Puma AG: Strategic Analysis
Table of Contents
Background of the Company
Environmental and Competitive Factors that Affect the Strategic Decision of Puma AG for Brand Image Improvement
Macro-Environmental Analysis
Political Factors
Economic Factors
Social Factors
Technological Factors
Porter’s Competitive Forces Model
Strategic Group Mapping
Resources and Capabilities
Financial Resources
Human Resources
Intellectual or Intangible Resources
Virtualized Company Structure and Puma AG
Strategies of Puma Ag
Regional Hubs
Products
Marketing Strategy
Winning Strategies of Puma AG
Pinault Printemps and Redoute (PPR) and Puma AG
Conclusion
References
Bibliography
Appendices
Appendix A: Adults Aged 18 and Older Who Engaged in Recommended Amounts of Physical Activity by Age and Sex, 2003
Appendix B: Virtual Structure of Puma AG
Appendix C: Puma AG Revenue and Income
Appendix D: Puma AG Revenue and Income by Product Type
Appendix E: Revenue, Expense, Net Income and Profit Margin of Puma AG
Appendix F: Puma AG Revenue by Region
Table of Figures
Figure 1 PEST Analysis of PUMA AG
Figure 2 Porter’s Competitive Forces Model of Puma AG
Figure 3 Strategic Group Mapping of Puma AG and its Competitors
Introduction
Strategic thinking and strategic Globalization and technology are two primary reasons for that changes that had happened in different industries in the world. Globalization and technology had helped many companies and organizations to have different competitive advantage by having larger market as well as offering different products and services to their customers in easier manner. But, although globalization and technology offers different advantages on the part of the companies and businesses, there are many things that must be considered as well as done in order to maintain the competitive advantage, and eventually maintain their positions in the market. Management is considered as the most important activities that must be done by any business or companies.
Different businesses or organizations are planning and implementing their strategies. All of those strategies are being implemented based on the different factors that can directly and indirectly impact the performance as well as the decision-making process of the company.
This paper will focus on the different factors and aspects that affected the different business strategies that have been and being implemented by Puma AG in order to change as well as improve their brand image. Furthermore, this paper will also focus on the external and internal factors that have affected the overall performance of the company in the local and global industry.
Background of the Company
Puma AG can be considered as one the leading manufacturers of athletic shoes, sportswear, as well as accessories in the world. It is best known for its products like soccer shoes, and uses sponsorship for its marketing strategy. The company had already done several sponsorship for different international sports super stars like Diego Armando Maradonna and offer different line of sport clothing that designed by renowned designers such as Lamine Kouyate.
The company was first founded in 1924, as Gebrüder Dassler Schuhfabrik, in English, the Dassler Brother’s Shoe Factory by the Dassler brothers, Adi and Rudi. But the partnership ended during the World War II, when the brothers had a great fight, that lead for separation of the business. Adi continue the business and renamed it from his nickname and first 3 letters of his surname: Adidas. On the other hand, Rudi founded his own company named, Puma AG Schufabrik Rudolf Dassles, on the other side of Aurach, in 1948 (Kaufmann 2005, p. c-411).
The company had become famous due to their innovative products such as the process of vulcanization in producing their soccer shoes that had become the standard process for the soccer shoes during that time. The company had also introduced their innovation in running shoes with the help of the unique shape sole and the Velcro strap.
The company was sold to Cosa Liebermann in 189 and renamed as Puma AG Rudolf Dassler Sport. Under the new ownership, it continue to support its innovation by introducing new products and technology such as the S.P.A technology in mid-1970; Puma AG Duoflex sole in 1982; trinomic sport shoe system in 1989; the inspector shoes for kids; and the Puma AG Disk System.
Like any other successful companies, Puma AG had also faced several problems about their financial aspect. That is why the management of the company had decided to sell low-class products in the market in order to target the working class market in different part of the globe as well as to compete with the arriving American brand such as Nike and Reebok, and eventually, produce more money and profit. Unfortunately, the said strategy had failed and lead to more serious problems. This is due to the fact that most of the customers of the company come from high class society and the fact that the company is already selling cheap products leads them to switch to another brand. The said situations lead to decrease of sales of the company (Kaufmann 2005).
The arrival of Jochen Zeitz can be considered as the start of the better times for the company. During the said time, she was the youngest CEO of all the European publicly traded company. He had an MBA from the European Business Schools. He was a product manager for Colgate Palmolive in New York as well as in Hamburg. In 1990, he became the vice-president of the international marketing and sales, where in his role is to manage the international communications strategy of the company. In 1991, he became the CEO of the company, and during that time, Puma AG reported its first profit of DM 25 million since its initial public offering during 1986 (Kaufmann 2005).
