cpm matrix

INTRODUCTION

1. SWOT Analysis:

In order to identify the main strategic issues facing Adidas in maintaining their global

competitive position, it will be quite useful to undertake a SWOT analysis of the company.

According to Rogoff and Bezos (2007:44), the best way to begin a research on the competitive

advantage and competitive position of a company is to do a SWOT analysis of the company which is

an acronym standing for strengths, weaknesses, opportunities and threats of the business.

SWOT analysis of Adidas will involve the evaluation of its internal as well as external

environment. In order to be the market leader and gain more and more profits, Adidas always intends

to develop new opportunities which make it highly prone to risks.

STRENGTHS

Renowned brands. Extensive Marketing Infrastructure. Diversity and Variety.

WEAKNESSES

Underperformance of Reebok. Channel Conflicts.

OPPORTUNITIES

Growing Demand in Sport Equipment. Emerging Markets. Developing Technology.

THREATS

Increased Raw Material Costs. Competition. Economic Recession. Counterfeit Products.

1.1. Strengths:

Following are the key strengths of Adidas Group:

1.1.1. Renowned Brands:

It is one of the major strengths of the company. Adidas group owns brands like

Adidas, Reebok, TaylorMade (Adidas Group Website). The strong brand image

of Adidas has increased its brand loyalty which in turn has led to increase in

1 | S t r a t e g i c M a n a g e m e n t

profits. It is the brand reputation which has helped Adidas to be the market leader

in almost every part of the world. Adidas brands are not only popular in Europe

and US but they have also captured most parts of Asia now. According to

Shanley, 2006 (Helmsman Online), Adidas emerged as a market leader in Japan

in 2005 replacing Nike for the first time. According to a report of Adidas, it is has

maintained its top position in Europe till date. Adidas also strengthens the images

of its brands by customer satisfaction (Adidas Official).

1.1.2. Extensive Marketing Infrastructure:

The company has a widespread marketing infrastructure. The policy of the

company to focus on a single distribution channel has changed. It is now focussed

on having various distribution channels and has a huge network of stores and

outlets worldwide (Adidas Official). Due to an extensive marketing infrastructure

and advertising, Adidas has been able to undergo market penetration which helps

them to draw more profits. According to Manzenreiter (2004:303), Adidas kept

doing the advertisement campaigns with popular sports celebrities after the 2002

football World Cup like David Beckham, Hidetoshi Nakata, etc in order to gain

more and more market share in the markets like Japan. Adidas also formed one of

the pillars in 2006 football World Cup in Germany.

1.1.3. Diversity and Variety:

According to Adidas (Corporate Website), “We will remain committed to

understanding, valuing and incorporating the diversity into the corporate culture

of the Adidas Group.” This helps them in market penetration and gain competitive

advantage. Adidas has a large number of products in a number of styles for both

men and women (Runningshoes4u). The company has gained strong reputation in

almost every part of the world due to its innovative technology and continuous

introduction of new brands.


1.2. Weaknesses:

1.2.1. Underperformance of Reebok:

The merger between Adidas and Reebok was basically an attempt of Adidas to

gain more market share in US- the Nike’s own turf (Tribune LA). Adidas wanted

to confront Nike on its own home land. The takeover was supposed to be a

friendly takeover and the stock prices of both the companies started to improve

from the very day of the announcement (MSNBC report). But during the last

months of 2005, sales of Reebok dropped from $1 billion to $912 million. The

poor performance of Reebok continued from the very time. In March 2007,

Adidas also admitted that the merger was not as successful as it was supposed to

be and the causes for the failure of the takeover were fully attributed to Reebok.

Adidas blamed Reebok to be the basic reason as the group had 3.6% drop in the

overall gross margins by the end of 2007 (Marketingmagazine.co.uk).

1.2.2. Channel Conflicts:

In the times of growing e-business, Adidas has also begun to sell its products

online on a large scale (Official Site). This has led to the conflicts with the

retailers. Retailers will be less reluctant to sell Adidas products in future which

can lead to drop in sales.

