||| Contents |||

Background.....................................................................................................................3

adidas in India................................................................................................................3

Industry Scenario..........................................................................................................5

Scope of Study...............................................................................................................6

Consumers.......................................................................................................................7

Consumer Behaviour...................................................................................................8

Environmental Analysis............................................................................................10

Retail................................................................................................................................12

Competitors...................................................................................................................13

Segmentation...............................................................................................................15

Targeting & Positioning............................................................................................16

Recommendations......................................................................................................19

Appendix.........................................................................................................................21

||| Background |||

adidas AG is a German sports apparel manufacturer, part of the

adidas Group. It registered as adidas AG on 18 August 1949 (with

lower-case lettering: "adidas"). The company was named after its

founder, Adolf (Adi) Dassler, who started producing shoes in the

1920s in Herzogenaurach, near Nuremberg, with the help of his

brother Rudolf Dassler who later formed rival shoe company PUMA AG.

The company's clothing and shoe designs typically include three

parallel stripes of the same color, and the same motif is incorporated

into adidas' official logos.

adidas plans to become the leader in the organised sports footwear

and sportswear market.

||| adidas in India |||

adidas first entered India in 1989 through a licence agreement with

Bata. adidas later re-entered India for the second time in 1996 through

a joint venture with Magnum International Trading Company Ltd with

an initial investment of $2.5 million to form adidas (India) Trading Pvt.

Ltd. adidas holds a 100 percent stake in the company.

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The company launches every six months between 600 and 800 new

designs in footwear and between 1,500 and 2,000 new designs in

apparels. The apparel range is priced between Rs279 and Rs2700,

while the footwear is priced between Rs499 to over Rs12499. adidas'

products in India are sold through 140 own outlets (excluding multi-

brand outlets).

The company, which is known for football and running shoes,

introduced its cricket gear in India in 2004.

The company adheres to strict quality and design specifications and

uses the manufacturing unit of Lakhani Footwear to manufacture the

locally produced adidas range in India.

Around 30-40 percent of the components are locally sourced.

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||| Industry Scenario |||

(as of 2003-04)

Footwear brands drew up ambitious plans targeting a larger audience

and higher market share.

MNC brands like Reebok and Adidas launched television commercials

after a gap of four years and brand shops were filled with a fresh and

upgraded product line-up.

The new distribution strategy focused on extending the reach rather

than exclusivity and at broad-basing distribution through tie-ups with

branded retailers and setting up shop in shopping malls.

For adidas, sales of higher priced footwear recorded strong growth in

2003-2004 and the company expected to close the year with a 30

percent growth.

Pre-1997, adidas had tied up with Bata and Woodland and first began

exploring multi-brand outlets and retail malls.

Reebok was slated to grow by almost 30 percent against 22 percent in

2002-03 and focused on its global Performance Range products. Bata

started retailing other brands like Reebok, Nike and Lee Cooper.

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As of 2005-06, the current premium sports goods market in India was

valued around Rs 500 crore. Within this market, adidas enjoys

considerable brand equity and is considered among the leading

international brands in the country.

||| Scope of Study |||

Our group has selected the Indian Footwear (Athletic) as Product

Category.

The main multinational players in this industry are Nike, Puma, Fila,

adidas & Reebok. Indian players include Action Shoes Ltd., Liberty

Footwear Co., and Bata India Ltd.

This report will mainly consider Nike & Rbk (Reebok) as competitors for

adidas.

By way of research, we have conducted a consumer survey, as well as

spoken to a few retailers of the 3 top brands in the industry.

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||| Consumers |||

In 1999, when adidas entered the Indian market, it introduced the

cheapest range of shoes it had ever sold. The new line took into

account the importance of affordability in the Indian market, and the

company expected the move to expand their customer base by 20%.

But today, the customer has changed. Andreas Gellner, MD of adidas

India, tells us: “Today’s Indian customer is aware of international

fashion and technology and he cares about them. He is also a big

sports enthusiast. We have also noted the need for constant change—

which implies faster turnaround for designs and therefore newer

products.

On the other hand, the buying experience is becoming crucial. The

retail scenario in sportswear is changing accordingly—marketers are

focusing on shop design and service and on brand consistency across

outlets; they are paying a premium on technology and innovation. This

has also been impacted to a large extent by the mall mania and the

growth of the high street.”

From our meeting with adidas’ marketing executives we gathered

information about how they defined their target demographic. They

target the 15-35 age group, both males and females, with a monthly

income of over Rs15000.

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The consumer is typically an image-conscious sports fan, but not

necessarily a sportsman.

||| Consumer Behaviour |||

Our market research delves into the customer mindset, trying to

assess the population and coming up with demographic details as to

who our target customer is. This is being done by a two-pronged

strategy of reaching out to the young working class on the one hand

(in and around NCR) and also by assessing the student strata who are

pursuing their post-graduation (IMT, DSE, FMS etc). This would leave us

with roughly 120 separate assessments on buyer behaviour on which

we plan to base our studies.

