Brief Analysis of the Industry
Sport is an integral part of modern contemporary society. It has always been associated with discipline, dedication, and perfection. As a result, sportsmen have always been respected across borders, religions, and races. Professional or amateur athletes require quality gear specific to their game to compete better. This market is catered to by the two conglomerates we are studying.
Both these companies started off as footwear makers for the modern athlete. Their innovative designs and technology have created waves in the industry.
However, these firms have now diversified and compete on a broader platform that includes footwear, apparel, accessories, and equipment. Today, they are among the world’s top corporations with a global presence. The focus of our study will be on the primary product of these two firms – athletic footwear. We will compare their marketing strategies, targeting methods and marketing mixes. Additionally, we will analyze their segmentation techniques and examine their positioning in the global market. Finally, we will present our conclusions on the comparative marketing strategies of these firms.
The world’s athletes use products from companies like NIKE and ADIDAS. Let’s take a closer look at how these companies are performing in the market.
Industry Trends
Recently, the industry has not been as successful as it once was. With major players such as Nike, Adidas, Reebok, and Puma competing with smaller brands like Converse and New Balance, there is intense competition within the market. This is due to a decrease in demand for traditional athletic footwear and an increase in popularity of alternative options.
This has inadvertently resulted in decreasing margins and a quest for new markets and innovation to increase profits. However, worries seem to have ended, at least momentarily, with the emergence of China, Turkey, Brazil, and Russia as huge untapped markets for their products. Of these countries, China is the biggest bet for the big guns. Why? China’s huge middle class is rising and the country’s ever-increasing wealth serves as a classic ingredient for market ignition. Both Nike and Adidas realized this early on and invested heavily in advertising during the 2008 Beijing Olympics.
Adidas partnered with the games, while Nike, as always, focused on individual player and team endorsements. The Chinese market saw huge residual sales after the Olympics. For example, Nike’s sales increased by 50% in China in 2008 on a currency-neutral basis and again by 50% in Q1 of 2009. Similarly, Turkey and Russia had a 25% increase in sales in 2008 and another 30% increase in Q1 of 2009. Brazil alone had a 30% increase in Q1 of 2009. The opening up of these markets has provided respite to the industry, and they are making good use of it.
Most of these firms already use South Asia as their manufacturing base to take advantage of cheaper labor. Now, they have even more incentive to move their operations to South Asia as the market appears to be shifting in that direction.
Market Analysis
India has a large market for footwear, and brand loyalty is growing. The country’s GDP (in purchasing power parity terms) ranks fourth globally and is expected to rank third in 2010, just behind the USA and China. In the footwear industry, India ranks high in both production and consumption. For the year 2008-2009, India’s GDP for footwear grew at a rate of 9.4%. The country’s overall GDP stood at Rs 54 lakh crore, resulting in a per capita income of Rs 48,450. This translates to a compounded annual per capita income growth rate of 9.25% during the period from 1951-2009.
If we analyze the consumption patterns of 70 different economies and segment them into low-income, middle-income, and high-income brackets, we observe that consumer spending on food, beverages, clothing, and footwear accounts for 47%, 34%, and 22% of their total consumer expenditures respectively.
India is on the threshold of a retail revolution and witnessing a fast-changing retail landscape. The footwear market is set to experience phenomenal growth, with India being the major source for supplying medium and low-priced footwear. Most manufacturers who have outsourced their production to China are planning to outsource it to India. Adidas, Nike, and Puma are some of the footwear industry players who have turned to India.
Indian Footwear Industry
The above graph clearly shows the market shares of the major players in the industry. Nike is the leader with 31% of the global market, followed by Adidas with 16%. These two companies are undoubtedly the major players in this field, with other big names including Puma and Reebok. Interestingly, Reebok is owned by the Adidas group.
The acquisition was completed in 2006. Puma, a Germany-based company, also owns the brand Tretorn. It is a competitor not only in footwear but also in the apparel and equipment categories. This completes the big four of the industry, with collective stakes that make other companies look much smaller than they actually are. New Balance is highly focused on niche segments such as running shoes and cannot be expected to compete with giants like Puma. Converse, owned by Nike, owns the coveted All Star brand popular among teenagers.