1.3. Opportunities:

1.3.1. Growing Demand in Sports Equipment:

According to Walker and Seidler (1993:5), since 1960, sports has changed a great

deal and sports equipment industry has become a multibillion dollar industry as a

virtue of this change. Also with growing population there is a large demand for

goods (Draak, 1986). So, Adidas need to improve its strategies much more in

order to avail maximum benefits.


1.3.2. Emerging Markets:

According to Cavusgil et al (g2002:10), Emerging markets have a high birth rate

and accommodate about 75% of the world’s total population. As more population

means more sales, it is important for the company to strengthen its roots beyond

the European and US borders. The company is doing well for its brand popularity

in the emerging economies. Such as, the company has launched the apparel for

Indian yoga to target the market share in India (Ameinfo News). After the Beijing

Olympics the company increased sales in China also (Opendoor.com report).

Southeast Asia and Eastern Europe (Russia) are also emerging markets with

opportunities due to their large populations.

1.3.3. Developing Technology:

According to annual report 2009, the company is aiming to use new technology

and come up with new brands. Although the company’s innovative technology

can be regarded as its strengths yet a great deal needs to be done in this field. As

Maier (2009) clearly states that as a business grows the importance of keeping up

with changes in business computing and technology can be more important over

time.

1.4. Threats:

1.4.1. Competition:

As the merger between Adidas and Reebok was an attempt to gain more market

share in US and to give a tough competition to Nike (No. 1 in the industry) and

Puma (No. 4) (Tribune LA). At the time of the merger, it seemed that it really

made sense but Nike was never on the backseat. Nike is the most tough and giant

competitor of the company.


1.4.2. Increased Raw Material Costs:

The company is facing higher raw material and wage cost (BBC Online). This is

one of the key threats to Adidas. Due to this reason, Adidas was thinking of

closing some stores at the end of the previous year.

1.4.3. Economic Recession:

Global recession is one of the biggest threats which almost every business is

facing right now. According to BBC Online (2009), “Adidas sees profits drop by

97%.” It further says that Adidas made 5m euros net profit during the first quarter

of 2009 which was 169m in 2008. Adidas blamed economic downturn as a basic

cause for this.

1.4.4. Counterfeit Products:

According to Adam (2010), the market is full of counterfeit products which

resemble the genuine product and are made to deceive the customers. According

to a Behean, about 12% of sportswear in 2001 was fake. This has become a key

threat to Adidas over the past years.

2. ANSOFF’s Matrix:

In order to evaluate potential strategic options that Adidas should consider in sustaining and

developing their global competitive position, we need to use Ansoff’s matrix. As commented by

Fifield (1999:143), Ansoff stated that there are actually only four ways through which a company

can expand its operation in order to sustain its global competitive position. From the market point of

view, Adidas group believes in market development and market penetration.


MARKET PENETRATION

Global Brand Visibility. Advertisements/Sponsorships.

MARKET DEVELOPMENT

New Markets. New Distribution Channels in Emerging

Markets..

PRODUCT DEVELOPMENT

New Products. Relevant Modified Products.

DIVERSIFICATION

Diversification of Products – Athletics, Cricket and Hockey.

Casual Footwear.

2.1. Market Penetration

2.1.1. Global Brand Visibility:

According to Kaferer :338 the biggest advantage of global brand visibility is that

it provides the company with a competitive advantage. Adidas’s brand visibility

gives it a competitive advantage over the local brands and helps it in the market

penetration i.e. penetrating the existing market with the existing products. The

customers are attracted by the cheap prices of the global brands of Adidas with

respect to their local brands. For example, in India the local sports shoe

manufacturer Proton produces expensive shoes when compared to Adidas’s

global brands CSR (12:4). Similar is the case in Czech Republic where Adidas

shoes are cheaper than the local handmade shoes (Press Adidas). The key to

Adidas’s global branding visibility is its innovation. It creates a very good image

of its products. That is the reason why there is a worldwide awareness of Adidas

brands. The advantages related to global brand visibility are higher economies of

scale, synergies, etc.

