A Review On Reebok Sports Shoes Marketing Essay

Reebok is an international sports wear brand. It sells sports goods and lifestyle products. It entered the Indian market in the year 1995. When Reebok entered India, fitness was a primitive industry in India. People used to buy branded shoes only for fashion and image. Reebok started educating people about the fitness and by the time Reebok established itself in the Indian market, a significant portion of consumers started buying sports shoes for fitness activities. In year 2006, Adidas acquired Reebok for USD 3.8 billion. In India, Adidas and Reebok have integrated in the year 2011. Reebok India strategy is different from Adidas strategy.

Market Analysis

The market size for footwear in India is estimated to be about Rs.19,900/- crore. This sector is poised to grow at a rate of 8-10 per cent. . The sportswear industry market size in 2010 was estimated to be Rs. 3,500 crores with a CAGR at 18%. The footwear category includes formal, semi-formal and sports shoes. It also includes sandals for men and women. 59 per cent of the market is covered by men’s segment, while the rest 41 per cent is covered by the women’s segment.

The market is dominated by unorganized sector with organized retail having an overall share of 20 per cent. The size of organized retail sector is expected to reach 25-30 per cent by 2015. In the organized footwear sector, exclusive-brand outlets account for over 50 per cent of the footwear market followed by multi-brand outlets at 28 per cent. The overall organized sector is growing with more and more consumers preferring buying footwear from the retail outlets.

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The key brands in India for footwear are Nike, Adidas, Reebok, Red Tape, Bata, Liberty, Woodland, M&B, Puma, Converse and Relaxo. Organized retail sports good market is dominated by Reebok at 46 percent. Other major competitors to Reebok are Adidas, Nike, and Puma. The market share of these brands in organized retail is shown in Appendix 1.

India is the only market where Reebok is ahead of both Nike and Adidas. In 2004, Reebok was taken over by Adidas. So, the combined market share of Reebok and Adidas is 67%. Still Adidas and Reebok continue to position their products independent of each other.2

Industry Analysis

PEST Model

Political Factors – India is the world’s largest democracy and has managed to avoid an authoritarian form of government since its inception. The multi-party system of government leads to the formation of coalition governments with regional parties having varied motives with respect to policy formation. In Q1 2012, the central government approved 100% FDI in single brand retail (with 30% goods sourced from Indian SMEs) which means foreign sports shoe retailers can now set shop more easily in India.

Economic Factors – GDP growth rate is estimated at 7.3% for the FY 2012-13, up from 6.8% for the previous year. Inflation rate has fallen to 6.8% as compared to 8.0% last year. The rupee has depreciated to record lows and the country’s high trade and fiscal deficits are pressurizing financial markets. The middle class is rapidly emerging with increase in the no. of DINK households accompanied by an increase in disposable income; this is acting as a driver for the increasing demand for new goods like branded sport shoes. (Source: MISH by NCAER)

Socio-Cultural Factors- In 2010, approximately 39% of the Indian population was in the age group of 20-44.This growing young population drives up demand for branded sports shoes. The country is steadily moving towards a more urbanized setup with a forecasted 32% of population attributed to urban India by 2015. The urban Indian middle class as a whole is slowly moving away from its unhealthy Dalda consuming habits, and is adopting a healthier lifestyle which includes exercising and playing sports.

Technological Factors – The online retail market is growing at an annual rate of 35% helped by increased internet access; added facilities like COD and easy returns by e-tailing websites like Myntra.com make it easier for the consumer to buy online. India is poised to have the third largest no. of internet users in the world by 2013.

Porter’s Five Forces

Bargaining Power of Suppliers: Sport shoes are primarily manufactured from raw materials like leather, rubber, cotton, nylon, polyurethane foam, gel or liquid silicone etc. The manufacturing processes and the shoe design add most of the value to the final product. Therefore, the suppliers have minimum bargaining power.

Bargaining Power of Buyers: Since sports shoes are slowing becoming an essential commodity in the urban population and involve high volume sales, the buyer power of an individual customer decreases considerably. Also, due to the varied categories within the sport shoes segment, there is significant differentiation from brand to brand and model to model in terms of features which increase the no. of suitable products in the market which in turn increases the no. of choices for the customer.

New Entrants: Even though government policy favors entry of new producers, high investment is required both in terms of financial capital as well as technical expertise. Considering the pace at which existing firms introduce new technologies in sports shoes, new firms will have to invest highly in design, R&D and research along with aggressive marketing campaigns to survive in this industry. Also, most sport shoe buyers are brand conscious and will find it difficult to switch to a new brand.

