SITUATIONAL ANALYSIS INDUSTRY ANALYSIS
The athletic shoe market comprised about 50% of the US general footwear market. The domestic retail shoe market was expected to continue to grow at a rate of 5. 5 percent until the end of 2000. In the US, the two largest athletic shoe makers were Nike and Reebok with a combed 50% share of the market.
Majority of their products are manufactured in countries outside the US such as the Asian, European, and South American countries. This caused the high mark-ups to the retailers and consumers which were nearly 100%. The footwear industry was seasonal rather than cyclical. Fluctuations in sales and profitability were attributed to changes in advertising expenditures, price, product quality and overall market trends.
Barriers to entry such as dependence on heavy advertising, brand awareness and intensive R&D made entry to the footwear industry difficult. Companies spent large amounts to do advertising which were their means for promoting new styles and creating brand awareness. This made it difficult for the smaller companies which do not have enough revenues to produce effective marketing campaigns. Brand awareness was also a barrier to entry since consumers usually purchase based on “how they perceived the brand to perform or on its fashion characteristics”.
Research and development demanded excessive capital from a company. Large budgets were allocated on R&D because this was how the company determines the latest trends of the market and the possible products that it could develop. Barriers to entry in competitive discount athletic footwear market were less formidable. Mass producers usually carve out a niche “through brands they licensed or created on their own. ” Many footwear companies were starting to expand their operations overseas because the US footwear industry was seen as a maturing industry. The international market offered a bigger consumer base especially that more consumers were starting to get interested in the US sports like basketball.
FIRM ANAYSIS
LA Gear was founded by Robert Greenberg which initially promoted the Southern Californian lifestyle. Its early success was due to its innovative styling and ability to respond to the market quickly. As the company grew, it opted for initial public offering and used the proceeds to fund its growing working capital requirements and to finance advertising and promotional campaigns.
Marketing campaigns often featured scantily clad models and attractively styled shoes designed primarily for women. The company was also publicly listed and stocks rose to more than 178 percent. However, the stock price started to decline and investors were losing confidence on the company. It started to experience financial difficulties with the failure of its Michael Jackson shoes. Net sales and market share dropped and net losses were incurred as a result. To enhance its credit rating, it sold 30 percent stake to Trefoil Capital Investors L. P for $100 million.
Following the investment, LA Gear adopted a retrenchment or turnaround strategy to restructure the company’s operations. Under the turnaround strategy, the top management was replaced (including Greenberg) and the new board of directors was made up with highly experienced members. The strategy also introduced a new advertising campaign that was built around the theme Get in Gear which changed the focus from promoting a fashionable shoe to promoting a performance shoe. Athletic personalities were contracted for the campaigns instead of celebrities.
Product lines were divided into three categories – athletic, lifestyle and children — in an effort to create a clear identity for LA Gear. Marketing campaigns focused on projecting a consistent brand image across varying retail price points and distribution channels. With this, products were marketed into two brands: the higher priced premium brand LA Tech for the newly released, and LA Gear brand with domestic prices under $70. The LA Gear logo was also dropped with the belief that the name was a liability to performance shoes.
The company also reduced its manufacturers to only those which are known for their quality products as part of the turnaround strategy. It also engaged a sourcing agent that would inspect finished goods prior to shipment by the manufacturer, supervising production management, and facilitating the shipment of goods. There was also a reduction of its employees and company occupancy of leased office space in five buildings to a smaller space in two buildings. Apparel marketing and design operations were also discontinued.
Comprehensive market research was conducted using a variety of conventional research techniques in designing its products. It depended on focus groups, product testing and interviews with customers and retailers. The company also increased its investment in the international market through joint ventures, acquisitions of distributors, and the creation of wholly owned foreign subsidiaries. It began to distribute its products through specific channels using what it called “Gear Strategy Classification System”. Distribution channels were grouped in terms of Image, Mainstream, Volume and Value.
