Strategy and Positioning Analysis for Adidas - Case Study Example

Strategy and Positioning Analysis for Adidas I. Overview of Adidas Adidas has a history that s back to 1948 and is a name coined from Adi, which was the nickname of its founder Adolf Dassler while also incorporating the first letters of his surname. Adidas Group is build based on a history of over 80 years of providing quality sports footwear, apparel and accessories that are under the organization’s broad portfolio of products. The organization is headquartered at Herzogenaurach in Germany from where the over 170 subsidiaries and number of creation centers and development departments at different locations both in Germany and the rest of the world and are tasked with conducting particular business activities in the globe as part of the adidas Group. All the subsidiaries, creation centers, and development departs are run based on the adidas Group strategy which is to “harness our passion to innovate, continuously strengthening our brands and products to improve our competitive position and financial performance” (adidas Group, 2009). The company specializes in making of sports products for different games for both professionals and institutions such as schools. To achieve this, the company produces and sells products such as sports shoes, apparel, and sporting for sports such as American football, soccer, basketball, running and production of training gear and apparel. Additionally, there are a number of fashion goods such as Y-3 and SLVR fashion brands that carter for consumers outside the sporting community. Adidas relies on a vibrant wholesale division whose role is to ensure retailers assess enough adidas and Reebok products to retailers who run over 2445 shops all over the globe (Hoovers, 2013). All the products from adidas Group are marketed under four brand portfolios that includes adidas located Herzogenaurach and offers flagship line of footwear, apparel, and accessories. Reebok headquartered at Canton, Massachusetts is also part of adidas Group and specializes in footwear, apparel, and accessories for sport in addition to performance arenas. There is also TaylorMade-adidas operating from the headquarter at Carlsbad, California Golf Company whose specialty is production of equipment used in golf and includes putters, metal woods, irons and golf balls in addition to footwear, accessories and apparel. Lastly, there is Rockport Company located in Canton, Massachusetts also under adidas Group. Rockport has contributed to the success of adidas Group by designing products such as dress, casual and outdoor footwear, apparel and accessories based on high engineering and innovative experience that is combined with a dynamic technology and contemporary style (adidas Group, n.d). II. SWOT Analysis As a multinational organization, adidas Group has to operate based on the reality of the market as determined by the strengths, weakness, opportunities and threats in both its internal and external environment. In the external environment, adidas Group has to deal with a number of opportunities and threats presented by situations outside the organization. Among the threats in the external environment is the cutthroat competition presented by other sport footwear, apparel and accessory manufacturers. The main rivals for adidas Group include Nike, Inc, Callaway Golf Company and PUMA SE (Hoover, 2013). However, Nike offers the greatest challenge to adidas quest to become the market leader in sportswear, apparel and accessories. The two companies are global leaders in this market with a combined market share of 11 percent as per 2012 analysis. However, adidas recorded 8.2 billion dollars in apparel sales for 2012 while Nike reported 6.3 billion dollars indicating the two companies would continue to fight for available markets in the coming days as each seeks to up their market share while also seeking to sign more contrast in sponsorship of major sporting events such as the Olympics (Team, 2013). Adidas has a chance to improve the total number of sales in the coming years as the market in sports shoes, apparel, and accessories is projected to expand. In 2012, the global market was worth approximately 135 billion dollars. This market is projected to grow at Compound Annual Growth Rate (CAGR) of 4 percent for the period 2012-2019 which will result in overall market worth of 178 billion dollars. This growth will be driven by a number of factors including growing fitness consciousness, improved income generated in developing countries, the rising popularity of sports shoes, apparel and accessories for females and the increased preference of stylish and comfortable sportswear outside sporting events. As one of the leading companies in the sportswear market, adidas is expected to take advantage of this growth to further its market share (Team, 2013). In the internal environment, adidas strength is based on the heavy investment in channels of distribution. The organization has over 170 subsidiaries throughout the world ensuring their products are shipped to different markets within a short period after production. The other sportswear and equipment manufacturers have not been able to equal the presence enjoyed by adidas in global markets due to this investment. Additionally, adidas has created a reputation