Environmental and Competitive Factors that Affect the Strategic Decision of Puma AG for Brand Image Improvement
Macro-Environmental Analysis
The macro environment or also known as the PEST analysis is a tool that is used in order to analyze the different environmental aspects that can affect the operation and performance of a company.
Figure 1 PEST Analysis of PUMA AG
Figure 1 shows the macro analysis of PEST analysis of PUMA AG. The following are the different factors and things that can affect the strategic decision of the company in improving their brand image.
Political Factors
Primarily, the company started their strategy by making the brand more profitable. This is to build a strong financial foundation. The main changes that had happened are from the accounting practices of the company. During the said changes and process of restructure, there are different political factors that might be considered. One of this is the environmental issues. As of now, more and more individuals and organizations are focusing on different issues regarding the environment. The fact that the company will be outsourcing from other countries, there are different international as well as local laws that must be considered in order to maintain the continuous process of the development. The trade restriction and tariffs are also another of the most important political factors that must be considered. This is due to the fact that the company already followed the strategy of Adidas and Nike in outsourcing their production in Asia. The primary reason for outsourcing of production is because, most of Asian countries offer lower labor cost and other taxes compare to Europe and America. In terms of political stability, due to the fact that the company is a multinational company that produce as well as sell their products in different parts of the world, there different political issues and events in other local partners that can affect the overall performance of the company.
Economic Factors
The said situation in the political factors, are somewhat connected with the different economic factors that might affect the development process of the company. Primarily is the situation of the home economy or the economic situation of Germany, in terms of monetary issues, stock exchange and the likes. The economy trends of happenings in the home economy are also important, so as the economic situations and trends of the partner countries. This is due to the fact that, this political factor has a great impact to the social mentality of the possible customers. The different employment laws in different countries must also be considered, this is due to the fact that different countries has their different cultures that might affect their beliefs as well as regulations regarding the human resource aspect of any company.
Social Factors
There are more social factors that might affect the development process of the company more than any other factors. This is due to the fact that social factor has the most important impact or effect to the taste or demand of the customers regarding one product or service. The fact that more and more people are into sports is a big chance or advantage for the company, because there will be a huge market for them. Another important thing is that sport is considered as one of the most important sector in the tourism industry, which considered as the most successful industry nowadays. On the other hand, sports are also considered as a form of exercise, for those who wants to have fit and healthy body.
One of this is the lifestyle trends; there have been a big change in the sports sector of the world. The sports sector has been constantly evolving in terms of personal tastes, popular games as well as technologies (Plunkett Research, Ltd 2008). There are different sports that are gaining popularity such as different extreme sports. The popularity of those new sports such as diving, skateboarding and extreme bike must be considered as one of the most important factors in the strategy-making and management of the company. It is also important to consider more the needs of women in sports wear, this is due to the fact that more and more women are going to sports this past few years. This can be seen in the dramatic floodtide of talented women athletes onto the American playing fields alone. In the USA, there are over 33% of female students in high school play sports. Furthermore, the population of those women who participates in the university sports has increased thrice. As of now, women are competing in almost every sport (US Diplomatic Mission to Germany 2008).
Furthermore, there are more and more girls and women who are participating in different sports that have traditionally been seen as out of bounds for women such as soccer, ice hockey, lacrosse, wrestling as well as rugby (US Diplomatic Mission to Germany 2008). In terms of age distribution and demographics, it is also important to consider the demand of those young kinds who are playing sports in their schools, more particularly in the field of soccer (see Appendix A).
The behavior/attitudes as well as opinions of the customers are also important. It is important for the company to know what went wrong during their first implemented strategy, where in they tried to produce low quality as well as low price of products that lead to low sales and failure of the brand itself. It is also important for the company to consider the change of customer behavior as of now. More and more customers are oriented towards different high-value and lifestyle-oriented products. It means that more and more people are availing luxury products. The main reason behind the said phenomenon is that customers believe that the higher the price a product, the higher its quality. Another thing is that customers want to feel comfortable, and that is considered as one of the most important criteria of many customers in buying products and availing services.
