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ADIDAS – The Quest for becoming the Number One in Market.
Adidas Group is the number second in producing sports footwear, accessories and apparel. The Company has been operating in this market for over 80 years and has a tradition of providing its customers high quality, innovative and technically sound products. The Adidas products are widely available all over the world and sports men all over the world love the products of Adidas. According to Adidas , it follows a very simple strategy to operate in the market for example they increase the strengths and features of their products to improve their differentiation with respect to competitors and to earn revenues and profits (Adidas Official Website). The company has been operating the sports apparel market for over 80 years. As we know that the American sports apparel market is the largest market of world. In the quest for becoming the number one is market, Adidas always try to win the race against Nike, which the market leader in sports apparel and products, but if we see the current productivity and innovation of Adidas then we can easily realize that Adidas is in Trail with Nike. If Adidas manage to keep this pace, it can lead Nike. In this rivalry with Nike, Adidas purchased Reebok to increase in market share and also reach the untapped parts of the market. The company has its headquarter in Herzogenaurach, Germany, while the Reebok headquarters are located in Canton, Massachusetts. The Adidas holds another brand under its name “Taylor Made". It is a Golf Company Situated in California. Now if we see the brand logo of Adidas, Adidas brand consists of three “Parallel Bars". We can also see the same feature in the products of Adidas. Adidas is also one the top employers of the world and has a culture of hiring highly qualified professionals to gain a competitive advantage (Adidas Official Website, 2009). In 2008, Adidas hired 38,982 professionals. (Adidas Official Website, 2009)
The founder of the company is Adolf ("Adi") Dassler after coming back to home after world war I in 1924, began to produced its own shoes at home in Herzogenaurach, Germany. After that the Adolf and his brother Rudolf (Rudi) Dassler started a small business of making shoes and afterwards the business develop to a “DASSLER BROTHERS FACTORY". In those days, the electrical resources was not so much therefore both the brothers used the bicycle pedal power to continue their productions of goods. The first sportsman to use the Dassler brother shoes was an American sportsman Jesse Owens who won by using the shoes of the Dassler Brothers. After that the sportsmen from all over around the world showed their interest in buying shoes of Dassler Brothers.
In 1947, the partnership between the brothers finished and both the brothers started their own business. The Rudi Dassler started a new business which he named RUDA which was later changed to PUMA, the Adi’s company became Adidas in 1949. With the passage of time, the company become more prosperous and also it absorbed many other firms in it like REEBOK and TAYLORMADE etc. In 2003, Adidas signed the contract to become the official sponsor of European Foot Ball Championships in 2004 to be held in Portugal and after that it got a tradition to sponsor every major sports event for example it sponsored 2003 FIFA Women’s World Cup™, the UEFA Champions League™ and 2006 FIFA World Cup Germany™. In 2007, the Adidas and German football association increased their contract and more than 50 years old partnership to 2018. In September 2008, Russian foot ball union and Adidas combined in contract valid until 2018. In 2009, Adidas celebrated its 60th Anniversary (Adidas Official Website, 2009).
Now Adidas has a range of products in Running, Association Football, Tennis, Golf, Cricket, Basket Balls, Lacrosse, Rugby, Skate Boarding and also accessories such as watches, bags ,socks, and eye wears etc. We can easily feel the difference between the Dassler brother factory and now the Adidas for example they started with only making shoes and now they have wide range of products.
Current Market Situation:
The main competitor of Adidas in the market is the Nike which has a market share of almost 33%. In addition to Nike, there are also some other competitors in the market which are smaller in size than Nike Asics, New Balance and Puma operating in United States and European Countries. While in Asia, Li Ning is main rival present who mainly deals in athletic shoes (Business Week, Aug 11, 2008). All these rivals are putting all of their efforts to rub Adidas out of the market but still due to the strong market segmentation and positioning strategy of Adidas, they are unable to do so. (Business Week, June 20, 2008)
The main competition for Adidas brands and products comes from the products and brands of Nike, Puma etc (CoolHunting.com). There is no such differential advantage of price therefore it is easy for consumers to shift from one product to other product. The athletic market consumers are quality sensitive and they have nothing to do with the price of the product. It is the strong positioning and brand personality that usually works in athletic market (Business Week, Sep 20, 2004). The Major reason of shifting towards substitutes is also the availability. Due to availability and distribution, the consumers are sometimes shifted towards a competitor.
Barriers to Entry:
The Barriers to entry in the sports apparel market is easy because of the increase in exposures to technology and Research. Moreover, due to increase in number of suppliers, now it is easy to produce goods and services due to low costs. If we study the consumer behavior, then we can easily analyze that the customer is really quality conscious rather than price conscious and willing to pay a higher price for a higher quality. It makes the sports apparel and accessories market very attractive because a new company can easily earn higher revenues by presenting the product in complete and innovative style.
