Business Essays - Puma Company Brand

Puma Company Brand

1. Executive Summary

Puma AG is a multinational company that is based in German and manufactures high athletic and sportswear shoes both for women and men, It was founded by Rudolf Dassler after a dispute with his brother Adi Dassler with whom they had founded the Dassler Schuhfabrik in 1924.

Puma had a very poor brand image that show a decline in its market share and prompted puma to change it strategic decisions to improve on its image, this process of change was led by Jochen Zeitz Puma CEO based on phases one to four of strategic plan to change puma’s image so that it can compete favorable in the marketplace and within a couple of years Jochen Zeitz had change puma’s brand image into one of the most desirable and sought after brand of sportswear and footwear worn both buy celebrities and fashion followers all over the word.

1.1 Introduction

Puma was founded in Dassler Schuhfabrik, Herzogenaurach, Germany by Rudolf Dassler after a dispute with his brother Adi Dassler with whom they had founded the Dassler Schuhfabrik in 1924. Until early 2003 puma had a very poor brand image that show a decline in its market share and prompted puma to change it strategic decisions to improve on its image, this process of change was led by Jochen Zeitz Puma CEO based on phases one to four of strategic plan to change puma’s image so that it can compete favorable in the marketplace and within a couple of years Jochen Zeitz had change puma’s brand image into one of the most desirable and sought after brand of sportswear and footwear worn both buy celebrities and fashion followers all over the word.

This report is divided in three parts, Part one presents the factors that influenced puma to change it brand image and it further goes to describe these factors under Macro-environmental analysis basing on market trends, rivalry between customers and strategic group mapping.

The second part presents the puma’s resources and capabilities in terms of strengths and weakness as well as virtuallity as seen as strengthens and the third part of the report presents puma’s winning strategies basing on pumas situation that fits the company, sustainable completive advantages and as a better performing company.

According to case study of Puma AG (in Thompson, A.A., Strickland, A.J. and Gamble, J. (2005) Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, New York, pages C411- C432),

The environmental and competitive factors that influenced Puma’s strategic decision to improve its Brand image is identified under Macro- environmental factors, rivalry between competitors and strategic group mapping as below.

1.1.2 Macro –environmental factors

Lack of social acceptance of Puma brand from the upper class customers who were not willing to wear the brand because they considered to of poor quality and were sold “dirt-cheap” Puma’s brand was compromised and this a affected it’s value for example Rudi’s son wanted puma products to reach all the customers of all social back ground and this move was seen by the upper class people as some thing below them and they can not be seen wearing the same brand as people on welfare recipients. In order for pumas brand to be accepted as a high quality brand of value, force puma to change and improve its brand so that it can be socially accepted by customers.

Change in customers taste and style for example there was high demand for supports ware and fashion apparel tend that was oriented toward high value and lifestyle products, this change in customers demand influenced pumas to changed it’s brand image to meet the customers growing demand

Demographic change in soccer market for example their was a high demand to respond to needs of both kids playing on local pitch and nationals soccer team playing professional at international level that required high quality brand and in order for puma to tap in to these demographic change puma needed to improve its brand image.

Market change of 1980 when sports brand became more dynamic and consumers taste diversified into new and more exciting high price that make products more desirable this forced puma to change its brand image so that they can charge high price as customers associate high prices with quality of brand or product and the more highly charged the more desirable the brand.

Introduction of niches in the market offered attractive growth rates both incumbent and new market players for example skateboarding markets, golf sports, sports equipments for out door activities made puma change its brand image, for example for puma to enjoy this attractive growth its brand has to be of high quality.

Merging of manufactures to form one big group for example Rosso joined forces with several other manufactures in northern Italy to form Genius group this was seen as a threat because this means more resources and strong financial stand and this led to high fragmented global market and for puma to survive in a highly fragmented market it needed to change its brand image

Puma’s brand was disreputable and had lost specailised sports dealers in its distribution network in order for puma to gain its distribution network it had to improve on its brand image

1.1.3 Rivalry between competitors

Puma greatest rivalries are from the following competitors:

Nike Inc

• Nike is the number one sports brand in world over and from the case study

• Based in USA

• Has got sub brand like Tiger words and Michael Jordan

Adidas Salomon AG

• Deals on core sports (soccer, athletics & skiing)

• Has got stronger financial resources

• Has got it’s marketing and design departments in Germany and France

Prada Sports

• Luxury brand

• It has entered in to sports segments four years ago

• Deals in trendy fashion wear of high prices

Diesel

• Based in Italy

• Fashion brand ,majoring in sunglasses, footwear

Competitors entered the market such as Adidas, Nike, Rebook among others entered the market and made competition for market share was very high and these competitors had better quality brand than puma and among them, they shared 27% of the market share, this stiff competition influenced puma to improve on it’s brand image to survive to survive in the competitive market

Nike was the biggest competitor of all and it had the largest market share for example Nike was became the world’s largest sports equipment manufacture in the late 1980 and maintain this position since then. Puma was dealing in almost identical products like puma but its brand was poor so in order to have a share in the market place puma needed to improve on its brand image.