Media views are also another important; the views of the business and the media are different on some very essential issues. That is why it is important for the company to implement with business strategy that will deal with the media that will recognize as well a deal with the difference, rather than changing the views of the journalist (Evans 1987, p. 160). Another important factor that must be considered under the media is the presence of the Internet where in people and organization can put anything that they want to say. The said thing can affect the brand and image of the company. The product or service of a company is what it is and what the customer think it is. Company may have the services that are being offered in the market but a customer won’t avail anything if he or she thinks that someone else out there is better (BAFA n.d.). Due to the fact that the company had already established its name in the market, and it had a history of giving their customers quality product, it wasn’t that hard for Puma AG to reestablished its name in the industry. On the other hand, it is hard to regain, in quick manner its prior company image.
In the process planning and implementing specific business strategy it is important to use fashion and role models that will help the brand to spread and rise brand awareness to the possible customers. The image of the models of the brand is also important; this is due to the fact that those artist or individual can be considered as part of the brand itself. Seeing famous individuals from different fields of sports wearing the products of the company can help them to reestablish the image of the brand. With connection to that, major events can also influence the behavior of the customers towards the products. Like sponsoring different famous individual, sponsoring major events can also improve the awareness of the customers regarding the brand. The destination’s brand image becomes linked and related to the event’s brand image, and the event’s brand image becomes linked to that of the destination brand (cited in Ritchie & Adair 2004, p. 239).
Ethical issues pertain to the corporate social responsibility or CRS of the company. It is the activity that helps the company to connect with the different ethical values, transparency, human resource relations, compliance with legal requirement as well as their respect for the communities in which they operates and works (cited in University of Miami n.d., p. 2). As of now, more and more companies are focusing on their activities and plans regarding CSR as part of their marketing strategy. This is due to the fact that according to the study of the Economist Intelligence Unit or EIU, in cooperation with the Oracle Corporations, CSR has a great impact to the relationship and connection between the company and its important stakeholders such as investors, clients, vendors, dealers, workers, communities and more importantly, the government (Economist Intelligence Unit 2005, p. 3).
The EIU conducted their online survey during October of 2004; using data from its respondents that is consist of 136 executives and 65 investors. The outcome shows that 85% of the respondents believe that CSR is considered as important part of their investment decision. The result doubled compared to the result of the study during 1999. In addition, 88% believe that CSR is vital in the decision-making process. The study also showed that the most important benefits of CSR is brand enhancement (61%) (Economist Intelligence Unit 2005, pp. 3 - 4).
Technological Factors
In terms of the technological factors, it focuses on the series of R&D activities as well as applications of automation and new technologies, most especially those that are connected to the Internet. Another important thing that might affect the development is the maturity of the technology; this is due to the fact that technology is considered as restless in terms of development. Furthermore, the global communication is also another important aspect, this is important because the company is operating in different part of the globe. It is also important to consider the different laws like the intellectual property issues.
Porter’s Competitive Forces Model
Figure 2 Porter’s Competitive Forces Model of Puma AG
Figure 2 shows the analysis that focuses on the power that lies in the current business situation of Puma AG. The company’s primary goal is to reestablish the image of their brand, and there are different forces that can affect the process of decision-making as well as implementing of different strategies. In terms of the threat of the new entry, because, the company has once become one of the most admired brands in the world, the reestablishments of their brand name will not be that expensive, but there will be a great demand for initial investments as well as fixed costs for maintenance and other related costs. In terms of economies of scale, the company has to use the power of media in order to start with what they want in their image rebuilding. The geographical factors will focus on the different cultures that can affect the demand as well as the operations of the company. Brand loyalty is one of the biggest factors that can affect the image development of the company, this is due to the fact that Nike, Adidas and Reebok had already established its name in the market and already gained loyalty from their current customers, this is connected to the fact that the existing players already have their close contact and strong relationship with the customers. The threat of new entry is quite low, that is why it will be difficult for new player to enter the industry.
In terms of competitive rivalry, In terms of competitive rivalry, there are moderate numbers of competitors; it means that there will be little number of companies that will share to the sales. On the other hand, due to the fast growth of the market, and continuous improvement in the industry of sport, sales will also increase. On the other hand, it will be a disadvantage for those companies in the industry due to the fact that the there are low cost of switching as well as low levels of the product differentiation. It means that customers can switch from one brand to another.
Another important factor that must be considered is the high needs for the strategies. That is why each and every player in the industry has their different strategies in catching the attention of their possible customers.
The exit barriers are also high, this is due to the fact that each and every machineries and capabilities are all specialized, and it will be hard to sell those machines.
The size and trends of the industry is also high, that is why strategy management is important. In general, the competitive rivalry can be considered as high.