Rivalry Amongst Existing Firms: Large shoe manufacturers targeting the same segment are mutually dependent. Any move by one of these companies will be answered with a similar move by the others. For e.g. Reebok’s expansion of the women’s sport shoes product line pushed other companies to follow suit. The no. of competitors at any time is mostly stable due to the high barriers of entry. The competition is high amongst the existing firms and companies invest heavily in advertising and promotion to capture competitive market share.

Threat of Substitutes: The threat of possible substitutes is moderate to high in the Indian sports shoe industry. A large segment of consumers buy sport shoes for the level of comfort they provide in day to day use, this segment can easily shift to another shoe segment which promises comfort with prolonged wear. Another big threat of substitution is from the counterfeit market, where seemingly identical models are sold for 1/4th the price. This counterfeit market eats into a segment of potential consumers who are brand conscious but are not willing to pay as much for an original when given the option of buying an identical fake.

Major Competitors: Adidas, Nike, Reebok, Puma, Lotto, Spalding, New Balance, Liberty

Potential Competitors: Crocs, Vibram’s five fingers, Sparx

Industry attractiveness

The Indian sports shoe industry is growing at a fast pace which makes it attractive for well-established foreign sports shoe companies. A new company with no brand name and no differentiating factors to bank upon will find it difficult to attain profitability and will be ousted out of the industry by existing larger players. Overall the industry is unattractive for new players with no pre-established brand name (but moderately attractive to foreign players with established brand names.

Critical success factors

Brand name establishment: The brand name and brand strength is very important in the sport shoes industry coupled with the market demand for branded products.

Quality control: Proper quality control is essential for footwear in general and sports shoes specifically, to maintain existing customer base loyalty.

Economies of scope: Sport shoe manufacturers needs to have a diverse product line to cater to various consumer segments, for e.g. running shoes, jogging shoes, basketball shoes, football shoes etc. with various sub segments within these. The fixed costs of setting up a sports shoe manufacturing unit can be spread over the multiple product lines which reduces the fixed cost associated per item and thereby increases profit.

Innovation: Sports shoe companies need to innovate constantly and come up with design and technological changes in shoes which are aimed at improving the consumer experience and performance in an associated sport.

Economies of scale: The cost associated with production of a single item can be reduced by increasing the production. This also acts as a critical competitive factor as the lowest cost manufacturer becomes the cost leader in the industry.

Low Internal Cost: Companies need to minimize their internal costs while maintaining quality. Customers in India are price sensitive and low internal costs can help manufacturers target Tier 2 and Tier 3 cities with lower price range of shoes.

SWOT Analysis

Strengths

First foreign player to change its existing shoe designs to fit the Indian foot better.

1000+ stores across India – highest no. of single brand sports shoe retail stores in the country

Ensured total brand recall by cashing in on the cricket frenzy, associating itself with the ICC world cup 2011, sponsoring the KKR uniform for IPL and getting itself endorsed by M.S Dhoni and Yuvraj Singh.

Price range starts at Rs. 990 which helps it position itself competitively against national players like Liberty in Tier 2 and Tier 3 cities.

Weaknesses

Almost a fully franchisee based model with very few company owned stores. Franchisees do not know company retail strategies and cut costs on inventory and manpower which negatively affects the brand.

Franchisees currently work on the Minimum Guarantee model which has led to high losses for the company in wake of dipping sales.

“Factory outlets” offering discounts all year round lead to brand dilution

Alleged fraud to the tune of Rs. 870 crore by the ex-CEO and ex-COO in 2012.

Opportunities

Adidas is planning to reposition the Reebok brand in India in 2013.

Change to the Cash and Carry model from the Minimum guarantee model will drastically reduce losses in the near future.

Threats

Reebok was booked for Foreign exchange management act (FEMA) violations in July 2012.

Plan to switch to Cash and Carry model could result in the closing of more than 300 stores.

Research Methodology

Segmenting, Targeting and Positioning:

Segmenting

Reebok has been a market leader for many years in the sports shoes market of India. Reebok has been able to achieve it through its efficient and effective marketing strategies. Reebok used innovative strategies as per the Indian consumer needs and wants of a high quality international brand of shoes. Reebok segmented Indian market on the following parameters:

Geography: Reebok chose to operate on Pan India basis. Within India it segmented locations as per the consumers’ needs. The attribute requirement of the product in one region will be different from the other regions. One of the earlier strategies of Reebok India was to divide the regions as per the postal code. But this strategy backfired as there can be different consumer groups within the same postal code. For example, the Greater Kailash post office in New Delhi is a high income locality but the same post office also includes a mid-level income locality Zamroodpur.

