Business Essays - Strategy Puma Product

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Strategy Puma Product

A Winning Strategy

In this section evidence will be given to support the view that the strategy adopted by Puma is a winning strategy. There are several factors that will be taken into consideration in proving Puma's winning strategy, the first of which will be a summary of Puma's finances from 2003 to 2007 which is shown in table 1 below.

This illustrates the Net sales, Gross Profit Income before tax and the Net income of Puma for the stated period. As can be seen in the table the figures have been constantly increasing every year which indicates Puma has become more efficient in producing its product. This supports the fact that the outsourcing strategy is working as Puma seems to have become more efficient in managing its value chain.

Summary Financials

Source: PUMA

Fiscal years ended 31 December

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Year

2003

2004

2005

2006

2007

2008

Net sales

1,274.0

1,530.3

1,777.5

2,369.2

2,373.5

Gross profit

620.0

794.0

929.8

1,199.3

12,373.5

Income before tax

264.1

365.7

404.1

374.0

382.6

Net income

179.3

259.7

285.8

263.2

269.0

Table 1 Key consolidated financial performance, 2001-2007 (Figures are in millions of EUR, unless otherwise stated)

 

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Figure 1 Key consolidated financial performance, 2001-2007 (Figures are in millions of EUR, unless otherwise stated)

End of year price

Highest price listed

Lowest price listed

Earnings per share

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Cash flow per share

Shareholders' equity per share

2007

273,00

350,10

260,15

16,80

13,63

72,62

2006

295,67

333,11

240,67

16,48

5,71

65,10

2005

246,50

249,00

177,04

17,79

26,95

54,80

2004*

202,30

219,54

140,15

16,14

24,01

34,25

2003

140,00

141,00

59,15

11,26

17,61

24,04

(All figures in ?)

Table 2 Insert name of table 2

Figure 2 Insert name of figure 2

One of Pumas most successful strategic moves was choosing where to expand geographically and was a key contributor in Puma's continued success. Puma expanded its operations into Europe/Middle-East/Africa (EMEA), Asia/Pacific and America.

In the year 2005 in the EMEA sales increased by 5.6% over the previous year to EURO 1,104.9m. Moreover, sales in the Asia/Pacific region improved by 8.5% over 2004 to EURO 196.3m in the period 2005.

In the American region external sales increased to 57.4% over the last year to EURO 476.3m in the period of 2004 to 2007, as can be seen there is constant improvement year after year. Source: PUMA

The following depicts the breakdown of sales by region and by year.

Region/Year

2004

2005

2006

2007

America

74.20

136.4

175.2

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154.8

Asia/Pacific

47.10

51.6

125.1

134.6

EMEA

152.10

161.2

180.3

215.1

Figure 3 Consolidated Sales by Region ( Million)

Figure 3 Consolidated Sales by Region

Source: PUMA

In the fiscal year of 2007 Puma's consolidated sales increased over 10% over the fiscal year of 2006. A major contributor to this increase was due to strong sales in all sectors, the company's gross margin profits are up by 52% as compared to the previous year.

Puma is now deep into phase IV which started in 2006; this is part of a long term mission to become the most desirable Sport lifestyle company Source: PUMA. To accomplish this goal Puma has been constantly working on its brand strategy, evidenced by improved sales that show the strategy to be improving. Another strategic initiative was Puma's approach with concept stores being used to further reinforce its brand strategy. Puma has described it's forth phase as an expansion phase with three (3) main categories as follows;

  1. Expansion of product categories

What puma is trying to achieve here is diversification which will aid in long term market presence and will further assist in its competitive advantage. Puma is also entering into new categories where there is potential growth that its competitors have not yet pursued. The aim is to distinguish the Puma brand from it its competitor in a distinctive manner which would give puma a competitive advantage as it relates to its brand image.

  1. Regional expansion

Puma is also embarking on a new expansion drive in wholesale and retail business

and are using a unique type of promotion as a medium to further solidify its relationship with existing partnerships to strengthen the brand of Puma, the aim is here to increase visibility of the Puma brand. Puma also is pursuing ending or redeeming all major distribution licenses in an attempt to consolidate the business, this would lead to faster development of its present brand potential in its specific market leading to an expansion in profits.

Puma is also using its retail stores not only as a portal to its brand but also to serve as a tool or mechanism to react faster to new trends, this will also support its innovation strategy by getting new trends and products faster to its customers which will further solidify its mission of becoming the most desirable Sport lifestyle company or group Source: PUMA Additionally Puma is constantly refining virtualization of its business processes to further improve its value chain to also contribute to higher profits.

  1. Expansion with Non-PUMA Brands

Puma expansion strategy also includes non-puma brands to further increase the company's presence in the market however this would be done with the highest evaluation and examination process available, any kind of expansion would have to result in an advantage of some sort which would aid Pumas long term strategy.

