These points might give some idea about the external environmental factors that might influence Puma’s market position. Points were taken which most affect Puma in terms of their business development. Another analysis which provides the insight of external environment is Porter’s Five Forces.
Five Forces Frame work
The model of five forces was developed by Michael E. Porter to analyse organizational structure in strategic process (Johnson et al, 2005, p78). His model is based on the insight that a corporate strategy should meet the opportunities and threats in the organization external environment. Fig.1 illustrates the frame work of Five Forces.
Fig.1 The Five Forces Frame work
Threat of Entry
It defines the barriers to entry in a new market. Factors might include financial factors, customer loyalty, experience etc.
- Puma had a great advantage of entering to new market segments like Cricket and other sports. As cricket was expected to gain more popularity in coming years, the experience of establishing market in Australia and South Africa (Cricket loving countries) would definitely benefit Puma in understanding market needs.
- The major disadvantage for Puma when compared to their major competitors was its size. Puma is relatively small when compared to the giants like Nike and Adidas. They have less cash in hand when compared to their competitors (From case study). So it is difficult for Puma to invest hugely to enter a new market where it is required.
- Puma distribution channel is strong as they outsourced 70% of their distribution logistic. So they don not have worry about invest money on expanding their distribution channel. The take over of Tretorn, a specialized Swedish sports brand helped Puma in utilizing the existing channel.
Threat of Substitutes
Substitutes reduce the demand for the existing products.
- As the footwear industry is dynamic and changing, it poses high threat to the companies to evolve continuously. With the lifestyle brands like Gucci, Pramada already in the market, Puma’s lifestyle products are in great danger unless they position them really well.
- Design substitution is predominant in sport and lifestyle industry, as today’s design may be obsolete tomorrow.
- Copycat products or duplicate products are one of the major problems for Puma as they sell relatively at cheaper price and attract the niche markets like Lower middle class and lower class. Puma had to position their brand really well and introduce low cost apparels to address those markets.
The Power of Buyers and Suppliers
These two forces might impact organizational performance in terms of financial growth and margins (Johnson et al, 2005, p84).
- Puma’s major supplier is Yue Yuen Inc. etc. Puma share these sourcing partners along with the industry giants Nike, Reebok and Adidas.
- Some of its suppliers have their own retailing capabilities established in particular markets.
- Since there are only few suppliers around, it is difficult for Puma to shift their sourcing as it involves costing factor.
- Since Puma’s products are highly differentiated from that of competitors in terms of design and technology, it had relatively low bargaining for buyers.
Competitive rivalry is a force which describes the intensity of competition between existing companies. There are several factors that impact the competition force such as low differentiation, high exit barrier, and high fixed costs etc.
From Five forces analysis organizations can make a decision to enter or exit from a particular market segment. In combination with PESTEL analysis five forces provide complete insight of Puma’s competitive position. Puma can now concentrate on the forces and competitive abilities to make it even stronger. There are some specific actions that Puma could possibly follow to minimize the five forces imposed by the external environment. Some of the key actions are mention below.
- To reduce the threat of entry Puma is suggested to build a strong image and brand name and can tie up with suppliers to minimize the distribution channel risks.
- To reduce the threat of bargaining with suppliers, Puma is advised to work in partnership with suppliers and improve their efficiency in supply chain management
- Puma can improve their incentive system and value added services to minimize the bargaining power of customer.
- To reduce the threat of substitutes, Puma is advised to take serious legal actions against copycat products. They can also conduct customer survey to learn more about customer needs and preferences.
- It is suggested to concentrate on differentiating Puma’s products and services to avoid rivalry with competitors and focus on different segments.
Other analysis such as market research and value chain analysis provide some more insight of their competitive environment and opportunities. Market research will provide the available market potential for Puma to concentrate on different segments. Through market research Puma can identify retailers who is having highest market share in different markets and develop relationships with right partners. By conducting market research Puma will be in a situation to identify different markets and establish market in those areas. Value chain analysis will provide complete insight of Puma’s processes and supply chain management.
SWOT – Puma’s Strengths, Weaknesses, Opportunities and Threats.
