Marketing Channels Report:
Under Armour
Done by:
Stephen Fishel
Grafton Elliott
Kaitlin Arbogast
MKTG 357-001
Under Armour is one of the leaders today in the sporting clothes and accessories
industry. The company, which is based out of Baltimore, has annual sales of around $2.25
billion dollars and is continuing to grow (Kell, 2013). Currently, Under Armour offers a total of
five product lines including Cold Gear, Loose Gear, Turf Gear, All-Season Gear, and Heat Gear
(Under Armour Placement). The firm takes pride in its innovation where it has come up with
shirts that monitor heart rate, shoes that mimic the human spine, and the tape-replacing
cleat. Clearly, Under Armour’s main target market is athletes of both genders. However, they
do cater to the everyday-person with their Loose Gear product line (Under Armour Placement).
With the company continuing to grow at a fast pace, Under Armour’s distribution
strategy becomes a more important focus. There are a multitude of competitors in the industry
forcing Under Armour to have a distribution strategy that gives them a sustainable competitive
advantage. Their biggest competitor in the industry is Nike who brings in an annual revenue of
around $25 billion (Nike, 2014). A solid distribution strategy will increase sales and give the
company an edge over others in the industry.
Stage #1: Recognize the Need for a Channel Design Decision
As it stands today, Under Armour uses a selective distribution strategy, or a multichannel distribution design, as their method for getting their product to consumers (Under
Armour Placement). The company chooses the retail stores that would be the best fit for selling
their product, which is mainly sporting goods stores. They also sell directly to the consumer
through their website (direct channel) as well as selling wholesale to the previously mentioned
sporting goods stores (Under Armour Placement). Under Armour’s principal customers include
places such as Dick’s Sporting Goods, Eastbay, and Sports Authority.
While Under Armour’s distribution strategy has proved successful over the years, there is
the prospect that the company could establish a competitive advantage by focusing more on
directly selling to their customers through its website because of the projected growth of online
retailing in the next several years. The company must keep its wholesalers as a means of
distribution due to the profits it receives from them. In a statement made in 2005, Under Armour
says, “Approximately 90.5% of our net revenues were derived from wholesale distribution”
(Under Armour Placement). However, there should be more of a focus on directly selling to its
customer through its website. E-commerce is growing at a fast pace and is becoming the
preferred way to shop by consumers. Online retail sales are expected to grow from $225.5
billion in 2012 to $434.2 billion in 2017 (U.S. E-Commerce Sales). Under Armour should take
these statistics into account and focus more on e-tailing while still selling to their wholesalers.
Taking into account Under Armour’s target market (athletes), the company could find a
niche in providing its customers with personalized or customized goods where they have an input
in product design. It is also a good idea to offer this option because Nike allows their customers
to customize products. In order for Under Armour to compete, they must keep up with the
competition and offer similar, if not better options to the consumer.
Stage #2: Set and Coordinate Distribution Objectives
While the need for total change in Under Armour’s distribution strategy is not necessarily
needed, there should be more of a focus on directly selling to the consumer. Selling directly to
the consumer will be in coordination with the firms overall distribution objectives, which is to be
the market share leader in the sporting apparel industry (Under Armour Executive Summary,
2014). When focusing on delivering products directly to the consumer, Under Armour’s main
distribution objective should be to deliver value to consumers through the ability to personalize
and customize their own products.
While delivering products through the company’s website will be one of the main overall
distribution objectives, it will affect other areas of the marketing mix. The product, price, and
promotion must be congruent with the overall distribution objective. Due to the nature of
customization and personalization, the price for the product ordered must be raised because of
the resources used to produce it. The product will be of higher quality, which will match the
price, and the promotion must be ramped up to raise awareness to the public that customization
and personalization can now be done for the every-day consumer. If these four areas are
congruent, it can lead to long term profits for Under Armour.
