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Adidas Project Report

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					                                                   ||| Contents |||



Background ........................................................................................................................ 2

adidas in India................................................................................................................... 2

Industry Scenario.............................................................................................................. 4

Scope of Study .................................................................................................................. 5

Consumers ......................................................................................................................... 6

Consumer Behaviour ........................................................................................................ 7

Environmental Analysis .................................................................................................... 9

Retail ................................................................................................................................. 11

Competitors ..................................................................................................................... 12

Segmentation .................................................................................................................. 14

Targeting & Positioning ................................................................................................. 15

Recommendations .......................................................................................................... 18

Appendix .......................................................................................................................... 20
||| Background |||

adidas AG is a German sports apparel manufacturer, part of the adidas Group.

It registered as adidas AG on 18 August 1949 (with lower-case lettering:

"adidas"). The company was named after its founder, Adolf (Adi) Dassler, who

started producing shoes in the 1920s in Herzogenaurach, near Nuremberg, with

the help of his brother Rudolf Dassler who later formed rival shoe company

PUMA AG. The company's clothing and shoe designs typically include three

parallel stripes of the same color, and the same motif is incorporated into adidas'

official logos.



adidas plans to become the leader in the organised sports footwear and

sportswear market.




||| adidas in India |||

adidas first entered India in 1989 through a licence agreement with Bata. adidas

later re-entered India for the second time in 1996 through a joint venture with

Magnum International Trading Company Ltd with an initial investment of $2.5

million to form adidas (India) Trading Pvt. Ltd. adidas holds a 100 percent stake

in the company.




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The company launches every six months between 600 and 800 new designs in

footwear and between 1,500 and 2,000 new designs in apparels. The apparel

range is priced between Rs279 and Rs2700, while the footwear is priced

between Rs499 to over Rs12499. adidas' products in India are sold through 140

own outlets (excluding multi-brand outlets).



The company, which is known for football and running shoes, introduced its

cricket gear in India in 2004.



The company adheres to strict quality and design specifications and uses the

manufacturing unit of Lakhani Footwear to manufacture the locally produced

adidas range in India.



Around 30-40 percent of the components are locally sourced.




                                                                           3
||| Industry Scenario |||

(as of 2003-04)

Footwear brands drew up ambitious plans targeting a larger audience and higher

market share.



MNC brands like Reebok and Adidas launched television commercials after a gap

of four years and brand shops were filled with a fresh and upgraded product

line-up.



The new distribution strategy focused on extending the reach rather than

exclusivity and at broad-basing distribution through tie-ups with branded retailers

and setting up shop in shopping malls.



For adidas, sales of higher priced footwear recorded strong growth in 2003-2004

and the company expected to close the year with a 30 percent growth.



Pre-1997, adidas had tied up with Bata and Woodland and first began exploring

multi-brand outlets and retail malls.



Reebok was slated to grow by almost 30 percent against 22 percent in 2002-03

and focused on its global Performance Range products. Bata started retailing

other brands like Reebok, Nike and Lee Cooper.


                                                                                 4
As of 2005-06, the current premium sports goods market in India was valued

around Rs 500 crore. Within this market, adidas enjoys considerable brand equity

and is considered among the leading international brands in the country.




||| Scope of Study |||

Our group has selected the Indian Footwear (Athletic) as Product Category.

The main multinational players in this industry are Nike, Puma, Fila, adidas &

Reebok. Indian players include Action Shoes Ltd., Liberty Footwear Co., and Bata

India Ltd.

This report will mainly consider Nike & Rbk (Reebok) as competitors for adidas.

By way of research, we have conducted a consumer survey, as well as spoken to

a few retailers of the 3 top brands in the industry.




                                                                                  5
||| Consumers |||

In 1999, when adidas entered the Indian market, it introduced the cheapest

range of shoes it had ever sold. The new line took into account the importance

of affordability in the Indian market, and the company expected the move to

expand their customer base by 20%.


