Product Innovation Project for Adidas - Case Study Example

Product Innovation Product Table of Contents Introduction 2 Product Selection 3 Product Innovation Charter (PIC) 3 Opportunity identification, evaluation and selection 4 Concept generation and evaluation 5 Description of selected product 5 Market Analysis 6 Market Segmentation 6 Potential market and the size of demand 7 Development 11 Launch and Commercialization 14 References 17 Bibliography 18 Introduction Sport is a sector which has undergone a constant innovation following the change in trend occurring around. Sport is never related to any particular national or region and this boundary-less nature makes it so dear to everybody. Many companies are directly related to sports related products, and Adidas is the biggest brand names of the lot. Adidas was founded by Adolf Dassler, in the year 1924, when it started producing sport shoes. The shoes of this company were worn for the first time in the 1928 Amsterdam Olympics. This was the first success of company in the global market and from then onwards it never looked back. Soon the product range of Adidas expanded and its product basket comprised of not only sports shoes, but also of all other sports gears related to almost all sports like basketball, football, running etc. Adidas registered itself in 1949 in Fürth which is near Herzogenaurach with an official name “Adolf Dassler adidas Sportschuhfabrik” (Adidas Group, P. 2). 70 years latter, in 1989 the Dassler Family separated from the company and the enterprise was transformed into a corporation. Another major incident occurred in 1997 when the company was acquired a new name, “adidas-Salomon AG”. A new chapter in the company's history was added in January 31, 2006, when it acquired another very famous sports related company called Reebok International Ltd (Adidas Group, P. 2). In the year 2009, the company has calibrated its 60th anniversary and announced its partnership with the entertainment company named Cirque du Soleil for developing innovative gym especially for women (Adidas Group, P. 25). The company's assets comprise consumer focus, innovation, globalization, and high dedication toward financial results (Adidas Group-b, “Our Value”). Adidas is a diversified company which maintains diversified product portfolio, and in the European market, they are considered as the market leaders. The company is also targeting other emerging markets like India, Brazil, Argentina, Chile, etc. For Adidas, each and every customer is unique in terms of their requirements, so the company tries to innovate user specific and cutting edge design for addressing specific requirements. Such innovations help customers to differentiate Adidas's product from other competitors and to retain this strategy, the company launches at least one new technology or introduces changes in existing technology every year. (Adidas Group-c, “Strategy”). Product Selection In an invention process, the most difficult section is product selection, because it has been found that almost 40 percent of the new products which are launched fail before gaining good market share. So, the success rate is just 60 percent. But again it has to be done with absolute care because innovation is a constant process which requires proper planning. Before starting any kind of activity related to product innovation, one has to identify the need for a new product? Actually, there are many factors that compel companies to think for innovation in their products and services. These factors are creating increasing competition in both global and international market, changing regulatory environment world wide, technological up-gradation, and most importantly changing customer needs due to change in life style. Product Innovation Charter (PIC) For new product innovation, one should understand what Product Innovation Charter (PIC) stands for. In a nut shell, it can be described as the strategy adopted by the innovation team. Basically, it comprises of documents that specifies under which condition the company is operating. A study conducted by PDMA reveals, around 75 percent of the firms have some kind of new product development policy prevailing before hand; 29 percent of the firms have formally written complete documents of PIC; 80 percent of the firms maintain at least certain section or phrases of PIC in formalized state (McGraw-Hill/Irwin – “Do Many Firms Have a PIC?”). The following steps have to be followed during new product innovation: Back ground- The main aim at this phase is to identify the major reason behind PIC development, an in-depth analysis of the industry, competitors, and other market condition which the company is planning to enter, has to be carried out. This will provide the required background for taking the new product innovation process into consideration. Focus- The team must identify at-least one technology and one market dimension that match with each other and both should indicate potential. Goal and objectives- The main objective of innovation has to be identified along with the fact that whether it is a short term goal or a long term objective. Guidelines- The rules related to the whole process of innovation, regulation which has to be taken care and other factors like time, cost, and quality related factors are to be finalized. Thus, the road for innovation process is built (McGraw-Hill/Irwin – “Do Many Firms Have a PIC?”). For new product development, Adidas group already has a PIC policy, which has been created as per the company's core competency and the customer requirements. Opportunity identification, evaluation and selection The company is maintaining dual strategy, firstly, of retaining the existing market where they already have good market share and secondly, entering in a new market, especially the developing countries. Due to economical downturn, developing countries came out as high potential destinations for many companies and taking advantage of this, Adidas made the strategy to launch a new product keeping developing countries in focus. Concept generation and evaluation At present the company’s product portfolio comprises wide range of product like sport gears, clothing and accessories and toiletries. But the core competence of the company is mainly in sports related products, hence, the next innovation should be in the same direction. The market for many high cost items like shoes and other accessories (jerseys, shirts, shorts, sweatshirts, tracksuits, swimwear, eye gear, caps bags) are facing the impact of market slow down, on the contrary, FMCG goods are slowly catching the market and their demand is incensing in developing countries. So, the company has made a plan to launch a new health drink, named “adi-health”. Description of selected product The new innovative product will be adi-health, which will mainly target those customer segments which are highly conscious regarding their health and