Demographics:

Age – Reebok India has segmented its product range as per the age of the consumers. The requirements attributes like comfort level, design is different for different age groups. The primary focus is on the age group of 21-30 years.

Gender – Initially the Reebok product range in India was primarily for men. It was because when Reebok entered India, the culture of women fitness was not that prevalent. But later it developed a variety of products as per the requirements of the women. Around 30 % of the sales of Reebok India come from the women’s segment.

Income – On the basis of Income, Reebok India has divided the Indian market into lower income level group, mid income level group and high income level group. As per one of the initial Income segmentation strategy of Reebok, it divided the consumers as car owners and non-car owners. But this strategy also backfired because at that time many car users were not the car owners. Either they were using the company car or were using government car. So, it decided to segment the market on the basis of the earnings of the consumers. Now Reebok has product range for the lower income group starting from Rs.990/- and for high end customers ranging around Rs.6000/-.

Psychographic:

Reebok has mainly focused on the lifestyle of the consumers. Reebok had collaborated with an Indian fashion designer to design very high range shoes keeping in mind the high lifestyle of high income consumers.

Benefits Sought:

Reebok shoes has placed itself such as the benefits perceived by the customers are multiple such as Reebok shoes are considered as something which can be useful when doing physical activities like running, gymming, etc. and which can also be used as a casual wear while walking on the street.

Targeting

Based on the segmentation, Reebok has targeted the Indian market on the basis of age, gender and income. It has followed the following targeting strategies:

Income – Reebok India has 10 million customers with annual household income level of Rs.450,000/- and above. The products which Reebok India offers to these customers are mid-priced products. Reebok India has 2 million customers with annual household income of Rs.750,000/- and above. Reebok India offers premium priced products to these customers.

Age Group – Understanding the market need for kids’ sportswear, Reebok India is targeting kids’ sportswear market. It has opened special outlets for kids’ sportswear. In the kid’s segment it is targeting two sub segments – kids in age group 3- 7 years and kids in the age group 7-12 years. In adults segment it is targeting 21+ and 25+ age groups.

Gender – Reebok has wide variety of product range for both men and women. For women, Reebok has introduced products like Easytone and Runtone.

Positioning:

Since its entry in India, Reebok has positioned itself as a brand associated with fitness. It launched ad campaigns with various tag lines to show itself as a fitness brand. For example with it’s “I am what I am campaign” it celebrated the concept of individuality. This campaign promoted the athlete in a person. It came up with a campaign “Your Move”. This campaign was aimed at positioning Reebok as the brand that celebrates individuality and supports those who choose to do things their way.

The parent company Adidas, is positioning Reebok as a brand associated with making fitness fun and aspirational for everyone – by giving consumers products, experiences and inspiration to be fit for life.

To communicate the new positioning in fitness, Reebok has launched the “Sport of Fitness Has Arrived” Campaign in 2012. Reebok has partnered with the program CrossFit to give customers a new sense of approaching fitness. This partnership will help Reebok to extend beyond its current product and program offering.

Marketing Mix Elements

Product:

In the sports shoes category, Reebok has categorized products in terms of use for men, women and kids. They are usually classified under the categories such as Running, CrossFit, Walking, Basketball, Training and Classics.

Reebok footwear offers shock absorption, ideal for those who run or walk a lot every day. Reebok shoes reduce stress on feet, especially the heels, and direct the energy through the foot to make the walk or run effortless. They offer exceptional fit, traction, and strengthen the leg muscles and calves as one exercise in the gym or just walk around. Reebok shoes offered a broader forefoot, which suited the Indian consumer, in contrast to the other international competitors which offered narrower forefoot.

There are classic Reebok footwear pieces and funky new designs like the ReeZig and ReeTone which help strengthen leg muscles and calves when one exercise or walk around. Running shoes, Basketball shoes, Tennis shoes for clay, grass and hard courts, Cricket shoes and more Reebok sports shoes are classified by sport. Reebok sports shoes aims for all health, fitness and sport enthusiasts.