Notably, Converse only produces its All Star shoes in the US while outsourcing all its other products abroad. The industry is shaped by major forces, including Porter’s Five Forces.
- Barriers to Entry – Low: The barriers to entry in the athletic footwear industry are quite low. Although selling top-quality footwear for athletes is highly competitive, there is a huge potential for new entrants. Due to the enormous scale of operations of Nike and Adidas, they are able to control their costs and maintain a competitive advantage over emerging competitors.
The powerful brand identities of established companies give them an aura that is difficult for new entrants to penetrate and overcome. Their brand images provide a distinct competitive advantage. Despite these factors, the industry is comparatively easy for new manufacturers to enter. Additionally, there is a threat of other manufacturers expanding their portfolios and emerging as strong competitors with already established regional brand names. For instance, in India, Bata launched its Power brand of running and athletic shoes which continues to be successful.
Aside from these factors, there is also the loss incurred from counterfeit versions of their premium footwear, which are predominantly produced in far eastern countries. This results in a significant decline in revenue for these companies. Although not directly related to this category, it has been included for ease of reference.
The bargaining power of buyers is high due to the large number of buyers compared to the number of brands within the industry. As a result, companies must constantly strive to differentiate their brand and utilize innovative marketing techniques to successfully set themselves apart.
Establishing a strong brand identity is essential for attracting and retaining the target consumer. Identity is key to building brand trust and loyalty, especially in new markets where buyers are often cost-sensitive and switching costs are low. This makes the brand image particularly important.
In the past decade, there has been a significant shift in the buyers of sports footwear. More women are purchasing athletic footwear, and the new generation has vastly different tastes and purchasing methods. As a result, buyers now have a high amount of bargaining power.
The bargaining power of suppliers in this industry is virtually non-existent. There are a large number of suppliers in the market, and the materials needed for this industry, namely cotton, rubber, and leather, are commodities readily available in the open market. The conglomerates hold sway over the suppliers as they have mostly standardized their input procedures and can easily switch between substitutes. This gives them enormous power over their suppliers who are usually dependent on these firms as a means of survival. Therefore, in this situation, the bargaining power of suppliers is negligible.
The threat of substitutes in the athletic footwear industry is low. While there may be substitutes for fashion items, professional athletes have no alternatives to their specialized shoes. They cannot play with boots or bare feet due to performance specifications. Even consumers are unlikely to switch, further reducing the threat of substitutes.
On the other hand, the rivalry among existing competitors is very high in this industry.
Nike, Adidas, and other companies in this field, such as Puma and Reebok, have experienced tremendous growth in the last decade. Each of them offers more choices and unique identities due to endorsements by top sporting personalities and aggressive marketing and sales strategies. The industry is highly competitive with fierce rivalries.
Adidas was formally registered on August 18th, 1949 as Adidas AG by Adolf Adi” Dassler. Adolf Dassler was born in Bavaria and started making sports shoes in his mother’s kitchen after returning from World War I.
In 1924, Adi Dassler was joined by his brother Rudolf Dassler. They began operations using their mother’s laundry as their manufacturing base. During the 1936 Olympics, Adi Dassler famously drove to Munich and persuaded Olympic gold medallist Jesse Owens to wear his shoes. This established his reputation among the sporting world and led to many contracts and financial success.
After the Second World War, the brothers split up, and Rudolf Dassler formed his own company which later became Puma. Unfortunately, after Horst Dassler’s death (Adolf’s son), the company went through some troubled times.
Adidas has a rich history, having been founded in Germany in 1949 by Adolf Dassler. The brand quickly became known for its quality sports shoes and apparel, gaining popularity among athletes and consumers alike.
Over the years, Adidas has undergone several changes in ownership. It was first bought by French industrialist Bernard Tapie before being acquired by Robert Louis-Dreyfus. In 2001, Herbert Hainer took over as CEO of Adidas and has been leading the conglomerate ever since.
Thanks to a long line of innovative products and successes, Adidas is now one of the world’s largest corporations with a product line worth millions of dollars. The trademark three stripes and slogan Impossible is Nothing” are synonymous with Adidas’ identity – an image that the company spends a fortune to uphold.
In 2005, Adidas further strengthened its market and customer base by acquiring British giant Reebok.