In terms of supplier power, the brand reputation is important to be considered. This is because, it is important to include reliable supplier in the supply chain of any company. In addition, the geographical coverage is also important. The destination of different supplier is important for the production process of the company. The main advantage of the industry is that the suppliers are fragmented. That is why in general, the power of suppliers is not that high.
The change in the market distribution can affect the overall performance of each and every company that is included or operating in the industry. On the other hand, the fashion and trends are great factors that can push substitution, for the customers. But the said case can be prevented by the loyalty of the customer and close relationship with them. The threat of substitution is somewhat high due to the fact that each company has almost the same products and services that are being offered.
The consumer has a great power over the performance of the industry. This is due to the fact that their choice can greatly affect their behavior towards the product. In addition to that, it can be affected by the undifferentiated products that are being offered by the players.
But it can be compensated by the large number and size of the buyers as well as the importance of the products to the lifestyles of the customers.
Strategic Group Mapping
Figure 3 Strategic Group Mapping of Puma AG and its Competitors
Figure 3 shows the strategic group mapping of Puma AG and its competitors. The first group pertains to those companies that are focusing their branding in the luxury aspects. Prada and Diesel focuses in offering luxury sports products, more specifically apparel. That is the reason why there are only few product lines that are available. Moreover, Prada focuses to the demand of women only. These two companies hold the smallest share of the market because these companies offer few extent of branding as well as it has limited geographic coverage.
The second group is the mediocre group that is consists of Fila, Puma AG and Reebok. The said group has average extent number of branding and average extent of geographic coverage. Unlike the first group, this group of companies focuses on the different demands of customers from vast market segment. Reebok is available to over 140 countries, while Fila are available to approximately 50 countries. The said number of countries can be considered as huge market but if we are going to compare it to the two most important players, which are Adidas and Nike, it has a huge difference.
The last group is the major players in the sports apparel and equipment industry in the world. Both of the companies are offering vast extent of branding and offer huge line of products. Furthermore, both of the company has there distribution and relations to almost every part of the world.
Resources and Capabilities
Financial Resources
Unlike its leading competitors Nike and Adidas, the company doesn’t have those much financial resources. One of this is the establishments of its subsidiaries in different part of the globe. This helps the company to have an additional financial source. If we are going to look at the situation using the perspective of accounting, we will see that the process of establishing or implementing subsidiaries will be an advantage for the company because there are different substantial tax advantages as well as legal protections. It can help to offset the profits as well as the losses of one part of a given business with another business on the case of the federal tax returns as well as in the state and international level. Furthermore, the profits as well as the losses of the subsidiaries will be taxed in the country where in those subsidiaries are located. That is why Puma AG is getting high profit in their subsidiaries, more specifically, to those countries that implementing low taxes. Another advantage of this resource is that the liabilities as well as the credit claims of the subsidiary will all be locked in the part of the subsidiaries, and it cannot be pressed to the parent company. That is why the assets as well as the credits of the parent company will be maintained and it will still continue its performance and process even the subsidiaries experience financial problems. Furthermore, it will also be helpful in starting the establishment of joint venture where in it is enable partnership of one or more companies that owns a portion of a new business operations. On the other hand, subsidiaries also have its own share of disadvantage, one of this is that the process of accounting that will become more complex and difficult and the process of the legal paperwork can be lengthy as well as expensive.
Puma AG is also has its licensing business that helped the company to produce €35.6 million in royalty as well as commission income during the 2001 (Puma AG.com 2007, p. 10). This enables the company to have more financial resource via the process of licensing or the process where in the company let other company or association to use their technology, processes, activities as well as the name of the product in order to produce new line of product. By doing the said licensing process, it will enable the company to share their knowledge and skills at the same time, earning money. Above all, it can also benefit the company, because it will also serve as an extension to their product line. Royalty fee is also a mass and it is included in the law with accordance to intellectual property. On the other hand, the main disadvantage of this method is that the company, the brand and product that will have the license from the company, will automatically have the image of the licensing company. Any problem with regards to the license product or brand can greatly affect the image of the licensing company. That is the reason why it is important to know the capability of different companies that are wishing to have a licensing agreement.
Human Resources
The company had already outsourced the production process as well as the procurement of the raw materials for the footwear. The main reason behind the said strategy is that the labor and production process in Germany as well as other European countries are too expensive compare to Asia. In addition, the raw materials that are needed for the overall production of the company are also available in Asia. The primary advantage of this strategy is that it enables the company to save by reducing the working capital, more specially in the area of the inventory by 21%. As of now, more or less 70% of the entire logistics of the company are all outsourced.
