Executive Summary
This report covers the feasibility of launching INNO-MEGAs ultra
soft and lightweight running shoes in the United States of America.
It implements the marketing management process by providing an
overview of the global, regional and domestic US footwear industry,
analysis of the current market opportunities and competitors as
well as a segment of the market that INNO-MEGA is advised to
target, which are young adults or more specifically, the college
student target market. A positioning strategy, followed by a
product, pricing and promotion strategy is then further
recommended.
1.0Introduction
This report is authorized by marketing director, Ms. Carolina
Sandra Giang and prepared for INNO-MEGA. INNO-MEGAs newest
invention is their ultra soft and lightweight running shoes, which
hold considerable appeal and potential. The purpose of this report
is to analyze the current industry, market situation and viability
of launching INNO-MEGAs ultra soft and lightweight running shoes in
the United States of America.
2.0Industry Definition
Soft and lightweight running shoes would fall under the shoe and
footwear industry. According to Panteva (2013), this industry
manufactures footwear for men, women and children designed for
dress, street and work with rubber or plastic soles and leather or
vinyl uppers, while the industrys primary activities include rubber
and plastic, house slipper, athletic and cleated athletic shoes as
well as ballet slipper manufacturing.
Global industry
According to Footwear Industry: Market Research Reports,
Statistics and Analysis (2011), the global shoe and footwear market
is anticipated to reach US$195 billion by 2015 with volume sales
surpassing 13 billion pairs by 2012. Global major players include
Bata, Kenneth Cole, Nine West, Timberland, Puma, Gucci, Vans, Nike,
Adidas and many others (Footwear Industry: Market Research Reports,
Statistics and Analysis 2011).
Regional industry
In the American footwear market, big companies as well as
smaller independent brands acquired by larger companies operate and
diversify their product offerings with a focus on economical
athletic brands at affordable prices (Footwear Industry: Market
Research Reports, Statistics and Analysis 2011).
According to Footwear Industry: Market Research Reports,
Statistics and Analysis (2011), China exports the most shoes than
any other Asian country, manufacturing almost 13 billion pairs of
shoes, which represents 63.0% of overall production in the Asian
region. In addition, online shopping trends and increasing demand
for specific brands aided by the respective companies promotional
methods have driven sales in China.
Footwear Industry: Market Research Reports, Statistics and
Analysis (2011) also states that other emerging markets in
countries such as Poland, Hungary, Brazil, South Africa and Taiwan
are expected to reach a combined value of approximately US$24,219
million in 2014 at an annual growth rate of 4.0% over a span of
five years.
National industry
According to Panteva (2013), the athletic footwear segment makes
up 4.7% of revenue in the US footwear industry and this segment has
been experiencing a decline over the past five years as major
operators have moved their manufacturing facilities to low-cost
producing countries for example, 97.0% of Nikes footwear is
produced in offshore third party factories.3.0Competitor
Overview
According to Panteva (2013), the basis of competition between
players in the American shoe and footwear industry stems from price
and quality, as price is often perceived to indicate the quality of
the product. Meanwhile, the primary competition for footwear
manufactured domestically in the United States of America comes
from footwear imported from low labor-cost countries such as China,
allowing American consumers to take advantage of the cheaper priced
shoes (Panteva 2013).
As such, BISWorld defines a major player as a company that
generates at least five percent of industry revenue.
Figure 1: Market share of major players in the US footwear
industry(Panteva 2013)
Major player:
New Balance Athletic Shoes Inc.Based in Boston, Massachusetts
and founded in 1906, New Balance is the only athletic shoe company
that possesses manufacturing facilities in the United States in
addition to the United Kingdom (Panteva 2013). 25.0% of its
footwear products are manufactured domestically in Massachusetts,
Maine and California. However, the remaining 75.0% of its footwear
products are manufactured in China and Vietnam, much like the rest
of the industry. Other than athletic shoes, New Balance
manufactures athletic apparel and accessories for example, socks
and sunglasses.
Strength:
According to New Balance Athletic Shoe SWOT Analysis (2014), the
company is known for its technologically innovative footwear and
uses value-added features such as gel arch support to differentiate
its products.