Status so far:

Respondents: 118

Dates of response: 27-08-2006 to 17-09-2006

Demography: Students (post-graduate – 107, young working class –

11)

Method of survey: Online

Some of our observations so far:

Only around 3% of the total respondents cited Price as the number

one factor influencing their purchase decision, and another question

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showed that comfort, weight and styling of the shoe were important

elements of the shoe. This initially seems to indicate that the Indian

customer no longer fits the price-sensitive stereotype, but a closer look

at the results shows a different picture. The survey also showed that

62.93% budgeted less than Rs. 2000 for their sports shoes. This shows

that while Price is almost never the most important factor for most

respondents, it is certainly a very important consideration.

More respondents own a Reebok pair than adidas (second place)

and Nike (third), but when asked which brand they would like to own,

Nike topped list, followed by adidas and Reebok. This shows that

Reebok’s Indian pricing has managed to attract more market share

than its rivals, but Nike still has the highest brand equity and perceived

value.

Nike being the world-wide leader does well on advertisements and

viewer/customer attention-catching and carries the best image of the 3

top brands. It is the brand that people want to own.

The survey also revealed that customers felt that Sales Staff Service

was the most important part of the buying experience. With 51.46%, it

beat the other 4 factors by a long way.

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||| Environmental Analysis |||

FIFA World Cup 2006 and other Football Tournaments

The World Cup's global TV and Web audience was bigger than the

Olympics' or the Super Bowl's -- 38 billion in-home viewers worldwide.

Adidas was an official sponsor and paid for the rights to shut Nike out

of TV advertising in the U.S. for all 64 games.

The retailers we spoke to acknowledged that the World Cup caused a

sharp spike in sales, both of the football (Teamgeist) and footwear &

jerseys.

Globally, by end-June 2006, adidas had already sold $1.5 billion worth

of football products this year owing to the then ongoing World Cup.

Football-related sales were expected to stabilise at slightly above 1.0

billion euros in 2007 before rising again in 2008, when the football

European Championships take place. It had already sold a record three

million replica jerseys in the wake of the football event, including 1.5

million jerseys of the German national team.

At the previous World Cup in 2002, the company sold 1.5 million

federation jerseys and 250,000 German jerseys.

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It has also sold more than 15 million of its "Teamgeist" World Cup

match balls, compared with 6.0 million of the replica ball for the 2002

tournament.

Adidas is an official sponsor, supplier and licensee of the World Cup

and is sponsoring six national teams in the tournament, including host

country Germany. Three teams sponsored by Adidas - Germany,

France and Argentina - reached the quarter-finals and France went

through to the finals.

Adidas estimated its global share of the soccer footwear market rose

by 1-2 percentage points to 35-36 percent at the end of the first

quarter.

The company also announced that it has signed a long-term

partnership to be the global sponsor for Euro 2008, which will take

place in Austria and Switzerland. It has also extended its partnership

with the UEFA Champions League to become the official ball supplier

until 2009.

BPO Boom

This booming industry has emerged as a boon for the hundreds of

thousands of job-hunting Indian youth and aims to grow into

Rs.100,000 crore industry generating over 1.1 million jobs by 2008.

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As we shall explain later, the Call Centre Crowd is characterised by

high disposable income, which is spent on lifestyle products. Therefore,

this constitutes a segment of increasing importance for adidas.

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||| Retail |||

We visited retailers of leading footwear brands in Saket (South

Delhi), and we gained an insight into the workings of the retail

business. Periodical meetings are held, where the company shows

samples of its various models and products to the retailers. It is up to

the retailers to decide which products they will stock in their shops,

how and when they will put them on display and when they will be put

up for sale. Thus, retail outlets of the same brand might well have

different stocks of different products at the same time.

Sales staff is another important factor. The Reebok retailer told us

that Reebok does not allow retailers to hire their own sales staff

without company approval. All sales staff must pass the company’s

test before getting the job. The same does not apply to adidas though.

Retailers for this company are allowed to hire salespersons they feel

will be effective. Training for salespeople, however, happens across the

board. Reebok believes that investing in salespeople is a cause for

their higher sales, and will be a source of sales growth in the future.

Area Sales Managers (ASMs) are in constant touch with their

retailers and actively take their feedback and suggestions. adidas

mentioned that they occasionally employ mystery shoppers to get a

better feel of the customer’s perspective.

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The décor and ambience of the stores is under the control of the

retailer, but still guided by the company’s direction. The number of

posters within the store, the type of music, etc. generally conforms to

company policy.

||| Competitors |||

Nike

Nike, Inc. is a major American manufacturer of athletic shoes,

apparel, and sports equipment. It is well known for its strong

sponsorship agreements with athletes, leagues and federations, as well

as many of the world's top football clubs and national teams, including

Manchester United, Arsenal F.C, Brazil and even India.

Nike is the leading brand in sports footwear worldwide. In India, we

have seen that although its brand image is good, its sales are not. Nike

products don’t compromise on quality, and are always full-price. They

do not have post-season discount sales on footwear unlike adidas and

Rbk. While no brand can neglect the highly price-sensitive consumer,

Nike certainly does not target them. They use their higher perceived

value to charge a premium for their products.