Each of these group marketed different products of the company ranging from technological to their aesthetic features. It also adopted a next day open stock system where retailers could order products and have them shipped within 24 hours. But the system had problems and to address these, the company adopted the futures ordering system. LA Gear accumulated inventory greater than necessary for its business because of the imbalance between inventory purchases and sales. As a result, it sold its inventory at significant discounts which in turn resulted in lower margins.
ECONOMICAL ANALYSIS
An economic recovery was laid down by the Federal Reserve Board to keep prime interests low and gradually expand the money supply. Inflation rates were also kept at less than 4 percent. However, consumer confidence in economic recovery was low and continued to be a major obstacle to increase consumer and business spending.
LEGAL ANALYSIS
The Textile, Apparel, and Footwear Trade Act was passed which would have set highly restrictive global quotas on imported textile, apparel and footwear products. However this was vetoed by Bush and sustained by the House of Representatives. There was high probability though that the same legislation would be passed again in the future and this would put restrictions on companies relying on manufacturers outside the US. Suppliers in Taiwan, China, Indonesia and South Korea were placed under “priority watch list” for engaging in unfair trade practices. If proven to be engaged in such practices and the US might retaliate against them, this would result to increases in the cost or reductions in the supply of footwear.
POLITICAL ANALYSIS
Markets which were previously closed to Western companies were now fairly wide open because of the political changes in Eastern Europe and the Soviet Union. This may perhaps a good advantage for companies who have a vision of expanding their operations internationally, particularly in this country. US footwear companies had the chance of importing and distributing their goods to this country. Enactment of NAFTA among the US, Canada and Mexico, was likely to strengthen US exports.
They had also expected tariff reductions which consequentially may raise U. S real GNP by 2000.
CULTURAL ANALYSIS
In the U. S market, as well as the other countries, were favorable for footwear producers. An increasing segment of the population was becoming more health conscious, engaging in athletic activities such as jogging and walking. Walking had an increasing popularity, thus, it was anticipated that the walking shoes market was the largest in the footwear industry. This market includes those in the mid-30s and up. II.
EXTERNAL ENVIRONMENT
In external environment, there are relevant factors affecting the whole footwear industry especially L. A Gear and these are: recession, price reduction of competitors, NAFTA (North American Free Trade Agreement) among the U. S, Canada, and Mexico markets, fluctuations in the value of currencies, export duties, import controls, trade barriers, restrictions on transfer of funds, work stoppage, and political instability.
These factors have both advantages and disadvantages since it has a direct relationship on the company’s import and export activities. Together with the relevant factors in the industry are the opportunities and threats in the environment that surrounds L. A Gear. These opportunities are: Growth of international market; unfocused marketing of Adidas and Puma; International distribution agreements to independent distributors to maintain a consistent product offering and brand image throughout the world; and the lifestyle changes in U.
S, as well as in many other countries. The threats also include: maturing footwear market; use of foreign manufacturing facilities subjected the company to the customary risks of doing business abroad; presence of competitors both in domestic and foreign market; and the effects of recession.
INTERNAL ORGANIZATIONAL ENVIRONMENT
Under internal environments are the strengths and weaknesses that the company needed to focus on. The strengths are: New Top Management, adoption of retrenchment / turnaround strategy, clear outline of the mission and objectives, product development strategy geared to clear product line and differentiation, “Get in Gear” concept, marketing of performance shoes under two brand names, foreign manufacturing facilities for lower production cost, “Sourcing” agents for quality control, Increase in research and development activities , Gear Strategy Classifications System, Improved Ordering System, and cash availability due to Trefoils investment to the company.
Company’s weaknesses would also consist; old management’s relentless for fast growth to attain growth objective, the company relied too much on extensive distribution, they have delivery delays, their product innovation failed to immediately respond to new trends, LA Gear’s grave marketing blunder in the line of basketball shoes, failure of Michael Jackson advertising campaign, Inventory Turnover Rate was poor, and L. A Gear had faced several lawsuits. L. A Gear’s board of Directors was composed of 11 members.
Three of them were insiders and others were outsiders with Stanley Gold as chairman. During the old management, the company was characterized by informal communication system and corporate culture and scattered departments in several buildings. With the new structure, it eroded the informal relationships that existed among the company’s management and employees. Together with it is the seriousness inside the office where coats and tie were now a regular sight in L. A Gear. Sandy Saemann, Greenberg’s assistant, was the architect of L.