Stage #3: Specifying the Distribution Tasks Needed to Meet Objectives
In order for Under Armour to complete its distribution objectives, a series of distribution
tasks must be completed. Allowing customers to customize their own products is a value cocreation method. This method involves the customer in the production process, thus making
them feel attached to the product and company. Designing an effective distribution task model
will enable Under Armour to obtain a sustainable advantage in the online retail market.
The first task is gathering marketing research on the buying habits of Under Armour’s
target market. Obtaining information on what customers are buying will help the company
determine what products to offer as customizable options. The two most common customizable
products today include shoes and sunglasses. If our market research uncovers a more popular
product line, Under Armour will explore customization options. The second task is promoting
online customization to Under Armour’s target market. In order to make customers aware of the
product offering, Under Armour must create promotional advertising. Promoting the online
customization options in sporting goods stores and other retail locations will ensure the new
distribution objective will be recognized.
The third task includes maintaining inventory storage to ensure customization options
are readily available. New customization options translate to new manufacturing methods and
materials. Ensuring that these materials are always available to manufactures will enable Under
Armour to keep up with the online customers demand. The fourth and fifth tasks are centered
around successfully selling the product to the customer. These tasks can be accomplished by
fulfilling customers’ online orders and staying ahead of the competition.
Once sales have increased, the next step is allocating the proper resources to the high
sales items. At the beginning of this new channel design, all resources will be separated evenly.
Over time, these once evenly allocated resources are weighed heavily on the most popular sales
items, ensuring supply is able to reach demand.
The personalization of Under Armour products makes the after sale service extremely
difficult. These products must hold the best warranty to secure customer satisfaction, but it will
also require return restrictions. Customized products are designed for the use of only one
customer, making the resale options unavailable.
Stage #4: Developing Possible Alternative Channel Structures
Under Armour has three possible alternatives for their channel structure. All levels are
currently used by Under Armour with great success. Regardless of the channel structure, it all
begins with the manufacturing plants. Under Armour’s products are primarily manufactured in
Asia, Central and South America, and Mexico. These plants allow Under Armour to employ
factory workers for an extremely low labor cost, thus creating a sustainable advantage (Under
Armour, 2014). According to Under Armour, all manufacturing plants are carefully “evaluated
for quality systems, social compliance and financial strength by our quality assurance team prior
to being selected on an ongoing basis” (Under Armour, 2014). A particular prerequisite for
obtaining a position within Under Armour’s channel structure is the ability to perform multiple
manufacturing steps. This is an example of disintermediation as Under Armour attempts to seek
out intermediaries that can perform several distribution tasks, thus reducing the cost of goods
sold (Under Armour, 2014).
Under Armour also has one “quick turn” special make-up manufacturing shop in Glen
Burnie, Maryland. This shop is strictly for the purpose of manufacturing products that are on a
short deadline. This allows the company to eliminate the overseas shipping cost of products,
while meeting the needs of high- profile athletes, leagues, and teams who account for a high
percentage of Under Armour’s revenue.
The first possible channel structure includes a two-level channel design. This design
includes the flow of products from manufactures to end users. This channel structure is driven by
customers who purchase products directly off the company’s website. Products are then
transported via ship, plane, and truck to the end user of the product. Using an exclusive level of
distribution, Under Armour attempts to use the least amount of channels as possible. This
technique lowers the transportation cost, allowing Under Armour to receive more profit from
personalized products.
The second channel structure includes a three-level channel design. A three- level design
includes the flow of products from manufacturers to wholesalers to end users. This is a selective
distribution strategy as UA attempts to carefully choose the intermediaries involved in the
channel. Customers are encouraged to purchase products at an “Under Armour Brand
House”. Under Armour currently has five brand houses on the east coast making their brick and
mortar accessibility limited.
Under Armour's most profitable channel today is a four-level channel design. This
design incorporates the flow of products from manufacturer to wholesaler to retailer and then to
end user. Using an intensive form of distribution, this channel design attempts to incorporate as
many channel structures as possible. The main benefit of this design is increased customer
service. Every great company incorporates a great customer service program and with a high
number of channel structures the options are limitless.