It has been observed by Milorad et al (2004) that organizations that respond to market intelligence and planning inputs are likely to enjoy the financial benefits. By generating valuable knowledge about customer preference and competitor interests organizations can optimize their capabilities and opportunities for superior performance. SWOT analysis is a process of analysing organizations and their environment based on their strengths, weaknesses, opportunities and threats. Strengths determine organization’s strong capabilities both internally and externally. Four possible combinations can be described from SWOT Maxi-Maxi, Maxi- Mini, Mini-Maxi, and Mini-Mini (Lee et al, 2000). Each combination provides organizations with information that will guide organizations towards certain strategy. Maxi-Maxi combination describes about the strengths of the organization and external opportunities. Organizations should strive to maximize their strengths to capitalize on the opportunities. Maxi-Mini combination talks about the strengths and threats, as organizations try to minimize the threats with their strengths. By capitalizing on opportunities Organizations can suppress their weakness, describes the Mini-Maxi combination. Organizations will be in complete defence strategy in the combination of Mini-Mini which tells us about the weaknesses and threats.
From the Five forces and PESTEL analysis, Puma’s SWOT has been consolidated and the points were given below. The SWOT matrix allows organizations to compare their strengths with opportunities out side and make most of it. Organization’s strategies purely depend on the core competencies and capabilities of the organizations.
Puma’s core competencies include brand management, marketing and their product management. Being the innovative leader in the industry, Puma consistently delivered new products for different customer segments. Their complete outsourcing of the logistics and production earned them good profits over the competitors. Puma’s gross profit margin was noticed more than 40% when their competitors were doing muss lesser. Puma’s Cell technology created a wave in the footwear industry which describes their innovative power. Puma always tried to build brand image to gain more attention from different markets. Their active collaboration with the Hollywood film productions helped Puma in acquiring record sales in US. Their partnership with outsourcing companies, suppliers and retailers along with their marketing abilities made Puma a successful brand.
TASK 2 – Puma’s strategic positioning
Strategies are made to achieve competitive advantage by any organization. Puma so far implemented strategies successfully to regain its position as a sports lifestyle brand. Their strategy of being profitable and establishing brand value worked for them in terms of achieving financial growth and brand image growth as well. Based on their core competencies and capabilities Puma developed its strategy to build their brand as recognizable and value brand. Puma’s core competencies include brand management, Marketing and product management. Puma out sourced its production in order to concentrate more on their core competencies and at the same time to achieve financial benefit. To be a leader in the market one organization must consider the fact of cost efficiency in any environment. Puma in order to gain this outsourced its production, logistics and distribution channel. This helped Puma to work cost efficiently and being profitable and at the same time providing customers with value added products. Puma’s innovation is one of its great strength. This can be explained when they launched a product with a mix of old and new style. Their technology of introducing Cell technology in footwear industry has been revolutionary.
There are several strategic choices that a company can look at. Based on their external and internal analysis, organizations deploy different strategies to cope up with the competition and the market demand. Strategies like low cost provider, brand differentiation, best cost provider, focused low cost provider, and focused differentiation etc are available for any organizations to sustain in the competitive market. From the SWOT analysis Puma strengths and opportunities were analysed and from their macro and micro environmental factors analysis Puma’s possible strategy would be concentrating on their profitability and market expansion. Puma successfully implemented strategy to establish brand and be profitable in two different phases. Puma’s financial shows that it had good margins over the competitors. Though it had relatively low sales volume when compared to its competitors, Puma managed to maintained high gearing ratio which attracts investors. Puma had enough cash in hand to deal with their liabilities and maintained low inventory. Puma’s current and quick ratios are equally satisfying when compared to the industry norms. Puma invested considerable amount on research to improve their innovative ability.
Puma’s worldwide market share defines the size of the company. Puma competes with the industry giants like Nike, Adidas and Reebok for the sales and brand name. The only way Puma chose to improve its sales was by differentiating them with other companies. Puma differentiated them as Sports lifestyle brand with philosophy. They provided sponsorships to countries like Jamaica and Cameron, who are less known in football world. Puma’s logo was seen on many football team T-shirts than their rivalries. Puma’s marketing strategies have been excellent through the years.
