Product Diversification (marketing strategy)
Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, main motive is to enter a promising business outside of the scope of the existing business unit.
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. Therefore, diversification is meant to be the riskiest of the four strategies to actually pursue for a firm.
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The EXTENT of diversification depends on the subjective interpretation of "new" market and "new" product, which should reflect the perceptions of customers rather than managers.
DIVERSIFICATION TECHNIQUES:The strategies of diversification can include products tend to create or stimulate new markets; new markets promote product innovation, internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This combination is determined in function of available opportunities and consistency with the objectives and the resources available of the company.
There are three types of diversification: concentric, horizontal and conglomerate:
- Concentric diversification
- Horizontal diversification
- Conglomerate diversification (or lateral diversification)
This means that there is a technological similarity between the industries. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product which helps the particular company to earn profit. However, there's one more example, Addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technological-related concentric diversification.
The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. In other words, this strategy tends to increase the firm's dependence on certain market segments. For example company was making note books earlier and now they are also entering into pen market through its new product.
The company markets new products or services that have no technological or commercial similarities with current products, but which may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons of adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets expanded. Even if this strategy is very risky, it could also, if successful, provide increased growth and profitability.
Rationale of diversification
There are two dimensions of rationale for diversification. The first one relates to the nature of the strategic objective: diversification may be defensive or offensive.
Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities.
The second dimension involves the expected outcomes of diversification: management may expect great economic value (growth, profitability).In addition, companies may also explore diversification just to get a valuable comparison between the strategy and expansion.
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Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires the most careful investigation. Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required. Therefore, the company puts itself in a great uncertainty. Moreover, diversification might require significant expanding of human and financial resources, which may hinder focus, commitment and sustained investments in the core industries. Therefore a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth. In order to measure the chances of success, different tests can be done:
- The attractiveness test: the industry that has been chosen has to be either attractive or either capable of being made attractive.
- The cost-of-entry test: the cost of entry must not capitalize all future profits.
- The better-off test: the new unit must either gain competitive advantage from its link with the corporation or vice versa.
Because of the high risks explained above, many attempts of companies to diversify led to failure. However, there are a few good examples of successful diversification:
- Virgin Media moved from music producing to travels and mobile phones
- Walt Disney moved from producing animated movies to theme parks and vacation properties
- Canon diversified from a camera-making company into producing whole new range of office equipments.
For over 80 years the adidas Group has been part of the world of sports on every level, delivering state-of-the-art sports footwear, apparel and accessories. Today, the adidas Group is a global leader in the sporting goods industry and offers a broad portfolio of products. Products from the adidas Group are available in virtually every country of the world. Their strategy is simple: continuously strengthen the brands and products to improve their competitive position and financial performance.
Golf Equipment: metalwoods, irons putters, golf balls, footwear, apparel and accessories
- Activities of the company and its more than170 subsidiaries are directed from the Group's headquarters in Herzogenaurach, Germany.It is also home to the adidas brand.Reebok Headquarters are located in Canton, Massachusetts. TaylorMade-adidas Golf is based in California. The company also operatescreation centresand development departments at other locations around the world, corresponding to the related business activity.
- Adidas Sourcing Ltd., a fully-owned subsidiary headquartered in Hong Kong, is responsible for worldwide sourcing.
- Effective December 31, 2008, the adidas Group employed 38,982 people.
Adidas Industry Analysis
The global footwear market is a growing market with an increase in consumer demand based on globally increasing consumer incomes. The sports footwear market is significantly characterized by the high speed of innovation, which forces the companies to invest more in development initiatives. At the same time the companies are trying to reduce costs through decreasing supplier prices in order to stay competitive. Looking forward, the footwear market is expected to steadily keep growing.
The Adidas Group is a worldwide operating German sports apparel manufacturer with its head office in Herzogenaurach. The company was founded in August 1949 and named after its founder Adolf (Adi) Dassler. With the winning of the World Cup 1954 in Bern by the German national team, the Adidas soccer shoes became world-famous. The German team played with Adidas soccer shoes where you could replace the studs - a new innovation in those days. In the following years Adidas expanded its production beyond athletic footwear and produced sportswear and equipment. In 1989 the company became a corporation. In 2006 Adidas took over their British rival "Reebok" with the goal to accelerate its drive in the U.S. market and to approach Nike, the world market leader in the athletic footwear industry. Today, Adidas is still trailing Nike. The Adidas Group consists of the brands Adidas, Reebok and Tailor-Made.
Important past trends:
Adidas has always been a company that stands for revolutionary inventions in the athletic shoe industry. Adidas reported in 1996 one of the most successful years in its history after implementing new sales and marketing strategies. This could only be topped in 2001 where Adidas-Salomon achieved record-breaking sales. Another significant trend lies in long-term sponsoring contracts that Adidas gained within the last few years.