for providing quality products since 1949 making its business highly sustainable. Adidas pride itself in being a market leader based on its ability to introduce new products and concepts in the market. Since commencement of production the company has pioneered new inventions in sports including the introduction of first shoes designed for ice and the first multi- studded shoes. The company was also able to further its reputation by being the first company to design the screw-studded soccer shoe (Reference for Business, 2014). Apart from being a market larder and being innovative, another important strength for adidas is its marketing strategy, which includes hiring top athletes to be their sports persons and sponsoring popular sports events. For instance, adidas is the main sponsor of the world cup, which sees the company increased sales from products used in the sport. Since the company’s founder designed the first soccer shoe, the adidas has been contracted to design soccer balls for each tournament held since 1970 (Peterson, 2014). Even as adidas has a number of strengths that leads to improvement in sales, a number of weaknesses also face the organization that affects the sales made in different markets. Weakness for adidas includes the sale of its products being tied to the economic situation of different countries where it operates. Profits for adidas products have been affected by turbulence in markets especially in the emerging countries. Adidas shares dipped in March 2014 following adidas Group announced its financial prospects would be affected negatively by the currency movements in emerging countries such as Russia and Argentina. These negative effects are due to the business model applied by the organization where it centrally prepares raw materials and manufactures the sportswear. Failure to outsource has significantly affected the organization, as it cannot produce based on the market rates of the countries were the products are sold (Russell, 2014). III. Competitive Forces Porters five competitive forces model is an important tool for the assessment of an organization’s competitive strength and the position held by the organization in the market. The model provides five levels that include existing competitive rivalry; threat of new market entrants, bargaining power of buyers, power of suppliers and threat of substitute all products, which are useful in analyzing organizational performance (Hill and Jones, 2007). Porters refers to the stiff competition among rival firms as “the scrambling and jockeying for position” with all the players in the market having to assess the actions of other firms in the market before making new plans. The areas where competition is experienced include pricing, quality and the pace with which organizations respond to changes in aspects such as new style and models in the market. In the footwear industry, adidas has to anticipate the reaction of rivals such as Nike, Puma and Fila before making decisions about aspects of their products (Lussier and Kimbal, 2013). The footwear industry is very competitive and mature market with companies in the industry having established their niche based on extensive data about the trends in customer decision-making. Such awareness of the market makes it difficult for new companies to enter the industry as major multinationals such as Nike, Adidas and Puma have consolidated their markets. This means that new entrants such as Saucony and K-Swiss will always find it difficult to establish their brands in the industry. Experiences from new entrants such as Saucony and K-Swiss have ensured very few organizations enter and establish their presence in the industry (Transparency Market Research, 2012). However, a few have shown resolve and can potentially rival the bigger firms like Nike, Adidas and Puma. Li Ning started by a Chinese gymnastics Olympian is an example of companies that have successfully entered the market and is ranked second behind Nike in China. Li Niang has been able to enter the US market after signing a partnership with Acquity Group and is interested in expanding its market by having Shaquille O’Neal represent it products (Lussier and Kimbal, 2013). Companies operating in the sportswear industry have to satisfy the needs of various markets represented by the different sports disciplines that the products target. Consumers in this industry have power to decide their preferred manufacturer and are able to shift their preferred choice based on new stiles, better prices, improved quality, and convenience of purchase. However, established organizations such as adidas have been able to create loyal customers who trust their products based on the proven quality for the manufactured products. This means customer power is weakened by production of sportswear and equipments that meet the preferences of customers in specific sports (Lussier and Kimbal, 2013). The relationship between a company and suppliers is an essential aspect in the successful sale of products. The company must satisfy its suppliers for them to consistently supply essential raw materials based on the terms agreed upon. Having one major supplier for essential materials without alternatives means the company is dependent on that particular supplier. In this case, power supplier will have great