But today, the customer has changed. Andreas Gellner, MD of adidas India, tells

us: ―Today’s Indian customer is aware of international fashion and technology

and he cares about them. He is also a big sports enthusiast. We have also noted

the need for constant change—which implies faster turnaround for designs and

therefore newer products.


On the other hand, the buying experience is becoming crucial. The retail scenario

in sportswear is changing accordingly—marketers are focusing on shop design

and service and on brand consistency across outlets; they are paying a premium

on technology and innovation. This has also been impacted to a large extent by

the mall mania and the growth of the high street.‖


From our meeting with adidas’ marketing executives we gathered information

about how they defined their target demographic. They target the 15-35 age

group, both males and females, with a monthly income of over Rs15000.


The consumer is typically an image-conscious sports fan, but not necessarily a

sportsman.



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||| Consumer Behaviour |||

Our market research delves into the customer mindset, trying to assess the

population and coming up with demographic details as to who our target

customer is. This is being done by a two-pronged strategy of reaching out to the

young working class on the one hand (in and around NCR) and also by assessing

the student strata who are pursuing their post-graduation (IMT, DSE, FMS etc).

This would leave us with roughly 120 separate assessments on buyer behaviour

on which we plan to base our studies.



Status so far:

Respondents: 118

Dates of response: 27-08-2006 to 17-09-2006

Demography: Students (post-graduate – 107, young working class – 11)

Method of survey: Online



Some of our observations so far:

   Only around 3% of the total respondents cited Price as the number one

factor influencing their purchase decision, and another question showed that

comfort, weight and styling of the shoe were important elements of the shoe.

This initially seems to indicate that the Indian customer no longer fits the price-

sensitive stereotype, but a closer look at the results shows a different picture.

The survey also showed that 62.93% budgeted less than Rs. 2000 for their


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sports shoes. This shows that while Price is almost never the most important

factor for most respondents, it is certainly a very important consideration.

   More respondents own a Reebok pair than adidas (second place) and Nike

(third), but when asked which brand they would like to own, Nike topped list,

followed by adidas and Reebok. This shows that Reebok’s Indian pricing has

managed to attract more market share than its rivals, but Nike still has the

highest brand equity and perceived value.

   Nike being the world-wide leader does well on advertisements and

viewer/customer attention-catching and carries the best image of the 3 top

brands. It is the brand that people want to own.

   The survey also revealed that customers felt that Sales Staff Service was the

most important part of the buying experience. With 51.46%, it beat the other 4

factors by a long way.




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||| Environmental Analysis |||


FIFA World Cup 2006 and other Football Tournaments


The World Cup's global TV and Web audience was bigger than the Olympics' or

the Super Bowl's -- 38 billion in-home viewers worldwide. Adidas was an official

sponsor and paid for the rights to shut Nike out of TV advertising in the U.S. for

all 64 games.


The retailers we spoke to acknowledged that the World Cup caused a sharp

spike in sales, both of the football (Teamgeist) and footwear & jerseys.


Globally, by end-June 2006, adidas had already sold $1.5 billion worth of football

products this year owing to the then ongoing World Cup. Football-related sales

were expected to stabilise at slightly above 1.0 billion euros in 2007 before rising

again in 2008, when the football European Championships take place. It had

already sold a record three million replica jerseys in the wake of the football

event, including 1.5 million jerseys of the German national team.


At the previous World Cup in 2002, the company sold 1.5 million federation

jerseys and 250,000 German jerseys.


It has also sold more than 15 million of its "Teamgeist" World Cup match balls,

compared with 6.0 million of the replica ball for the 2002 tournament.



                                                                                  9
Adidas is an official sponsor, supplier and licensee of the World Cup and is

sponsoring six national teams in the tournament, including host country

Germany. Three teams sponsored by Adidas - Germany, France and Argentina -

reached the quarter-finals and France went through to the finals.


Adidas estimated its global share of the soccer footwear market rose by 1-2

percentage points to 35-36 percent at the end of the first quarter.


The company also announced that it has signed a long-term partnership to be

the global sponsor for Euro 2008, which will take place in Austria and

Switzerland. It has also extended its partnership with the UEFA Champions

League to become the official ball supplier until 2009.