ADIDAS THE BRAND
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Some of the factors that contribute to the creation of high brand equity are brand association, awareness, attractiveness to buyers and brand loyalty. For a company to see major success it must establish and sustain high brand equity. The preference in the marketplace for one particular brand is not simply a preference based on the cost, quality or style of its products. It is also influenced by the personality, reputation and image of the brand and how often and how well they are communicated. What experience is the brand promising or associating with? Who is endorsing the brand?
The sportswear market; it has some of the strongest and most valuable brands in the world. The CFO of Adidas, Dean Hawkins recently said, "our biggest asset isn't on our balance sheet, and that's our brand"
Further we will see how Adidas's brand development led to it securing a place in the worlds 100 top brands and will look to the future plans it has in place to maintain its high brand equity.
Adidas dates back to 1948. It is derived from the first syllables of its founders first and last name - Adolf Dassler who began making shoes in 1920. His vision was to supply professional athletes with the very best in footwear for their respective fields. He registered the unmistakable "three stripes" which to this day remains the Adidas trademark. Adidas could be considered the first sports company to use "celebrity endorsement" for their products. Germany won the Soccer World Cup in 1954 and the team wore the first football boots with screw-in studs.
Adidas: Behind The Brand
When adidas entered the marketplace some, its focus was to produce shoes designed specifically for soccer and running. Establishing the brand as the choice for professional athletes eventually got into priority in the mainstream.
Further adidas's street echoed with the rap "My adidas," But by the early 90's, Nike and Reebok were out-marketing adidas - even in Germany, its own territory. Kids weren't interested in the sneakers their parents wore, and adidas found itself forgotten, heading for the Goodwill.
The new millennium has brought about an adidas revival; the brand has steadily regained market share over the past five years to become the world's number two athletic shoe company (behind Nike). How did it go about repositioning to once again?
Adidas claims that, "the brand values of the company - authenticity, inspiration, honesty and commitment - are derived from sport itself."Earlier, this sensibility was demonstrated through early and continued involvement with Olympic athletes, as well as active sponsorship of major global sporting events - like the World Cup. Today these events provide a considerable scope for sportswear companies to look out for representation and eventually the market share.
However, the key to enhance success seems to lie in the considerable endorsement deals adidas has developed with world class athletes. Recent sports figures representing adidas don't only score high in their game - they also score high in their celebrity quotient.
As a leader in the sporting goods industry, Adidas-Group is exposed to a global marketplace, offering significant growth and profitability potential for all their brands. Identifying, assessing and exploiting opportunities in a structured and organized way is fundamental for them to achieve medium- and long-term revenue and profitability goals. In addition to seizing opportunities they have continuously strive to deliver strategic initiatives at a Group and brand level in order to capture future growth and profitability.
The strategies adopted by Adidas-Group have been successfully implemented in several areas. They always ensure that the needs of various consumer groups are fulfilled by going into partnership with high-end designers and technology.
Acquisition / Merger
Adidas-Group bought over Reebok to establish a stronger foothold in the Sports Industry. This merger is indeed a success which has achieved significant sales growth. Merger of Adidas & Reebok complement each other in competing with their competitors, Nike; and is more cost efficient and beneficiary to both brands with Reebok's strong presence in US market and the global recognition of Adidas.
Adidas-Group has successfully established their brand image by getting sports personalities like, David Beckham to endorse their products. Consumers are able to relate with Adidas products through the eyes of their Sports 'Stars'.
Research and Development
The expenses set aside for Research & Development has not gone wasted. Adidas has always been coming up with innovative ideas and designs to launch fashionable and trendy products compared with their competitors. They have registered trademark rights as well as Patent Protection Policy for their key products, technologies and innovations in major markets for footwear, apparel and hardware.
New Adidas Product Marketing Campaign
The Adidas Company was behind and helped such influential athletes as Jesse Owens and Muhammad Ali as they broke countless records. The heart of the Adidas product line is athletic shoes and this trend shows no signs of changing but the three-stripe logo appears on apparel and other jock accoutrements. Bankruptcy once had Adidas on the ropes, so to speak, but it made a comeback by shifting production to Asia and beefing up its marketing. Being the number two maker of sporting goods worldwide, just behind Nike, it has inked deals with football and basketball athletes, as well as the New York Yankees. The firm won sponsorship rights to the 2008 Olympic Games in Beijing. It now seems that in every sports related segment Adidas has a new quality product that was created to address an athletes' needs either on the playing field or getting ready for their leisure time.
Currently, Adidas has expanded their market to capture athletes who not only want to perform well in their sport but who also want to look and smell like a celebrity. Therefore, Adidas introduced a new line of fragrances and body wash products. In this line Adidas offered eight different types of fragrances targeted towards both male and female consumers. These body care products ranged in price from $8.25- $20.45.