Stage #5: evaluating the variables effecting channel structure
After discussing the possible scenarios for channel structures, it’s important to now
evaluate several macro variables to determine how they are likely to influence the potential
alternative channel structures. Market variables are the most fundamental to consider when
designing a marketing channel. They are made up of four basic subcategories including market
geography, market size, market density, and market behavior. Market geography refers to the
geographical size of markets and their physical location and distance from the producer or
manufacturer. Under Armour has approximately 120 US “Brand House” retail locations within
49 states. This includes Under Armour Speciality Stores in Maryland, Massachusetts, and
Illinois, as well as Factory House locations in 34 states from Maine to California, as well as a
Factory House in Canada. Multiple retail stores can also be found in China. They also have
offices located in Hong Kong, Toronto, and the Netherlands. As stated in phase four, most
Under Armour products are manufactured in Asia, Central and South America and
Mexico. They seek out vendors that perform multiple manufacturing stages, such as procuring
fabric and providing finished products, helping to reduce the cost of goods sold. Their Special
Make-Up Shop, where a limited number of products are manufactured, also helps them to
provide superior service to select customers.
The market size is the number of customers making up a given market. Their operations,
located both domestically and internationally, give them the opportunity to reach potential
customers all over the world making their market size substantially large.
The market density of Under Armour is fairly high, especially in certain cities such as
New York and Hong Kong. These areas contain a mass amount of people in a limited parameter,
making them highly dense. A highly dense market benefits Under Armour by granting them the
option to eliminate intermediaries, making distribution less difficult and expensive.
Market behavior refers to four types of buying behaviors: How customers buy,
when customers buy, where customers buy, and who does the buying (Rosenbloom,
2004). Under Armour divides their target market between high level sports teams and individual
consumers. Under Armour’s individual customers typically buy in small quantities based on
what sporting event is in season. Therefore, customers buying patterns are highly seasonal.
Under Armour also sponsors a vast majority of college and professional sports teams,
such as the Maryland Terrapins and the Baltimore Ravens. These orders are purchased in bulk
quantities for the purpose of supplying apparel for full teams. Bulk order of this nature are
purchased on a seasonal basis to ensure the companies uniforms are worn through the entire
sporting season.
Under Armour products are extremely durable so many repeat purchases come
from customers that need different attire for each sporting season. For example, consumers
participating in winter sports, such as skiing or snowboarding, have a need for cold gear. Spring
and summer sport participants in Lacrosse, Football, or indoor sports such as Volleyball have a
desire of warm gear. The versatility of products available for consumers gives them the option
to choose what will enhance their individual performance for whatever sport or activity they
participate in. Consumers are able to buy Under Armour products from their e-commerce site, as
well as their channel member sites such as Dicks Sporting Goods and Sports Authority. They
can also purchase products from the physical retail stores and Under Armour’s Brand Houses.
The major buyers of Under Armour apparel include, parents of children participating in
sporting activities, high school and college athletes and well accomplished sports
teams. Athletes have always been the main target market of Under Armour’s market
campaign. However, this does not limit Under Armour’s target market because anybody can
wear their apparell.
When looking at the products themselves, there is a lack of standardization in terms of
customization. This affects the channel design in that there are less need for intermediaries since
the product will not be sold in mass to the general public. The more customization a product has,
the less need there is for channel members to carry it.
The most important company variables affecting channel design are size, financial
capacity, managerial expertise, and objectives and strategies (Rosenbloom, 2014). Under
Armour is a large firm giving a high degree of flexibility in choosing their channel structure. As
a large firm, they also have power bases such as reward, coercion, and expertise that enable them
to exercise a substantial amount of power in the channel (Rosenbloom, 2014).
Hello and welcome to the personal portfolio of Kaitlin Arbo
Under Armour has a $397 million capital surplus in which they can spend in various
areas (Yahoo!Finance). Their large amount of capital allows them to not be as dependent on
their intermediaries. It also provides them with the ability to afford the high costs of their retail
stores, warehousing, and processing capabilities.