To be successful and profitable, Puma is advised to use different strategies simultaneously. Low cost provider strategy improves their sales and brings large amount of customers attention. But Puma should provide low cost products with value added benefits to differentiate them with their competitors. They should focus on different markets depending on the culture, economy and lifestyle. Puma should continue its mix of innovation and deign of products. Puma is suggested to continue its efforts to marketing and promotional activities. They should sponsor teams and individuals which match to their philosophy. From the market survey it was identified that retailers like Intersport and JJB etc were the market leaders in the European countries and UK. Puma might consider a strategy to build relationships with the retailers. The key market for all the major companies has been US for many years. Puma is advised to improve its distribution channels and production outsourcing in US. Puma must also consider the growing and emerging markets in Asia where different cultures exist and relatively huge market. Puma also should consider increasing their concept stores in these high potential areas.
Focused differentiation strategy enables organizations to concentrate on those areas where it makes a difference for them. Organizations such as Puma like to concentrate on niche markets and build brand image. A mixed strategy of focused differentiation and low cost provider would help Puma in establishing brand image and increasing market share. Puma should also increase the number acquisitions to increase their market reach worldwide. Acquisition/takeover with Treton allowed them to establish distribution channel in Europe. Treton is a largest manufacturer of sports equipments and using their distribution channel Puma reached the European market. Puma in order to increase market share, is advised to look for more acquisitions in emerging countries like India. A take over of footwear manufacturer in the targeted market will improve the chances of getting higher market share. Puma is also advised to look for investors to invest in their research as innovation is one of their main strengths. Overall best strategy for Puma would be differentiating in the market and geographical expansion. Differentiating strategy will keep Puma’s brand image live and attractive and geographical expansion will improve the market share in turn improves turnover. Puma with their strong marketing skills would be able to implement differentiating strategy quite effectively. To achieve these strategies Puma is advised to concentrate on both sports apparel and accessories market. To be as a cost leader Puma is suggested to stream line their processes to minimize expenses. They are also advised to look for direct sales and logistic channel to minimize the costs.
Conclusion
Driven by strong marketing activities Puma is making difference in the footwear industry. By combining technology with innovation, Puma was able to grab buyers attention and provide highest possible support. As there is a constant demand for lifestyle brand, Puma has a large amount of opportunity to grab market share with both hands. Their two stage strategy was implemented with perfection to make Puma as respectable brand from no where. Puma is expected to increase their sales and market share by implementing differentiation strategies. Puma is already showing good returns (return on investment) when compared to their competitors but their geographical spread was not quite good enough to compete with the rivals. Expansion strategy makes sure that Puma doesn’t miss any opportunities in the potential markets and compete strongly with Nike, Adidas and Reebok etc. With these strategies the ‘jumping cat’ is expected to jump over Nike and Adidas in coming years.
References
Beugelisdijk Sjoerd, Slangen Arjen and Van Herpen Marco (2002), ‘Shapes of organizational change: The case of Heineken Inc.’, Journal of organizational change management, Vol15 No.3, MCB University Press Ltd, pp 311-326
Eenennaam F .V (2006), ‘Dynamics of strategy- The games of competitiveness and corporate governance’, Inaugural speech, ISBN no 90-73314-909, Netherlands
Johnson G, Scholes K, Whittington R (2005), ‘Exploring corporate strategy’, 7th edition, Pearson education limited
Lee S.F, Lo K.K, Ruth E. Leung and Andrew Sai On Ko (2000), ‘Strategy formulation framework for vocational education: Integrating SWOT analysis, Balance score card, QFD methodology and MBNQA education criteria’, Managerial auditing Journal, Vol 15/8, 407-423.
Milorad M. Novicevic and Michael Harvey, (2004), ‘Dual-perspective SWOT: a synthesis of marketing intelligence and planning’, Marketing Intelligence & Planning, Vol. 22 No. 1, pp. 84-94
NAV, www.llpsofia.bg/bg/Case%20Studies/PUMA.pdf, Electronically accessed on 20 May 2008.
Porter, M.E. (1981),“The contributions of industrial organization to strategic management”, Academy of Management Review, Vol. 6 No. 4, pp. 609-20.
SAFE, , accessed on 23 May 2008.
Sasha lilley, ‘Sweating for the Olympics’ http: //www.politicalaffairs.net/article/ articleview /249/1/76., accessed electronically on 27th may 2008
Bibliography:
www.Puma.com
www.tutor2u.com
Eva Martinez and Leslie de Chernatony (2004), ‘The effect of Brand extension strategy upon brand image’, Journal of consumer marketing , vol 21 No 1, pp 39-50. Emerald group of publishing
