Adidas is one of the leading companies in the world that specialise in the production of wide variety and high quality sportswear and sports equipment. The head office of the company is located in Germany and has good brands through which it promotes its products. The company is carrying on its operations by using the three brands names of Adidas, TaylorMade-adidas Golf, and Reebok. The company is widely operating in Europe, North America and Asia. Adidas has a strong work force of around 39,000 employees working in different parts of the world. The company has its operations in Europe, US and Asia in more than 150 subsidiaries and are purely focussed on manufacturing.
Adidas focuses on sports and the brand specialises in footwear, apparel and accessories. Adidas is very popular with the sports division where the brand image of the company is promoted in sports like running, football, basketball, tennis etc. Reebok is mainly focussing on the style and its products are related to sports, fitness and casual footwear, apparel and equipment. The brand TaylorMade-adidas Golf offers products related to golf clubs, accessories, footwear and apparel. Majority of the goods of adidas are manufactured by other companies. In order to minimise the cost of production, adidas has outsourced its major portion of manufacturing to a different company situated in Asia. The revenue of the company remained healthy in the financial year 2008, where the revenue increased by 4.9% from 2007. The same happened with the operating profit and the net profit.
Market Position of Adidas by understanding the SWOT Analysis
Brand images that bring high value to the company.
Extensive network of stores
Wide spread operations in various geographical locations and
Strong financial position
The brand images like adidas rebook and in particular TaylorMade-adidas Golf are playing crucial in portraying the image of adidas in the golf sport with different categories of products operating under one single name. With the presence of the brand in golf balls, adidas can concentrate on foot wear and see to it that there is phenomenal growth in foot wear and apparel segments and later can mix the combination of products and stabilise the market. With a strong image, the company is able to penetrate deeply into the existing and new markets.
Low sales of Reebok
Scope of research and development is not geared up to the market requirements
Online services and business through e-commerce has not reached to major markets.
Even though, Reebok has good brand image in the sports industry, it is perceived only as a fashion product and so the customers are not interested in buying it. As a result of this, the sales of Reebok are not as high as adidas. This should be addressed immediately and reebok should be repositioned in the market. While the technology is being widely used by adidas with the designing of products over the internet, the product research and development is not innovative in quickly designing new products and releasing them into the markets, not it is able to deliver the product of the customers' own design done online in the retail store. This will seriously affect the company brand value. People in the developed countries are able to access the internet widely, where as majority of the customers in the growing markets are not able to use the internet and have the habit of visiting the retail stores. Adidas should concentrate on establishing many retails stores and outlets in markets like India, China and few Middle East countries to make the product available for the customers who cannot use the technology through the internet.
The external analysis of the company deals with the factors that companies face externally and it may be either advantageous or might affect the company in a negative way. The opportunities are the factors that are useful for adidas to expand their business where as the threats are the features that adidas has to face to stay fit and competitive in the market.
The opportunities are
Improving the supply chain
Increasing the sponsorships with other sports personalities in different countries apart from athletes, foot ball, and basketball.
Widely growing sports industry
Expanding e-commerce to global markets
New technology and innovation should given top priority
Fake products manufactured by local companies
Intense competition coupled with narrowing markets
Dissatisfaction in the management for not achieving the desired results.
Emergence of competitors like Nike and Puma
Porters Generic Strategies
Porter's strategies concentrate mainly on the cost of the product and the differentiation of the product in different ways. With the sole aim of achieving profit, porter has developed these strategies to know how companies can face the competitors in terms of price, operate in specific markets, gaining advantage of the product and finally making the most out of it.
Cost leadership strategy:
In this type of strategy, the companies concentrate more on the price as it is the determining factor for the profits of the company. Price is considered in all the directions from purchase of raw material, production cost, package cost, cost involved in advertising etc. Companies sell the products according to the market condition. Some companies may opt for selling the goods at low price than the competitors to gain more market share. Other companies sell the products at an average price and gain low profit margins.
This will benefit the company in projecting the products of the company in a different and effective way by comparing the design, comfort, quality of the apparel with other competitors.