Adidas entered into a license agreement with Bata in 1989, but it formally began operations only in 1996 with the establishment of Adidas India Marketing Private Limited. In 1998, Adidas made a masterstroke by roping in Sachin Tendulkar as their brand ambassador, which proved to be a sound business decision. The following year, Adidas launched its cheapest ever shoes in India to cater to the price-conscious Indian consumer. In 2004, Adidas India launched the Advantage adidas campaign which increased sales by 30%. Finally, Andreas Gellner took over as Managing Director for Adidas India in 2005.
Adidas sees India as a huge growth market. According to Gellner, Adidas will invest huge sums to take on its competitors here.
Nike, founded in 1962 by Bill Bowerman and Philip Knight, was originally known as Blue Ribbon Sports. Bowerman was Knight’s track and field coach at the University of Oregon. After studying at Stanford, Philip Knight published a paper on ending the German domination in the athletic footwear industry. He then traveled to Japan and entered into an agreement with Onitsuka Tiger company becoming their sole distributor in the US.
Bowerman and Knight received their first shipment of 200 shoes which they sold at local meets for a good profit.
Bowerman, who had previously designed shoes for his athletes, collaborated with Tiger to create the renowned Tiger Cortez shoes. These shoes became bestsellers worldwide and launched their business. In 1971, Knight and Bowerman began producing their own shoes under the brand name Nike, named after the Greek goddess of victory. The Nike swoosh, which is still one of the company’s biggest strengths today, adorned these shoes. Blue Ribbon Sports separated from Onitsuka Tiger in 1972 and became Nike Inc.
Today, Nike is the world leader in athletic footwear, with market shares exceeding those of other major players by significant margins. The Swoosh and Just Do It” slogan are huge brand identities. Nike is a truly global player and is seen as a model for innovation-driven growth.
In India, Nike has been present for over a decade through its seven-year license agreement with Sierra Enterprises. However, this did not help much in the bigger scheme of things as Reebok and Adidas came to the country with fully owned subsidiaries.
Despite being a global market leader, Nike has struggled to gain traction in India. However, in 2004, the company made the decision to become a subsidiary rather than renew its franchise agreement. This move allowed Nike to operate with more freedom and capital, resulting in an increase in market share and making it a major player in India. One of the most significant indicators of this shift was Nike’s heavy investment in cricket, including securing the Indian cricket team’s jersey rights for Rs 200 Crores. Additionally, Nike launched a special line of cricket shoes and sponsored the Indian football team.
Although Nike entered the Indian market late, they are determined to regain lost momentum in the subcontinent. Adidas is a world-renowned brand that produces flagship products and major product lines. Their running shoes include the adiStar Ride, adiStar Control 5, Supernova Sequence, and Supernova Glide under their adiStar and Supernova brands. Adidas’s premier football boot is the Copa Mundial which later developed into the Predator range. For basketball enthusiasts, Adidas is most famous for its Superstar and Pro Model shoes.
Adidas produces jerseys for national and domestic cricket, football, rugby, tennis, and lacrosse players. They also have a separate line for gymnasts. Recently, Adidas has entered the sports lifestyle market following in the footsteps of Puma and Reebok. They have launched watches, eyewear, deodorants, aftershaves, perfumes and lotions.
Copa Mundial Nike
Nike’s first products were track running shoes, which were named Nike Air Max. Recently, they have released several other shoe lines, including the Nike 6.0, Nike Nyx, and the Nike SB skateboarding shoes. They have also launched specialized cricket shoes for bowlers and batsmen called the Nike Air Zoom Yorker and the Air Zoom Opener. However, their most popular line remains the legendary Air Jordan basketball shoes, named after Michael Jordan. The Air Jordan line still accounts for over 30% of Nike’s shoe sales.
Just like Adidas, Nike has also entered the sports apparel and equipment market. They manufacture jerseys and specialist apparel for various sports. Recently, Nike partnered with Apple to launch the Nike+ range. This product can monitor a runner’s performance through a radio device that is linked to Apple’s iPod.
But Nike’s most recent product making waves across the sports world is the Lunar Glide. Nike is using Flywire, a thread developed by Nike composed of Vectran, a liquid crystal polymer, and Lunarlite Foam to make the world’s lightest shoes. Advertised with the slogan Actually, it is Rocket Science,” it reiterates Nike’s commitment to technology.