Weakness:
According to Panteva (2013), due to New Balances domestic
manufacturing, their footwears price point is slightly higher than
its competitors because of the high labor costs in the United
States. According to Panteva (2013), companies operating within the
shoe and footwear industry are not considered to hold a large
portion of the market since most of the manufacturing takes place
outside of the United States. Although Nike and Adidas do not
manufacture their footwear products in the United States, they can
still be treated as examples of strong external competitive forces
in the industry (Panteva 2013).
External competitive forces: Adidas AGAdidas AG is a
German-owned sportswear and equipment designer, manufacturer and
distributor and during 2005, Adidas AG purchased the US company
Reebok (Panteva 2013). 97.0% of total footwear production for the
Adidas and Reebok brands is produced in Asia while the remaining
3.0% are produced in Europe, Africa and the Americas.
Strength:
The Reebok deal made Adidas similar in size to Nike and gave it
a much larger US market presence, with the group deriving more than
40.0% of its sales in North America alone and a market share of
8.0% (Panteva 2013).
Weakness:
Overdependence on third party manufacturing limits Adidas AGs
flexibility to shift to more productive product lines and since the
company obtains its merchandise from overseas manufacturers, it has
little control over product quality (Adidas-Salomon AG SWOT
Analysis 2014).
Nike Inc.Phil Knight and Bill Bowerman founded Nike in 1962 and
was originally known as Blue Ribbon Sports and made Tiger shoes
that were manufactured by Japanese shoe company, Onitsuka Tiger
(Panteva 2013). Panteva (2013) goes on to state that Nike products
are sold to 18,000 US retail stores through independent
distributors, licensees and subsidiaries and in addition, the
company designs and manufactures shoes for a diverse range of
sports such as baketball, skateboarding and golf to name a few.
Overseas independent contractors manufacture about 97.0% of total
Nike footwear. Vietnam makes up 37.0% of Nike manufacturing,
followed by China (34.0%), Indonesia (23.0%), Thailand (2.0%) and
India (1.0%). Nike also has manufacturing agreements in South and
North America.
Strength: Panteva (2013) states that Nikes manufacturing
facilities are located overseas in China, Vietnam Indonesia,
Thailand and India and this enables Nike to take advantage of the
low production and labor costs in these countries. Nike is
currently the worlds largest shoe company and holds approximately
40.0% share of the American athletic footwear market (Panteva
2013).
Weakness: The third party contract manufacturers of Nike in
China, Vietnam, Indonesia and Mexico have been condemned for the
infringement of labor laws, particularly paying their workers below
minimum wage and issues of working overtime (NIKE, Inc. SWOT
Analysis 2013). These incidents exposes Nikes limited control over
its contract manufacturers and damages its reputation.SWOT
Analysis: INNO-Mega
Strength:
High quality product
INNO-MEGA shoes are a high quality product with value-added
features as the shoes are made of ultra soft and lightweight
material that is durable and comfortable at the same time.
Weakness:
Lack of size compared to competitors
As INNO-MEGA is a new company, it is naturally lacking in size
compared to large companies like New Balance, Reebok, Nike and
Adidas. These companies competitive actions may be an obstacle to
INNO-MEGAs growth.
Opportunities:
Growing online retail market and preference to shop online
According to New Balance Athletic Shoe, Inc. SWOT Analysis
(2014), the US online retailing market is growing at a swift pace
and the trend of online shopping is expected to continue. In the
year 2013, online retail sales in the US have risen from US$165.8
billion in 2010 to US$262.5 billion. If INNO-MEGA were to offer an
online shopping service to their customers through their website,
this would be a cost-efficient method of developing brand awareness
in addition to testing market acceptance of the ultra soft and
lightweight running shoes. Increasing progression of international
tradeAccording to Global Footwear Manufacturing: C1321-GL (2010),
the increasing progression of international trade in the US has
helped increase exports as well as imports. Manufacturers from
developed nations are unable to compete with cheaper overseas
imports and this trend is projected to continue as the demand for
footwear and pressure placed on manufacturers to keep their prices
low grows simultaneously.Threats:
High competition in the footwear industry
According to New Balance Athletic Shoe, Inc. SWOT Analysis
(2014), high competition in the footwear industry would be the
biggest threat to a new company like INNO-MEGA. Major competitors
such as Nike and Adidas have vast financial, marketing and
technological resources compared to INNO-MEGA. Besides that,
INNO-MEGA also faces tough competition from inexpensive footwear
imported from Asian countries for example, China. Hence, high
competition and availability of low-cost footwear products places
further pressure on the pricing of INNO-MEGAs ultra soft and
lightweight running shoes and may affect the companys margins.