fitness, it’s no more the sport person who wants to retain a balanced body, many youths, middle aged people and even the old aged men and women are getting more and health concious. This new product will contain high protein and other nutrients in a balanced state. The drink will be available in different volumes and with different flavors so that consumers have enough choices. Market Analysis It refers to analyzing demands and identification of the target market where the company can foresee high potential for the new product. Under market analysis, companies use different kinds of marketing tools to determine the size of demand regarding the new product that will be launched. For this, the Adidas group will conduct analysis of their past performance data for all possible sources and then with any marketing analysis tool (like BASS model), they will try to quantify the future demand in regional basis. At present, the company plans to launch its new product in three markets: India, Brazil and Hong kong. Market Segmentation The main objective of segmenting is to identify that very segment of market which the company should focus on for attaining higher sale and high market share. Also, for a company it is not possible to customize their product as per the individual's requirement. So, market segmentation strikes a balance between different needs of the customer and the company's potential to produce (Dibb & Simkin, p.15). Potential market and the size of demand Adidas group conducted an in depth research work to identify the potential region where they can launch their new product, and collected much vital information such as: criteria India Brazil Hong kong Total population 1,166,079,217 (July 2009 est.) 198,739,269 7,055,071 (July 2009 est.) 15-64 years group 63.6% (male 381,446,079/female 359,802,209) 66.8% (male 65,804,108 female 67,047,725) 74.6% (male 2,551,256/female 2,713,532) Population growth rate 1.548% (2009 est.) 1.199% (2009 est.) 0.504% (2009 est.) urban population 29% of total population (2008) 86% of total population (2008) 100% of total population (2008) GDP (purchasing power parity) $3.297 trillion (2008 est.) $1.993 trillion (2008 est.) $306.6 billion (2008 est.) GDP (real growth rate) 7.4% (2008 est.) 5.1% (2008 est.) 2.4% (2008 est.) GDP (per capital) $2,900 (2008 est.) $10,200 (2008 est.) $43,700 (2008 est.) Population below poverty line 25% (2007 est.) 31% (2005) NA (Source: Central Intelligence Agency, “World Fact Book”) Comparison between three nations Total population Population between age group of 15-64 year Population growth rate per year Urban population GDP (purchasing power parity) GDP (Real growth rate) GDP (per capital) Population below poverty line Such analysis help in identifying the size and nature of demand in future, on basis of which the company can plan their other vital strategic plan like production plan, cost determination, fixing of price and profit margin, marketing plan and other publicity related facts. The company analyzed that all three markets have one common feature that it increasing attraction toward sports, this can be either for professional field or even maintenance of good health. For example after the 2008 Summer Olympic, China emerged as a strong sport performer. This will inspire them to maintain there high perform in future also; the country people will participate more actively in future. The case is same for India and Brazil which are emerging as strong participant in different sports sectors. To penetrate the market, company will maintain cost quite low and the product will be available in small size unit so that population who belong to below poverty line (BPL) can easily try the product. Development a) Full Product Protocol Statement The product protocol is also known as product requirements or product definition. In practical it has been proved that product protocol plays a vital role in the success of a company and its new product development. This statement makes the role of the marketing and R&D departments and the ways in which the management should come up to participate within the whole process. The main question that the management should take into consideration are what needs to be actually done, why, when, how, where and whom. The protocol statement of Adidas will contain the following details: Target market- age group ranging from 15 to 64 Product positioning- due to the good brand name, new product will be positioned as a high quality health drink. Product attributes- high protein contain, with other essential nutrients at proper amount. Competitive comparison- the major competitors in health drink sector are Red Bull, Gatrad of Pepsi, and few others. Augmentation dimensions- this product will lead to further diversification of the company's product portfolio. Timing- The current market scenario makes it perfect to launch the product because the success of this product will help company to enhance the sale and to retain high financial profitability because the other products are facing a decline in demand. Marketing requirements- the present mode of marketing of the company will be sufficient, like commercial ads, banners, and other publicity means. Financial requirement- the company will launch adi-health in small target market, so right now it does not need high investment. Production requirement- as the company will enter the health drinks market for the first time, so they will prefer to make a collaboration with any of the company which already have good working knowledge in this field. As Adidas considers quality as an important perspective of their production, so implementation of six sigma is expected to be highly beneficial. Regulatory requirement- the company will take local rules and regulation of these countries into account, along with following the environmental factors. Corporate strategy- through launch of this product, the company is trying to adopt diversification strategy. Potholes- the major hindrance which adi-health might face is the strong compilation from other health drink manufactures like Pepsi's (McGraw-Hill/Irwin –b, “Contents of a Product Protocol”). b) Design and Development of the Product The health drink will be available in tetra packs as these are bio-degradable, where as the plastic bottles results in environmental pollution. The packs will be available in three different sizes: small (300ml), medium (500ml) and large (1000ml). This will make the drink more accessible to people who belongs to different economical class. As the company always pay great importance toward quality of the product, hence it has planned to get best quality ingredients for adi-health. But such high quality ingredients might enhance price of the health drink, so company is planning to directly approach the farmers and assist them in developing high quality product. In return to such assistant, the company will get raw materials at comparatively low cost