Marketing Strategy for Customers
Both Nike and Adidas are well-known and widely accepted brands. While their main customers are athletes and sports enthusiasts, they are not limited to this demographic. Men, women, and even children are familiar with these brands and use their products.
Children aged 15 to adults in the 35 age group wear both Nike and Adidas shoes. The Beijing games are a battleground for dominance in the sneaker world between Nike and Adidas. Both rivals are eagerly anticipating the 2022 Olympics. While every Olympic event is a fierce competition for these long-time foes, this year’s games are especially significant for Adidas as Beijing represents an entrance into a vast new market. China has 2.6 billion feet, most of which do not own sneakers. Both companies anticipate that China will become their second-largest market after the US within a few years.
It’s the ultimate land grab” for both Nike and Adidas. Despite Adidas’ relative strength in Europe and weakness in Nike’s flagship U.S. market, Nike has expanded its global lead over the past three years. According to Sporting Goods Intelligence, Nike now holds a 36 percent worldwide market share, dwarfing Adidas’ 21.8 percent share.
Adidas has successfully implemented various strategies in several areas. They ensure that the needs of different consumer groups are met by partnering with high-end designers and utilizing technology. However, the once-mighty Reebok brand has consistently dragged down Adidas, contributing only about 6 percent to its parent company’s total.
War between Nike and Adidas
The problem for Adidas is that, while it has staked out its turf as an official sportswear partner, Nike boasts more top athletes. These include Swiss tennis ace Roger Federer and Australian track star Craig Mottram, along with basketball legends Kobe Bryant and LeBron James. However, Nike’s athletes are not guaranteed to win games; there is always a risk element associated with their performance. Additionally, Nike has signed up 22 of China’s 28 sports federations to outfit most of its athletes.
The deal is one of 40 that Nike has signed with various national federations, including the U.S., Germany, and Russia. This ensures that team members will be dressed in Nike gear during play, regardless of their individual endorsements. For many of the 3,000 athletes in the Adidas stable who will compete in Beijing, wearing the three stripes will be limited to the medal stand. During play, they’ll be sporting Nike gear.
NIKE and Apple
The Nike+ package includes a pair of specially designed Nike+ running shoes, an iPod nano, and a Nike + iPod sport kit that connects the two. The kit has a sensor that fits into a built-in pocket beneath the insole of your left shoe and a receiver that fits into the iPod nano dock connector. The sensor uses an accelerometer to measure your activity and wirelessly transfers this data to the receiver.
While you run, your iPod provides voice feedback on your time, distance, pace, and calories burned. The volume of the music adjusts accordingly. In addition to progress reports, the iPod also congratulates you when you achieve a personal best in terms of pace, distance covered or calories burned. You can even choose a PowerSong that helps you run stronger and listen to it whenever you need an extra boost.
This feature is amazing in itself but Nike+ takes it further by allowing you to save your running data at nikeplus.com. This way, you can set goals and track your progress over time.
You can challenge your friends and strangers to compete with you by sharing your running data with them on the Nike+ website. Additionally, the website includes other web 2.0 features such as user forums where you can meet and challenge other runners, ask questions, and give feedback. There is also a challenge gallery where you can view all user-created challenges, as well as a distance club where you can view everyone’s running milestones.
Adidas shoes are cheaper than Nike. The company has grown from a minor player to the second biggest in the industry and has a huge potential for growth and innovation. Adidas also boasts the largest international portfolio of sports ambassadors. In 1990, Adidas introduced a sub-brand called Equipment” to serve high-end products for all categories of shoes and apparel. This sub-brand represents only the best, regardless of product type. Even their low-end products for “normal consumers” still have high levels of technology and innovation due to their inheritance from older Equipment line innovations.
This strategy has given the Adidas brand a new meaning. It still represents participation, emotion, and performance, which has been a successful approach for Adidas. While both Nike and Adidas have enormous brand images, Nike has gained a significant competitive advantage due to its reputation for quality and innovation. Both companies have used the same theoretical systems to develop their brand building programs and are benchmarking each other’s successes.