Unlike some firms, Under Armour possesses the managerial expertise necessary to
perform their distribution tasks. Their Chief Supply Chain Officer (CSCO), James H. Hardy, Jr.
is fundamentally in charge of the entire product life cycle, including the design of goods,
sourcing, manufacturing and movement of goods from their point of origin around the globe to
the end-consumer’s point of use. He has previously served as Senior Vice President of
Operations and Corporate Vice President of Supply Chain for Hospira, as well as various supply
chain management leadership positions for a multiple of other major corporations. His years of
experience with supply chain management helps Under Armour to gain a sustainable advantage
in the market.
Since products purchased through the website will be customized, Under Armour will
need a higher level of control over the products in order to meet its objectives. This will limit the
use of intermediaries when it comes to customizable/personalized products. There will also need
to be a promotional effort in order to let the public know that the option to customize products
can be done.
Next, intermediary variable play a big role in meeting the company’s overall
objectives. Since there are not a lot of adequate intermediaries that handle custom made
products, there will need to be a custom channel that will provide strong technical expertise as
well as custom-designed apparel and footwear.
Environmental variables can also affect the channel structure. Under Armour must be
concerned with horizontal competition with companies such as Nike and Reebok. There will
also be intertype competition with channel intermediaries such as Dick’s Sporting Goods and
Under Armour Brand Houses. Customizing products gives Under Armour a competitive edge
due to the lack of competitors offering that option to consumers. The channel design should be
set up to sell directly to the consumer because it is the most efficient and effective way to
distribute the product.
The technological environment also plays a role in channel design. Technology alone
allows for consumers to customize their own products through the internet. Technology is not
only beneficial to consumers, but it is beneficial to Under Armour itself. The internet lets Under
Armour provide a highly efficient means for gaining access to, organizing, and sharing virtually
unlimited amounts of information to and from consumers. The internet is a type of “electronic
marketing channel’ which allows consumers to shop from home. This is the channel design that
would work best for customizable products.
When it comes to considering behavioral variables, the most important variable to
consider is power. Under Armour has the use of legitimate power when it comes to customized
products. They need to be able to control their distribution objectives making the use
of legitimate power necessary. Since there will be less need for intermediaries, Under Armour
will have most, if not all, control over the distribution of customized products.
Stage #6: Choosing the “Best” Channel Structure
After considering all possible channel structures and the many variables that associate
with each, the best channel design for individual customized products is a two-level design that
sells directly to the consumer. It is also necessary to have warehousing where the products are
stored before being shipped to the consumer (similar to Amazon’s model). For bulk orders, such
as entire team orders, Under Armour can use specialty manufacturers such as their facility in
Glen Burnie, Maryland. This manufacturing facility is able to process custom bulk orders on a
tight deadline for teams and high-profile athletes (Under Armour). We as a group agree that this
channel design is most efficient in getting customized products to the end-user. As stated earlier,
customized products do not need to be held by intermediaries because of the cost and also the
nature of the product itself.
Stage #7: Select the Channel Members
Since our channel design involves directly selling to the end-user, we have little need for
intermediaries. However, since Under Armour relies heavily on wholesale distribution for most
of their profits, intermediaries will still need to be involved. When taking a look at current
Under Armour intermediaries, there are three criteria that make them suitable for achieving the
company’s overall marketing and distribution objectives. Their current intermediaries have sales
strength, large size, and market coverage. For example, Dick’s Sporting Goods has annual sales
of around $6 billion making them extremely profitable (Marketwatch, 2013). You can also find
Under Armour intermediaries almost anywhere making them accessible to the general
public. There are also inducements that Under Armour can offer to their channel members for
motivation purposes. Under Armour can provide promotional and advertising support, with
$397 million in excess capital, and also provide strong, well-known product lines. These are
critical inducements that can be used in order to achieve the company’s overall goals.
References
(Marketing channels textbook)