The focus strategy generally a narrow sphere of operations where the companies focus on specific segments, age groups, region. Along with the focus strategy, the companies should use either the cost leadership strategy or the differentiation strategy to make the market more confined to a particular segment. The concentration can be done on geographic area, demographics, gender, income groups, ethnical groups etc.
IMPACTS OF THE STRATEGIES
Incase, the porters generic strategies are applied to adidas; we will look into the impact of these strategies on the operations of the adidas company.
Impact of Cost Leadership Strategy
When the companies opt to implement the cost leadership strategy, they should be strong enough financially to face the negative consequences of this strategy. With reference to adidas, it can use this strategy and it will be more beneficial for the company initially as the price of the products are a bit higher than other brands and so if the price of adidas, reebok products are reduced, then there is a great opportunity for adidas to reach more customers and they can permanently turn loyal to them. As the global economic situation is currently unhealthy, this may even attract more customers if adidas brings down the prices of its products in order to face the competitors who offer the similar type of products at a lower price than adidas. To withstand the competition from the companies' inferior in quality, adiadas needs to think about this strategy.
Impact of Differentiation Strategy
The differentiation strategy would well fit adidas to improve the market base as it has lot of advantages with technology. As adidas is already making use of the e-commerce and the customers can design their own products over the internet, the product management team can do a lot of research with the new designs and release them into the market. Since adidas is being identified as a brand that is associated with a particular segment and also very specifically to particular sports, it can use this as an added advantage in trying to be different in targeting people who are into sports, athletics etc.
Impacts of Focus Strategy
When adidas thinks of implementing the focus strategy, it can start focusing on different segments apart from sports as the infrastructure is available with the company. It needs to add up some more facilities, and try to focus on the entire foot wear segment suitable for all the age groups like Bata. There are certain negative effects for this strategy as it is a time taking process for the company to start its operations by focusing on a different market segment and customers. In the long run, the new focus area may be over looked by the company due to poor performance and the company will lose lot of money, time and more importantly, the profits may come down and the cost will go up.
BCG Growth- Share Matrix
This strategy is totally based on the market share of the product and the growth of the market. It is a typical strategy where the companies should have products with high growth in large markets and also products that have low growth but can generate more cash for the company. Based on such combinations of this matrix, there are four dimensions for this model based on which the companies can understand how much cash is being generated and consumed. There are four categories that a company can divide its products based on the BCG Growth matrix. They are cash cows, stars, problem child and dog.
Cash Cows: In adidas, the different kinds of products that are sold on the brand name of adidas are the cash cows for the company. The reason behind this is that these are widely used by people and reasonable profit is generated from these products. By selling such products, adidas is able to generate more cash for the company and this can be used either for the development of new products or investment can be done in some other business area. The main financial pillars for the company are adidas products which are the cash cows and so the revenue generated from these cash cows is very crucial for the company to sustain.
Star: Stars are such kind of products that generate enough amount of revenue for the company, but at the same time these products need more cash to maintain its position in the market. With adidas, the reebok brand can be considered as a star according to my assessment as it is known for its fashion and it is a popular product among young people. Sales occurred from reebok generate revenue, but not enough to self sustain the product by itself. In countries like India, reebok is a popular brand, but the sale done and revenue obtained is not enough to keep the brand alive in such huge market. To keep it vibrant, adidas should divert its funds from the profits obtained from other products
Question Mark (or Problem Child) : Such products are made available in high markets and the market share is very less. They require lot of funds to improve their market share and it is uncertain whether they will grow or not. As the markets are growing phenomenally, Adidas has few problem Childs and these can be ignored by the company
Dogs - these are products that have fewer shares in the market and also have a very slow growth rate. The products don't consume lot of investment and they don't generate huge revenue for the companies.
ANSOFF GROWTH MATRIX
The Ansoff matrix has four strategies based on the products and customers. Along with the strategies and their positive implications, there are also few negative factors for these strategies. With this type of matrix there will be several options for the company to decide what product to sell to which customers. According to this model the companies should consider the options are at a wide and broader perspective of the market and its operations. The strategies devised may not be suitable for all the market and in some cases it may have a huge positive impact on the sales and profits of the company. The companies can implement different strategies in various markets across multiple geographic regions. The strategies of the Ansoff model are market penetration, market development, product development and diversification. The Ansoff matrix helps businesses decide their product and market growth and strategy.
