Under Armour - Assignment Example

? GEB 4890 Group Project Draft Part 3 Fawaz Alsubaie 10/22 Part I – Internal and External Analyses Under Armour is an apparel, footwear and accessory business that markets to men, women, and children. Their main product is moisture-wicking fabrics that can be worn in most climates to provide performance alternatives to the traditional sportswear. These fabrics are offered in a variety of styles and help regulate body temperature and increase performance in all weather conditions. Under Armour sells their products worldwide and are worn by many athletes in various sports, as well as people with active lifestyles. One of the climate related products is HEATGEAR. This product is to be worn in hot temperatures and keeps the body cool and dry because of its microfibers. Another climate related product is called COLDGEAR. This product keeps the body dry and warm by circulating heat from hot spots on the body to help maintain core body temperature. Under Armour’s final climate related product is ALLSEASONGEAR. This product is to be worn in any temperature. The fabric keeps the wearer cool and dry in the heat and prevents a chill in the cold. Under Armour’s current marketing strategy is to market its products primarily to customers who participate in sports, fitness, outdoor, and training activities. They execute this strategy through professional and collegiate sponsorships, individual athlete agreements, and outfitting agreements. Because of this, Under Armour can be seen on the field, fiving them exposure to the consumer via live sporting events and television. Under Armour is the official footwear of the NFL and the MLB giving them national recognition. The University of South Florida, University of Auburn, and the University of Maryland and many other colleges are all sponsored by Under Armour. Internationally, Under Armour provides uniforms for the Tottenham Hotspur Football club and the Welsh Rugby Union. By sponsoring and providing uniforms for all these teams, Under Armour is able to become a recognized brand in sports. Under Armour’s retail marketing strategy involves increased brand floor space for their products in major retail businesses. Due to increased sponsorship of sports teams allows Under Armour to be recognized easily in stores and have specified areas specifically for Under Armour products. Wholesale channels including sporting goods stores, department store chains, institutional athletics departments, and specialty retailers are responsible for the majority of Under Armour sales. Under Armour also have specialty and factory stores throughout North America and certain countries in Europe to sell strictly Under Armour products to consumers. Internationally, Under Armour competes in North America, Europe, Asia, and Latin America. North America makes up for about 94% of Under Amours total revenues. The two largest customers in North America are Dick’s Sporting Goods and Sports Authority. In Europe, products are sold to about four thousand retail stores and through the Under Armour website. Under Armour has had a license agreement since 2002 with Dome Corporation that sells, markets, and produces its products in Japan. In China, Under Armour has two specialty stores in Shanghai and also distributes products to customers through a third party logistics provider. Under Armour also sells its products in Latin America through independent distributors, which are distributed from factories in the United States. Financial Performance Under Armour Nike Adidas 2010 2011 2012 2010 2011 2012 2010 2011 2012 Revenues 1.06B 1.47B 1.83B 20.89B 24.12B 25.33B 16.23B 18.03B 20.15B Net Income 68.48M 96.92M 128.39M 2.13B 2.22B 2.46B 891M 823M 709M Under Armour’s current strategy seem to be working well. They have increased their revenues by .77 billion dollars since 2010. Under Armour has almost doubled the amount of net income over the past three years as well. When looking at their competitors Nike and Adidas, the amount of revenue that they create is far more than Under Armour. This is due to the fact that they have been in the market for many years. Nike still continues to create high levels of revenues and net income, and have not had any setbacks the past three years. Adidas on the other hand has still been creating a large amount of revenues but have had a decrease in its net income of about 180 million. This could be due to having increased costs or paying back certain loans. With Under Armour’s current strategy and its intent to get into the international market much more, these revenues and net income will increase by a substantial amount. They should be able to compete highly with Nike and Adidas in the next few years and gain more national and international recognition. Strengths -Currently deals with professional and college level programs -Brand awareness -Athletic protection gear loyalty Weaknesses -Funding compared to competitors -Not as many business adventures as their competitors -International awareness is weak compared to Nike and Addidas Opportunity -Restructure their current products -Expand to international Sports -Invest in everyday apparel (sweat suits, basketball shirts, T shirts) Threat -More established competitors -Not as much revenue as their competitors -Inability to create new innovations Compared to its current competitors, Under Armour is extremely weak in the international market. If they plan to maintain a sustainable relevance they must invest more in their international markets to become more established overseas. As of last year their revenue from international sales were just at 6% whereas those of their competitors were made that profit more than 7 times over. This company has the ability to become more successful due to its support from professional and college level sports but more on the college level. They need to work more in the marketing area by signing a few big name athletes to be the face of their brand. This tactic will most definitely boost revenue being that people all around the world watch US sports, especially football. Another way to make improvements is to invest more in the shoe department like their competitors currently do. Yes, they make cleats and such but they could raise revenue by creating a shoe for a pro athlete and began competing in that area. In addition, this will bring customers to their apparel department being that normally when companies make shoes for athletes they create clothing to match the footwear. By doing this they will be bringing awareness to their clothing and overtime can be as strong as Nike and Addidas. Major Competitors The two major competitors selected for our analysis were Nike and Adidas and a competitive analysis has been done. The above two companies are placed on top in the sportswear industry. Apart from that strategies and management styles followed by these two companies are often emulated by other emerging companies. Thus, Nike and Adidas were selected in order to analyze and critically evaluate the sportswear industry and its overall functions. Nike Nike was founded in the year 1962 Phil Knight and Bill Bowerman under the name of Blue Ribbon Sports (Nike, 2013). As of now, the company is engaged in manufacturing and distribution of shoes as well as sports equipment, athletic apparel and subsidiary ventures. Corporate Strategy The corporate strategy of the company is reflected in its mission statement which aims to become leading fitness and sports goods producing firm in the world. The corporate strategy has been established keeping in mind the corporate social responsibility. The company also uses innovation in order to make quality apparel and footwear. The company devotes a vast amount of resources in its research and development activities. In order to be a leader in its category, the company has established standards in its each product development stage. Considering the overall results of the firm as well as its overall operations, it is clear that the corporate strategy of the firm is related to its core business i.e. production of fitness and sports related footwear , clothing and other related items. Business Strategy Nike’s business strategy relies on specialty thermoplastics. The organization is determined to fulfill customer needs by developing innovative solutions in order to meet those needs. The objective of the strategy is to provide those quality products to consumers which are not available in the general marketplace. The existing strategy of the firm is clearly focused upon differentiation as Nike attempt to produce premium products aimed at high end of the consumer market. Through differentiation, firm focuses upon developing technologically advanced products catering to the different niches within the market. International Strategy For international expansion, Nike’s major targets are Japan, Brazil and Europe. The company has also started extensive marketing in emerging countries such as China, Indonesia, Singapore, India, Sri Lanka etc. The global business strategy of the company is to sell high quality and low cost athletic shoes around the globe. In order to do this, the company hammers on constant innovation, aggressive marketing and launching quality products. In order to gain brand acceptance, the company has also started manufacturing tailor-made products for different locations and regions. In terms of advertising and promotions, the company uses a mix of local as well as global strategies to attract the consumer attention. International strategy of Nike is focused upon developing a global strategy with uniform communication message being portrayed across all the markets. Future Strategy There is more focus on the sustainable development and Nike is focused upon the development of technology which can ensure sustainable development of new products. The major emphasis of the future strategy is on de-coupling the profitability of the firm from the constrained resources and introduces sustainability across portfolios, product development as well as governance. The future strategy of the firm is therefore geared towards the development of technologies which can ensure sustainable development and innovation. Adidas- second Competitor Adidas is one of the top selling sportswear brands. The company was established in the year 1924. The official Adidas was registered in the year 1948 and the currently headquartered in Germany (Adidas Group, 2013). Corporate Strategy The company runs on the corporate vision of becoming the global leader in sporting goods sector. The brands of the organization are built on a foundation made from a sporting lifestyle and passion for sports (Adidas Group, 2011). The organization follows a multi-brand strategy. Putting together style and quality in its products, the company aims to establish long term and lasting relationships with its customers. Adidas plays as a niche and mass player, tapping opportunities from every segment of the demographics and providing relevant as well as distinctive products. The company is also involved in merging and divesting other sporting goods, footwear and apparel entities. It also implements strategic tools for matching product line with known sports celebrities. Business Strategy The business strategy of Adidas is based upon differentiation wherein it attempts to produce premium products to its target market. It focuses upon differentiating its products through effecting technologies such as air cushioning in shoes, sweat resistant socks and innerwears etc. the overall focus of business strategy of Adidas is upon producing goods which can distinguish themselves from competitors due to their quality as well as technological advancement. International Strategy In order to make a strong foot hold in the global locations, the company has engaged itself in many global branding and communication strategies. The brand uses tactics such as sponsorships and sports promotion in order to connect with international audience. The organization has involved in strategic international launches such as special athletic shoes for runners launched especially during the London Olympics. In order to tap the international consumers the company is involved in multi-sports branding. The organization has a history of associating itself with major international sports such as FIFA, Olympics, International hockey etc. In order to connect with the local audience, the company uses local and well-known brand ambassadors. Adidas therefore follows global strategy wherein it standardizes its offerings and sale goods which are relatively standardized across all its markets. Through its presence in various countries, Adidas executes global strategy to offer standardized products across all niches of the market. Future Strategy Adidas is focused upon diversifying its product base so that it not restricts itself to the sportswear. It is geared towards developing itself