We believe that Adidas has great potential and ability to launch a product that refreshes their athletes even when they do not have time to shower. Using the high performance image that Adidas has already established through its fragrance lines, we feel that it would be just another opportunity for Adidas to continue to address the needs of its athletic consumers. Adidas Cleansing Cloths act as a towlette which has the Adidas patented secret sweat absorbing micro scrubbles that soak up sweat as soon as they come in contact with sweat molecules. These towlettes also contain the three signature scents that leave the user with a "just out of the shower"a refreshed feeling.
Adidas can also launch a new brand shoes by taking the benefits from the combination of Reebok and Adidas.
Strategic Benefit Of Adidas-Reebok Acquisition
Extended geographic reach and more balanced sales profile. Reebok complements adidas's international profile and enhances adidas's strong position in North America. North America represents approximately 50% of the global sporting goods market, and with Reebok, the adidas Group's North American sales will more than double to EUR 3.1 billion (U.S. $3.9 billion). In Europe and Asia, adidas enjoys stronger brand recognition, and has significant marketing expertise and insights. adidas expects to use this expertise to further develop Reebok's global presence.
World-class and talented employees. Both adidas-Salomon and Reebok bring an exceptional team of talented and experienced employees to the new group. As a result of this transaction, Group employees will have even more exciting job opportunities.
Broader portfolio of world-renowned brands. The combined entity will have a more complete portfolio of brands that caters to a global consumer base. The portfolio will be anchored by two brands with well-defined identities - adidas, a leader in sports performance with a European heritage, and Reebok, an American leader in sports and lifestyle products. With its broad portfolio of brands, including adidas, Reebok, TaylorMade, Rockport, Greg Norman Collection, MAXFLI, CCM, Jofa and Koho, the adidas Group will be able to offer footwear, apparel and hardware products based on cutting-edge technology, trend-setting street wear and classic design.
A more complete product offering in key sports categories. The new adidas Group will have a stronger presence in American sports and a complete product offering that addresses key sports categories, including soccer, basketball, running, American football, hockey, tennis, training, outdoor and golf.
Stronger presence across teams, athletes, events and leagues. Adidas expects that the combined Group's strong presence across teams, athletes, events and leagues will enable it to substantially sustain itself in the near future.
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TO MAKE THE PRESENCE FELT BY THE NEW BRAND SHOES FOLLOWING MARKETING PLAN HAS TO BE FOLLOWED.
Launching new brand shoes:
We are excited for the launch of new brand of shoes.These new brand shoes will bring a new range of footwears which will surely redefines the innovation and style. This year launch of the new variant of shoes, with the tagline " refresh your style' to communicate its positioning.
We have already stated about, Reebok International Limited, a subsidiary of German sportswear giant Adidas, is a producer of athletic footwear, apparel, and accessories and Adidas acquired Reebok in January 2006. Reebok surged in popularity after the introduction of the Freestyle athletic shoe, which was designed for women.
Following the Freestyle success, was an athletic shoe for men, called the Ex-O-Fit. Since then, Reebok has released several colorful & creative designs. And the latest Reebok's classic athlete shoe model has been shown below.
New Reebok Fullington For Spring and Summer 2010
The new Reebok Fullington for Spring and Summer 2010 comes in very sleek and shiny skins. It comes with two model colorways. The black and grey colorway and the monotone brown colorway.
The sneakers have high ankle strap with an embossed tag of "Reebok" in the customary font. It comes with an oversized Reebok logo that is stitched on the sides and creates a nice boundary between the lower half of the shoe. The upper half is perforated leather that extends on the high ankle panel of the sneaker. It will be released this coming January 2010.
Steps involved in the launch of the new shoes :
Adidas and Reebok want to launch a new range of shoes into market. This time they are launching shoes with different and innovative style for their target customers. They had done homework and decided exactly what to offer and how to generate sales. It is very difficult to increase sales because these days large number of products were launched everyday and there is very tough competition in market. So for this there is a proper procedure to launch product in the market and defined a proper procedure of launching a new product in the market. These new shoes can be considered as the brand extension of their old range and it will provide benefit in the success of the product. These are the following steps kept in mind.............
1. Identifying the competitors: - Before launching the product a proper market study must be done to know the competitors in the market and their strategies. There are various competitors of adidas and Reebok in market offering large range of shoes like Nike,Puma,Converse- all star etc. So for this there is a need of market survey and have to take a serious look at competitors by doing the proper SWOT (strengths, weaknesses, opportunities and threats) analysis. By doing swot analysis strategies and target market of competitors will come to know and helps in making the policies to compete with them. It's important to put a product according to the customers prospective .Once it is decided whom will be competitor's, review their marketing strategy, including their ads, brochures and websites and target market after all the process it is to be evaluated how new product will stand up against other products.