Price

Reebok follows penetration pricing models for sports shoes in India as their main aim is to grow in the market. Reebok sports shoes prices start from a competitive Rs.990/- compared to Nike’s Rs.2,000/-. This pricing is maintained so as to reach the small towns and cover most of the SECs.

Premier, RealFlex, Zig-Zag, Run-Tone are EasyTone are the models of Reebok which are priced much higher. These shoes generally come with new and latest technology and are launched at high prices and they follow a maximum market skimming strategy in which they launch the product at a high price and slowly lower the prices to normal prices. Reebok estimates the new buyers of the products and maintains high price to control the demand, earn more profit and communicate to customers the high quality of the brand.

Reebok also has stock clearance sale twice a year from their stores and offers discount on the old stock in their factory outlets. It also offers discounts through vouchers and coupons. The discount sales are seasonal and last for a longer duration compared to other brands.

Place:

Reebok has over 1,000+ exclusive outlets and they operate through a franchise model compared to 650+outlets for Adidas and 300+ outlets for Nike. Reebok also has presence in other multi brand retail outlets through dealer channels and B2B channels and factory outlets. Reebok has also opened up many exclusive retail outlets especially for men, women and kids respectively in some Tier-I cities.

The franchisees operate under the Minimum Guarantee (MG) basis in which they get fixed returns on investment irrespective of their sales.

As per the company, Reebok is up for a fresh start in India in 2013. The company has decided to reduce the number of franchisees in India by one-third. The company is moving from the present MG model to Cash-and-Carry model, in which the franchisee will have to pay for the products and they would not be given credit on the products.

The previous model had not been very profitable for the company because some of the franchisees were not working hard as they were compensated irrespective of their sales and they were in loss. The franchisees also cut down on man-power and maintenance to reduce cost which affected the brand. Due to this, the company had been effectively subsidizing these stores by the profits made by the other profit making franchisees.

Reebok is also planning to close all the factory outlets to avoid dilution of the brand as these outlets offer discount based on last year’s stock throughout the year. Consumers are motivated to purchase the shoes at the end of season from these outlets at lower prices.

Promotion

Reebok’s marketing strategies varies depending on the campaign plan and the sporting events during the year. Reebok is a well-known brand in India and has a good recall value with its target segment. They have also strategized and offered discounts on many important days like Independence Day, Christmas, regional festival holidays to promote their brand and increase sales.

McCann Erickson Worldgroup India is the new advertising agency for Reebok India. Mostly, Reebok caters to two segments of consumers – performance and fashion conscious consumer.

Reebok has tied up with talented cricketers and actors for celebrity endorsements in India. Mahinder Singh Dhoni, Bipasha Basu and Yuvraj Singh are some of the celebrities who have featured in commercials for Reebok.

Reebok uses various tools such as television commercials, print advertisements, billboards, events sponsorship, digital media and various other tools to create awareness of the product. Some of the promotional campaigns of Reebok are listed below.

TVCs – Ads featuring athletic and non-athletic celebrities are telecasted not only on sports channels such as ESPN, STAR Sports, STAR Cricket, etc. but also on other entertainment channels as it targets the performance as well as fashion conscious consumer. The ad campaigns are usually for their newly launched products and changed from time to time to create brand awareness and promote fitness. (Appendix 2)

Print Ads & Billboards – Consists of ads in newspapers, magazines, billboards, hoardings. These are done usually in national dailies of metro cities edition and Tier-I and Tier-II cities because of their presence there. (Appendix 3)

Sponsorships – Celebrity endorsements by cricketers has helped Reebok to create visibility on bats of several performing batsmen. This gives them an edge over competitors like Nike which has been the official sponsor of the Indian Cricket team and their kit since 2005. BCCI has renewed this sponsorship with Nike for 5 years again in 2011. (Appendix 4) Reebok has sponsored many teams in IPL such as Kolkata Knight Riders and many other sports such as Tennis (sponsor of Indian Team for Davis Cup) and F1-Racing (sponsor of the Force India Team).

Digital Media – www.reebok.com and www.shop4reebok.com are sites which sell the same items as sold in their stores. It helps the consumers know what they want and keeps them informed of new launches. Promotions on social networking sites like Facebook are very popular. Many apps are used to promote Reebok on Facebook. The official page of Reebok on Facebook has over 1.6 million likes. Campaigns like Flex Mob for their new RealFlex model has been successful with over 85,200 uploading their dance clips to create an online flash mob.

Appendix

Appendix 1: