New Balance Athletic Shoe Performance - Case Study Example

Running Head New Balance Athletic Shoe, Inc. New Balance Athletic Shoe, Inc. The case of new balance shows that strategic alliances and acquisitionsbetween world largest retailers and manufacturers change the nature of competition and requires new strategic moves from minor competitors. In order to compete with such giants as Nike, Adidas-Reebok, New balance should take into account its two most pressing strategic issues: lean manufacturing and restructuring of supply chain channels. When engaging in diversification, management must seek a balance between manufacturing efficiency and market desirability. As markets become more heterogeneous, and diverse products are developed to satisfy them, manufacturing efficiency will decline. In Diagram 10-1, product A, which is less heterogeneous than product B, may be the better manufacturing solution but not the better match with market needs. In reality, management seeks to develop a balance between product diversity and production feasibility. As markets mature and competitive pressures increase, more emphasis is given to product diversity. A challenging problem is the prediction of acceptance rates and market-development cycles. However, this cannot be done precisely at the start. But as companies gain better models and data, more precise market adjustments become possible. “If NB2E was to be successful—approaching Tompkins’ goal of 100% availability within 24 hours while reducing inventory levels—manufacturing cycle times had to be dramatically reduced. These changes required complete realignment of factory operations” (Bowen et al 2008, p. 11). This pressing strategy has two sides: on the one hand it will require additional financial spending and restructuring within the company, on the other hand it will help New Balance to respond effectively to increased market pressure. “Doing this would require us to reduce work in process significantly and get the line associates and supervisors to embrace that change. The real challenge would be to keep making shoes every day while this transformation was ongoing.” (Bowen et al 2008, p. 11). Product strategy is usually couched in terms of product success. However, management must be realistic about product failures -- new-product failure must be part of overall company expectations. Of course, newproduct failures can be eliminated by going out of business. But staying in business implies that new products will be developed and some will fail. Companies must determine an acceptable failure rate for their new products. Low failure rates are not always complimentary statistics, since they may indicate a lack of innovative ability and risk-taking (Crawford 2006). The second pressing strategy is structuring of supply chain. Successive channel stages attempt to overcome any discrepancy between product assortment and market requirements. Customer requirements of one or two units are at variance with supplier requirements of mass production. “In terms of manufacturing cost, labor and overhead each accounted for roughly 25% of the total, while materials accounted for the remaining 50%.” (Bowen et al 2008, p. 9).Channels are thus used to overcome barriers. These barriers include the separations of time and space between producers and markets, the costs of moving goods, the communications barriers between producers and users of products, and the separation of demand. In surmounting such barriers, middlemen serve two groups -- manufacturers and customers. Their economic justification stems from performance of their functions more effectively than others. “New Balance continued to forge closer partnerships with its suppliers” (Bowen et al 2008, p. 9). In order to improve the situation, New Balance could develop a new line of products targeted at low class consumers. The idea is to develop a product line which meets daily needs of a beverage consumer but its manufacturing process is based on professional sport shows technology and materials. In product development, for example, screening, consumer reaction, and sales plans are activities. Activities begin with and end with events. Effective planning requires that the activities be listed and joined into an efficient network that shows which activities must be performed sequentially and which can be performed concurrently. For example, screening of product ideas must occur before lab testing and package design. The product will meet basic needs of low class consumers who value professional sport wear but cannot afford Nike or Adidas. The proposed price will be 20 percent lower that an average price of professional sportswear. Thus, the main target group is young people (from 16-28 years old) who value unique image and brand. This target group values active and healthy life style (Crawford 2006). The second strategy deals with channels of distribution and new brand image. The idea is to open new Balance stores in New York, Sacramento and Washington, and sell new Balance products through retail chains. The main target audience is middle class consumers. Channel decisions influence prices, middlemen activities, and margins. They strongly affect inventory situations and production fluctuations, as well as marketing policies in such areas as advertising, branding, product lines, personnel selling, and physical distribution. Yet channel selection often receives less attention than such areas as the allocation of advertising budgets or the motivating of salesmen. Although a continuing task, channel selection is often treated as a decision to be made once for a relatively long period of time. Channel selection has great bearing on a companys financial requirements and market capability and vice versa. Given the total range of services supplied by a channel (the wholesaler, for example), companies are able to distribute to broader market areas and to expand their production capabilities. As distribution channels change, so do corporate financial requirements and resource positions. The product will be the same but it will be priced using skimming pricing strategy. The idea is to attract middle class consumers who value unique identity and healthy life style but do not willing to pay too much for such brands as Nike and Adidas. This group value quality and unique style. Market conditions suggest that the second strategy is more realistic for New Balance because it requires less investment and less risky. The first strategy is very attractive for the company but it requires hung financial investments and time for product development. The advantage of the second strategy is that New Balance knows its target audience and preferences, but will change channels of distribution and brand value. The recommended strategy will be introduced in two steps: The first step is to open two stores in New York, Washington and Sacramento. Time constraints: 1-3 months. Existed agents can be helpful in these cities and employed in stores. Managers designing distribution channels should adopt the perspective of the total channel rather than of the immediate link alone, as many are prone to do. The best results necessitate a total analysis of flow of product and title. Among the market factors that should be analyzed are customer habits and wants, purchasing requirements, degree of geographic dispersion, depth and breadth of market, trade practices, and control of channel desired. The second step is to sell products through giant supermarket stores. Tine Constraints: 2-3- months. Manufacturers may establish a sequential plan for distribution based on their own development. As this sequence progresses, a manufacturers control increases, and so do his financial and marketing responsibilities. The product features include perishability -both style and physical; type of product -- convenience, shopping, specialty, consumer, or industrial; large versus small purchases; and pricevalue relationships. From the manufacturers standpoint, the things to consider are the length of the line, the geographical distribution of markets, the location of markets, financial resources, marketing know-how, human resources, competitors arrangements, the services he is equipped to offer, and his expectations from the channel. As to the distribution structure, one needs to know the type of agents and middlemen available; the types of facilitating institutions; trade practices; the number of retailers; the location of retailers; margins; profits; turnovers; advertising allowances; merchandising help; and the image and reputation of the company. Implementation of the first campaign Send Direct mail - twice a month to existing customers TV ad - 7 times a day during a month Radio ad - 10 times a day during three months; Advertising in local Press Posters in transport; Calendars and wallcharts. The third step is control of sales. It will be important to analyze budget and revenues, response rates and changed perception of the brand. As the manufacturer grows in financial stability, capability, and product line, he may switch to limited use of wholesaler services or to a selling agent or broker, perhaps just in selected areas. Later he may employ manufacturers agents, and ultimately the companys own salesforce and branches. References Bowen, H. K., Huckman, R., Knopp, C-.I. (2008). New Balance Athletic Shoe, Inc. Harvard Business School. REV: JUNE 3, 2008. Crawford C. Merle. (2006). New Products Management. Irwin-McGraw Hill. 7th edition. Read More