Adidas-Salomon was also another competitor that entered the market as the second world’s largest producer of sports equipment manufacture in world with approximately $6.5 billion in sales and was present in every country this put puma in a very difficult situation and in order for puma to have a favorable share in the market it needed to change its brand

Reebok also entered the market at the time when puma brand was poor, Reebok was the world third largest player in the sports market, Reebok identified footwear industry as a key market and began to aggressively into overseas market this expand was seen as a threat to puma and to survive it puma had to change its brand image

Prada though a luxury bran, it also started deal in sportswear four years ago and this is a threat for Puma and because though the price for Prada brand is high, it high quality goods do attack customer who are willing to spend for example super starts, this is a threat to puma because puma has to not only with Prada but with Nike, Adidas and Reebok for customers.

1.1.4 Marketing strategies

Acquisitions of groups for example Rosso bought out other partners and embarked on growth and expansion this means more competition for market shares as he built a solid and vast distribution platform across five continents reporting annual sales of $330 million with luxury brand selling jeans for as much as $100-$200 a pair making it’s brand more appealing to customers and in order for puma to survive Such a hash market, it needed to change its brand image

Innovations as a marketing strategy for example Nike diversified his product portfolio to target people of ages 20 -30 with enthusiastic sports appeal, Reebok changed its marketing strategy and began transition toward football, baseball and soccer which Puma was one of puma product line and in order for puma to attract new customers it has to change it brand image for example puma designing and new functionality in new collections and launched retro looks of the 1970s/80s

All companies engaged in massive advertisement for their brand a awareness so that they can compete favorable in the market for example in Nike marketing strategy, it focused on sponsoring huge events and popular events, Reebok also sponsored popular events and had a licensing agreement with national basket association that increased its brand awareness

To compete with each other favorability each company outsource production and raw materials where their cost was cheap and labour was available this enables each company to cut on production cost.

Product differentiation causes constraints on rivalry for example the is high rivalry for example between Nike, Adidas and Reebok because thought there is high brand identification in the market they almost dealt in similar sports equipments which offer customer the usage.

1.1.5 Strategic group mapping to position competitors

Strategic Group Map on Footwear Mark

From the strategic group mapping, the rivalry between Puma and Nike is very low and puma doesn’t pose a threat because Puma doesn’t enough market shares as compared to Nike, This is because Puma is a stage where its brand is poor and customers are not willing to buy puma products and this explains why the position of puma and Nike are far a part from each

The close positioning of Nike, Adidas and Reebok are and narrow and almost tight because they are competing for almost the same size for example the rivalry between Adidas and Reebok are almost of the same size in market share and they have to keep competing for the market with no dominance from Adidas and Reebok as a leading rivalry, this is because the cost of production is low and so is the cost of labour

The cost of switching from one brand to another is very low for customers the rivalry firms because customers can freely buy from another from Nike, Adidas and Reebok especially where there is no brand royalty that’s why they are so close together

Nike, Adidas and Reebok entered the market almost at the same time when puma’s brand image needed improving this cause high competition for the market shares and for customers and this explains why less room for expansion for Nike , Adidas and Reebok that needs to protect it’s market share from Puma

The cost of production was low between the rivalry firms as most of had outsourced all production and raw material where they were cheap to produce, this made the market so unstable and due to high competition for the market share.

2 Puma’s strengths and weakness

2.1 Strength

Puma had collaboration with some of the famous designers from different cultural back ground for example puma’s new projects were developed under the supervisions of trendsetters like Yashuiro Mihara and Jil sanders which are strongly influenced by kickboxing. This cooperation and collaboration opened a new wide market for puma for example where high fashion meets sportswear, for example this collaboration led puma to produced high quality brand that suppers starts like Madonna were happy to be spotted wear puma brand and this made many fashion and brand wearer buy more of puma products

Puma launched new collections which blended with sports, lifestyle and fashion for example puma curato shoes, unala cropped woven women’s ware which are very sport fashionable and trendy, such causal sportswear became like very day kind of wear for certain age group for example the young starts who identified themselves with puma logo and style, this made it easy for puma to target and reach the right market as at the right time as puma knew it’s market and customers well

