PUMA case study Essay
PUMA case study
In order to arrive at the correct judgment of what will be puma’s opportunities and threats, let analyze the external environments factors affecting the company basing on the PESTEL and industrial competitive factors using five forces framework. And later when determining the company’s strengths and weakness I will look at the company’s internal capabilities by looking at its value chain, value network and any other competitive factors which gives the company more competitive advantage than rivals.
By definition external environmental factors are those factors which have impact on company although the company has either very little or no control at all over those factors. Usually these factors are classified as PESTEL (Political, Economic, Social, Technological, Environmental and Legal).
External Political Factors
These refer to the following sub-factors:(I)Government stabilityThis has influence to any business. When the government in which Puma operates become unstable politically business will definitely be affected. For example civil wars affect both operations, leisure’s and sports events which are Puma’s business. In our case study we saw that after terrorist attacks of September, 11, 2001 and wars in Afghanstan, geopolitical uncertainty led puma to shift its production from Pakistan to China (Puma case study, 2003).
(ii)Foreign Trade Regulations
These includes treaties and agreements which must be respected by the member countries and Companies (Czinkota, Rivoli and Ronkainen, 1992).For example General Agreement on Tariffs and Trade(GATT),regulations in respect of monopoly and competition standards, Trade fair Act(1997), Paris conventional for the protection of industrial property, to name but a few. These have impact on Puma since wherever it operates it must adhere to.
(iii) Taxation Policy
These have impact on Puma’s business because are an expenses which reduce revenue but it can also be used as the barrier to entry to the targeted potential markets. Some government use to fix higher tax to incoming foreign company.
These factors have a huge impact on Puma’s business. These are factors like cost of energy, oil, inflation, recession and recovery. For example interest rates(interest on loans and borrowings), inflation and unemployment has got negative impact on business since an increase of one or both of these factors is equivalent to the raise of business running costs at the same time will mean reducing the purchasing power(inflation and unemployment) of the people.
GNP Trends can have impact on Puma’s business since a good GNP shows that the per capita income of the people is good. Positive growth trends means increases on people purchasing power which has a positive influence to Puma. People with big disposable income can spend more on the leisure like sports and also buys more of the products as oppose to the people with less disposal income.
Sociocultural factors(i)Population demographic; there are arguments that the population is getting older and therefore Puma should starts to focus on the senior people segment in order to remain profitable and for business growth.
(ii) Uneven income distribution means there are few people with disposable income (the rich) and the majority have very less purchasing power. It is not therefore a market puma should target.
(iii) Lifestyle Changes
These have the impact in business and it needs the company to be strategically innovative in order to cope with peoples’ taste/fashion changes to retain and persuade the customers. This is one of the factors making customers switch from one product to the others of the same use.
(iv) Attitudes to work and leisureSince Puma operates globally it is possible to meet different societies with different attitudes to work and leisure. Negative attitude to work and leisure will have negative impact to business and positive one will have positive impact to Puma business.
Technological FactorsProbably these are the most dramatic forces shaping our destiny which creates whole new markets and destroy others. These are such as;New discoveries/development and speed of technology transferThese makes the products life cycles get short and creates a fierce competition among industries and hence forcing the company to invest more on R&D so as to remain strategically innovative (cost implication to business). Technological factors can lead to both high rate of obsolescence and Increase Company’s budget (through R&D).
Environmental factorsMost of the nations and international bodies have been enacting laws to protect the environment (green issues).Companies have been compulsorily required to adhere to these laws; for example the law to internalise pollution, waste remittance and all legislations regarding safety and environment issues. These have significant impact to business like Puma because it reduces revenue.
Legal factorsThe company which operates globally must expect different laws in different markets place within its operations. For example employment laws, health and safety regulations and financial regulations. It will also need to know advertising and promotion regulations, pricing regulations and consumer protection legislations. (Brassgton and Pettiti, 2007).
Porter’s five forces of competitive strategyWas developed as a way of assessing the attractiveness (profit potential) of different industries. It helps to identify the sources of competition in an industries or sectors (Johnson, scholes and Whittington, 2006).The focus is in the environmental factors influencing this competitiveness; which are as follows;(i) Threats of new entrantsThere are six major sources of barriers to entry which includes economies to scale, capital requirements, and control of distributition channel, customer loyalty, experience and retaliation. (Porter, 1998).