BPO Boom


This booming industry has emerged as a boon for the hundreds of thousands of

job-hunting Indian youth and aims to grow into Rs.100,000 crore industry

generating over 1.1 million jobs by 2008.


As we shall explain later, the Call Centre Crowd is characterised by high

disposable income, which is spent on lifestyle products. Therefore, this

constitutes a segment of increasing importance for adidas.




                                                                         10
||| Retail |||

   We visited retailers of leading footwear brands in Saket (South Delhi), and we

gained an insight into the workings of the retail business. Periodical meetings are

held, where the company shows samples of its various models and products to

the retailers. It is up to the retailers to decide which products they will stock in

their shops, how and when they will put them on display and when they will be

put up for sale. Thus, retail outlets of the same brand might well have different

stocks of different products at the same time.

   Sales staff is another important factor. The Reebok retailer told us that

Reebok does not allow retailers to hire their own sales staff without company

approval. All sales staff must pass the company’s test before getting the job. The

same does not apply to adidas though. Retailers for this company are allowed to

hire salespersons they feel will be effective. Training for salespeople, however,

happens across the board. Reebok believes that investing in salespeople is a

cause for their higher sales, and will be a source of sales growth in the future.

   Area Sales Managers (ASMs) are in constant touch with their retailers and

actively take their feedback and suggestions.       adidas   mentioned that they

occasionally employ mystery shoppers to get a better feel of the customer’s

perspective.

   The décor and ambience of the stores is under the control of the retailer, but

still guided by the company’s direction. The number of posters within the store,

the type of music, etc. generally conforms to company policy.


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||| Competitors |||

Nike

   Nike, Inc. is a major American manufacturer of athletic shoes, apparel, and

sports equipment. It is well known for its strong sponsorship agreements with

athletes, leagues and federations, as well as many of the world's top football

clubs and national teams, including Manchester United, Arsenal F.C, Brazil and

even India.

   Nike is the leading brand in sports footwear worldwide. In India, we have

seen that although its brand image is good, its sales are not. Nike products don’t

compromise on quality, and are always full-price. They do not have post-season

discount sales on footwear unlike adidas and Rbk. While no brand can neglect

the highly price-sensitive consumer, Nike certainly does not target them. They

use their higher perceived value to charge a premium for their products.




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Reebok


Also known by its contraction Rbk, Reebok International Limited is an Anglo-

American Fortune 500 company, now subsidiary of Adidas AG, and producer of

athletic footwear, apparel, and accessories.


Founded in 1895, the family-owned business proudly made the running shoes

worn in the 1924 Summer Olympics by the athletes, Harold Abrahams and Eric

Liddell celebrated in the film Chariots of Fire.


In August 2005, one of the company's largest rivals, Adidas, announced that it

would acquire Reebok for $3.8 billion. The acquisition would increase adidas'

market share in North America and allow it to pose a serious threat to the

world's biggest maker of sports apparel, Nike. The deal was completed in

January of 2006.


We gathered from the retailers that in India, adidas and Reebok are still very

much in competition with each other. Both are trying to get to the #1 position

presumably to garner as much market share as they can, and in the process take

some from Nike as well.




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||| Segmentation |||

For adidas the market segments in consideration are based on demographics,

psychographics and behaviour. The demographic segmentation is based on age,

gender, income and occupation.


The market is segmented into three main categories based on age. These

segments are age groups 1-15 years, 15-35 years and above 35 years.


Based on monthly household income the market is segmented into below

Rs.15000 pm, Rs.15000 to Rs.50000 pm and above Rs.50000 pm. The market is

also segmented based on gender and occupation (which leads to differential

disposable incomes).


Psychographic segmentation is of great importance for the sport shoe industry.

The higher income groups are classified based on their tendencies into four

major categories; the innovators, thinkers, achievers and experiencers. As for the

groups with lesser resources, they are categorized into believers, strivers,

makers and survivors.