power over the organization that is not the case for adidas. Adidas relies on multiple suppliers especially those located in countries such as China where labor costs are low. Therefore, adidas is able to revoke contracts for suppliers who do not abide by the set standards without affecting overall predication. This is because those easily replace such suppliers deemed suited to the needs of the organization (Burkitt and Qi, 2014). Threat of substitute products covers the possibility of companies from other industries joining the sportswear industry. The sportswear industry has in the past provided opportunities for other companies to enter the market with new ideas with an example being Sketcher coming up with the idea of toning shoe. The shoe was marketed based on the claim that it was footwear that tones the body when worn during waling. There is also the example of clothing manufacture Tommy Hilfiger joining the sneaker market taking advantage of the success enjoyed by their fashion (Lussier and Kimbal, 2013). IV. Corporate and Business Strategic At the corporate level, adidas has undertaken a number of measures to ensure it continue to have a global presence in the sportswear industry. To begin with, the adidas Group went public in 1995 to increase revenue necessary for the organization to venture into new markets. To improve sales further, the organization increased the level of involvement by entering other sports apart from the traditional presence in soccer. New areas of involvement over the years has includes the Olympics were for example 6,000 athletes from over thirty countries used adidas equipments in 1996 leading to increased sales by up to 50 percent (Reference for Business, 2014). . The organization has also undertaken a number of mergers and acquisitions, which have been instrumental in ensuring it, have a global presence due to increased subsidiaries and output. Adidas acquired company Sport Development SCA in 1997, a holding company with a 38.87 percent stake in Salomon in addition to the 56.12 percent of the voting rights. This was followed by the acquisition Salomon for around 1.4 billion dollars a deal which resulted in adidas becoming the second manufacturer of sporting equipment with only Nike Inc being ahead in market share globally. Although there were initial challenges, adidas-Salomon successfully integrated Salomons operations into the main operation of the Group while also taking advantage of its size to increase its presence in the US from 1998 with another acquisitions being that of ArcTeryx Equipment based in Vancouver in 2002 (Reference for Business, 2014). However, the merger with Reebok cemented the presence of adidas Group as one of the leading sportswear manufacture in the world. At the time of this merger in 2006, adidas was number two behind Nike while Reebok was at number three in market share. This merger enhanced the market position for adidas as it now controlled a market share worth over 9.5 billion dollars in addition to having two strong, internationally recognized brands (Reference for Business, 2014). Adidas ensures it products reach the customers based on a well-defined channel under a specialized Global Sales team and which manages channel-focused product sales that has wholesale, retails and e-commerce as the main outlet points. The team is responsible for the maintenance of the three channels of product distribution under the main brands consisting adidas and Reebok sportswear. The wholesale channel ensures adidas gets its products to customers at a relatively low cost while also guaranteeing sustainable profitable market share growth though formation of partnerships with third-party retailers. The organization has developed a partnership with a team of dynamic retailers to cover outlets such as sporting goods chains, buying groups, departmental stores and lifestyle retail chains (adidas Group, 2010). E-commerce is an important approach in product distribution for adidas as it is in line with contemporary technological environment that depends on digitalization of products. For this section, adidas targets the younger generation of those less than thirty-five years who are tech-savvies and are socially engaged which ensure they can shop whenever they like regardless of time or location. Given the highly competitive business environment that the organization operates in, having a vibrant online option for purchasing adidas products ensures a global reach as people can order their preferred products and it will be shipped to them. The online cite encompasses all the products manufactured by the organization, which ensures customers access broad ranges while also sampling the depth of the brands manufactured by adidas. The site is also constantly being reviewed and improved to increase visibility and ranking in online searches to ensure consumers are attracted to the right products (adidas Group, 2010). Given that the target market for adidas is mainly the sports community, the organization has ensures its products are present in virtually all the sporting events in the world. The organization is under contract from global football governing body, FIFA, to make soccer balls for all the world caps in addition to having such deals with leagues UEFA competitions, English Premier League and Bundesliga