To my opinions and with reference to sports industry for more than three decades, threats of entry has a very little influence to Puma. This is because to enter into sports industry you need not only heavy capital and technology but experience and knowledge together with attractive customer base which is the strong barrier to entry.
Suppliers can have power if;(a)There are a concentration of suppliers and they can purchase in big quantities(b)Suppliers have a wide range of customers and can easily switch from one supplier to the other(c)The cost of switching from one Supply another is very high and,(d)If they pose a credible threats of integrating forwards into the industry business.
To my opinion these conditions does not apply to Puma and therefore can not be threats because Puma policy on suppliers is such that Puma have no long term relationships with supply and the fact that production, logistics, distribution have been outsourcing surely Puma will be having very few suppliers (mostly not related to production and transport departments). In addition to that it is not possible for those suppliers to integrate backward into industry’s business.
Buyers bargaining power
According to Johnson, Scholes and Whittington (2006) buyers are likely to have influence on industry’s business if the following condition prevails;(a)There are concentration of buyers and they purchase a big volume(b)The cost of switching a supplier is lower or involves little risks(c)The buyer pose a credible threats to integrate backwards to make the industry’s product.
To my views this factor is not a threat to Puma because buyers are scattered all over the world such that they can not have collective bargaining power and the cost of switching from Puma to another suppliers is very big and risks because Puma is among reliable and paying company.
The threat of substitutes
Substitutes reduce demand for a particular “class” of product as customers switch to alternative even to the extend that this class of products becomes obsolete (Johnson, Scholes and Whittington, 2006).Looking at the trend of sports industry for more than 40 years you will find that there are always Puma and the big three which dominates the sport industry and each having a very attractive customer base and thus this is a justification that Substitutes is no a threats to Puma.
Competitive rivalryRefers to organisations with similar products and services aimed at the same customer group; which for Puma can be Adidas, Nike and Reebok and Fila, Diesel and Prada for football, running, basketball and apparel and accessories respectively. This is not a threat at all since for this factor to be threats the following conditions must prevail; there are must be numerous competitors and are roughly have equal size and power which is not the case for sports industry(Look at Adidas,Nike, Rebook and Prada,diesel and Fila) all have different power and sizes. The other factor is that for the rivalry to take place the markets must be matured but this is not the case for Puma because although the traditional market segment were heading to mature there are several niches which offer attractive growth, and yet analysts expect growth in geographical regions for football especially Europe, Asia and Americans.
Opportunities and threats
Looking at the environmental factors and the five forces affecting Puma I have noted some of the opportunities and threats for the company;OpportunitiesTrends of accessories/equipments is attractiveIf accessories can be properly managed can be greater opportunity for puma to grow the business. Currently 60% of the total sales are generated from footwear division, but according to experts apparel and accessories categories are showing attractive growth rate .why not Puma utilise this opportunity by providing its customer variety of such products by focusing on both high-value and stylish product and lower priced products so that can get shares from companies like LVHM, Hugo Boss and Prada. In my opinion Puma can start focusing on virgin markets such as Racing especially Horse racing, skateboarding, snowboarding to mention but a few.
Alliances and joint venture
Although puma has acquired some of the largest companies such as Swedish Tretorn the European third largest manufacturer of Tennis balls, it is not enough. Alliances and joint venture is one of the major opportunities for Puma to both expand geographical markets for its products and at the same time get access to valuable technology and competences.
Puma faces both intertype and intertypes competitorsPuma’s internal capabilitiesIf the companies are to achieve competitive advantage by delivering value to customers, they need to understand how that value is created or lost (Johnson, Scholes and Whittington, 2006).Puma’s value Chain has been divided into two; Primary and Support activities.
If you consider the primary activities side you must understand that puma is described as Virtualized Company. Its in-house resources and activities such as inbound outbound logistics, operations and Procurement have been outsourced. This gives the company to deal with its core competency more effectively. It does not mean however that the company doesn’t care for the outsourced activities but the management are very careful on the selection of suppliers, logistics providers and producers but also it has a strong information technology infrastructure which helps them to coordinate easily and efficiently.
Human resources management
Puma with no doubts it has a strong HR by looking at the CEO and his deputy. The CEO being graduate in international business administration and having an ample experience in international business and marketing and worked for Colgate-Palmolive. Also the deputy CEO having an extensive experience in supply chain management and strategy implementation is one of the justifications that the company have strong HR capability.