The main advantage of outsourcing is that it can help to reduce the costs as well as the economies of scale. Furthermore, it can also help the business to concentrate of a given business or specific strategic appreciation of service. It can also help to reduce the space that is needed by the company. Due to the said reasons, the company will be able to improve its productivity as well as its efficiency in terms of operations. In addition, there is no need for specialist knowledge as well as latest technology. It can also help to overcome the different skills shortage and specialist equipment shortage (Barrett & Baldry 2003, p. 158). On the other hands, there are also several disadvantages that must be considered in implementing outsourcing such as the less control over management that is why it is harder to control the outsourcing service provider than controlling own employees of the company. Furthermore, the service of the outsourcing is outside the business that is why it can cause waste of time, money and effort, if one of the outsourcing company gone bankrupt, because the company have to switch to another provider. Above all, outsourcing is sometimes expensive and risky.
Intellectual or Intangible Resources
Research and development or also known as the R&D is one of the most important aspects in the company. The R&D management and development process of the company is being done in America and Germany. R&D is important because it will handle the innovation process of the company that will help to gain competitive advantage, by giving the customers new products and services and latest development of the company every now and then. This will enable the company to maintain the level of interests of their customers, therefore maintaining its position in the market.
The R&D process of the company is being done in two different places, in America and in Germany. The said strategy will help the company to create new innovations that will cater to the two categories of sports, the American Sports and the European Sports. By doing the said thing, it will enable the company to let the customer feel that their products and services are all made just for their needs and demands.
Virtualized Company Structure and Puma AG
Puma AG is considered as the first and real virtual sports article company in the world. A virtualized organization uses the virtual organizational structure that is opportunistic coalition of interior competencies which are distributed among different entities in one company or even in different companies that are dependent with each other.
The structure of the company has a global management structure that has a several headquarters that is being supported by a strong and update Information Technology or IT infrastructure. It enables to have a structure that is decentralized and focus on the competence centers. The primary reason of the company in using decentralized structure instead of centralized is because the communication activities that will be done and focused inside the organization will help to decrease the benefits and advantages of cross-cultural energy, regional as well as local efficiencies, and the know how of the staff of the company, that is based in the multiple locations around the world (Puma AG 1999, p. 28).
The virtual structure of the company enables to foster a cultural mélange as well as help to enrich the mix of sports, lifestyle as well as the fashion influences that are being encountered in the different major trendsetting centers and regions in the world. The application of virtual organization structure as well as the application of IT is not considered by the company as a luxury for the business, but it is a necessity (Puma AG 1999, p. 28). This can be considered as an advantage for the company, because virtualization had enabled them to manage as well as used the different information about the cultural differences of their customers and employees at the same time, using that information in order to create new products and services that will be enjoyed by their customers. The said structure had also helped the company to focus on its continuous effort in pursuing a more flexible as well as efficient organization that is fitted to the organization in order to thrive in the increasingly dynamic as well as fast-paced industry (Walter Partner 2004, p. 1).
Virtuality can be considered as strength for Puma AG. This is due to the fact that it had helped the company to regain its position in the market as well as its brand image. One of the primary benefits of the virtualized structure is it helps the company to manage their warehouse. Due to the huge change and increase in the sales volume as well as the improved volume of orders, it causes for the company to have shortage of finished goods warehouse. That is why there is more space that is needed. Instead of building new warehouse, the company decided to use the same logistic center and temporarily rent additional warehouse, when it only needed. That is why the company implemented a warehouse management system that handle the process of storage location management that are administrates virtually each and every good, then eventually assigns it to the respective order of the customers. Each produce can be located in just one click and will be sent to the customers in quick manner. It enables the company to mange the virtual warehouse for each and every subsidiary at the same time fulfills all requirements for a better warehouse system (Walter Partner 2004, p. 2). It helped the company to manage their inventories as well as to speed up their operations at the same time saving costs. The virtual organizational structure of the company, together with its advanced technology and use of IT, had helped to maintain its inventory aspects as well as to helped its employees and subsidiaries to speed-up their services to their customers, therefore helping to increase the performance of the company.
