International marketing strategy of Adidas. A critical evaluation

Table of Contents

Executive summary

Introduction

Competitive strategies of Nike and Adidas
Strategies of Nike
Strategies of Adidas

Growth opportunities for Adidas

Growth strategies for Adidas’ new product development

Conclusion

References

APPENDICES

Executive summary

Strategy is very important to the success and sustainability of any company. Strategy involves understanding of the company’s core capabilities, weaknesses, risks it faces and strengths and using them to design a sustainable competitive strategy. This paper therefore aimed at exploring the competitive strategy of Adidas and growth opportunities that the company can take advantage of. The paper begins by exploring how the main competitors in the sporting goods industry; Adidas and Nike used various strategies to survive and sustain their positions in the market. Both companies focused on broad differentiation. However, Adidas focused on design innovation, cost advantages, speed of production and enhancing attractiveness of its products. Nevertheless, Nike remains to be the market leader in sport footwear and apparel industry (Nike, 2018). To challenge Nike’s position, Adidas must strive to penetrate Nike main market of North America, develop new markets in the emerging economies and while putting more investments in product and process innovations. The author also found that the company can consider strategic partnerships and greater use of technological applications such as CRM systems to enhance its competitiveness.

Introduction

The development of a strong competitive position in today’s global sporting goods market is a major concern for Adidas. This challenge is further emphasized by the existence of several competitors operating in the same market including Nike, Puma among others (Mahdi et al., 2015). It must be noted that the major competitors in this industry have also chosen to take advantage of low costs elsewhere by outsourcing most of production thus redefining themselves as marketing companies rather than manufacturers. Though Adidas still ranks below Nike in market share and revenues in global sports shoes, accessories and apparel markets, it is still one of the most successful businesses in Europe since its inception. The commercial success of Adidas has been attributed to their commitment to technological innovations and excellence leading to generation of a powerful competitive advantage that is almost unbeatable (Spulber, 2007). Nevertheless, Adidas competitiveness will be hugely affected by the changing market dynamics such as the Brexit, fast evolving consumer tastes and new market opportunities elsewhere around the world. In this sense, this paper evaluates competitive strategies used by Adidas and its main competitor, Nike to determine how Adidas can take advantage of new opportunities in the future.

Competitive strategies of Nike and Adidas

Using Porter five forces model to scan the competitive environment in sporting goods industry, the researcher found that Nike, Adidas-Reebok, Puma, and Fila were the main brands in the athletic footwear industry. However, in general, Asics commanded the fourth largest global market share in sporting brands as shown in Appendix 1(Mahdi et al., 2015). Nevertheless, the industry must be aware of the entry of relatively new competitors such as Under Armour which was founded in 1996. The entry of new companies in this industry shows that the industry is not exclusively closed to new competition. Furthermore, there are several small companies involved in production in sports goods branded in professional teams colors and logos around the world (Nike, 2018). These small companies and replica goods shows the significant threat of substitutes to Adidas and Nike products.

As part of their low cost strategy, both Nike and Adidas outsource production and materials from low cost suppliers in low cost countries such as Indonesia, China and Thailand. For instance, Nike uses private contractors in Vietnam to produce sneakers (Mahdi et al., 2015). However, Nike and Adidas have significant powers over these factories and can easily switch between them. Elsewhere, Nike and Adidas designs their products based on the customer feedback, observed changes in tastes and preferences among consumers and emerging trends in the market. In this regard, customers in the footwear industry have significant power and can easily switch between brands if not satisfied. Some of the factors that customers consider in selecting a brand include better prices, higher quality and new style etc (Nike, 2018). To counter the power of the customer, these companies have come up with different strategies not only to attract customers but also to ensure high level of customer loyalty.

Strategies of Nike

In order for Nike to sustain its global competitive position as the world’s leading designer, marketer and distributor of athletic footwear, apparel and accessories, it adopted a differentiation competitive strategy (Ghauri and Cateora, 2014). In this strategy, Nike focused on innovation and massive investments on research and development activities aimed at producing the best footwear, apparel and athletic equipment (Adidas, 2019). Nike products are also designed to reduce or eliminate injuries, enhance athletic performance and maximize the user’s comfort and enjoyment. By focusing on the performance needs of Athletes, Nike intends to draw high level of athlete satisfaction which can lead to greater customer loyalty (UKFT, 2017). Innovation is also at the heart of Nike’s business growth strategy that aims at ensuring that it becomes the most sustainable company in the industry, keep up with competition and fulfill unique customer demands through customized products.

Nike also follows market segmentation, targeting and positioning (STP) strategy. STP strategy assists Nike to advertise its products by focusing on specific exclusive segment of the market (Ghauri and Cateora, 2014). Since Nike produces comfortable products whose goal is to aid athletes’ performance, the main target market for Nike is the active athletes market (Mahdi et al., 2015). The company promotes its products to this market through sponsorship agreements with athletes and professional teams. By associating with athletes and popular sport teams, Nike can easily grab attention of consumers who are willing to purchase products associated with their favorite athletes at a premium. In manufacturing, Nike uses a closed-loop business model which assists the firm to move closer to attaining zero waste through reuse, recycle and composting all materials. This model is in line with the company’s operational efficiency strategy as it ensures that all materials reclaimed throughout the manufacturing process can be reused or recycled (Nike, 2018). Through this, Nike has become one of the most environmentally friendly companies in the world thus improving its brand equity as a green company.