Increasing minimum wage rates in the US
According to New Balance Athletic Shoe, Inc. SWOT Analysis
(2014), the minimum wage rate in the US increased from US$5.85 per
hour in 2008, followed by US$6.55 per hour in 2009 and finally
US$7.25 per hour in 2010. Due to higher costs of living, many US
states actually impose minimum wage rates that are even higher than
the standard rate of US$7.25 per hour. The increase in minimum wage
rates may affect INNO-MEGAs overall costs of operation if they were
to operate in the US.
4.0Macroenvironment Analysis
Demographic environmentArmstrong et al. (2012, p. 80) defines
the demographic environment as the study of human populations in
terms of size, density, lovation, age, gender, race, occupation and
other statistics.
According to NPD Group (2012), the prime consumer demographic
for athletic footwear sales are millenials, especially adults aged
18 to 34 with an estimated contribution of 60.0% of all athletic
footwear sales in 2011. Armstrong et al. (2012, p. 80) defines
millenials as the children of baby boomers who were born between
1977 and 2000 and consists of several age groups namely tweens
(aged 11 to 12), teens (13 to 18) and young adults (19 to 34).
Besides millenials, demographic research of runners participants
within the sport tend to be comparatively affluent and
college-educated as shown in the table below:
Total RunnersMen: 16 million / Women: 14.4 million
Total Percentage of RunnersMen: 52.6% / Women: 47.4%
Median Age44 years old
College Educated93%
College Graduates74%
Married74.4%
Individual IncomeUS$74,400 (Average) / US$63,000 (Median)
Household IncomeUS$139,000 (Average) / US$113,00 (Median)
Household Net WorthUS$943,000 (Average) / US$500,000
(Median)
Table 1: Demographic profile of runners(Market Analysis and
Demographic Study Running Store/Athletic Shoe Store 2009)
Economic environmentArmstrong et al. (2012, p. 87) defines the
economic environment as factors that affect consumer purchasing
power and spending patterns. For instance, disposable household
disposable income levels are a vital economic factor for footwear
and affect the quantity, quality and frequency of footwear
purchases (Global Footwear Manufacturing: C1321-GL 2010). As the
level of real household disposable income increases, demand for
footwear increases as well. Correspondingly, as real household
disposable income decreases, so does the frequency of purchases by
consumers. This factor is also applicable the price of
footwear.
Cultural environmentArmstrong et al. (2012, p. 97) defines the
cultural environment as institutions and other forces that affect a
societys basic values, perceptions, preferences and behaviours.
According to Stern (2008), the rising fitness awareness in the
US was driven by cultural changes that swept along several
generations and transformed the leisure habits of Americans.
Exercise became preventative medicine for individuals increasingly
aware of medicines limitations and to enhance and extend healthy
living for young and old alike. Regarding peoples views of
themselves, when they spend their time exercising, they can see
changes in their physicality and feel better about themselves as
exercising allows them to boost their self-esteem and
confidence.
5.0Consumer Behaviour Analysis
Need recognition
According to Armstrong et al. (2012, p. 160), the buying process
begins with need recognition when the buyer recognises a problem or
need that can be activated by internal stimuli which in this case,
footwear, a part of the basic human need of being clothed grows
strong enough to become a drive. A need can also be activated by
external stimuli for example, an advertisement or a discussion with
a friend about a new pair of running shoes could influence the
persons interest in purchasing the running shoes (Armstrong et al.
2012, p. 160).