With reference to the earlier discussion in the report regarding the brand image of adidas and other products, penetrating into new markets will bring lot of benefits for the company. The company should not alter its products to enter the new markets instead it should use the existing products and customers. By penetrating into new markets the company can improve its sales without having any impact on the strategies implemented by the company to market the products. Adidas can penetrate into the new markets by attracting the customers of the competitive company, assuring the customers about the quality of the products and providing excellent customer service. It can also attract new customers who are not at all using the products by devising attractive advertisement campaigns and offering special prices. Penetration need not be into the new markets, but within the existing customers and the market, the company should be able to retain the current customers by making them use the products more, giving loyalty schemes and memberships etc. Adidas can also be more effective in increasing its customer base by dynamic advertisement campaigns that will dominate the competitor in the present market. Pricing can be considered as one of the factor for penetration. All these can be done by positioning the brands properly in the market.
The strong presence of adidas in markets like Asia, Europe, Latin America and North America can now expand its operations to different markets and also to specific countries where the products are not available. In this attempt adidas has lot of opportunities to expand to new markets especially the Indian market, Middle East, African markets and few other countries. With the existence of different brands in various countries, adidas should identify the markets where it can expand with less effort in terms of finance. As far as the market development is concerned, adidas should try to implement newer strategies by improving the product quality, changing the packing system, new ways of distribution having collaborations with local companies in going to new markets.
Particular concentration on new markets also is beneficial for the company if it intends to improve the sales and profits. Markets where adidas does not exist now should be analysed and the products should be launched there. By doing this, adidas can expand their business in different geographical segments. As the brand is being promoted by various sports personalities in few countries, it should think of identifying sportsmen in different countries and see to it that the brand is being promoted by that particular sportsman. The best example for this is the Indian market where Sachin Tendulkar who is a famous cricketer can be used by the company in entering and improving the sales in the Indian market. Similar strategies can be used in different countires.Diffeerent sales and marketing techniques can be used by adidas to improve the market segments.
It is well known that Adidas has various technological tools to develop new products and this will allow adidas to introduce new products according to the needs of specific target groups. So the company can increase their profits by introducing new products to their existing customers. This strategy can also useful when the company enters into the new markets. To attract the customers, products can be developed according to the tastes and the likes of the customers. By using this strategy, the company is going to sell the new products to the existing customers only and in this process, the old products have to be redesigned and made more attractive so that the customers are attracted and the sales improve. Adidas can announce certain offers while the new products are being introduced which will attract both the existing and new customers. It can now identify specific target groups like children, middle aged people, middle class people in their markets and design products that are affordable by them and they start buying these quality products instead of any inferior quality product locally.
Diversification strategy is considered as a risky strategy because the companies may incur huge losses if they diversify without knowing what kind of business will help the company achieve maximum profits. Adidas can diversify its activities into various segments where the company has to either go with the existing products into new markets or with new products into new markets. For Adidas, the diversification strategy can be one of the suitable strategies if it can keep its cost in control as the diversification process involves lot of financial risk. As the company is currently strong financially it should try to understand that with new investments in new markets, the benefits also should be analyzed and then a decision about diversification should be done.
The strategic options that adidas has considered may change the decisions of the management. The company cannot just take the suggestions, but it should gauge whether the strategies can be implemented in the practical business environment. We shall discuss in brief the implications of the strategies that we have discussed above relating to the Ansoff strategic model.
Implications of Market penetration and Market Development.
