Market segmentation of Adidas Company

Market segmentation of Adidas Company

Adidas Company majorly focuses on the psychographic and demographic segments, hence developing their brands based on three different styles of segmentation. According to the research, the market segmentation divided the market into various distinct groups of buyers having different individual needs, behaviour or characteristic. The buyers require separate marketing mixes or products, thus making the company to identify the different ways to segment the market and as well as developing profiles of the resulting market segments. Adidas Company may design separate market programs since it deals with buyers having different wants, buying attitudes, as well as buying practices. Demographic segmentation is a process that involves the division of the market into groups based on age, sex, and demographic variables. They brand their products into a range of female, male, and kids based on age and life cycle segmentation and gender, hence producing products that fit every demographic possible.

Besides, Adidas produces various brands of male and female clothing, eyewear, and shoes in which all the three brands are performing the original and styles also aids in providing products for the segment. Psychographic segmentation dividing the market into groups based on the lifestyle and personality characteristics and social class. Adidas majorly focuses on social class due to the existing demand having similar buying behaviour. The majority of people who buy many goods are affected by their lifestyle and many products they buy since it reflects on their lifestyle. People who love the sporty style and outdoor activities are the primary buyers of the Adidas products. Adidas employs the use of personality variables in segmenting markets, thus giving their goods personalities that correspond to the nature of the consumer. From the ultimate marketing concepts, it is crucial to satisfy the need of the consumers and as well meet their expectations. Many people believe that Adidas products are fashionable, functional and good looking hence attracting a large market of buyers. The products appeal to the customers since the originals design focus on lifestyle and fashion.

Also, the Adidas segment focuses on customers like gym regulars, sports enthusiasts, image seekers, brand freaks and athletes. The company has worked with various athletes, which produces products enhancing performance. The company currently manufactures football kits, running shoes and other associated equipment, thus becoming the official outfit of NBA training equipment and golf equipment, among others. Moreover, Adidas features Adidas NEO Label and Y-3 hence providing crossover products having different brands that attract their customers.  In terms of market targeting, the company focuses on three significant factors, that is, company objective and resources, segment structural attractiveness, and segment size and growth. Adidas also focuses on adopting a market coverage strategy, which is termed as differentiated marketing, thus enabling them to target several market segments while separating offers for each product. The company, therefore, has three distinct types of products for their customers, that is, performance, styles, and originals.  NEO fashions are targeted to appeal to fashionable teens between ages 12-16 years and are fully engaged in life through social networking, friends, and sporting activities. The trendy teen’s products are less affected by one-dimension associated with market risks.

In 2011, Adidas originals promoted a new line of denim collection. Market positioning plays a crucial role in the success of the company by designing company offerings that appeal to the mind of the buyer. Adidas also facilitates the sporting activities worldwide by investing majorly in the sporting events like sports clubs, thus promoting their positioning and the positive impression of the products as the leading high quality and as well as popular sports producer products across the world. Despite Adidas using a celebrity in the advertisement, it also uses innovative techniques to improve the quality of the product. It also employs the best designer worldwide to make their products accessible. The positioning of the products makes their products to be more convenient and high quality in the mind of the consumers.

The Generic Business-level strategies

The unique arrangement of the three generic strategy differentiation, streams-cost, and focus, sets the basis for the Adidas Company as an intensive growth strategy. Adidas employs the use of Michael Porters’ policies, which describes how the company can pursue a competitive advantage by choosing the correct procedure. The framework majorly focuses on the three main approaches, that is, differentiation, focus, and cost leadership. The company can help the avail its competitive advantage either by differentiating their offerings or by lowering the cost from their competitors along the most valuable dimensions in justifying the premium price. Adidas is a multinational company that has high recognition in the targeted market segments. The intensification of the competitors in the industry made it too challenging for the industry to sustain the market leadership position and as well as increasing market share without exerting significant efforts. The prevailing environment for business is compelling Adidas to obtain a crucial advantage over others to stay ahead of the competition existing in the market. Adidas has, therefore, set a competitive positioning based on some essential aspects that are providing a more durable edge over its rivals that include the competitor in the majority customer markets.