Information searchAccording to Armstrong et al. (2012, p. 161),
an interested consumer may or may not search for more information,
if the consumers drive is strong and a satisfying product is near
at hand, the consumer is likely to buy it then. Nowadays, the most
quick and convenient way for consumers to search for information is
through the Internet or alternatively, consumers will visit retail
stores and compare brands prices and features.
Evaluation of alternativesAccording to Armstrong et al. (2012,
p. 161), the consumer arrives at attitudes towards different brands
through some evaluation procedure. In the context of running shoes,
there are many other alternatives of different brands such as New
Balance, and the consumer will then decide to purchase running
shoes from the brand that fits his or her criteria mostly.
Purchase decisionAccording to Armstrong et al. (2012, p. 162),
the consumers purchase decision will be to buy the most preferred
brand, but two factors can come between the purchase intention and
the purchase decision and that includes attitudes of others and
unexpected situational factors. Attitudes of others in this
situation would refer to the positive or negative responses and
opinions by others towards the running shoes and unexpected
situational factors would be an unexpected situation by the
consumer whereby the money intended to be spent on running shoes is
used for an urgent purpose such as sending the car to be
serviced.
Post-purchase behaviourAccording to Armstrong et al. (2012, p.
162), after purchasing the product, the consumer will engage in
post-purchase behaviour for example, the consumer will be satisfied
if the products perceived performance reaches or exceeds the
consumers expectations. However, consumers may engage in cognitive
dissonance and feel some discomfort over obtaining the drawbacks of
the chosen brand of shoes and losing out on the benefits of the
alternative brands (Armstrong et al. 2012, p. 162).
6.0Segmentation, Targeting & Positioning
SegmentationGeographic segmentation:Armstrong et al. (2012, p.
187) define demographic segmentation as dividing a market into
different geographical units such as nations, states, regions,
counties and cities. For INNO-MEGA, segmentation by urban, suburban
and rural density would be appropriate.
Demographic segmentation:Armstrong et al. (2012, p. 187) define
demographic segmentation as dividing a market into segments based
on variables such as age, gender, family size, family life cycle,
occupation, income, education, religion, race, generation and
nationality. Young adults from the age of 18-34 years old and are
college educated are the largest segment of the footwear
industry.
Psychographic segmentation:Armstrong et al. (2012, p. 189)
define psychographic segmentation as dividing a market into
different segments based on social class, lifestyle or personality
characteristics.For example, psychographic segments important to
the footwear industry are outdoor sports enthusiast, active and
adventurous as well as fashion-interested.
Behavioural segmentation:Armstrong et al. (2012, p. 192) define
behavioural segmentation as dividing a market into segments based
on consumer knowledge, attributes, uses or responses to products.
Most runners seek benefits such as support, comfort, shock
reduction and long wear in purchasing running shoes and are mostly
heavy users who run 60 miles per week.
Segment Profile
Young Adult Segment Profile
GeographicUrban, suburban and rural density
Demographic 18-34 years old
College-educated
Median individual income (US$63,000/year)
Psychographic Outdoor sports enthusiast
Active and adventurous
Fashion-interested
Behavioural Heavy user
Runs 60 miles/week
Benefits sought: Support, comfort, shock reduction and long
wear
Table 2: Segment profile of young adultsTarget Market
Wolburg & Pokrywczynski (cited in Noble, Haytko &
Phillips 2009) state that the young adult, specifically the college
student target market is one of the most highly coveted consumer
segments due to its market size, college students role as
trendsetters, the lifelong brand loyalties acquired during these
formative years, their position as early-adopters, their influence
over parental purchases, and the probability of a higher standard
of living associated with a college degree. Yoh & Pitts (2005)
state that the buying power of college students was estimated to be
over US$200 billion in 2004 and it is projected that college
students spending will surpass US$230 billion by the end of 2010.