The market penetration and market development will have positive and negative effects on the company. Initially, adidas is a company that already exists in many markets and if the company want to move into new markets lot of efforts should be taken in terms of employment generation to recruit employees in the new markets. If they enter the new markets and the results are not up to the expected levels, then the chronology of the operations within the organisation will be disturbed which can cause confusion within the employees and they may feel insecure, as result of which there may be high attrition rate and there will be financial burden on the company in recruiting and training new employees. Lack of coordination between different branches within the same market and different markets may exist. Social responsibility also plays an important role in the new markets and the company has to divert funds for social service activities thereby resulting in reduce profits. If Adidas is wiling to enter new markets it should be willing to spend more money during the initial stages of development and if it can afford to spend, then the company will be successful. As marketing is required for entering new markets, suitable brand ambassadors should be selected to introduce the products and if the selection of this ambassador is not proper then the product would fail and finally the brand image of the company will be destroyed. Careful financial planning should be done in gaining profits where the complementary gifts offered to customers are expensive. If the offers are attractive then the company can gain more market share and will give a tough fight for the competitor. When adidas enters new markets, it can target specific companies that are inferior to them, but which hold a good market share. This can be encountered with aggressive campaigns and advertisements which will definitely increase the market share of adidas. Adidas can acquire small companies that have a good image in local markets and by doing so adidas will easily and quickly move into the many markets and the quality of the product can also be upgraded by using the technology that adidas has, giving more customer service, more designs for different categories of people and become successful in new markets. By using the new distribution channels, the company can make the products available to all the customers which would be an added advantage for the company in reaching a vast majority of people in different markets.
Implications of Product Development and Diversification
If adidas has to consider the product development and diversification strategy, it is clear that the product development would be beneficial for the company rather than diversification. As developing a new product involves lot of expenditure, technical expertise, and adidas can make use of the existing technological advancements that it has to develop new designs and products that will be suitable for different markets and attract more customers. Adidas business operations over the internet also can be effectively improved if the technology is used to develop the products required by the customers and are available in the retail stores immediately. Work force with high skills should be recruited and this will prove to be expensive and so the amount of business should be relatively developed to gain maximum profits.
If the diversification strategy is implemented, adidas can have risk because of huge expenses and reduction of core business activity. If adidas diversifies in the same activity it is beneficial or else it may may risky for the company. Entering into business segments without proper analysis is going bring lot of problems which has happened with the reebok brand that adidas has bought long back. Even though, it has diversified into the same activity, it is not productive.
After analysing the swot of adidas and examining the application the Ansoff strategic model for adidas, we can suggest some recommendations for the company to improve its performance and gain more market share in the sports goods manufacturing industry.
The recommendations are
Adidas should tie up with many chain supplying companies to increase its distribution networks as the products are not reaching many customers in the market.
The company can establish more stores to let the customers feel that these particular brands are economical and affordable to everyone.
Lot of advertisement campaigns should be done, so that the customers know that this is a popular and everybody can use them and the brand image is strengthened.
Promotion of both Reebok and adidas should be done on the same level.
Products should be developed for common man also so that they get used to these brands as they are psychologically confident that adidas goods are of very high quality.
Emerging markets like India, China, South Africa, and Middle East should be on the priority list of market concentrations as the population is high and there is every opportunity that the existing customers can be retained and new customers can be targeted.
The reebok should be positioned in a different way in different markets. Even though the brand name is well known, the sale generated from this brand is very low. Instead, the company can attach a popular sportsman as a brand ambassador in big markets to make it penetrate more.
Reduction of the price for reebok can also be considered initially so as to make people used to the product and once the customers is slowly increasing and gradually the price can be enhanced.
Internet applications of the company should be more effective, so that the products are made available in the retail stores.
The sponsorship should not be confined to few sports; instead adidas should identify popular sports and sports in the markets where it is operating and sponsor such activities, so that the brand is quickly and easily taken into the minds of the customer.
After analysing the strategies that adidas can adopt to improve their business using the Ansoff analysis it may be effective in one way and it is very important that the management think about the other aspects related to business. With dynamic changes occurring in the global markets, the strategic options chosen may have to be reconsidered according to the changing situations. The four strategies like the market penetrations, market development, product development and diversification, adidas should act according to the needs of the customer in a specific market and thereby gain more share in the market and stay fit in the competitive environment. The decisions taken by the top management in implementing these strategies will play a crucial role in determining the growth and future of the company