and this will reduce down cost of production. Planning has been done to have fully automatic production system where the product will be tested at each and every stage. Such total quality management will help to locate any deviation in the quality as soon as it is generates. As the company is new in health drink market, hence they will prefer to use preexisting supply chain system of their business partner who already have experience of many years in this field. As the production will go high certain alterations will be made keeping the current market state. For success of any product, its marketing plan is responsible to great extent. Adidas believes in maintaining strong marketing strategies thus for marketing of adi-health, the company planed to use different media where special attention will be given on electronic media. The company is also planning to sponsor few sports events where hording of company's new product can be introduced. This will be a good way to draw attention of sport loving persons toward ade-health. The attracting feature of ade-heath is its well balanced nutrition content so care has been taken that it should come out as first choice of all health conscious people, irrespective of the age group to which they belong. In the ads these factors will be highlighted to attract customers attention. c) Product and Market Testing The product will be introduced in small and large cities of the four destinations: Brazil, India and Honk Kong. The reason behind selecting these countries has been discussed above. Before launch of the product it will undergo many quality standard tests under guidance of different government and non-government organization. Such certificated will make the product more reliable and attractive. Initially the product will be introduced in test market and the results derived will be further analyzed to verify future performance of the product. For testing the market, this product will be introduce in selected supper markets. People will be asked to test new health drink and give their comments regarding its taste and nutritional content. Such information is quite valuable for fine tuning the product and overcoming the existing problem. If the market test gives positive results, company will launch the product finally in the target destinations. Launch and Commercialization The company is always very cautious regarding launch and commercialization of their new product. It is a proven fact first impression plays a great role in long term. The company planed to launch its new product in all supper markets of selected destinations. These markets were chosen on the basis of their past sell records and the number of foot falls per week. On the first week of launch, free trail tetra pack will be distributed and people will test and comment on the product regarding their experience, their suggestion that who the product can be improved further and why they feel this health drink is different from other competent product available in the market. Company might receive a mixed response from the people, like they will prefer different flavors, some will suggest that the product should be further differentiated on the basis of age group, and nutrition requirement like high protein content for young sports person, easy digestible for elder people, less carbohydrates for women. The company has full confidence that the new product will be easily accepted by the consumers due to strong brand image of Adidas. Such good response will gave a positive signal to company, and on getting inspired it might launch the product in other smaller district of these countries. The company is very much confident that soon their new product “adi-health” will capture good market share and will emerge as a strong competition to other health drinks available in market. Marketing mix for initial and the following six months of the new production: Promotion- to promote the product at very early stage it will be distributed free of cost in small trial tetra packs. Ones people became aware of the new product, different promotional schemes will be applied like bye one get one free, or with the 1000ml pack a 300ml pack will be given free. Company has already planned to keep advertising policy simple where as more importance will be given toward promotional strategies. The company is planning not to incorporate personal selling as it will quite costly and less effective. Distribution- Adidas will launch the product in collaboration with a company who is already in this business, so its distribution channel can be used effectively. Adidas is planning to use different distribution channels as the product will be available in general retail stores as well in in the company's own showrooms. Pricing- as the company is a symbol of quality product, so price of adi-health will be as per the market scenario. Low price might lead to a sense of law quality and can misguide consumers. Product- the company has a core competency in sports related product, hence it might happen that the new health drink will gain popularity among sportsman and athletes. But such segmentation will narrow down the market, so Adidas wants the product not to be designed solely for the sports person. The health drink is designed in such a way that it will attract people of different age groups and of different background. With passage of time new flavors will be introduced. To fulfill need of different consumers, the company may introduce health drink with different levels of protein and sugar content. The conclusion can be drawn that a good market research and elaborate planning regarding new product innovation often leads to success for the company, so the company should conduct the whole process of new product development with great care and in-depth research. References Adidas Group-a. The adidas Group at a glance 2009. “At A Glance” The Story of the adidas Group . (pdf) September 16, 2009 . Adidas Group-b. Our Value .No Date. About Us. September 16, 2009 . Adidas Group-c. Strategy No Date. About Us. September 16, 2009 . Central Intelligence Agency, World Fact Book. No date. September, 17, 2009 . Dibb, S. & Simkin, L., 1996 . The market segmentation workbook. Cengage Learning EMEA. McGraw-Hill/Irwin – Do Many Firms Have a PIC?. 2008. Chapter-3. Opportunity Identification and Selection: Strategic Planning for New Products . The McGraw-Hill Companies, Inc. September 17, 2009 . McGraw-Hill/Irwin –b, Contents of a Product Protocol. 2008. Chapter 12. Product Protocol. The McGraw-Hill Companies, Inc. September 17, 2009. . Bibliography Annachhino, M. A. New product development: from initial idea to product management. Butterworth-Heinemann, 2003. The University of Wisconsin–Madison. New Product Development (NPD). 2009. Executive Education. . Thomas, R. J. New product development: managing and forecasting for strategic success The Portable MBA series. John Wiley and Sons, 1993. Read More