A Gear’s early advertising campaign. With Paula Abdul and Kareem Abdul-Jabbar as celebrity endorsers, it was responsible for the increase in the company’s sales between 1985 and 1990. However, L. A gear’s tumble began, with its biggest advertising deal ever, Saemann was able to sign megastar Michael Jackson in what was described as the largest endorsement contract with $20 million. As teenagers everywhere thumbed their noses at the black buckle-laden shoes, the company forced to stop the entire line and taking a loss of several million dollars.
Lastly, because of the imbalance between inventory and sales, the company developed an inventory reduction program through selling inventory at significant discount resulting in low margins. And as a result, a certain number of styles were discontinued.
ALTERNATIVES PRESENTATION
In the first alternative which is the push strategy, the group gave 31% in market share because through distribution channels, it will build brand equity in a way that many retailers would now want to market L. A Gear. For the increase in sales, the group also decides to give 33% because there are consumers who prefer convenience where they can easily purchase and re-purchase L. A Gear anywhere they want. While in inventory turnover, the group only gave 10% because focusing on distribution channels would increase inventories on hand as a result of large safety stocks.
The second alternative is the pull strategy which has a 34% in market share. Through advertisement and intensive promotions, the company will be given the chance to inform and educate consumers about their product’s unique differentiation that would encourage them to prefer L. A Gear. A next criterion is increase in sales which yields 36% in such a way that the more the company communicates their products, the more the costumers will buy it. And also, promotions will develop brand awareness on the consumers that will definitely turn into purchase, thus, leads into greater sales.
The last criterion is increase in inventory turn over with 17%. The group decides to give high percentage on this because they believe that having intensive promotion could leads into greater sales that will also increase inventory turnover rate. VII. RECOMMENDATION Short-term The group recommends that LA Gear Inc. should adopt the pull strategy in order to address its current problem regarding the losing sales and market share. Through this strategy, the company will direct its marketing activities toward final consumers to induce them to buy the product.
Part of the marketing activities is the extensive advertising that would be an effective tool to convey the message directly to its target markets. It would increase brand awareness. If the products will successfully deliver the ad campaign and will gain customer satisfaction, it would strengthen brand equity for LA Gear. LA Gear Inc will do extensive advertising and consumer promotions to build up consumer demand. TV spots can be used to advertise the brand to a broader audience since the television has good mass market coverage.
It is also a good media vehicle since the products need a high visual representation. Consumer magazines have high credibility and prestige. They also last longer and have a good-pass-along readership. The internet is also a good advertising medium because it has interactive capabilities. LA Gear can develop a website so that consumers and members of other publics can visit the site for information. Consumer promotions should be used to help build long term market share. Brochures and fliers can be distributed to consumers in different locations to attract consumers to try the revitalized LA Gear products.
For public relations, the company can hold special events to bring the brand to the consumers. Press releases have strong impact on public awareness at a much lower cost than advertising since the company does not have to pay for the space or time in the media. Rather, it pays for a staff to develop and circulate information and to manage events. LA Gear can organize trade shows to promote their products. These shows can help the company reach many prospects and find new sales leads, meet new customers, introduce new products, sell more to present customers and inform them about LA Gear’s products.
To build and increase LA Gears’ relations with the public, they can sponsor major sports events. This tool can help build up corporate image and gain favorable publicity. More importantly, in can increase short term sales or help build long term market share. Long-term After the company will establish back their brand equity and address their problem in the U. S. market to increase their sales and market share, L. A. Gear would then continue to internationalize and try to use its U. S promotions in the international market. The international market is huge, especially Asia.