as a premium fashion brand also. Adidas is also focusing upon bringing in more innovation and is now offering a comprehensive package combined with free smartphone apps to help its consumers manage their fitness and health in more appropriate manner. There is also focus on tailor-made offerings allowing consumers to buy tailor-made shoes which fit into the overall needs and requirements of the consumers.1 Part II – Strategic Recommendation We plan to enter into the deodorant market by starting a joint venture with Procter & Gamble (P&G). P&G is an American company and operates globally in consumer goods market. It has a diversified range of products including detergents, pet foods and personal care products. Fast Moving Consumer Goods industry typically produces goods which are consumed quickly and at relatively low prices. This industry specifically caters to the products which are consumed in day to day life including soaps, shampoos, cleaning agents etc. Typically, firms operating in this industry are multi-nationals in nature and are some of the largest firms in the world. They manufacture such things as Tide detergent, Bounty paper towels, and Charmin toilet paper. Proctor and Gamble’s Old Spice deodorant has become very popular with their witty commercials and abundance of sport athletes that endorse them. P & G and Unilever account for over 65% of the total deodorant market share. “Deodorants are projected to see retail value growth of 8% in constant terms over the forecast period to reach US$3.2 billion in 2017.” Proctor and Gamble would benefit from this joint venture because it will help them expand into the sports market and increase sales in their deodorant line. This joint venture would also help Under Armour because it allows them to enter into this growing market at a cheaper price. The deodorant line we would like to start would be called Under Arm Armour, which is similar to our corporate name Under Armour. We plan on using a best-cost strategy in the business level to set ourselves apart from other deodorant companies and offer lower prices to outcompete them. Our deodorant will focus on marketing to people who play sports, just like our current corporate strategy. Our line of deodorants will have sweat blocking technology that reduces the amount of sweat when doing sports activities. It will also feature a long lasting and powerful high performance fragrance that will block odors during sports. Since Old Spice currently has a large lineup of sport athletes such as Troy Polamalu and Wes Welker, it would allow us to use existing marketing strategies as well as obtain new athletes to promote this new product. Currently, Old Spice is only creating deodorants for men. With this new joint venture, we will be offering deodorant for men and women in the sport community. Our new strategy will pass all three tests for a winning strategy. The first is the fit test. Our new product will focus on sport athletes and the odor that they produce while playing sports. Our strategy is a good fit for the industry because our name is already well known in the sport community. People will recognize our logos on the field, then at the store will recognize it when they pick out deodorant. Proctor and Gamble are also one of the largest competitors in the market, allowing us to use their knowledge to better sell the deodorant. Our resources of sports athletes is a great fit to help market a deodorant focused for sports. Our product will pass the competitive advantage test because it is backed by college and professional sport athletes, unlike other deodorant companies. It will also be easier for Under Armour to obtain more athletes to sponsor the deodorant because Under Amour and Old Spice are already household names. The extra-long scent of the deodorant will give Under Arm Armour a competitive advantage because of its specific molecular formula to block odors for hours and reduce sweat. We plan in the future to team up with various sports teams to create deodorant specific for each team, for example a Tottenham Hotspur Deodorant. The final winning strategy test would be performance test. Both Under Armour and Old Spice have strong market standing in their individual fields, and combining to make Under Arm Armour should create strong profits and financial strength. They would also have competitive strength because both of our companies are well known. Our new strategy will also pass all three diversification tests. The first being the industry attractiveness test. Entering into the deodorant market would produce greater profits for Under Armour. Every athlete should wear deodorant when playing sports so that they do not produce overbearing odor on the court or field. The will be a surge in buying our deodorant product because of our well-known name in the sports industry and our low price. The second test is the cost of entry test. This should not be very expensive for Under Armour because we are forming a joint venture with Old Spice, who currently makes deodorants. The third test is the better off test. Under Armour will be better off entering into this new market because it is already focused on sports. With clothing and deodorant for sports, it allows Under Armour to perform better than just having an apparel line. Our new strategy will build shareholder value because of increased profits by entering into this new market. Since Under Armour and Old Spice are well known products, this new joint venture is very attractive for new investors as well as current ones. Since we passed every winning strategy and diversification test, this will also boost shareholder value. Our new strategy will also be attractive for investors because we are not only marketing to men, but also to women. Upon doing a market analysis of the deodorant industry, we found that is has increased by 16% since 2006 and is currently going strong. Teens are driving the market with about 92% of them using deodorants. There is a strong rivalry between deodorants such as Axe, Old Spice, and Right Guard. Since we are creating a joint venture with Old Spice, it will give us an advantage above other rivalries in the deodorant market as well as make it easy to enter into the industry. The only substitute for deodorants would be body sprays that can be used as a deodorant, but the fragrance is not long lasting and does not reduce sweat production. Because we are entering into a joint venture with Procter & Gamble, we