Puma has a proprietary technology which helps the company in terms of innovation and designing and also in information technology. For example the company due to technological ability developed shudol shoe. One of the technological innovations can also be seen on “cell technology”. To manage its entire coordination and consolidation from all 80 countries is one of the justifications that Puma is strong technology wise.
Marketing and SalesPuma’s strengths come from the best implementation of its strategies in marketing and sales. Puma’s core competencies have been divided into marketing, brand and product management.
Brand ManagementOne of the major reasons for puma’s turnaround was the new positioning of the brand itself (refer to case study).One of the strategies used is sponsorship of either individual player or teams and associated the company with charismatic personalities who proliferate the desired brand perception, recogonition and awareness It has association with biggest names in history of sports such as Pele, Maradona and Cruyff.
Recently the CEO, use the technique of associating the company with entertainment professional such as Arnon Milchan (the influential film maker),David Matalon and Peter Chernim these stars making brand appears in several Hollywood production. Apart from sponsoring teams like Jamaica and Cameroon Puma has been organising several events such as Puma street soccer in 1994 and 4SOME competition in 2003 aiming at both displaying puma label and communicating Puma philosophy. By 2003 the brand was so high that super stars like Madonna were proud to wear Puma Product without any compensation.
Puma’s marketing division is responsible for all Puma advertising, promotions, PR and selling. Strong promotion and advertisement helps Puma be known company globally. Management are careful to select a media of advertisement and promotions.Footbal, Basketbal and running cups have become the mega events watched by viewers from across the global. Puma has been sponsoring either individual or teams. As a result these events offer excellent marketing opportunities for the company to create awareness of its brand. It has been fine turning its marketing strategies for football cups from 1960’s when Stars like Pele, Maradona and Cuyff to recent stars like Madonna.
Product management at Puma concerned with designing, operating and maintaining good products. This ensures that the company doesn’t only produce but creates a product that people will want to buy. Fistly; the company has a wide range of product which help the company to easily respond to different customers with different levels and interests. For example Puma football, running and basketball and others in accessories and equipments.
In terms of technology and also to ensure that it offers customers’ product of high quality Puma has association with engineers and famous designers
such as Jil Sander Mihara.For instance Puma innovation was “Cell technology” which convinced famous athletes to be Puma products such Cameroon National soccer team and Jamaica running professionals. Puma is innovative in each stage of the production for example to develop the new “Shudol shoes” worked with the team of Jordan Grand prix engineers.
From Puma’s internal capabilities the following strengths and weakness have been observed;StrengthsStrong brand-name image/company reputationPuma has a reputation for being a pioneer in sports and the brand has very strong heritage in world football, featuring a glittering list of past brand ambassadors which includes some of the biggest names in the history of the game such as Maradona, Pele and Cruffy.It boasts most of the exiting teams and individuals and as a result of having such sports people as customers creates good atmosphere for Puma to enjoy not only the survival but also the company growth.
Attractive customer base
Having the association with quality players it gives an image to most of the people that the company have quality as well. As the results puma has loyal customers worldwide. This landmark deal laid a foundation for sports marketing and PR drive which saves and strengthens Puma’s position as one of the best performers on footwear, apparel and accessories for years now.
Lower cost base and marketing Focused CompanyPuma is a virtualized company because it has outsourced all production, procurement of materials, distribution and logistics making its working capital just small. This make the company not only have a lower cost base but more importantly focuses in its core competencies.
Weakness(i)The virtualized company can have serious strategic weaknesses in the long runPuma mainly depends on partnerships, collaboration and networking. Although virtual can meet and satisfy its customers adequately just like other, there arguments that such an extreme form of outsourcing are likely to result in serous weakness in the longrun, as the company become devoid to core competences and cut off from the learning which can exists through understanding these activities in house (Johnson,Scholes and Whittington,2006).
(ii) PricePuma products’ prices are relatively lower than rivals. This is a weakness because price may bring implication that you product has lower quality because most of customers associates high price with high quality. Therefore if the product is priced lower to some customer it will mean that its quality is lower as well. Secondly it reduces the revenue especially if it is not accompanied by high volume of sales.
To determine and propose the optimal strategies for Puma in light of the above SWOT and analysing possible change issues and challenges in implanting the strategies.