Innovations -puma carried innovations at each part of the process for example puma worked with engineering teams of Jordan grand prix Racing to learn about new materials like carbon fire which are then built into pumas shoes like shudou shoes, this innovation enabled Puma to produced high quality sportswear that were so desirable that puma gain a lot more customer that puma became looked upon as a trend starter in the footwear market for other companies like Nike and Adidas as follow

Puma outsourced all productions and raw material procurements in European were to expensive and raw martial were cheap in Asians countries , this allow puma to reduce it’s working capital and allow puma to shorten the production and enable full quality control of input factors

Puma had knowledge and experience, this is one of pumas major strength because according to the case study Zeitz’s understanding of fashion as “the new combinations of elements of the past it easy for puma to produce products without having to design for scratch rather than use its heritage, this made it easy for Puma to re-launched older products for example the retro look where some parts were taken from 1970/1980 collections were re-launched after adding modern elements such as fit or color way shoes

Puma has good planning and timing for example puma for example puma entered the sports market two years before its revival in order to maximize profits and this gave puma enough time to prepare for up coming demand, Puma had gain market experience and gave customers the impressions of always being in the sports market.

Puma participated in various marketing campaigns to arose customer brand awareness for example it sponsored big events, chose music television channel which was known for its young audience who tired to differentiate themselves and targeted them with puma adverts, for example Puma use the MTV and Music Mongol as Jazzy to promote footwear and other apparel this made lead to the popularity of puma brand and in the last five years saw increased sales as the brand was considered “rebellious and stylish “ as two most desirable attributes as compared to it’s competitors

Acquisitions of other company for example puma acquired Swedish company Tretorn, Europe’s third largest manufacturer of tennis ball from Proventus for €23 million which the contributed to €45 million in sales and puma was able to allocate its over head cost of distribution functions

Puma had a shareholder New Regency which put puma in several successful Hollywood movies such as devil and high crime this benefited puma massively from generous product placement. This new regency made it easy for puma to reach it market audience through movies, adverts that portrays the image of puma as a company

Technologically puma created a web presence that fit its imaged for example its home page displayed different adverts from Jamaica line. Interactive stories transported readers into managers’ thoughts during his 96 hour business tripe around the world wearing pumas casual and business attire.

A project promoted on the internet was the “top winner thrift” A collection of 510 unique and individual shoes was created and sold at premium prices all over the world.

2.1.2 Weakness

Poor brand Image

Before the revival, puma has a very bad brand image that most customers from the upper social class did not want to buy puma products because it was considered cheap, this ruined poor reputation and it took years for this image to be rebuilt through phases.

Luck of financial resource Puma did not have a strong financial resource as can be seen from the balance sheet of 1999-2002 this could have been due to reduced sales as the brand was of poor image. From the case study puma has the lowest balance sheet compare to its competitors

Luck of customers

Due to puma poor brand image of 1992-2002 it was not attracting customers because the brand was poor the substitute were readily available on the market most of pumas customers might have crossed to Nike or Adidas as they had better quality footwear Limited market when the brand was poor puma has the least market share as compared to Nike, Adidas and Rebook that to gathered shared 27% of the market share. This failure by puma to capture a larger make share is a weakness and this decreased on brand attractiveness, this can be due to puma’s marketing communication which is different for market segment

Puma lost its sports dealers distribution network due to poor brand image and unhealthy sale. Though this was gained, Puma still missing the sports segments distribution systems

From the case study Puma has a higher overhead as compared because some of its products were sold cheaply at a very low price making it really hard to figure out what the profit was made as costs were being attached to total sales regardless of what product segment was sold

2.1.3 Virtuality

Puma is the first virtual sports company according to pumas mission statement and uses Virtual Warehouse Management System.

According to Jochen Zeitz, CEO of puma "Virtual" actually may be the wrong word. One should probably say a "virtualized" company, where location doesn't really play a role anymore. It's totally independent from location and how you do business, and move things forward. Take product development, for example.

It's actually divided among all the three hubs, with certain development functions in Germany, certain in the U.S., and others in Hong Kong. They each complement each other and work together. It's all integrated through proper IT, so no matter where you are, you can access the same kind of information and add to the entire development chain”. (Reveries.com, Dec 2202).

2.1.4 Virtuality as strength for puma

Information sharing

Puma has a global management structure several head quarters supported by a strong information technology infrastructure this makes it easy for sharing of vast network resources on a global scale for example during design stage and using the Lotus notes and information database application, key information about design process and procedures and it can be entered in to the database and it can viewed by all the production team located in all the regional hub, this makes exchange of idea and decision making fast without the need for production team and designers to be physical locations in one place. For example footwear can be designed in German then it can be checked by product development team in another country, the review is done throughout the production cycle till the product is finished and ready for sale.