I). Cost leadership strategy

Cost leadership strategy is a strategy that involves gaining a competitive benefit by decreasing the cost. Cost leadership is the primary generic strategy employed by Adidas in various consumer markets. The primary objective of the policy is to preserve the leadership position of the market through efficient value chain management. This strategy enables the company to expand the market share by basing its target on the middle class, which comprises the most substantial proportion of the overall consumer market mix in most of the countries. Middle-class customers generally establish high importance to the pricing factor and as well as cost leadership to cater to the needs of the consumer segment. Furthermore, Adidas also focuses on the affordability and easy accessibility of its goods worldwide, thus leading towards a high brand awareness as well as high growth in terms of sales, hence providing a strong competitive advantage basis.

Besides, other than reducing their prices through lowering the cost of production and minimizing the efficiency of the supply chain, Adidas frequently offers coupons and discounts to achieve their sales targets and handle the competitive pressure placed by the closest rivals. The intended outcome of these promotions and discount campaigns is to increase the popularity of the brand and encourage consumption as well. The discussion of the cost leadership strategy has outlined many advantages offered by the generic approach, like gaining quick recognition of the brand, promoting the consumption, achieving sales target, and expanding the customer base over the affordability and accessibility of the products.

II). Differentiation

Adidas Company uses distinction in association with a cost leadership strategy to achieve the growth of the objective. Differentiation also forms the basis of the commonly used generic strategy in building a competitive benefit. The adoption of the differentiation strategy enables Adidas to expand the customer base by emphasizing the unique product features. Differentiation strategy is used in embedding the innovation and addressing the customer’s growing health concern. Differentiation has enabled Adidas to extend its product line after carrying out studies based on the changing interest of the consumers. Besides, differentiation strategy has played a vital role by enabling the positioning of the product offerings in a manner that is different from the available alternatives. Adidas being a company having an experienced brand with strong footholds uses differentiation as a tool in reducing the pressure from other brands. Advertisement, celebrity endorsement, and substantial investment in marketing to differentiate Adidas from other brands.

The oldest brands, extensive experience, and strong presence across the world constitute the differentiation aspects highlighted in the marketing and communication strategies of a given company. Moreover, the brand logo also forms the basis for the differentiation of Adidas. The distinctive and unique logo of Adidas establishes a sharp image of the brand in the mind of the consumers. Even though Adidas has undergone many revisions, its essence has remained the same, thus serving as a strong differentiating factor.

The Industry Environment of Adidas

Adidas has become a world-renowned leader in the industry that deals with sporting goods. Besides being a renowned leader in the sporting industry, the company also employs the use of political forces as a technique of intervention of counterfeit products hence leading to a decrease in the environmental impact. The industry environment that impacts the operation of Adidas may be classified into three broad categories.

I). Economic factors: Counterfeit issues.

Adidas is one of the sport goods industries that contribute to about 70% of the company’s revenue. Economic factors also constitute to the changes in the level of the inflation rate, foreign exchange rate, the gross domestic product, interest rate, and the current stage of the economic cycle. These factors and their results impact significantly on the aggregate demand, business climate, and total investment, have the capability of making a company highly profitable. The economic factors are also referred to as macroeconomic factors. The macroeconomic factors that Adidas may be sensitive to and should be considered before investing include The financial systems that are currently operational in the sector in question. The rate of Gross Domestic Product growth within the country may impact on the expectation of the future growth of Adidas.

Consequently, the interest rate in the country may also affect the borrowing and investing ability of the individuals. That implies that higher standards may result in more significant investment hence more growth for Adidas. However, the efficiency of the market operation also impacts Adidas can raise capital at a fair price based on the forces of demand and supply. A high rate of unemployment in the country would also imply a more significant amount of jobs than the market; that is, people will be willing to provide their services at a lower wage, hence lowering the costs of Adidas.

II). Technological Factors

Technology can significantly affect the price structure and as well as the competitive landscape of Adidas in a short period. Technical factors are considered to be extremely important to constant and consistent innovation. There has been the existence of multiple instances of change of various products completely redesign the norms for the entire industry. The impact of technological advancement on the cost of production that many companies within the sector subjected to have a potential increase or reduction in the resulting profit. Significant profits may be reinvested into the various departments within the industry like the research and development department, where future innovations in terms of technology may further raise the level of profits, thus ensuring the sustainability of earnings for a longer duration. Adidas, therefore, needs to be fully aware of what level of reactions to harassment claims, the importance of environmental protection, and health standards prevail in the entire industry.