Athletic “LA Gear Athletic focuses on delivering shoes with comfort and design. It has good cushioning and proper structure that supports your feet. It offers true performance during your sports and recreational activities. ” Lifestyle “LA Gear Lifestyle focuses on delivering you fashionable shoes. It gives you a lot of designs and styles to choose from that matches your personality and mood. ” Children “LA Gear Children focuses on delivering fashionable and comfortable shoes for kids. It offers good design and style that would complement your kid’s personality. ”
IMPLEMENTATION, EVALUATION AND CONTROL IMPLEMENTATION
The group suggests that LA Gear’s new top management should focus on building its brand image through promotional strategies in order to effectively communicate their turnaround strategy that would strengthen brand equity. In effect, this would increase the sales and market share for LA Gear. Pull strategy focuses on the development of trust and perceived value. The “pull strategy” is preferred by the group since it would directly communicate to the final consumers. In effect, this would create a buzz and increase demand for the LA Gear products.
The promotional strategies should follow the categorization made by the new management: athletic, lifestyle and the children’s line. This is in order to not confuse the consumers to the products delivered by LA Gear. By building the brand name “LA Gear”, it would also follow that the categorization made will gain consumer awareness. In order to effectively relay the message of LA Gear to its consumers, the group recommends these promotional strategies using the pull strategy. The Pull Strategy 1. Press Conference – This must be done in order to respond to the damaged perception of consumers to LA Gear.
This is because of issues regarding product quality. Part of the agenda of the press conference is to introduce major corporate changes like the new top management, introduce the new product lines which are the three major category of LA Gear (Athletic, Lifestyle and Children’s) and the upcoming campaigns of LA Gear with the slogan “Get in Gear” campaign. It is also very important to develop relationships with the media because it allows LA gear to gain credibility and trust especially when cited in major publications or websites.
Duration: This must be the first advertising strategy of LA Gear. This will be done once. The next press release will happen if there will be new product innovation or any important event/activity that the company wishes to convey to the public. 2. Media Tools – There are plenty of advertising methods like TV advertisements, billboards, posters and print advertising in magazines and newspapers. Media Vehicles a. TV ad – The main focus of the TV advertisement is to deliver the theme “Get in Gear”. The ad would focus on LA Gear’s strengths that would differentiate them to their competitors.
One example is their unique designs and high product quality. In this way, LA Gear could revitalize its brand image and position its brand to the minds of the consumers. Endorsements – La Gear must properly evaluate the potential endorsers for the brand. The issue regarding the endorsement of Michael Jackson was a huge loss mainly due to incompatibility of the taste of LA Gear’s target market to the product endorse by Jackson. For example, Jabbawockeez will endorse performance shoes (dance) and Avril Lavigne (rockstar) for the lifestyle shoes. . Magazines – LA Gear should advertise on sports magazine since the focus of the LA Gear is also in the performance shoes.
LA Gear could also advertise in teen magazines so as long as the product advertised is compatible to the preference of the target market. c. Billboards and Posters– LA Gear could also put billboards and posters to further increase its campaign reach. d. Official Website for LA Gear – This will create a portal wherein consumers could interact with LA Gear and vice versa. This will also be a ood platform to deliver message to the consumers like the upcoming Spring Line Collection, Summer Special Collection and etc.
EVALUATION AND CONTROL
As the company implements its strategy, an evaluation of the strategy’s effectiveness and implementation would be done. The strategy’s effectiveness would be checked through the increase in sales that the company will achieve upon the implementation. Market share of L. A. Gear would also be taken into consideration. For the implementation, the sales would also be used to indicate its success.
The entire pull strategy will be evaluated every year. The main aim of the strategy is to strengthen the brand equity of L. A. Gear. It will be indicated through the sales that would come into the company once the strategy would be put into action. The company will then compare the sales it had received and the promotional expenditure they had incurred in that year and see if it the spending did pay-off. For the implementation of the strategy, it will be evaluated quarterly to see its effectiveness. The company will make a survey of L.A. Gear before they launch their new promotion.
The survey would be about L. A. Gear’s product awareness, knowledge and preference. After three months, the company would then conduct the same survey and see where the company stands principally on product awareness and preference. If it improves the standing of the product it would be retained. In case of failure of promotion, the company would look into where that particular promotion failed and formulate another or choose another promotional strategy without repeating the same mistake.