2.1.2. Advertisements/Sponsorships:

The other key method of market penetration followed by Adidas is aggressive

advertising. According to Rotzoll et al : when there is a strong appeal to fear

along with product benefits, there is a possibility to get potential consumers to


move to an immediate purchase. Adidas is also using the aggressive

advertisement strategy to gain more market share with its existing products in

existing markets e.g. in 2000 Adidas launched a series of new advertisements

featuring reputed sportspersons in daring but eccentric conditions (Drummond

and Ensor, 2003:203). The basic objective was to target the young market

segment without giving details of the features of the product. Similarly, prior to

the football World Cup in Germany, there were poster advertisements featuring

the Germany’s football captain M. Ballack saying the Adidas tagline, ‘Impossible

is Nothing’(Bleachers brew). The main motive of this advertisement was to catch

customer attention by creating a hope for Germany’s World Cup win. Adidas also

has a tradition of making reputed sportspersons, with a lot of fan following, their

Ambassadors. It helps the company to target the sports lovers. These include

Mohammad Ali, David Beckham, etc. Overall Adidas carries out an extensive

advertising on TV, Radio, Web sites, through posters etc (Tennis Blog). Adidas

Group also sponsors numerous sports events such as Basketball, Football, etc

which helps them to penetrate the market effectively.

2.2. Market Development:

2.2.1. New Markets:

In order to develop markets, Adidas has always been in search of new markets. In

the emerging markets of India, China, Russia, etc, Adidas is continuously

expanding its business by entering new markets with existing products. In case of

marketing strategy, Adidas has always been following the offensive marketing

strategy in new markets.

2.2.2. New Distribution Channels in Emerging Markets:

Emerging markets also open new channels for Adidas. For example, Adidas

entered India long time ago. But recently, in 2008, it was able to conquer the

sports market of Jammu & Kashmir state of India by opening two stores, one each

in Jammu and Srinagar (Greater Kashmir, May 23:2008). Similarly, after the


sponsorship of Beijing Olympics Adidas opened the biggest Adidas store in

Beijing.

2.3. Product Development:

2.3.1. New Products:

Adidas is known for coming up with new products from time to time. Through

continuous introduction of new products in the market, the company has been

able to enhance its strong recognition. Adidas group mainly launches new

products in North America. It is also considered the main platform for

communication strategy by the company. Therefore the company has replaced its

focus on a single distribution channel with the focus on various distribution

channels. For example, Adidas launched several new products in 2008 like

Matchball of the UEFA, ‘Europass’- the football boot. In the existing markets of

India, Adidas has introduced the Yoga apparel to gain market share (Adam,

2010). The product design is based on the partnerships with Stella McCartney,

etc. Moreover, the three brands Adidas, Reebok and TaylorMade all offer

different personalisation platforms and products which reflects the strategy of

each brand.

2.3.2. Relevant Modified Products:

Technological innovations have led Adidas to the modification of products as

well. From the first day football boots with screws embedded in spikes to the

present day ClimaCool Adidas has been creating Adidas has modified them

several times. Like the present day Predator Mania which is modified football

boot meant for accuracy, speed and control.

Adidas has formed brand teams to conduct a research about customer needs so

that products are renewed and modified according to those needs. It has also

teamed up with Diesel to sell the jeans at its Adidas Original stores.


2.4. Diversification:

According to Ansoff this strategy is highly risky of the four as it involves the introduction

of new products in new markets without having a proper knowledge of different

parameters.

2.4.1. Diversification of Products in Athletics, Cricket & Hockey:

This would help Adidas in competing in the markets of huge competition. The

group has a strong hold on soccer and basketball product line. The development

of products for athletics, cricket and hockey will help Adidas to be a market

leader in new markets like India and Pakistan where people are more interested in

cricket and hockey instead of football and basketball.

2.4.2. Casual Shoes:

In order to minimise competition and increase profits, Adidas has implemented a

multi-brand strategy. Both as a mass and a niche player this objective helps them

in the times of fierce competition and provides them a competitive advantage.

Adidas is capable of providing a wide range of products for different customers.

Adidas has now also started to manufacture the casual leather shoes (Annual

Report, 2009). Adidas (2009) was clear in its strategy to sell leather shoes by

saying that it will offer them a significant opportunity.

3. THE IMPLICATION OF THESE OPTIONS FOR THE STRATEGIC MANAGEMENT.

3.1. Leadership:

Drucker (1999) writes that it is only a leader’s ability to generate unusual or exceptional

commitment to a vision (Boddy, 2008:458). So implementation of strategic plans requires

inspirational leaders. It was until 1987 that Horst Dassler, being egoistic, ruined his

family reputation because of his usual comparisons with the competitors.