Consumers are willing to pay a higher price for a higher quality and they can easily impose quality by threatening the company by shifting towards a competitor. Adopting a consumer product costs customers nothing because of the little difference in price of substitutes. Due to product line horizontal and vertical extensions now the consumers has more options to buy a customized product of their choice. Customer are more brand loyal to a company who has a strong positioning and quality product.
Supplier also holds a power in the market because now they have more options to produce for a large number of companies. As now there is trend of companies to sign contracts for the events such as foot ball world cup, this also has increased the power of suppliers because now they can deal with more companies.
Now Adidas is signing contracts with different companies to provide complements for its products. For Example, they have signed a contract with Samsung in which they are offering a shoe plus phone offer which is a complementary product. Also the technology and innovation plays a role to provide complement to the Adidas Products. Organizing events and creating social relationships is also there such as sponsorship of foot ball events etc.
Past and Ongoing Strategies (how Adidas is planning to beat the current economic situation):
Adidas used different kind of marketing strategies to become the market leader but the major threat to these strategies was they were easily copied by competitors such as Nike. Now Starting with Adidas, the company has a tradition of acquiring the sponsorship of different sports events such as Olympic Games, FIFA world and different European Games. Adidas has sponsored the event of Olympic Games in Beijing. Adidas also use to sponsor different soccer teams of Germany because the origin of the company was in Germany. After acquisition of Reebok, it also used to sponsor basket ball clubs and teams such as LA Lakers and Football teams such as NY Giants. The Adidas has several celebrities working as brand ambassadors of the company such as Venus Williams and Curt Schilling.
In the quest of becoming the market leader, Adidas acquired Reebok in 2005 to increase its market share. The main strategy behind acquiring the Reebok was that it dealt in both sports and normal life usage apparels. The Reebok at the time of acquisition, kept a share of 9.6% and also in the leading markets such as United States market it had a market share of 12.2%. By Acquiring Reebok, it opened the way for Adidas to had more celebrities as brand ambassadors such as Yao Ming, Shakira (singers) and Christina Ricci (actor). After the acquisition of Reebok, the Adidas used to develop a combined strategy to both Reebok and Adidas to beat the Market Leader Nike (USA Today, 2005).
In response to the Nike’s strategy to develop a strategic partnership with Apple, Adidas signed a contract with Samsung to produce a shoe + phone promotional campaign. In this strategic partnership, both the companies developed a phone to be used with shoes during training. The Major function of this phone was that it used to motivate and guide players during training. In the start the Adidas started with United States and German Market but now they are also focusing on other parts of the world for example sponsorship of Olympic Games in Beijing. In this event, Adidas used the largest Adidas store in Beijing during Olympic Games. Now they are focusing more on China by increasing the number of stores in China to 6300 by 2010. (uk.reuters.com, Jul 3, 2008)
As we all know that, the market contains quality conscious customers therefore by careful articulating the market needs, the Adidas has a history of developed technologically sound and innovative products for its customers. The main reason of brand association of professionals with Adidas is that it has a culture of technology and has a history of achieving a strong position in the minds of target customers.
Future Strategies (Recommendations):
Development of Innovative and Smart Shoes:
Now despite all other marketing strategies Adidas used, now it should focusing more on the Technology. Recently they can develop an innovative plan of developing more Smart Shoes for their customers. These shoes will bring about a revolution in the field of athletics because of their increased performance and reliability .By developing the innovative shoes will build a strong brand association among people and Adidas because this will make people think that Adidas is serious about improving their athletic performance by bringing in more innovation and technology in its products. (Time.com, 2008)
The smart shoes should have tiny sensors and processors who also has to ability to store with help of battery. These shoes help a sportsman performance and stamina through sensing its body temperature, heart beat and ambient temperature etc. This information from sensors will help the microprocessors to adjust cushion and air pressure in the shoes. As we all know that the sportsmen used to change their shoes over time therefore Adidas can plan to make the electronic equipment used in the shoes recyclable and reusable. The electronics will be also minimal in weight because the weight of the equipment would create a problem from sportsman such as during Running or playing tennis. They can also planning to add a GPS system with the shoes and much more. Furthermore they are also planning to add different innovative technologies to different product lines according to the area of sports they belong.
The basic purpose of this proposed strategy would be “they want to position brand Adidas as an innovation leader in the minds of target customers because of the quality conscious behavior of the customers". This use of technology and innovation will help them to differentiate their product from their benchmark competitor and world no 1 “NIKE".