With Adidas And Reebok Combined:
"Will adidas' forthcoming takeover of Reebok help the new company achieve sustainable competitive advantage over industry leader Nike?" After researching the many aspects of this question, we were able to come to a conclusion. In order to address the full scope of the question our team evaluated the following areas:
- Background Information
- Corporate Culture
- Market Shares and Manufacturing
- SWOT Analysis
The combination of adidas and Reebok appears to be a step in the right direction. However, it is important to analyze the strategies behind the acquisition and to consider possible obstacles the company will face. Overall, each issue will need to be addressed so that adidas and Reebok can compete to the best of their advantage against Nike, but we don't foresee them taking Nike's spot as the industry's leader.
Evaluation of background information and corporate culture combined with SWOT analysis have helped form the arguments presented in this report and have assisted in answering the question, "Will adidas' forthcoming takeover of Reebok help the new company achieve sustainable competitive advantage over industry leader Nike?" Nike's current position in the industry along with the strengths, weaknesses, opportunities, and threats concerning adidas' acquisition of Reebok help convey the following arguments.
- Nike's Current Position
- Strong brand recognition
- Top endorsers
- Global leader in athletic shoe market
2. Target the customer. To successfully launch a new product with minimum financial outlay, it's essential to focus exclusively on those customers who are targeted according to the different segments. These customers may be those peoples currently buying something else and can appreciate the additional features of new product offered to them. So for targeting the market there must be a proper segmentation according to age, sex, taste, preferences etc. There will be a proper positioning of product in the mind of the customers. Still the main market of these new shoes will again be preferably youngsters with the age group ranging from 15 to 25 years.The targeted customer will also be from the rural market through the various cost cutting prices.
3. Define marketing strategy and techniques. After defining the target customer, sales and marketing channels also must be decided. It must be decided whether to do distribute through internet or dealers .Generally, multichannel marketing achieve the greatest success .It is necessary to know target customer and target market. Suppose your strategy is to market a low-cost customer you might choose traditional direct marketing sales as your primary channel. The trend from traditional strategies based on personalization, rather than generalization approaches integrated. If you want to target high cost customer you might use traditional as well as modern techniques to distribute the products. Adidas and Reebok involve the whole organization, because it needs both internal and external communications to identify the strategy and direction of the organization.
4. Test concept and marketing approach. With all the efforts and money it takes to bring a new product to market, it is foolishness to rush to the launch phase before testing your product. It's best to examine product, marketing message and marketing materials offered by the company. Before launching the product it is to be tested whether the product will be accepted by the customer or not. Only after testing is complete, company should proceed to the final creation of marketing approach and strategy.
5. Positioning:-Positioning is the art of designing the company's offer and image to occupy a place in the mind of the target customers. The goal is to locate the brand in the mind of consumers to maximize the benefits of the firm. Positioning starts with a product. Therefore it is important to develop approach in order to obtain a brand image, target the market and to position these new shoes to their respective target markets. The present report focuses on the explanation of the promotional, marketing mix and business strategy.
6. Roll out campaign. Campaign often plays a vital role in the launch of a product. There are various ways of campaign like through advertisement, events, public relations etc .But no matter what publicity route you choose, first make sure your product is ready and available for purchase in order to maximize returns. And other marketing efforts should follow closely on the press roll out. Monitor the results of all media, and in the first weeks and months, be prepared to adjust campaign to take advantage of what is working best. Company must hold various promotional events, advertisements for the promotion of the product. As new range of shoes is being launched ,so there must awareness and availability of them in market which is only possible by promotional campaign. All the Medias like newspapers, TV, radios, internet etc must be used for the promotion of the product.
7. Launch of the product: - After a proper campaign process it is to be decided about the launch of the product keeping in mind the various concepts of marketing mix. A proper process must be followed keeping in mind the 4p's price, place, product, promotion .when all is set launch product by handling an inaugural ceremony.
8. Taking the feedback from customer:- work doesn't ends after launch of the product now it's time to take feedback from customer about the product. Feedback will tell whether the product is successful or not. Company will also come to know about the need of customer and can review the product. Feedback is necessary because by this it can be specified that what consumers want and what they are getting. It will also help in the launching of new product.
9. Know your product's lifecycle. The campaign which is used during the introduction phase of product launch will need to be updated as product matures. It is needed to monitor the marketing results carefully and record the results that will indicate when it's time to revise the product, media message for generating the higher revenue. This is needed because every product reaches the maturity stage where revenue generations decrease and it's time to review the product.
SUGESSTIONS FOR RETAINING THE POSITION OF THE BRAND IN THE FUTURE.
To cope up with the external environment and the competitors, the brand have to adopt these strategies: price cut, launch of further new shoe designs, enlargement of distribution channels, and arrangement of sales promotion activities and advertisements to lure the buyers. With this type of marketing plan it will be ensured that the new product launched will survive in the market for much longer duration.