Introduction
Adidas Group is a German sports apparel manufacturer famously known for brands such as the Adidas range of products and Reebok sportswear. Besides the shoe line, the company offers other products such as shirts, bags, eyewear, watches, and much other sports-related wear. The company is ranked first in the European market and second globally after its biggest competitor Nike (Peng & Jiaojiao, 2010). Its biggest competitor is Nike, which has dominance in the American market. The business has managed to move from being a sneakers company to offering a wide range of sports products.
Situation analysis
Swot analysis
Pest analysis
Political
Adidas raw materials comprise of mainly PVC, an issue that has put it under much criticism from environmentalists. “Its policy is to control hazardous substance to protect human health and the environment by eliminating PVC and utilizing substitutes such as ethyl vinyl, polyurethane and silicone thermoplastic rubber” (Adidas, 2011). The company takes safety and human resource management issues seriously and offers training sessions on the same. The business is a good employer and has received recognition for protecting the rights of its employees.
Economical
As a multinational company, the business is affected by activities in different economies. Currency exchange rates, imports and exports tariffs and taxes in different regions impact its profitability. “The business has helped decrease unemployment in the countries it is in, through its policy of increasing its number of employees each year” (Peng & Jiaojiao, 2010). It also helps grow sports in different countries through sponsorship. To minimize its labor costs, Adidas has moved most of its production activities from Germany and France to China.
Social
Social trends in different markets affect the business sales volumes. For example, the business has better sales in markets that appreciate sporting more such as the Europe. Age, religion, fashion trends and lifestyles in different regions also affect how the products are appreciated. The company’s target market is wide and doesn’t discriminate, as long as a community likes sports.
Technology
“Adidas join into technology by making the world’s first smart shoe which has a microchip and an MP3” (Adidas, 2011). The business has also implemented advanced production techniques such as using hot melt system in its initiatives to protect the environment. The business’ packaging is safe and protects the products from extreme temperatures during transportation. Packaging material is mainly recycled paper to minimize waste and offer environmentally friendly options.
Current strategy formulation
“Adidas shoes, like any other sports brand, is believed to engender high consumer brand loyalty” (Braun, 2009). The brand’s marketing strategy is largely based on sponsorship and involving itself in sporting activities. The Adidas brand is divided into three categories: the Adidas performance, Adidas originals and style essentials. The performance category is focused on athletics and other sporting activities, the originals class is focused on lifestyle and fashion while the essentials class of products is focused on other essential products for sports people. These products all act as a support mechanism for each other during marketing.
In order to achieve the marketing objectives, Adidas sells a combination of local and international collection of shoes in different markets but ensures that they remains a flagship brand in them. The business has implemented measures that ensures it gains a broader position in all the markets it operates in. A top or secondary position in the market helps the business deliver a high target in both marketing, distribution and even production. Moreover, such a position creates the much desired platform from which the business can further increase its range of shoes. The business’ branches in the North American and European are good examples of how much an asset position can be. With a continued focus on other market factors such as price and quality, Adidas will undoubtedly reach its marketing objectives.
“In promotion, the key success factors in a market include those elements which are important for a firm to achieve its marketing objectives” (Ferell & Michael, 2008). They include access to essential unique resources such as communication services, a company’s ability to achieve economies of scale, accessibility of distribution channels and technological processes. The company with the best economies of scale such as Adidas is able to do much better than its competitors in any market and so will a company with technological resources which best suit the market.
Future strategies
Market trend analysis and competition
Adidas profitability in the past is proof that the business’ strategy is working for them. “The company earned from EU 877 million in worldwide sales to EU 9.2 billion in the ten years between 1988 to 1998” (Peng & Jiaojiao, 2010). Since then, the business’ earnings have been on an onward trend except for the last few years due to the economic crisis. The business has since then worked towards transforming from a brand of sneakers to products that satisfy different sporting needs. In the past years, a big percentage of the business’ income came from its shoes.
Adidas shoes biggest competitor is Nike’s brands. Nike’s strengths include a dominance in the America market, a strong financial position that allows it to use latest technology and utilize opportunities as soon as they arise. Its advertising strategy involves creating a dominant presence in media. Sponsorship is also a key area for them, putting Adidas under constant pressure to compete for opportunities.
To enable it compete effectively, Adidas needs to not just spend money but ensure that its strategy makes an impact with brilliant executions.
To effectively compete in the market, a proper marketing strategy must ensure that the product is felt in the market not just when it is new but in the many years that follow. “Ultimately, each product will reach its maturity stage and a decline period but how long that takes is dependent on several factors” (Ferell & Michael, 2008). These factors include ability to fight price pressure from a competing product, ability to maintain brand loyalty, how well it can hold with emergence of new products, how soon the market gets saturated amongst many other factors. Lack of growth drives however has negative effects on a product’s performance in a market regardless of its quality or how well it can cope with pressure and competition in the market.
Pricing and profitability strategy
“While profitability of different companies will vary in the same market, its average profit potential is used to give guidelines on how easy or difficult it is to do well in it” (Ferell & Michael, 2008). Several factors determine how profitable a market will be. “They include supplier and buyer powers, threat of substitute products, entry barriers and rivalry among different firms” (Braun, 2009). It helps to identify a market’s potential and the benefits a business will enjoy by being in the market. This then allows a company decide on which products to sell in the market, selling and pricing strategies.
Factors that Adidas should consider when pricing their shoes should include the cost of production, target market, competitors’ pricing, consumers’ wealth, spending habits, among many other factors. Adidas pricing strategy must also take into consideration how well its shoes have performed in different markets. “In terms of market segment, premium and specialty brands of Adidas have a share of volume growth estimated at 5% per year, against the 2-3% overall growth rate” (Peng & Jiaojiao, 2010). Such a growth level offers an advantage as the business tries to convenience the people to try more products from them.
Demographics study will also enable the business make valuable decisions on where to invest. The Australian market for instance is still under-explored while its population is now nearly hitting the 100 million mark. Such markets present a great opportunity for Adidas to establish new target markets. The region records high numbers in consumer expenditure making it easier to market a product. The income levels in the region are steadily rising, especially as the global economy continues to stabilize. It would therefore be a perfect timing for the business to re-launch its shoes in that market. Other African markets such as South Africa are also coming up strongly, offering a good opportunity for Adidas to spread its wings and increase profitability. High incomes in these markets mean that people are able to buy high quality and safe shoes such as those offered by Adidas
Conclusion
Adidas is the second largest sports apparel producer in the world after Nike. The business enjoys many strengths including a strong brand name and control over its distribution channels, among many others. Pricing is a major challenge for Adidas shoes since they are only affordable to middle and high income earners. The product has a big opportunity in the low end market if it offered more favorable pricing. The new e-marketing avenue also presents an opportunity for the product since it is now easier to reach global markets.
Through aggressive marketing and favorable pricing, Adidas shoes will be able to overcome threats such as competition from Nike. The decision to move most of its production activities to China makes it possible to cut labor costs and make the product less expensive. The business also has opportunities to increase sales and profits by investing in the upcoming markets. The African market is one such opportunity where the economies are growing and levels of income going up.
Reference list
Adidas. (2011). Adidas performance. Web.
Braun, J. (2009). Strategic sports marketing: The impact of sport advertising upon consumers. Adidas- a case study. Munchen: Grin-Verl.
Ferell, O.C., & Michael, D.H. (2008). Marketing strategy. Mason, OH: Thomson South-Western.
Peng, Y., & Jiaojiao, C. (2010). Adidas. Singapore: Page one.