Nike has launched a sub-brand product line called Alpha, which is benchmarked on Adidas’ Equipment sub-brand for elite sportsmen. There are many similarities between the two brands, such as endorsement strategies and advertising strategies. However, there are also differences in their endorsement strategies. Adidas focuses on sponsoring teams and global events, while Nike focuses on individual stars in specific sports like basketball with Michael Jordan or golf with Tiger Woods.
Regarding advertising, both companies have a similar scale and scope of advertising but try to communicate different messages.
The message from Adidas is that the only person you should compete with is yourself. On the other hand, Nike communicates a provocative and aggressive attitude of a winner, which can be related to the American sports mentality of You don’t win silver, you lose gold”. Both companies are targeting similar customer groups but with slightly different attitudes. Adidas stands for a competitive and self-improvement attitude while Nike focuses on winning over everyone else. This differentiation is based on cultural differences between the two companies and between Europe and the USA.
Adidas chose a brand-building strategy that was based on the same theoretical criteria as Nike. They aimed to create equity value for their brand, and challenged Nike in endorsement strategy and advertising, but with a slightly different communicated message. To differentiate themselves, Adidas created events like the Adidas Streetball Challenge.
Both Nike and Adidas promise their customers comfortable and durable sports shoes, establishing themselves as style statements. They offer a wide range of athletic footwear specialized for various sports such as football, cricket, running, gym, etc. However, Nike’s athletic shoes are more comfortable and durable than Adidas’ but come at a higher price point. On the other hand, Adidas offers almost the same benefits at a lower price range. Nike communicates an aggressive winner attitude that can be related to the American sports attitude You don’t win silver; you lose gold.
Creating Value
Nike and Adidas offer customers the best athletic footwear products, prioritizing comfort, durability, and value for money. Nike is renowned for its innovative products like Nike+, while Adidas provides customers with similar value at a slightly lower cost. Both companies are taking full advantage of the expanding footwear market by offering discounts during strategic occasions to increase sales.
Nike and Adidas continuously release new and cutting-edge technology to meet the needs of their customers. These brands provide significant value and have established themselves in the footwear industry, making consumers proud to be associated with them. With a variety of sports shoes available, from basketball to gym shoes, they cater to all athletic shoe needs. Additionally, Nike and Adidas engage in extensive advertising campaigns that reflect their positioning in the minds of their customers.
Adidas represents a competitive and self-improving attitude, as demonstrated by their slogan Impossible is Nothing”. Nike communicates a bold and aggressive winning mentality with their “Just Do It” slogan. Both brands use celebrity and team endorsements as the foundation for marketing their products, with Nike typically sponsoring teams and Adidas sponsoring individual players. The pricing philosophy of both brands is based on the quality of the product, with higher prices for products that feature greater innovation.
Their customers are willing to pay a higher price for the brand value and benefits that Nike and Adidas offer. Both companies have priced their products wisely, considering the higher income of today’s generation and increasing buying power of customers. They have largely succeeded in recovering the value generated as the market is mostly receptive to their innovative and advanced products. The younger generation loves the brand value and is willing to pay a premium price for these products.
With the increase in awareness among people about the importance of wearing the right kind of shoes for a particular sport and the quantum leap in buying power, athletic footwear has experienced fast growth.
According to our survey, both brands have been successful at retaining customers. Adidas has higher brand loyalty, but Nike’s cutting-edge technology enables it to maintain its customer base. Adidas’s three stripes and Nike’s swoosh are among the world’s top logos.
In most places, Nike and Adidas dominate the footwear market. Nike consistently strives to introduce cutting-edge technologies and innovative ideas to meet their customers’ growing needs. Both brands are competing for the top spot, taking advantage of the increase in customers’ buying power. They have priced their products with a high margin that people are willing to pay due to the associated brand value.
REFERENCE WEBSITES
- www.nike.com
- www.adidas.com
- www.press.adidas.com/en/retrieved-7th-june-2008
- www.jdsports.co.uk/whatsnew.aspx?id=5375
- www.adidas.com/campaigns/orginalsss2009/content/#/lifestyle/full-length-film.
- http://www.adidas-group.com/en/News/_downloads/pdfs/2009/Press_Release_Q42008_e.pdf.
- www.indianfootwearindustry.com
- www.adidasGroup.com/history