Under behavioral segmentation an important user group is the sports and fitness

conscious population. This segment is further subdivided into gym regulars,

professional and amateur athletes and even drawing-room sports enthusiasts.




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||| Targeting & Positioning |||

Based on information gathered from retailers and adidas executives, it is evident

that the major demographic segment targeted by adidas is the age group of 15-

35 years. Very few footwear products are aimed at the female market.


adidas targets households with monthly incomes greater than Rs. 15,000.

Households with incomes between 15,000 and 30,000 rupees per month don’t

buy a new pair as often as higher income brackets. This is primarily because they

use shoes as shoes and not as style/image products. It is important that when

this group enters the market with an intention to buy, they should buy from

adidas. To ensure this, adidas should sell durable, comfortable shoes at a

reasonable price to this group.


A crucial segment adidas has identified is the Call Centre Crowd. This segment is

substantial in the metros and is expected to continue its rapid growth. It consists

of image-conscious youth who are earning but are not yet independents. This

means that their entire income is disposable. adidas seeks the highest share of

wallet from these consumers.


Under psychographic segementation, adidas targets…


      Experiencers: young, enthusiastic, impulsive people who seek variety and

       excitement.




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      Strivers: Trendy and fun-loving people who are resource-constrained but

       favour stylish products that emulate the purchase of those with greater

       material wealth.

      Image Drivers: The wealthy few who set the trends in their social circle.

       This is the segment responsible for the selling out of the Rs.12499 adidas

       One - adidas’ most expensive shoe in India.


The company targets behavioural segments also: The sports and fitness

conscious population is further subdivided into gym regulars, professional and

amateur athletes and even drawing-room sports enthusiasts. adidas has specific

products for each of these sub-categories.


Cross-training shoes, running shoes, etc. are aimed at gym regulars and runners.

Shoes are designed specifically for sports like cricket, football, basketball and

now even adventure sports like rock-climbing. We can take a particular segment

which we call Hardcore football. It refers to young footballers, passionate about

playing the sport, with the means to pay. A good example here would be adidas’

―Predator‖, which sets the standard for football studs.


adidas rightly sees themselves as the world leaders in football shoes. This is the

only sport market in which they lead Nike. The brand has been synonymous with

football ever since Adi Dassler invented the first adjustable rubber screw-on

studs. An interesting fact: Every World Cup winning team before 2006 wore

adidas football boots!


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Sport-inspired designs are incorporated into adidas’ lifestyle products for the

sports enthusiast. For example, there is a shoe that is designed like an F1

driver’s shoe. The heel is molded to fit into the floorboard of an F1 car and the

sole is made of Goodyear rubber – the same rubber that F1 tyres are made of!

Despite the effort put into design and manufacturing of the shoe, it is still meant

to be a lifestyle product.




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||| Recommendations |||

After analysing the data, we find that although adidas has a greater market

share than its arch-rival Nike, it still lags behind in brand image. To tackle this

problem, we will now show you what very few Indians have seen. Globally,

adidas sells products under 3 divisions.


www.adidas-group.com provides us with a clear definition of these divisions.


Divisional Strategy
The divisional strategy has been developed to provide three distinct consumer segments with
product and marketing concepts that fulfill their unique needs and desires. The three divisions
are:

Sport Performance Division
Innovate to perform.
This division is completely focused on the athlete who demands performance first and style
second. Every sport is important, but the main categories of running, football, basketball, as well
as the women’s segment, are the primary focus in terms of both footwear and apparel.

Sport Heritage Division
Celebrate Originality.
This division looks to our past for inspiration and direction for the authentic and contemporary
products of the future. These are footwear and apparel products that clearly have a foundation in
sport but are meant for lifestyle and street wear.

Sport Style Division
Modern Sportswear.
The newest division is directed at the style and fashion conscious consumer who still desires the
look and attitude of sport but in a new, more sophisticated interpretation. It is the foundation in
sport that adidas and this consumer share that makes this division so exciting and full of potential
for both footwear and apparel.



adidas can claim the prime position in the elite SEC, capturing share of both

mind and heart if they introduce adidas Originals (also known as Heritage) and

adidas Style. These are extremely up-market products: High profile designers of




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the likes of Stella McCartney and Yohji Yamamoto combine cutting-edge

technology with unique styling and passion for sport.