Herbert Hainer was made CEO of Adidas in 2001. He is an inspirational leader and has

been looking forward to implement new strategies from time to time. He extended the

Beckham deal and was the person to launch the Beckham’s line in 2005 when he saw

Beckham’s huge fan following. In the same year, Hainer and Fireman (CEO of Reebok)

joined hands for the growth of both the companies and give a tough competition to Nike.

The merger was aimed to gain more market share and become the market leader in US.

According to Hainer (CEO), “We will expand our geographic reach, particularly in North

America, and create a footwear, apparel and hardware offering that addresses a broader

spectrum of consumers and demographics. With Reebok we are advancing our position

on the playing field of sports good industry and are improving our financial strength to

drive increased shareholder value.” (Inside Hoops.com) It is clear from his statement

that the group has innovative brands and market position which gives them a competitive

platform. The biggest challenge is to improve the products and strategies with time and

undergo a successful integration of Reebok. After the merger, Hainer had a strategy of

targeting the basketball and soccer lovers individually with Reebok and Adidas brands.

According to the Chief Executive Hainer: “The brands will be kept separate because

each brand has a lot of value and it would be stupid to bring them together. The

companies will continue selling products under respective brand names and products.”

(ICMR India)

3.2. Organisational Structure:

According to Drummond and Ensor (2003:254), in developing a marketing strategy it is

very important for an organisation to have teams. Adidas has multifunctional teams

which help the company in its offensive marketing strategy. Headquartered at

Herzogenaurach, Germany, Adidas is the largest producer of sportswear in Europe. The

organisational structure of the company is in accordance with its business strategy. As the

business activity of Adidas includes three product lines, footwear, apparel and hardware

of sports, the structure of the company is also emphasizing on a sporty environment and

is in complete agreement with its products and services. After merger, Reebok targeting

basketball lovers was kept separate and its previous management was retained. The


identity of the brands of both Adidas and Reebok was kept distinct as before even after

the merger. This reflects Adidas’s strategy based structure. The construction of ‘Originals

Stores’ was an attempt to target fashion forward people. The designs of these stores also

reflect the strategy of the company.

3.3. Culture:

According to Drummond and Ensor (2003:253) a strategy is most likely to fail if it goes

against the dominant culture. Same was the case with Adidas. The merger between

Adidas and Reebok in 2005 was an attempt of Adidas to capture US markets. But the

merger was not culturally fit as one of them was German and the other was American and

it forced Adidas to pay a high price. The merger was not in agreement with the cultural fit

and as a result it is considered as an almost failed merger. Reebok sales are declining

continuously and are one of the key weaknesses of the company right now.

3.4. Innovation:

In the present times of huge competition, Adidas has always created symbols which stand

for its innovation and product development. According to Palmer (2004:267), innovation

not only refers to the products offered by a company but includes all marketing functions,

including distribution and promotion. Adidas is highly innovative not only in the field of

technology and new product development but also in the other aspects of marketing such

as creating a suitable image of its brands. The basic factor responsible for the faster

innovations is the global influence of the company. Adidas follows the strategy of

increasing premium partnerships and attracting its customers through consistent

innovations with various marketing issues.

3.5. CSR/Ethics:

Corporate social responsibility and ethics at Adidas is an important part of the company’s

corporate strategies. The company is focused on the healthy living of people as it deals


with sports equipment and sportswear. It is due to Adidas that different sports activities

have become popular in all social classes particularly kids. However, the violent and

eccentric advertising is a bit unethical on the part of Adidas. Adidas is also concerned

with its employees very much. The supervisory board which consists of a total of 12

members has six members from employees. Adidas cares very much about the employee

satisfaction. Asian employees are focussed on the production whereas European and

American employees are focussed on the marketing, distribution and retailing.