III). Social factors that impact Adidas

Social factors that influence the operation of Adidas are based on the direct reflection of the society that Adidas is operating. These social factors encompass beliefs, attitudes, values, and culture, characterize the population or the community. The effect of social factors is not only crucial for the marketing aspect of the organization, but also the operational aspect of the Adidas Company. In designing the product and marketing message, a thorough understanding of the customers, level of education, beliefs, and lifestyle should be put into consideration. The demographic factors such as age and gender of a given population significantly impact on whether or not certain goods may be marketed to them. For instance, makeups are mostly catered to female gender; hence targeting the majority of the male population may be less than focusing on a majority of the people that comprise women.

IV). Legal factors that impact Adidas

Governmental institutions and frameworks also constitute the statutory bodies that aid in business operation and hence should be put into consideration. The policies of the Adidas that govern their operation are not enough to efficiently protect the company and its workers, thus making the company appear an undesirable place of employment that may repel talented and skilled workers. The legal factors that impact the operation of the Adidas include the following. The data protected laws and the intellectual property laws are meant to protect the ideas and patents rights of the company that gains profit due to the information they have. The government establishes discrimination laws to protect the workforce and also ensures that everybody in Adidas Company is fairly treated and given the same opportunity regardless of age, gender, ethnicity, sexual orientation, and religion, among others. Safety and health laws also created after experiencing the horrible conditions that employees were subjected to during and after the industrial revolution.  Besides, codes also employed to ensure the level of quality or reasonable price for specific products met. These codes kept the customers safe and as well as to prevent them from being exploited.

The Global Expansion of Adidas

The emergence of emerging markets in Africa, South America, and Asia provides a lucrative opportunity for the expansion of the Adidas Company. Adidas is set to launch its first main product-led brand push since the Olympics in 2012 with a multi-million-pound global campaign, hence promoting a new running range concerning building the positive association from sponsoring games. Besides, the company is positioning the boost range of soft wear as the premium brand for athletes. The company has established what midsole energy capsules, which is an innovation based on cushioning technology, hence it will build a similar brand to what Nike did with Air Max in the 80s. The company will also be able to run promotions and sampling for the Boost range Boston, London, and Berlin marathons. Besides, it will also promote the scope set to occur at Parkrun, which is a series of running events worldwide. Although Adidas has a diversified portfolio, it still has room for expansion. Adidas, due to its strategy of differentiation, can differentiate itself from Nike and Puma by expanding its merchandise line to include sporting goods like a golf club, hockey stick, and rackets, among others.

The horizontal integration on Adidas

Adidas’ target attempt was made to increase its shares in the market and improve their sales through the acquisition of companies within the same geographical area. The horizontal integration offered the company a perfect opportunity to close the gap with its competitors in America, Nike, and to generate growth knowledge about consumers and market through the already established companies. According to Charles Adidas employed a typical approach for the Western companies that collaborated to avoid significant investment and minimize the cost of entering new markets. However, companies must keep in mind that horizontal integration is always associated with some risks. The smooth integration may be explained by Adidas’ acquisition of the French company Salomon Group in 1997. The Adidas approach of horizontal integration model, Charles, Gareth and Melissa described four possible integration approaches. The Adidas Reebok merger was characterized by high demand for both strategic interdependence and organizational autonomy. Therefore, it was important for Adidas to concentrate on its core competencies and as well retain its unique identity. The M&A of Reebok and Adidas was primarily based on the transfer of intangible resources such as relationships and knowledge.

The vertical integration strategy of Adidas

Vertical integration focuses on creating more economic value through owning its supply chain, which was opposed to paying for other companies to produce the product for them. Even though Adidas outsourced its manufacturing and production, the development and design of its products remain in Germany. Just like horizontal integration, vertical integration also focuses on creating more economic value through owning its chain of supply as opposed to hiring a company to produce for them. As Adidas continues to provide more of its products from the beginning to the end, it becomes more vertical. Adidas is not an exemption of vertical integration since it currently switched from its past vertical integration strategy to the outsourcing in manufacturing and production. Most of the Adidas products like apparel, accessories and equipment, and sporting shoes manufactured in the countries within Asia. The reason for Adidas outsourcing its products is to lower the cost of labour and raw goods in those countries.