Having looked at Puma’s strengths and weakness and taking into consideration opportunities and threats the company can encounter. The following are my proposal of what would be the optimal strategies for the company:-A Hybrid strategyUnder this strategy the company seeks to not only provide product or services benefits which are valued by the customers that are different from those of competitors but also provide those products at a lower price than that of competitors. It has both lower price strategy and differentiation strategy.
Lower price strategyThis can be a best strategy for Puma given its financial position and market shares as compared to rivals. Also Puma has already some element of this strategy which can be a foundation for the implementation of hybrid strategy. For example Puma’s products have lower price than those of competitors, defenitely is because the company have a low cost base after outsourcing all logistics, production, procurement of materials and distribution.Without lower cost base you can not sustain this because lower price reduce margin which unless you have some where within other portfolio to subsidise your business will be very difficulty to sustain.
However lower price strategy alone can not be effective and sometimes is dangerous because is can led to “price war” as your rivals imitate what you have done. Thus to be strategically safe it should be accompanied by differentiation.
Differentiation seeks to provide products that offer benefits different from that of competitors and that are valued by buyers.
In this case Puma can upgrades its product’s quality and add to them appealing attributes than that of competitors. This can be achieved by Puma because the company have been in this line of business for decades now such that it clearly know its strategy customers (what they want ) and it clearly know what are the competitors(what they offer and their strengths).After upgraded the products Puma can sell them at similar price of that competitors. In this occasion Puma will be increasing its market shares as more people will go for its products.
In addition to that Puma can use hybrid strategy to enter into the markets where their rivals are well established. If you look at the big three i.e. Adidas, Nike and Reebok you will note that they are more well off in terms of both financial and present in every country than Puma making it difficulty for Puma to grow the business and grab from them the market shares. But entering the market with a superior product and with lower price will help Puma to take market share, divert the attention of the competitors, and establish a foothold from which they could move further (Porter, M, 1998).
It should clear however that the best results from implementation of the hybrid strategy depends on the sustainability of the strategy itself. And to achieve this Puma need to work harder in order to achieve more sales volume so that to compensate the reduced margin due to selling products at the lower price. This can be achieved by strategically driving down costs .For example Puma should encourage more e-business which will enable the company to sell more but maintain lower cost base. It will also enable the company to sell across the boundaries with very minimum resources but yet be able to achieve high volume at least cost. Also incorporating the supply chain into the system with a quick delivery time which can be a critical success factor.
Change issues and possible challengesDefinitely what is behind hybrid strategy is selling at the lower price than that of competitors and at the same time seeking to provide products that offer benefits different from those of your competitors. To achieve efficiencies and productivity from hybrid strategy Puma will need to make changes on the entire staff within and around the organisation. It will need to change employees ‘attitudes so that to direct efforts and dedication to achieving of the positive results from the operations with least costs. This can only be achieved if the management will inspire the people towards Maximising output subject to minimisation of cost (cost sensitive strategy) and build and maintain the marketing and sales focused team.
To achieve lower cost base require real time visibility to cost-critical information for many important decision that impact cost prior to products delivery. This visibility must be immediate available and understood to all who impact costs in the process across the enterprise.
Selling at a lower price reduce margin and to compensate the lost margin you need to increase sales volume. You can achieve this by having a skilled and competent sales force because such a sales force can;
•Effectively persuade customers to buy and hence increase market shares.
•Reduce time and efforts necessary to sell by increasing the relationships level with customers.
•Increase competitive ability and strengths by reducing predictability and delivery concise and consistent.
Financially the good sale force can have the following positive results;•Good team can expand the size of each deal and close more deals.
•Can decrease selling expenses. When the team doesn’t perform well sales cycles are extended and multiple calls are required to convince customers.
•Lower recruitment and training cost.
•Also if you able to sell more with fewer costs associated with sales efforts your margin increase.
•A good team easily adapt to changesAll these can positively contribute to lowering down the cost base for the best implementation and achievement of the hybrid strategyReferencesBrassington and Pettitt (2007) Principle of MarketingCzinkota, rivoli and Ronkainen (1992) International business (2nd edition) New York, London, sydnet, Tokyo-The Dryden pressJohnson, Scholes and Whittington (2006) Exploring corporate strategy (7th edition) London Prentice Hall.
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