There are different advantages that are being offered by the virtual organization. One of this is the reduction in the needs for the intervention of management and control. To a certain extent, by the process of automation, much of the processing of information will be basis on the shared of protocols, and some part by the process of facilitating the direct communications and relations between anyone in the network. In general, virtual organizational structure will help the company to save time as well as effort in the management aspects. Therefore, its use should help to allow a simplification in the process of management as well as an equivalent reduction in the directorial overheads (Child & Faulkner 2005, p. 177). Furthermore, it can also help to reduce the cost in different ways, by the process of giving a feasible and practical way of managing and controlling the outsourcing up to the lower cost of the supply (p. 177). All of the mentioned advantages and benefits of the virtualized organizational structure help the company to regain its position in the market, and maintain its good brand image.
On the other hand, the main disadvantage of virtual organizational structure is the difficulties in the part of achieving the scale-or-scope economies, difficulties in the process of transferring the implicit knowledge, problems and troubles with the proprietary information leakage, difficulty in the process of financing the critical mass level of the process of R&D, and more importantly the complexities of maintaining the commitment (Child & Faulkner 2005, p. 177). Those disadvantages are being properly managed by the company with the help of IT.
Strategies of Puma Ag
Regional Hubs
There are many strategies that are being implemented by the company in order to regain and maintain their performance and eventually their position in the market. One of the most important aspects of the company is the distribution of the products and other activities that are associated in the relationship with the local partners. The company has its different regional hubs that are located in different regions such as: Germany that is responsible for the Western Europe; the US for the America; Austria for the Eastern Europe, Africa as well as the Middle East; Hong Kong for the operation in Asia; Australia for the Pacific Region; and Japan for the independent region (Kaufmann, 2005). All of the said hubs are established in order to handle the different aspects and activities regarding the distributions as well as licenses. The said strategy had helped the company to have a active position in the market in order to capture and analyze the differences between the different regions that helped the company to create their strategies for the global brand initiatives (Kaufmann, 2005).
Products
The primary strategy of the company regarding their products is visible in their lines of products. The company had designed it to address the different needs of athletes from different sports. That is the primary reason why the company designed their product lines with different categories that are based on the different types of sports. But the company focuses on the needs of the customers from the categories of football and running. Aside from the footwear and apparel, the company is also offering different accessories that are associated with different sports; this is to meet the demands of those customers that are already associating sports with fashion (Kauffman, 2005).
The most important part of innovation process of the company is their introduction of different apparel, gadgets as well as accessories with connection to the new and arriving extreme sports in the world. The company had introduced the Action Sports line in order to meet the demands of the customers that are into the extreme sports such as BMX or biking, skateboard as well as the downhill mountain biking (Kauffman, 2005). This enables the company to compete with those companies such as Vans that are targeting specifically the extreme sports market. Furthermore, the said strategy helps to expand the lines of products of the company and increase their market.
Another important development in the product line of the company is their exclusive lifestyle brand for women’s clothing, which is Nuala (Kauffman, 2005). The said strategy enables the company to meet the growing demands of women regarding sports. This helps the company to gain new market as well as to introduce their brand as a brand for both sexes. Furthermore, it also helps the company to regain its brand image as a luxury product and a brand for high class society.
The company also offers different products focusing on the needs of the customers towards footwear. That is why the company had launched and introduced their Platinum series that includes casual luxury footwear (Kauffman, 2005). In addition, the company also launched their Originals edition, in order to meet the increasing demand of the customers regarding the sports footwear as well as apparel (Kauffman, 2005).
The company is also focusing on the growing demand of children in the soccer sports (Kauffman, 2005). This is due to the fact that the numbers of children or young kids that are joining the national soccer team as well as professional level are increasing.
Marketing Strategy
Like its major competitors such as Nike, Reebok, Adidas etc, the company is also spending great amount of money in its marketing strategies or its relations with its customers and target market. The company is spending great amount of money and effort in process of customer relation as well as product and brand awareness to the market. The company is spending much of their financial aspect in promoting different sports events and activities as well as sponsoring different sports figures and superstars in order to connect to their possible customers.
During 1994, the company launched its Puma Street Soccer Cup that was joined by many of amateurs as well as many youth soccer fans. Recently, Puma also organized a competition of different European countries in biking, running, swimming as well as soccer. The said event was called the 4SOME and four teams of women had excelled and won the competition in biking (Kauffman, 2005).
Research and Development
The company is spending about 2.5% to 3.5% of its revenue in supply chain in order to improve the quality as well as the development of its products. The company focuses their R&D from different renowned designers from different part of the globe with different cultural backgrounds in order to improve the product line of the company as well as to maintain their good relationship with their customers.
The company is focusing their innovation process in different part of the production, and they are working with different engineering teams in order to learn more things about the materials that can be helpful for a new product.