  1. Products & Product Development

Products and product development also played a major role and will continue to play a major role in Puma sustaining its competitive advantage. Puma is constantly developing products for a highly dynamic market also adapting to geographical trends, in 2005 Puma invested EUR42m in product development & design.

Research and development is very important to Puma in order to maintain its uniqueness and its image of an innovative company, it also supports an avenue for its creative workforce to express themselves. Within Puma there are (3) major product offerings, they are footwear, apparel and accessories figure 2 shows a Breakdown of sales across segments, for the years

2004-2007 at million, and as you can see there have been consistent gains in each segment. In Puma's pursuit of becoming the world's number one lifestyle Sports Company it's investing in unconventional products which are not commonly associated with a sports company. This will allow for Puma to further distinguish themselves from their competitor.

Segment/Year

2004

2005

2006

2007

Footwear

175,9

221,3

173,2

277,2

Apparel

79,6

101,0

177,4

194,7

Accessories

20,9

26,9

29,9

32,6

Table 4 Breakdown of sales across segments

Source: PUMA

Figure 4 Breakdown of sales across segments

Market trends

Market trends would also have an effect on Puma's competitiveness where retailers wanting to increase their margins have embarked on a new strategy of consolidating retail departments which will give them more bargaining power leading to a cut into manufacturers margins, to counteract this trend Puma has invested in its own stores the result of this action means Puma would not have to depend on large department stores, this approach also works in synergy with Puma's branding strategy. In fact take into consideration is Puma's geographical expansion this is very important for puma is continuous expansion in 2006 Pumas phase (4) plan kicked into action

Which will focus on expansion globally, its major competitors have already attempt this strategy of diversification which was successful. The attempt to expand geographically will only put Puma at a better competitive position with its industry rivals where Puma will now be competing in a global market and most importantly achieve diversification in the market space. A group mapping will be produced to show Puma's geographical groups in recent years.

Brand Image

Puma continues to invest in its brand image to put in their own words they want to develop an iconic brand http://about.puma.com/EN/1/82/13/ that would Stretch across a wide spectrum of customers. They intend to expand their image across cultures and regions and in 2008 Puma would part sponsor of some of the major events for example the African Cup of Nations in Ghana, where nine out of the sixteen teams that participated in this cup were sponsored.

The following is another great example of how Puma uses its innovations and exclusive product line to their advantage they will able to take part in the European Championships, Olympics and the Volvo Ocean Race which will mark Puma's first entry into sailing sector. Puma intends to widen its lifestyle products to aid their long-term strategy of becoming become the most desirable Sport lifestyle company http://about.puma.com/EN/1/82/13/

Distribution and Retail

By using information technology Puma was able to virtualize its logistics and would allow them to fall in line their virtuality strategy. This strategy is based on the constant efforts in redefining its organization to fit a fast-paced dynamic industry, Puma has of recent times received a record number of sales which placed high demand on its distribution and retail modules but instead of just buying additional warehouse space Puma invested in a warehouse management system.

The strategy here is that they would use existing warehouse centers to store goods when needed which means they can quickly adapt to space needs as it relates to the flow of information and the management of stocks. This is where the warehouse management system using this strategy will align with Puma's long term strategy of becoming the first virtualized sports company, it could also give puma a competitive advantage by being able to respond to customers demands quicker leading to a better customer experience and then a long term objective of customer loyalty.

Quantity Controls

One of the downsides of outsourcing your production end to end is that you have little or no control of the end product however in Puma's case they have introduced industry best practice to ensure the end result is a desirable one. Puma is constantly working with its suppliers to improve conditions in which production takes place and its Puma's belief that product quality is not limited to the best materials but also the working conditions as such Puma decided to launch a new program called PUMA S.A.F.E. The aim of this program is to work with suppliers to bring the working environment up to acceptable standards with regular audits and is one way Puma is maintaining its high quality standards in and outsourced environment.

Workforce Development

Puma has also been constantly investing in its workforce with one of their main focus regions being Asia/Pacific, as part of its motivation strategy they have committed to their staff lifelong learning. Puma offers two types of training; on the job training and off the job training. In 2005 for management the figure was 3.5 hours and 2006 this increased to 4.5 hours. In 2005 the training hours for employees was 0.6 and in 2006 the figure increased to 1.3 hours.

If we look at new regions where training is taking place in 2006 the EMEA training activities doubled which means Puma is investing heavily in its human resource capital which will go in line with their plan of increasing market share in these regions. This strategy of increased training be it on the job or off the job will lead to a highly efficient workforce which will lead to making Puma's customer experience superior to its competitors