Hi technology infrastructure

The strong information technology infrastructure can be used to link all the global regions together for example during executive meetings video-teleconference can be use link all the mangers in the various regions together during a meeting enabling fast sharing executive information for managerial decision marking Online Reseller Puma’s virtuality has enabled puma to provide its customers with aid of viewing and buying products through a web based stores and retailers for example puma’s “Qualified Puma Online

Reseller” has made it possible for customer to order products and view their purchase status as they a wait delivery whenever their locations Family Websites Through virtual presence puma has been able to a couple of puma family websites for example in 2000 puma featured an online store in offering a few product in United States only though this has become more common of Pumas online stores, this makes it easy for puma presence to be very where in any country in the world and makes it easy for puma sales team to interact with customers online.

Puma also open it’s door to the public via web presence (Pumabiz.com) by allow users access to company information such as corporate structure, financial reports and puma performance in the market, this web presence enabled puma attack potential and future business partners as well as recruiting new staff using the Pumabiz.com website.

Virtual warehouse

Puma’s virtualisation process lead to the creation of a virtual warehouse where as soon as customers order goods they are assigned with unique making it easy to locate the goods and goods are dispatched to customers no matter where they are with the specific given period. The virtual warehouse system solves puma’s traditional way of storage and led to a feeling that puma is everywhere as the virtual warehouse was everywhere puma has a subsidiary.

By using vitulised system puma has competitive advantage for example Puma all core competence is seen as a single big company and globally it’s employees are all over the world and through use of puma communication technology employees are able to share all the resources and the process of virtualisation is being seen as a future that most companies will follow (cf Fuderholz, 1998)

The interaction of customers, suppliers and shareholders through the use of information system and communications between organisations have brought only supplier and investors together but has brought shareholders closer for example shareholder through the use on information system are able to search and find out how the company id performing in the market

3 Winning strategies

There are evidences from Puma financial reports that suggest puma strategies in the resent years have led to winning strategies; this can be seen from its broad actives that have improved puma’s image considerably.

3.1 Fits the Company’s situation well

Increase in orders

Pumas orders has increased by product line according to puma’s outlook for example order for footwear went up by 4.7% to € 721.1 millions and order for apparel has increased by 19.9% to € 397.7millioms followed by accessories which increased by 13.6% to €68.9 million

See Appendix ii & 111

Global branded Sales growth

Puma management confirmed increase in sales on of footwear, apparel and accessories for based on the financial results for the first quarter of 2008 this has the strength of Euro against other currencies for example footwear sales were down by 4.6% to €404.1 millions, Apparel almost remained the same as last years total €246/9 millions and accessories increased by 30.0% to € 90.1million

Consolidated sales

In the first quarter of 2008 consolidated sales grew for example sales in footwear flat but with all puma region meeting satisfactory sales level except USA, the sales of apparel goods increased by 18.5% to € 231.8 million and accessories in creased by 16.5% to € 47.3 million with contributions from the entire region in double digits

Europe, Middle East also saw increased sales of 19.9% which all together left the company with 3.4% revenue of which footwear sales accounts for up to1.9%, apparel increased by 5.7% and accessories by 3.7% despite a slow sales in America. (26 February 2008 | Source: just-style.com)

Pumas sales for the full year of 2005 consist of consolidated and license sales which increased by 18.4% to € 2.4 million for which the sales of apparel accounts for 16.5%, accessories increase to 16.5% and footwear increased by 17.7%

Gross profits at 5% from the sales and earning development report, puma’s gross profit from the first quarter increased to 52.2% as compared to last years. The margin of footwear increased from 52.0% to 52.1%, accessories increased from 53.4% to 54.9% and apparel was low compared to last year’s gross profits

Puma embarked on phase IV

Puma has started its phase IV in 2006 of becoming “most desirable sports lifestyle company” that consists of expansion out side of European market as all as expansion of product categories; this includes entering the already existing markets as well as entering into new areas for example puma aim to offer products that cover all the sport lifestyle such as incorporating sportswear into fashion and making puma more distinguished to beat off competition from its rivalry. Phase IV expansion strategy show tremendous growth in profits as result of continuous high sales and puma ability to spot new trends in the market and offer products accordingly

Puma’s shareholders value

In 2007 Puma’s main long term goal was founded, when Pinault Printemps Redoute of France take over Puma, this brought the two companies that share the same vision and culture together, for example the take over made it possible for each company to provide support to the other to reach it’s strategic objectives. The take over was not objected by the share holders because the offer price of €330 per share was considered fair and this made both companies more money.