Above all, the company focuses their innovation and development process by focusing on famous and influential figures in terms of entertainment, music, lifestyle and business, and sports.
Winning Strategies of Puma AG
A winning strategy that fits the situation of a company well can help to achieve a continuous competitive advantage. This statement can be applied in the situation of Puma AG. There are different strategies that have been implemented by the company in order to improve the position and overall performance of the company in the global industry.
In 2007, the company had been able to boost its heritage business by French 77, it is a product concept that was inspired by 70’s tennis superstar Guillermo Villa. The focus of the product concept focuses on the sport-fashion crossover, timelessness, sophistication as well as irreverence (Puma 2005 p. 3). In addition to that, the company also focuses on the side of women by showing the sophisticated side of the women’s category of the company’s products. It had been showed in the I’m Going campaign (Puma 2005, p. 4).
One of the primary evidence to the success of the strategy of the company showed during 2006, when Puma had joined the top echelon in the world of team sports suppliers. The said event happens due to the efforts as well as continuous visibility of the company’s product in the Women’s football World Cup. Puma is considered as the third most worn by having 25% share. The products are also visible in the Rugby World Cup, where in the company sponsored greater than 70% of the athletes.
On the other hand, there is also some situation which shows that the strategies of the company are not enough in order to maintain its position in the market. One of this is the decrease in its net income.
The company can generate revenues by their business of selling different sports related products. Puma is selling their products to different kinds of retailers as well as specialty shops. The company produces its athletic footwear having €1.4 billion or 58% of the revenue during 2007; apparel having €827.3million or 38%; and accessories having €158.3 million or 6.7% (see Appendix D). All of the said line of products is under four brands which are Puma, Tretorn, Mihara and the Rudolf Faddler Schuhfabrik (cited in PPR 2007). From 1999 up to 2000, we can see that that the sales of the company had grown so as the expences (see Appendix C). That is the reason why the net sales of the company are also low.
It is also important to show that the total revenue of the company from 2006 to 2007 had decrease by 0.6%. The said event was the effect of the weakening of different currencies against the euro. But other than that relationship, we can see a significant change of sales every year from 1993. The total revenue had increased to €541.3 million.
As the sales of the company grows, so as its expenses. These expenses main focuses in the different activities from marketing to the retailing that summed up to €272 million during 2005, and increased to €420 million during the year of 2006 and 2007. In general, the operating expenses had increased by 50% between the year of 2005 and 2006 that caused the net income of the company to fall (Puma 2007, p. 2) (see Appendix E).
Another important weakness of the company is its inability to have a huge exposure in the US market. This is due to the fact that Puma focuses more on the European countries. It is important for the company to focus their strategies in raising brand awareness in the United States because it is considered as one of those most powerful countries in terms of sports in the world.
Puma AG doesn’t have a strong exposure in the US market, only 25.3% of its sales during 2007 came from the region of America. The said rate had fall from 28.3% during 2006 (Puma 2007, p. 9) (See Appendix F). On the other hand, the company is focusing its strategies in different emerging markets by pursuing expansion in countries like South Korea, Croatia as well as the Romania.
In addition to that the backlogs are considered as the different orders that have been set to ship within the next 6 months had painted the similar picture. For 12 years, straight, the backlog during the end of the fiscal years is increasing. During the end of 2007, the company had a total of had €1.2 billion in backlog, having a total of 6.1% increase compare to the backlog of the prior year. However, the company had managed the said increase in spite of the 3.2% decrease in the sales in the region of the America that was caused by the market of the US. The said decrease was compensated by the backlog growth, having a total of 26% in the Asia/Pacific Region. Furthermore, that is the result of the increasing brand awareness campaign of the company in Asia (Puma 2007).
The following data and information that have been showed and explained demonstrates that the techniques and the strategies of the company is not yet that superior in order to regain the past position of the company in the market. However, it can be considered as a big development from it’s almost bankruptcy position before Seitz enter the picture.
Pinault Printemps and Redoute (PPR) and Puma AG
During July of year 2007, Pinault Printemps and Redoute or PPR had announced that it already owned the 62.1% of overall stock of the company. PPR is considered as a French Holding Company that specialized in the business of retailing as well as selling different luxury brands. The most famous subsidiary of the said company is the brand of Gucci (Murphy & Marsh 2007).
Puma AG is not a subsidiary of PPR and remains its own; however, due to the fact that the PPR already owned the 62.1% of Puma AG, the first company owns most of the stock and eventually, it will have the most stockholders voting. Puma AG is still free to make the different business decision regarding the different aspects of the company, however, any issues that will be put to the process of voting will be vitally be decided by PPR (Murphy & Marsh 2007).
