in the large, but slow growth North America market.
Should adidas be concerned
about losing North American
market share to Nike?
Retail Store Strategy
2006
2007
adidas Retail
Locations
875
1003
Reebok Retail
Locations
283
430
adidas AG Geographic
Revenue Performance
5000
4000
31.5%
3.2%
3000
5.0%
106.4%
-9.4%
*Acquired Reebok
2000
17.6%
27.8%
1000
1229.2%
32.6%
11.6%
Europe
North America
Asia
Latin America
56.4%
31.7%
0
2004
2005
2006
2007
Key Growth Potential:
Europe – continue focus on soccer (including endorsements) and build brand
loyalty
Asia/Latin America – increase distribution network and brand awareness
- All three regions averaging double-digit growth rates
TaylorMade Advantages
Shift to International
Markets
Strength in
Metalwoods
Revenues from Asia:
1999 – 13% of total
2007 – 35% of total
Metalwoods currently
hold number one
ranking.
Decreasing reliance
on U.S. Market:
1999 – 69% of total
2007 – 52% of total
Irons hold less than
half market share of
industry leader
Strong Apparel Presence
Over 70 touring pros
lift apparel presence.
Golf balls have seen
limited success
Conclusion – TaylorMade should hold U.S.
market share in U.S. given the brand’s
strengths, however, TM is only 8% of adidas
AG global revenues. TM cannot help adidas
overtake Nike in U.S. market
TM
8%
Reebok
23%
adidas
69%
adidas Global Revenue Sources (2007)
6.4%
Remaining regions =
71.3% of revenues
22.1%
42.8%
Europe
North America
Asia
Latin America
Conclusion – The majority of
adidas’s revenue streams are
outside U.S. market and are
growing significantly – let Nike
lead U.S. market but dominate
Europe and emerging markets.
N.A. market 28.7% of
revenues
Reebok Global Revenue Sources (2004)
11.4%
21.4%
12.5%
Europe
United Kingdom
United States
Other Countries
54.7%
Conclusion – Use adidas’s
control and production
efficiencies to enhance Reebok’s
distribution network in U.S. to
increase U.S. revenues.
U.S. market 54.7% of
2004 revenues
Is there another corporate
strategy adidas should be
pursuing?
Alt Strategy Options
• Use adidas as revenue driver outside of U.S.
market – restructure Reebok strategy to
capitalize on historic revenue performance in
U.S.
– Decrease number of adidas retail outlets in U.S. convert to Reebok retail
– Increase Reebok U.S. endorsements
• Use adidas global distribution to further
increase TaylorMade international revenues
Slides that follow
still need to be
placed or cut.
External Environment: PEST
Category
Issue
Political
Operating multi-nationally – awareness of
cultures, laws, image, environment, regulations
Economic
Current state of economy – customers may be less
willing to pay for higher priced items
Extreme forces in competitor pricing.
Threats/Opportunities
Ranking
(1-5)
Threat- mistakes can be
costly
2
Threat – high quality
means higher prices
2
Opportunity – supply chain
efficiencies and multiple
distribution channels
4
Social
Keeping up with the wants of the younger
generation
Opportunity – Reebok’s
strength in this area
4
Technological
Product innovation is a key driver in the industry
Opportunity – core
competency for adidas
4
Porter’s 5 Forces
Threat of Substitutes
Low
Bargaining Power of
Suppliers
Low
Intensity of
Competition
High
Bargaining Power of
Buyers
Threat of New
Entrants
High
Low
Porter’s Five Forces
Factor
Description
Impact
•adidas’s strength is product innovation and meeting customer
expectations
Low
•Strong presence of established brands and distribution channels
•Customers already loyal to their brand
•Huge resources required of new entrants
Low
•Huge number of buyers means adidas must market products
effectively
•Must be able to differentiate from the competition
•Buyers more conscious of their spending
•Buyers have access to more information
High
Bargaining Power of Suppliers
•Multiple sources of materials for shoes and apparel – commodity
status
•Suppliers are very dependent on adidas and others
•Ease in switching suppliers if necessary and can do so globally
Low
Competitive Rivalry
•Recent acquisitions in industry
•All competition has global reach – internet and e-commerce
•Remaining a leader is expensive – aggressive sales and marketing
•Always struggling to get a competitive edge
High
Threat of Substitute Products
Threat of New Entrants
Bargaining Power of Buyers
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