Finally, Nike uses premium pricing strategy or the best cost provider strategy. In this strategy, Nike develops a special kind of intimacy with the customers leading to enhanced loyalty (Ghauri and Cateora, 2014). Once loyalty has been established, Nike can take this advantage to associate their customers with their premium price (Nike, 2018). Nike understands that the consumers are willing to pay more for products with Nike Logo. In addition, the premium pricing strategy also caters for the company’s broad differentiation strategy. Based on the differentiation strategy, Nike adopts three approaches to producing products for athletes. Firstly, Nike produces products for men, women and children. Secondly, Nike offers a wide variety of accessories and apparels such as shoes, gym bags, gloves and skates. Thirdly, Nike has licensees that manufactures and sells Nike branded products aside from athletic products. These strategies have helped Nike to become and remain the most profitable sporting goods company as shown in Appendix 2 (Mahdi et al., 2015).

Strategies of Adidas

Just like Nike, Adidas competitive strategy focuses on broad differentiation approach (Ghauri and Cateora, 2014). At the corporate level, the company focuses on innovation, production of new and unique products and effective processes to assist in coping with competition. As part of this strategy, the company has developed multiple brands and also taken over Reebok brands thus giving it competitive advantage especially in its main market in Western Europe (Adidas, 2017). This multi-brand approach helps not only in development of diverse brand portfolio but also allows the company to cater for all segments of the market. Adidas also strives to keep a unique identity by focusing on its core competencies such as best marketing and distribution channels in different countries, critical evaluation of consumer buying behaviors and securing prime shelf space. Adidas has also embraced e-commerce so as to become more efficient and appeal more to their customers as well as making the products more accessible to their customers around the world (UKFT, 2017). Adidas also has a close control of its supply chain and its overseas producers so as to facilitate customization of products which can appeal to a broad range of customers.

The organizational culture at Adidas also encourages employees to be creative and innovative. The culture promotes flexibility and implementation of new ideas thus employees are able to produce highly innovative goods with the use of latest technologies in the industry. To become a sustainable company, the company is currently putting more emphasis on balancing the interests of the shareholders, needs of the employees as well as the environmental concerns (Adidas, 2019). Further, the company focuses on faster production and continuous improvement of infrastructure, processes and systems. To ensure production efficiency and high productivity, Adidas has simplified group level operations by streamlining global product range and consolidating the warehouse base (Spulber, 2007). The company is also implementing innovative speed models so that it can quickly respond to the consumer needs.

Consequently, Adidas marketing strategy focuses on demonstrating its value as the leader in creation of high performance product lines based on the specific needs of the athletes and consumers. In addition, Adidas STP strategy is based on demographic, psychographic and behavioral factors (UKFT, 2017). For instance, Adidas has a strong brand portfolio made up of Adidas, Reebok, Rockport and Taylor Made intended for different market segments. In addition, Adidas uses differentiated targeting strategy to target young adults and children who have passion for sports and fitness. Though Adidas target customers are in the age group between 13 and 40 years, most of the customers are between 15 and 30 years of age and hail from the middle class and the luxury class of customers (Adidas, 2017). Moreover, Adidas positioning is based on user and benefits strategy. The goal of this strategy is to create a distinctive image in the mind of the prospective consumer by putting emphasis on the value of quality products from a trusted brand. In this regard, Adidas divides is brand portfolio into three categories. First, Adidas is intended for performance in competitive sports. Second, Reebok and Reebok classics are for active and casual sports while Adidas originals, Adidas Fun and Rockport are for sports fashion (Adidas, 2019).

Growth opportunities for Adidas

There are at least three growth opportunities that Adidas can take advantage of based on their competitive strategy and marketing objectives. Firstly, Adidas should consider moving into new markets to fend off competitors and expand its market shares. Currently, Adidas is over-reliant on its core market of Western Europe. Though North America, Asia and Eastern Europe are also emerging as major markets for Adidas, it is already facing stiff competition in those markets from Nike, Asics, Puma and other emerging competitors. In addition, Adidas main market of Western Europe is facing significant uncertainties due to the ongoing Brexit process. Since it is still difficult to estimate the real consequences of Brexit on demand for Adidas products, the company should exploit two other main market options i.e. increased penetration of the world’s largest market for sporting goods, North America and development of new markets in emerging economies (Donaldson, 2016).

North America is the single most important market for sporting goods in the world. North America accounts for approximately 40 percent of total sales of global sporting goods industry. In this regard, penetration of North America should be a priority of Adidas. In this case, the company can increase its investments onto its US business, people, infrastructure and marketing (Worrell and Miller, 2018). For instance, the company should invest more in US popular sports such as ice hockey, American football, basketball and baseball and so on. This way, the company can be more in touch with the American consumer and improve their penetration in this market. In addition, the new signed North American Free Trade Area (NAFTA) offers a great opportunity for Adidas to target Canada and Mexico as well using a single North America strategy. In the meantime, Adidas must also consider developing new markets in emerging markets such as India, Latin America and Middle East. Though the demand for high end sporting goods is still low in these markets, it is predicted that these regions will see the highest growth of middle income people (Safonovs and Upadhvav, 2017). In this case, developing marketing and distribution networks in these markets will give Adidas first mover advantage over Nike and other competitors leading to improved revenues and stronger competitive position in the global market for sporting goods.

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