in Germany. These deals have also been signed between the organization and a number of teams playing in different sports such as hockey, American football and cricket (adidas Group, 2010). V. Market Segmentation Adidas is focused on being a market leader in production of sports shoes, apparel and accessories with a number of strategies being applied to achieve this end. The organization seeks to expand business into emerging markets while improving sales in markets where its products are already present. The organization is aware that customers need a choice that is why it has implemented a multi-brand strategy, which permits them to target prospects coming from different perspectives that include a mass and a niche segment. Based on this strategy, adidas is able to maintain its identity while also seeking to identity and focus on its core competencies that ensures these markets are provided with a range of products (Transparency Market Research, 2012). Geographically, Adidas has divided its market according to the levels sales made in the past and the potential to penetrate new markets. This leads to a division based on established markets such as Europe and North America where sales have generally been high. A second category is the emerging markets, which covers locations such Asia and Latin American, which have potential to further increase the market share for the organization. Adidas finds markets that promise long-term growth and profitability to be essential in its investment plans which is the reason the organization has targeted emerging markets in countries such as China and Russia in recent times (Transparency Market Research, 2012). On demographic segmentation, adidas produces athletic shoes, apparels and accessories based on the global market trends segmented into men, women and children. Global market in this industry is dominated by men who consume up to 62 percent of all the products with women being the next segment having a consumption of 29 percent and the rest being for children (Transparency Market Research, 2012). Based on these ratios adidas has to produce more sports shoes, apparel and accessories for the male consumers followed by those for females with the volume of products for children being relatively lower. However, there is still need for future improvement in the volumes of products for children due to the increased demand for comfortable and sporty wear for this market segment. While the demand for female wear is expected to grow with CAGR of 1.3 percent from 2011 to 2018, children will more than double this figure with a CAGR of 2.8 percent for the same period (Transparency Market Research, 2012). VI. Conclusion Adidas group has been able to remain a leading brand in sports shoes apparels and accessories due to its position in the industry. The organization has relied on innovativeness, which has led to introduction of new products that meets the needs of consumers. Realization of its strengths, weakness, opportunities and threats has also played a significant role in maintaining the market leadership since the adidas has been able to put all these into consideration during production and releasing of products into the market. Adidas remains a profitable organization due to its strategies that has ensured it expands into emerging markets while also improving market shares in markets where it was present for some time. References Adidas Group (n.d). Overview. Retrieved from http://www.careers.adidas-group.com/our-group.aspx Adidas Group (2010). Annual report. Herzogenaurach: Adidas AG Burkitt, L. & Qi, L. (2014). Adidas Is Diversifying China Shoe Suppliers: German Sportswear Company Wants To Lessen Effect of Factory Labor Dispute at Yue Yuen. The wall street journal. Retrieved from http://online.wsj.com/news/articles/SB10001424052702304788404579520451582295812 Hill, C., & Jones, G. (2007). Strategic management: An integrated approach. Stamford, CT: Cengage Learning. Hoovers (2013). Adidas AG Company Information. Retrieved from http://www.hoovers.com/company-information/cs/company-profile.adidas_AG.79a5676ce80e686e.html Lussier, R. and Kimbal, D. (2013). Applied Sport Management Skills. Champaign, Illinois: Human Kinetics. Peterson, A. (2014). “Off-pitch competition has Nike, Puma, and Adidas battling for brand supremacy at World Cup”. Ctvnew. Retrieved from http://www.ctvnews.ca/sports/off-pitch-competition-has-nike-puma-adidas-battling-for-brand-supremacy-at-world-cup-1.1859483 Reference for Business (2014). adidas Group AG - Company Profile, Information, Business Description, History, Background Information on adidas Group AG. Retrieved July 18, 2014 from http://www.referenceforbusiness.com/history2/99/adidas-Group-AG.html#ixzz37piIZKZk Russell (2014). In the money: Adidas looks to local sourcing to offset weaknesses. Retrieved from http://www.just-style.com/analysis/adidas-looks-at-local-sourcing-to-offset-weaknesses_id120935.aspx Team, T. (2013). Why Nike Will Outpace The Sports Apparel Markets Growth. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2013/05/13/why-nikes-growth-will-outpace-the-sports-apparel-markets/ Transparency Market Research (2012). Athletic Footwear Market – Global Industry Size, Market Share, Trends, Analysis and Forecast, 2012 – 2018. Albany, NY: Transparency Market Research. Read More