4. COMPETITIVE PROFIL MATRIX (CPM)

4.1. Definition CPM

Competitive Profile Matrix (CPM). To compare it with the major firms of the

industry. Shows the firm its weak and strong point as compared to the major players

in the industry. Takes into account effectiveness of advertising, product quality,

management, finances, the prices and competitiveness among other factors. Rating :

4=major strength, 3=minor strength, 2=minor weakness, and 1=major weakness. In

order to better understand the external environment and the competition in a

particular industry, firms often use CPM. The matrix identifies a firm’s key

competitors and compares them using industry’s critical success factors. The analysis

also reveals company’s relative strengths and weaknesses against its competitors, so a

company would know, which areas it should improve and, which areas to protect.

4.2. Critical Success Factors

Critical success factors (CSF) are the key areas, which must be performed at the

highest possible level of excellence if organizations want succeed in the particular

industry. They vary between different industries or even strategic groups and include

both internal and external factors. In our example, we have included 11 CSF, which is

usually not enough. The more critical success factors are included the more robust


and accurate the analysis is. The following list provides some of the general CSF, but

the list is not definite and you should include industry specific factors in your matrix:

4.3. Weight :

Each critical success factor should be assigned a weight ranging from 0.0 (low

importance) to 1.0 (high importance). The number indicates how important the factor

is in succeeding in the industry. If there were no weights assigned, all factors would

be equally important, which is an impossible scenario in the real world. The sum of

all the weights must equal 1.0. Separate factors should not be given too much

emphasis (assigning a weight of 0.3 or more) because the success in an industry is

rarely determined by one or few factors.


4.4. Rating :

The ratings in CPM refer to how well companies are doing in each area. They range

from 4 to 1, where 4 means a major strength, 3 – minor strength, 2 – minor weakness

and 1 – major weakness. Ratings, as well as weights, are assigned subjectively to

each company, but the process can be done easier through benchmarking.

Benchmarking reveals how well companies are doing compared to each other or

industry’s average. Just remember that firms can be assigned equal ratings for the

same factor.

4.5. Score and Total Score :

The score is the result of weight multiplied by rating. Each company receives a score

on each factor. Total score is simply the sum of all individual score for the company.

The firm that receives the highest total score is relatively stronger than its

competitors.

4.6. Benefits :

i) The same factors are used to compare the firms. This makes the comparison more

accurate.

ii) The analysis displays the information on a matrix, which makes it easy to compare the

companies visually.

iii) The results of the matrix facilitate decision-making. Companies can easily decide which

areas they should strengthen, protect or what strategies they should pursue.


5. STEPS IN DEVELOPING CPM

5.1. Step 1: Identify the critical success factors

To make it easier, use our list of CSF and include as many factors as possible. In

addition, following questions should be helpful identifying industry’s CSF: Why

consumers prefer Company A over Company B or vice versa? What resources,

capabilities and competences firms possess? What sustainable competitive advantages

companies have in the industry? Why some companies succeed and others fail in the

industry?

5.2. Step 2: Assign the weights and ratings

The best way to identify what weights should be assigned to each factor is to compare the

best and worst performing companies in the industry. Well performing companies will

usually undertake activities that are significant for success in the industry. They will put

most of their resources and energy into those activities as compared to low performing

organizations. Weights can also be determined in discussion with other top-level

managers. Ratings should be assigned using benchmarking or during team discussions.

5.3 Step 3: Compare the scores and take action

You should compare the scores on each factor to identify where company’s relative

strengths and weaknesses are.


6. COMPETITIVE PROFILE MATRIX – ADIDAS AG

7. COMPETITIVE PROFILE MATRIX – COMPETITORS OF ADIDAS AG


8. CONCLUSION

Already Adidas is showing very satisfying returns on its investment when compared to its

competitors but the matter of concern is the geographical expansion of the company. It is not as good

as should be at this level of competition. For example, Nike stores are in very much abundance in

India. However, hardly an Adidas store can be seen except in the metropolitan cities like New Delhi,

etc. Expansion policy will assure the company a good market share and profit in the emerging

markets. There is a great future for Adidas ahead if it mends its strategies a bit.

9. REFERENCE

1. Strategic Management Concept and Cases – Fourteenth Edition(Pearson) – Fred R. David

2. http://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.html


http://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.html

cpm matrix

Documents

adidas brands

report of adidas

swot analysis of adidas

adidas corporate website

key strengths of adidas

strong brand image of

market leader

strengths renowned brands