Besides that, college students spend US$52 to buy a pair of
athletic shoes on average, which was considerably higher than any
other age group (Yoh & Pitts 2005). Hence, college students
would fit the young adult segment profile above and make the
perfect target market for INNO-MEGA.Positioning
Figure 2: Proposed positioning strategy
INNO-MEGAs ultra soft and lightweight is positioned as a high
quality product but is slightly below New Balances quality as New
Balance is a larger company with more advanced footwear technology
and resources. In terms of price, INNO-MEGA is positioned as a
product with a slightly above average price in accordance to its
rather high quality. Price is often an indicator of quality, for
instance, if INNO-MEGAs price is too cheap, consumers may perceive
it to be a low quality product. However, it is cheaper than New
Balances running shoes at the same time to allow INNO-MEGA to
achieve some market penetration.
7.0Marketing Promotion Strategies
Marketing Objectives:Marketing Perspective: Expose the market to
INNO-MEGAs ultra soft and lightweight running shoes and build brand
recognition.
Financial Perspective: Sell 1 million pairs of ultra soft and
lightweight running shoes in 1 year.
Marketing Strategies:Product:Elliott, Rundle-Thiele & Waller
(2010, p. 216) state that product differentiation is the creation
of product attributes that distinguish one product from another.
This includes value added features such as air pocket soles, which
INNO-MEGA could implement in their running shoes which already have
value-added features such as being ultra soft and lightweight. This
product differentiation is perceived as one of the prominent
factors consumers use at the point of purchase, aside from price
(Panteva 2013).Price:
According to Noble, Haytko & Phillips (2009), consumers
focus on attempting to find the best price and quality relationship
in their purchases, trying to find quality products at good prices
under the value-seeking theme. Hence, value-pricing is a strategy
that INNO-MEGA could consider, offering a high quality product that
is value for money and offers many benefits.
Promotion:
According to Panteva (2013), product branding is a crucial
determinant as established brand names such as Nike have created
huge brand image and recognition through varying marketing
activities and created a loyal consumer base which can be
influenced by companies market share and recognition. Athletic
footwear markets rely on recognition of brand names, logos and
trademarks so INNO-MEGA could perhaps come up with a trademark
slogan such as INNO You Want It! which is a play on the phrase, I
know you want it! as well as a logo.
Place:
INNO-MEGAs running shoes can be distributed through specialty
footwear retailers and INNO-MEGA can also take advantage of the
preference for consumers to shop online by setting up an online
official store website which is cost-effective at the same
time.
8.0Conclusion
In conclusion, INNO-MEGA should consider implementing the
aforementioned marketing strategies such as focusing on product
differentiation, value-pricing, branding and distributing their
ultra soft and lightweight running shoes throughout department
stores as well as through an official store website online. By
doing so, INNO-MEGA will be well-equipped and have a good start
when they enter the US footwear market and hopefully obtain a
substantial amount of market share and build brand recognition.
Besides that, INNO-MEGA should also take advantage of the
preference by consumers for inexpensive shoes imported from
low-cost labour countries and consider producing shoes back in the
home country of Malaysia and following its labor laws and
legislation so that INNO-MEGA can be considered as a strong and
respectable competitive force to be reckoned with.
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Total RunnersMen: 16 million / Women: 14.4 million
Total Percentage of RunnersMen: 52.6% / Women: 47.4%
Median Age44 years old
College Educated93%
College Graduates74%
Married74.4%
Individual IncomeUS$74,400 (Average) / US$63,000 (Median)
Household IncomeUS$139,000 (Average) / US$113,00 (Median)
Household Net WorthUS$943,000 (Average) / US$500,000
(Median)
Appendices
Table 1: Demographic profile of runners(Market Analysis and
Demographic Study Running Store/Athletic Shoe Store 2009)
Young Adult Segment Profile
GeographicUrban, suburban and rural density
Demographic 18-34 years old
College-educated
Median individual income (US$63,000/year)
Psychographic Outdoor sports enthusiast
Active and adventurous
Fashion-interested
Behavioural Heavy user
Runs 60 miles/week
Benefits sought: Support, comfort, shock reduction and long
wear
Table 2: Segment profile of young adults
Figure 1: Market share of major players in the US footwear
industry(Panteva 2013)
Figure 2: Proposed positioning strategy
Azizul Hakim bin Sapiee (4313372)HBM110N Fundamentals of
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