This will enable adidas to target the Achievers psychographic segment, i.e.

―success, goal-oriented people who focus on career and family and favour

premium products that demonstrate success to their peers.‖(Kotler & Keller)


After acquiring a stagnating Reebok for 3.8 billion pounds, adidas must prove the

deal was more than a market share grab and integrate the companies smoothly.

Considering that adidas themselves admitted that the female market is not

catered to properly but still has great potential for growth, we think that Reebok

should be used to tackle the relatively untapped women’s sport shoe market. It

could additionally tackle the price-sensitive market.


Reebok has previously grown on the base of an urban, street, hip-hop image.

This image does not conflict with any of adidas’ target markets and should thus

be exploited to the full.

adidas could benefit from taking a leaf out of Reebok’s retail book. Reebok does

not allow retailers to hire sales staff. All sales staff have to have passed a

centralised test. This ensures that Reebok hires employees that are equipped

with the right knowledge and attitude towards service that is required to succeed

in the Indian market. We know that service at the point of sales is a crucial

element of the buying experience because 51.46% of the respondents of our

survey marked it as the single most important element.


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                               ||| Appendix |||

                             Consumer Survey
Age
19-21                                  53 (44.92%)
22-24                                  54 (45.76%)
25-27                           8 (6.78%)
>27                          3 (2.54%)
Gender
Male                                                               89 (75.42%)
Female                                29 (24.58%)
Do you own a pair of sport shoes?
Yes                                                                111 (94.07%)
No                            7 (5.93%)
If yes which Brand/s? (you can chose more than one)
Nike                                     39 (22.94%)
Adidas                                     43 (25.29%)
Reebok                                       48 (28.24%)
Puma                         4 (2.35%)
Power                          13 (7.65%)
Other                               23 (13.53%)
For how many years do you use a pair of sport shoes?
1-2                                                      73 (61.86%)
2-3                                   23 (19.49%)
3-4                           7 (5.93%)
4-5                         3 (2.54%)
>5                              12 (10.17%)
What is the highest price range that you are willing to keep as a budget when buying sport
shoes?
500-999                               30 (25.42%)
1000-1499                             23 (19.49%)
1500-1999                            21 (17.80%)
2000-2499                           15 (12.71%)
2500-2999                      9 (7.63%)
3000-3999                      9 (7.63%)
>4000                           11 (9.32%)



                                                                                     20
Which is the most important factor to you while purchasing sneakers/sport shoes?
Price                        4 (3.39%)
Durability                        16 (13.56%)
Comfort                                       58 (49.15%)
Looks and styling                    30 (25.42%)
Brand image                   6 (5.08%)
Other                        4 (3.39%)
What elements of the shoe are important to you? (you can mark more than one)
Sole                             45 (12.82%)
Inside cushioning                  59 (16.81%)
Weight of the shoe                   71 (20.23%)
Laces                       7 (1.99%)
Material                          48 (13.68%)
Styling                             65 (18.52%)
Color                              53 (15.10%)
Other                      3 (0.85%)
Which brands advertisements do you like the most?
Adidas                               44 (37.29%)
Nike                                 43 (36.44%)
Reebok                               27 (22.88%)
Other                        4 (3.39%)
Which brand of shoes would you like to own?
Adidas                               40 (33.90%)
Nike                                 45 (38.14%)
Reebok                               25 (21.19%)
Others                        8 (6.78%)
Which aspect of buying experience do you consider most important?
Shop Design                       14 (13.33%)
Service                                         53 (50.48%)
Ambience                          14 (13.33%)
Shop Location                       19 (18.10%)
Others                       5 (4.76%)

Respondents: 118; largely from IMT Ghaziabad, Delhi School of Economics, Jawaharlal
Nehru University, FMS and MICA.
* note: the bar graphs are not actual representations of the figures besides them
Survey designed on createasurvey.com and circulated online



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