would have a strong power over our supplier since they are a large company. When it comes to buyers, deodorant is needed to smell good and over 92% of Americans use it. This new strategy is consistent with our internal resources and external environment because we already have partnerships with sports teams and athletes, allowing us to market our deodorant using the same people. We are well known in the sports community, which allows this new product to quickly be recognized and purchased by our customers. We can use our sport marketing know how to quickly market our new sports deodorant to athletes and people who participate in sports. We can sell our product in retail stores next to our clothing lines as well as in the deodorant isles of supermarkets. Part III-Strategy Implementation Structure The current structure of Under Armour consist of multiple vice presidents that control each unit of Under Armour such as women’s apparel, team sports, and men’s, youth and accessories. A vice president should be assigned for the creation of the deodorant line. The vice president should have knowledge of sports marketing as well as experience with product sales to help quickly sell the deodorant to sport athletes. The deodorant line will have the same general structure as the other divisions of the company with a vice president at the head, and several managers below that manage the product line operations, marketing, and distribution. Allocating Resources Our new strategy will require that ample resources are allocated to the deodorant line to help with a quick start-up. Proctor and Gamble will put resources from their current deodorant line to help create the line for Under Arm Armour in one of their current buildings. They will also allocate employees with current knowledge of deodorant to help with the creation of Under Arm Armour. Under Armour will allocate resources for R&D and marketing to help create new forms of deodorant and market to athletes. Under Armour will also use their current partnerships with sports teams to help endorse the new deodorant. Proctor and Gamble’s distribution knowledge will help us quickly ship our newly created deodorant to retail stores throughout the world. A budget will need to be created based on current industry knowledge and future expectations to correctly fund the new deodorant line, but not to over or under fund. Building Competences and Capabilities Proctor and Gambles’ current competences and capabilities will enable good strategy execution for our Under Arm Armour. Their knowledge of deodorant formulas and distribution knowledge will help for a seamless transition into this new product line. Under Armour will share their competencies in sports marketing and partnerships with professional teams will allow Under Arm Armour to be quickly recognized and sought after. It is also important to note that P&G have a globally developed market which is not only diversified in nature but is also well spread. P&G’s overall business diversification in different product markets along with presence in different geographic regions may offer us an ample opportunity to actually tape into the local knowledge of P&G. The relatively diverse distribution network of P&G can offer an opportunity for the firm to actually cross-sell its other products also thus making it relatively easier for the firm to find other channels of distribution with minimum costs. It is critical that the firm must be able to utilize this distribution network and develop further strategic alliances which can help it to grow in other international markets. In order to further build on the competencies, it is important to first highlight those competences and capabilities which are relatively hard to replicate. Under Armour has historically remained one of the important brands in certain parts of the world. However, to further expand in other parts of the world where purchasing power of the consumers may not be as high as that in developed countries, it is important that the firm must focus on low cost strategy. To further penetrate into the existing as well as the new markets, it is important that a focus should be on reducing the costs to the level where it becomes affordable for masses. Considering the overall business scenario of the firm and its ambitions to expand into international markets, it is important that the firm should focus on low cost strategy. Current strategy of differentiation and focus on a very select niche may not offer firm opportunities to expand successfully in international markets. The dynamics and consumption patterns of the consumers in less developing or emerging economies may be relatively different as compared to the consumers in developed world. It is therefore critical that the firm must develop its core competencies through following the strategy of differentiation as well as the low cost. It is however, important that both these strategies may be executed differently according to the different markets. In developed markets, firm may be able to focus on differentiation and work on a selected niche however, especially in Asian countries, firm may need to focus on low cost. Countries like India offer huge potential for deodorant products because of the hotter weather therefore making a low cost product can work really well in such markets. The overall focus therefore needs to be on developing core competencies through developing low cost strategy. Firm needs to focus on developing different variations of the product which can be offered at various prices so that different strata of the niche market can be catered effectively. By developing low and high end deodorants with the help of P&G, firm can actually expand its overall market size as well as cater to the needs of a diversified range of customers in developed as well as developing markets. Staffing the Organization The management team will consist of a few managers from Proctor and Gamble’s Old Spice division and Under Armour’s strategy and global brand marketing divisions. Proctor and Gamble will be in charge of hiring employees for the manufacturing and distribution of the deodorant. Under Armour will hire employees to help market the deodorant to sport athletes as well as making sure that operations are compliant with the current strategy. Both companies will work together on R&D and Under Armour will be in charge of Human Resources. http://www.euromonitor.com/deodorants-in-the-us/report Read More