Adidas should target the professional athletes firstly after producing Smart or shoes. As we all know that Adidas has a traditional strategy of sponsoring the athletes and professionals therefore it would be easy for Adidas to reach its innovator and lead users. High price of these shoes due to advanced technology is not a problem or concern because targeting such product to professionals will not create the problem because these professionals has nothing to do with price, they needs solutions to their problems. Moreover Nike in the past has performed well in the areas of basket ball and football but with the development of technological shoes, the professionals will be automatically attracted towards the products of Adidas because of the functions and additional features of Adidas Smart Shoes.
The main reason behind acquiring Reebok was the competition with the Nike. Reebok brand has both kind of products i.e normal use and athletic. In order to gain a competitive advantage, Adidas is planning to reposition Reebok as a fashionable brand for both professionals and normal users. The Adidas need to Target Adidas as a premium brand because of the quality conscious behavior of the customers. It would not be a difficult task before Reebok has its own tradition of providing valuable and fashionable goods to its target customers. The major strategy behind purchasing of Reebok was to increase its market share. Therefore, in the coming years the Adidas should absorb the products of Reebok in Adidas and to reach more and more markets to increase its market share for example they can also target African Market for this purpose. But for repositioning Reebok an important point should be kept in mind that whenever we want to position our flanker brand there is always a danger that the flanker brand with cannibalize the sales of umbrella brand. Therefore, Adidas should take necessary precautions to prevent itself from cannibalization.
Adidas future strategy is that it wants to tap the untapped market with the help of Reebok. For example, the women market has a lot of potential but it is still not tapped. Nike is operating in this market but not with full efforts but they are planning to do so (Business Week, Feb 27, 2007). Because the products of Reebok are available in both professional and normal user versions therefore it can use the Reebok to target this part of the market. For Example, they can use causal shoe under the brand of Reebok to target the women who are most of the times willing to pay more price for products.
Targeting the Untapped Market:
A larger portion of Asia and Africa is untapped and there is no such company operating like Adidas and Nike (NY Times, Aug 5, 2008). Adidas has already won the race against Nike in India, Japan and China (The Economic Times, Jun 1, 2007). Now they can develop a strategic partnership among the local companies to increase their market share and to be more successful in the market. For Example, in china Adidas can develop a strategic partnership with Li Ning and it can easily beat Nike with this partnership. Moreover by sponsoring local sports events in untapped markets it can develop a brand association with the target customers and can bring more customers in the market. Adidas can also drive the untapped market consumers to a low price perception and can develop a new market segment to make its products compete against Nike.
Always it is considered that Adidas is a premium brand for international players. This could create problem by repositioning Adidas as a brand of everyone. Local athletes will not find Adidas suitable for them. In this context, Adidas can make best use of its Reebok and can position Reebok in front of this segment as a attractive brand for them.
Adidas has done a lot in the fields of Olympics, Foot Ball and Basket Ball but has not done more in the field of cricket. Cricket is the biggest untapped market for sports apparel and shoes and also popular in Asian Countries. Adidas should target Cricket and similar other games with more attention and powerful strategies. By targeting the cricket Adidas can enter into a segment and develop its position more early because the Nike has still not entered the Cricket Segment Fully.
As we all know that Adidas has a tradition of sponsoring big events. This is a healthy practice but not a profitable one because of its sponsoring cost. Adidas can further improve this strategy by providing gifts to the winning teams in the matches and after the team won the match it can simply communicate its message that these players won because they were using Adidas Products. Moreover Adidas should also sponsor smaller and local events in untapped markets to gain a competitive advantage.
As in the beginning, Adidas started from Germany and USA and then now it is operating in almost the whole world where athletes and sports exist. The strategies Adidas is using are really very good and great. Adidas has also a proposal of strategic decisions to survive in the present economic conditions of the world and also against Nike. It has a tradition of Innovation and Technology. Professionals from all over the world know Adidas as an innovation leader. We have also suggested some recommendations for Adidas for keeping the pace with market conditions. According to Roger J Best -2009, there are three types of changes in company’s marketplace.
Political, Social, Economical and Technical Conditions Surrounding the Company.
To be a viable concern, a company needs to keep its pace with all these three changing conditions. Adidas is performing well in all of these three areas. Firstly in the people, they are providing quality and innovative products because people are quality conscious. Secondly, on the competitor side (Nike), they are responding well (Purchasing of Reebok) and while in the changing environment they have left no room for keeping in pace for changing conditions. Thus, if Adidas use to continue these strategies, it can easily lead Nike and can earn more and more revenues over the year.
Financial Information: (Source Opesc.Org)
Financial data in millions of euro