Both of the company will benefit with each other in terms of financial as well as in terms of marketing. In terms of financial, the Puma AG will serve as a new investment activity or new financial resource for the PPR. This is due to the fact that PPR has the major share in the company. On the other hand, Puma AG will also benefit financially with PPR because, they will be now considered as partner companies.
Furthermore in terms of sales and marketing, due to the fact that both of the company has their good reputations in the market, it can help to build up their image as one. In terms of Puma AG, the image of PPR as a company that build luxury image can further help the company for its process of restructuring as well as the process of rebuilding the image of the brand. It can help Puma AG to handle the current change in the behavior and taste of the customers towards luxury brands. On the other hand, in the case of the PPR, the Puma AG will serve as a product expansion, where in they will have a new brand in terms of sports apparel and accessories. It will also help the company to gain and target new market and industry.
This will also help the Puma AG in terms of entering new market where in there are already available local partner for the PPR. In addition to that, both the PPR and Puma AG can share their knowledge and skills regarding the different aspects of the company that can help to improve both of the company’s management and marketing activities.
Conclusion
Business strategy as well as proper application of different techniques, more particularly of IT can help any company to regain as well as maintain its position in the market. In the case of Puma AG, it had undergone several ups and downs during its first establishment up to now. Furthermore, it is also good to see that its rivalry from Adidas is still there. The restructure plan and implementation of the business had been successful because it had been able to become one of the most famous as well as feasible company in the industry. Its implementation of virtualized organizational structure had also helped the company in their R&D process as well as their communication with the possible customers worldwide. In addition to that, it had also help the company in series of activities such as their outsourcing.
Puma AG is one of the good examples in terms of those companies that are using the advent of the Internet as well as the presence of globalization in order to create its competitive advantage. Globalization had helped the company to have more market to target, and the Internet had helped the company to reach out to their customers 24 hours a day. In addition to that the Internet had also helped the company to manage their internal activities as well as connect in decentralized manner the different subsidiaries in the world.
Innovation is another important aspects that must be maintained by any organizations and companies, more specifically, those who are into the global market. It will be important to give the customers something new that will awaken their interest and will anticipate them. The said scenario will serve as marketing strategy because the customer will wait for something new. In the case of the company, Puma AG is doing its best in terms of innovation process. That is the reason of the company for its implementation of decentralized communication or virtualized organizational structure. Their innovation or R&D processes are being done in different region mainly, in the USA and Germany. The said strategy helps the company to target the demands and needs of those customers who are into the two categories of sports which are the American and the European sports.
The company is also focusing on the huge change in the sports industry, and that is the emergence of different extreme sports as well as other outdoor sports such as hockey, skateboarding, biking etc. This will help the company to target the needs of those growing segment of possible customers.
It is also important for the company to implement their CSR; this is due to the fact that CSR is considered as one of the most influential as well as most effective marketing strategies as of now.
There are many important factors that must be considered by the company in order to improve their performance as well as their position in the market. One of this is to focus more on the US market, not only on those emerging market, more primarily in Asia. This is due the fact that USA is considered as one of the most important market in terms of sports products and sports industry.
The company must also focus on the relationship of their revenue and expenses. This is due to the fact that the company is spending too much for marketing and other related activities, and it is somewhat high compare to the expenses. That is why the net sales of the company are somewhat low. However, the company must continue their strong marketing strategies as the brands appearances and visibilities in different events and happenings that are related to sports.
In terms of the Pinault Printemps and Redoute (PPR) and Puma AG, there are different advantages that can be created because of the said partnership. This can help Puma AG to continue its plan and implementation of different strategies that can help them to become the most important as well as most loved sports and athlete’s brands in the world.
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Appendices
Appendix A: Adults Aged 18 and Older Who Engaged in Recommended Amounts of Physical Activity by Age and Sex, 2003
Cited in (US Diplomatic Mission to Germany 2008)
Appendix B: Virtual Structure of Puma AG
Appendix C: Puma AG Revenue and Income
Source (Puma 2007, p. 2)
Appendix D: Puma AG Revenue and Income by Product Type
Source (Puma 2007, p. 2)
Appendix E: Revenue, Expense, Net Income and Profit Margin of Puma AG
Adapted from (Puma 2007)
Appendix F: Puma AG Revenue by Region
Source (Puma 2007, p. 2)
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