Stakeholder Impact Analysis

Stakeholder impact analysis is a process that involves identifying the people before the beginning of a project, grouping them according to their levels of interest, influence, and participation in the project, and as well as determining how best to involve and communicate these groups of stakeholders groups. Adidas company has a different group of stakeholders, which includes the employees, authorizers like government, business partners, consumers and opinions from journalists. Employees constitute a group of stakeholders that affect the company by contributing their efforts to the firm. The employees work for the company and advance the development of the company. In return, the company also impacts the lives of the employees through the payment of salary and rewards.

Consequently, the authorizers, like the Board of Directors, and shareholders also influence the operation of the company by establishing relations. Adidas Group usually provides timely and factual information concerning the operation of the firm, thus taking the need and concerns of stakeholders when determining the service of the company. Adidas associated itself with the International Labor Organization (ILO), hence ensuring they adhere to the international laws governing trading activities. Consequently, business partners like suppliers, service providers, and unions also incorporated in the wellbeing of Adidas. On 6^th October 2015, the group of business partners held a meeting with employees, NGOs, and suppliers, union spokesperson. The meeting was meant to assist the group in adapting the functional changes to the various internal and external issues with the business partners.

Profitability and Profit growth of Adidas

In 2018, Adidas delivered a significant top-line growth with neutral currency revenue increasing by 8%. A 9% improvement facilitated this increment in income at Adidas brand, hence reflected a double-digit sales increase in sporting products and a high-single-digit in sporting performance. In the same year, Adidas also witnessed double-digit growth in North America and Asia-Pacific. This performance was propelled by the ongoing strength that existed in the company’s strategic growth in those regions. The combined sales of Reebok and Adidas brands continued to increase at a constant double-digit rate both in Asia-Pacific (+15%0 and North America (+15%), and the latter driven by about 23% increase in Greater China.

Consequently, the gross margin of the company also increased to 1.4% points, which is about 51.8% in 2017. This development was facilitated by the positive aspects of better pricing, lower input costs, and channel and product mix. Similarly, other expenses also increased to about 0.5 % percentage points to 41.8 from 41.2 in 2017. The increment was propelled by higher marketing investment. Besides, there was also an increase in Net Income to about 20% in 2017. The Net increment followed the declining tax rate of Adidas by about 1.2 percentage points in 2018. Adidas also witnessed an increase in Net income from the continuing operations to about 20% to € 1.709 billion (2017: € 1.430 billion). Besides, the Net cash position at 31^st December 2018 amounted to about € 959 million, compared to net cash of € 484 million in 2017, hence representing an increment of about € 475 million compared to the prior years.

The Ethical Issues present in Adidas Company

Adidas is well known for its sales of sporting products like shoes, clothes and equipment. Adidas is ranked second-best manufacturing company in sporting goods worldwide behind Nike and is currently present in 170 countries. The ethical issues are therefore based on the view aligned to people, environment, animals and politics. In February 2018, Ethical consumers viewed a report referred to as “Know the Chain.” This report illustrated the assessment of about 43 large clothing and shoe companies where there was a need to take action in eradicating forced labour from the supply chain. According to the assessed report, Adidas was placed first for disclosing any information concerning its forced labour practices and policies. The company scored the following in the story.

• Purchasing Practices 75 out of 100
• Commitment and Governance 100 out of 100
• Worker Voice 88 out of 100
• Recruitment 88 out of 100
• Traceability and Risk Assessment 100 out of 100
• Monitoring 95 out of 100
• Remedy 100 out of 100

According to the WWF 2017 report named “Changing Fashion: The clothing and Textile Industry at the brink of radical transformation, “Adidas attained an overall rating of upper midfield. Even though Adidas had a positive record, but in terms of animal rights, Adidas received the worst rating since major products formed from leather.

In conclusion, Adidas Company focuses on the production of sporting goods, which makes it be the second-best industry in sporting goods after Nike. The strategies that are employed by the company like cost leadership strategy and differentiation make the company outstand in the field of business. Adidas has today employed thousands of people in various countries that the company operates. Besides, the industry environment of Adidas is characterized by factors like economic, legal, social, and technological factors. Consequently, stakeholders’ impact analysis also plays a vital role in the operation of the company; hence it should be put into consideration.