Good balance sheet

Pumas sales for the full year of 2005 consist of consolidated and license sales which increased by 18.4% to € 2.4 million for which the sales of apparel accounts for 16.5%, accessories increase to 16.5% and footwear increased by 17.7%, this as compare to pre 2003 shows that puma has got a healthy balance sheet for example puma equity ratio is above 60% and of March 31, 2008 total assets increased by 0.8% to € 1,811.5 millions

3.1.2 Competitive advantage

Barney (1991) defines sustainable competitive advantage as "A firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy (italics in original)" (p. 102).

Based on both Barney’s work and the definition in the dictionary, a sustainable competitive Advantage is defined as long term benefit of implementing some unique value-creating strategy not currently being implemented by any known or potential competitors along with the incapability to duplicate the benefits of this strategy. Factors that have enabled puma achieve sustainable competitive advantage are identified below

Knowledge and Expertise

Puma has uses expertise in design knowledge with major competencies in all parts of design and marketing for example with the acquisition of Puma by PPR group has enabled puma to use PPR large base design team to produces high quality of desirable brands, this knowledge and expertise makes puma completive set a part from it’s main competitors.

Brand as completive advantage Pumas brand is so strong and dynamic according to Zeitz that by 2003 puma’s popularity was so strong that mega starts like Madonna was proud to wear Puma’s, This brand image and associations of it’s brand with international starts is of competitive advantage in selling of apparel and footwear because it brings about publicity for puma and brand awareness and open up venues for other opportunities for example by 2003 puma signs a deal to be the official supplier of apparel and footwear to the FIA world rally champion.

Expansion into other market Puma has been expanding its market especially in china, for example puma has open many stores in Olympic village in china to showcase new collection and meet the demand for Puma’s footwear demand , this expansion has attacked new customers and puma has provided support to individual sports personality for example, the CEO of Puma is quoted as “ If we find the right person we will consider partnering with those Chinese sports starts” ( China daily report 26,2007)

Innovative products Puma has a advantage in footwear, apparel and accessories because it a lot easier for puma but fashion know who with the help of designers and the CEO of puma has the understanding of fashion “the new combination of elements of past” in which when puma spots a new trend instead of making a new brand, puma uses it old brand to design and this counted for 10% of footwear, apparel and accessories based on the old design and this also made puma a trend starter. In footwear puma also collaborated with sought after designers like Stella McCartney, Alexander McQueen to produce new line of women’s and men’s footwear which was launched in the spring of 2006

Broad consumer appeal Puma offer a very diverse product line for everyone and this accounts for the broad customer appeal because there is product for everyone. In the spring collection of 2003 did carter for both male and female for example Nuala product line with cropped woven pants and Nuala Nylon coat for women as well as Kings ss soccer shirts that catered for both men and women.

Puma also ventured into Action sports line for emerging sports like BMX skateboarding and downhill mountain biking creating platinum series offering causal footwear and apparel and accessories for such events

Relational market asserts Puma has got greater bond with its customers this has forged a working relationship work with customers to manufactures highly unique and customized brands for example in the case study puma promoted the “top winner thrift” a collection of 510 unique and individual shoes that were created out of recycle cloths from Jeans and ties, with the purchase of such items, customers allowed to enter puma’s exclusive community on the web.

Supplies to meet the various demands of consumers Puma’s major supplier was Yue Yuen, the largest supplier of footwear, so when the demand for particular footwear goes up puma is more readily meets the demand from constant supply of branded products from YueYuen.

Intellectual market asserts Puma has great in depth knowledge regarding customers needs and preferences for example puma has gained knowledge and credibility in sportswear and equipment, this was a results of many years of trading on the same product line and which made it very easy to have competitive advantage over others fashion industry, this knowledge made it easy for puma to re-launch products that customers most prefer to have.

3.1.3 Better company performance

Marketing campaign

Puma participated in various marketing campaigns to arise customer brand awareness for example it sponsored big events, chose music television channel which was known for its young audience who tired to differentiate themselves and targeted them with puma adverts, this has resulted in o better performance because it improved brand awareness which in turns led to high sales performance.

Out sourced production Puma outsourced all productions and raw material procurements in European were to expensive and raw martial were cheap in Asians countries, this allow puma to reduce it’s working capital and allow puma to shorten the production and enable full quality control of input factors, this results in a better company performance because it enables puma to meet the market needs effectively and save a lot of money from having