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Reebok

Also known by its contraction Rbk, Reebok International Limited is an

Anglo-American Fortune 500 company, now subsidiary of Adidas AG,

and producer of athletic footwear, apparel, and accessories.

Founded in 1895, the family-owned business proudly made the running

shoes worn in the 1924 Summer Olympics by the athletes, Harold

Abrahams and Eric Liddell celebrated in the film Chariots of Fire.

In August 2005, one of the company's largest rivals, Adidas,

announced that it would acquire Reebok for $3.8 billion. The

acquisition would increase adidas' market share in North America and

allow it to pose a serious threat to the world's biggest maker of sports

apparel, Nike. The deal was completed in January of 2006.

We gathered from the retailers that in India, adidas and Reebok are

still very much in competition with each other. Both are trying to get to

the #1 position presumably to garner as much market share as they

can, and in the process take some from Nike as well.

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||| Segmentation |||

For adidas the market segments in consideration are based on

demographics, psychographics and behaviour. The demographic

segmentation is based on age, gender, income and occupation.

The market is segmented into three main categories based on age.

These segments are age groups 1-15 years, 15-35 years and above 35

years.

Based on monthly household income the market is segmented into

below Rs.15000 pm, Rs.15000 to Rs.50000 pm and above Rs.50000

pm. The market is also segmented based on gender and occupation

(which leads to differential disposable incomes).

Psychographic segmentation is of great importance for the sport shoe

industry. The higher income groups are classified based on their

tendencies into four major categories; the innovators, thinkers,

achievers and experiencers. As for the groups with lesser resources,

they are categorized into believers, strivers, makers and survivors.

Under behavioral segmentation an important user group is the sports

and fitness conscious population. This segment is further subdivided

into gym regulars, professional and amateur athletes and even

drawing-room sports enthusiasts.

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||| Targeting & Positioning |||

Based on information gathered from retailers and adidas executives, it

is evident that the major demographic segment targeted by adidas is

the age group of 15-35 years. Very few footwear products are aimed at

the female market.

adidas targets households with monthly incomes greater than Rs.

15,000. Households with incomes between 15,000 and 30,000 rupees

per month don’t buy a new pair as often as higher income brackets.

This is primarily because they use shoes as shoes and not as

style/image products. It is important that when this group enters the

market with an intention to buy, they should buy from adidas. To

ensure this, adidas should sell durable, comfortable shoes at a

reasonable price to this group.

A crucial segment adidas has identified is the Call Centre Crowd. This

segment is substantial in the metros and is expected to continue its

rapid growth. It consists of image-conscious youth who are earning but

are not yet independents. This means that their entire income is

disposable. adidas seeks the highest share of wallet from these

consumers.

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Under psychographic segementation, adidas targets…

Experiencers: young, enthusiastic, impulsive people who seek

variety and excitement.

Strivers: Trendy and fun-loving people who are resource-

constrained but favour stylish products that emulate the

purchase of those with greater material wealth.

Image Drivers: The wealthy few who set the trends in their social

circle. This is the segment responsible for the selling out of the

Rs.12499 adidas One - adidas’ most expensive shoe in India.

The company targets behavioural segments also: The sports and

fitness conscious population is further subdivided into gym regulars,

professional and amateur athletes and even drawing-room sports

enthusiasts. adidas has specific products for each of these sub-

categories.

Cross-training shoes, running shoes, etc. are aimed at gym regulars

and runners. Shoes are designed specifically for sports like cricket,

football, basketball and now even adventure sports like rock-climbing.

We can take a particular segment which we call Hardcore football. It

refers to young footballers, passionate about playing the sport, with

the means to pay. A good example here would be adidas’ “Predator”,

which sets the standard for football studs.

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adidas rightly sees themselves as the world leaders in football shoes.

This is the only sport market in which they lead Nike. The brand has

been synonymous with football ever since Adi Dassler invented the

first adjustable rubber screw-on studs. An interesting fact: Every World

Cup winning team before 2006 wore adidas football boots!

Sport-inspired designs are incorporated into adidas’ lifestyle products

for the sports enthusiast. For example, there is a shoe that is designed

like an F1 driver’s shoe. The heel is molded to fit into the floorboard of

an F1 car and the sole is made of Goodyear rubber – the same rubber

that F1 tyres are made of! Despite the effort put into design and

manufacturing of the shoe, it is still meant to be a lifestyle product.

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||| Recommendations |||

After analysing the data, we find that although adidas has a greater

market share than its arch-rival Nike, it still lags behind in brand

image. To tackle this problem, we will now show you what very few

Indians have seen. Globally, adidas sells products under 3 divisions.

www.adidas-group.com provides us with a clear definition of these

divisions.

Divisional Strategy The divisional strategy has been developed to provide three distinct consumer segments with product and marketing concepts that fulfill their unique needs and desires. The three divisions are:

Sport Performance Division Innovate to perform. This division is completely focused on the athlete who demands performance first and style second. Every sport is important, but the main categories of running, football, basketball, as well as the women’s segment, are the primary focus in terms of both footwear and apparel.

Sport Heritage Division Celebrate Originality. This division looks to our past for inspiration and direction for the authentic and contemporary products of the future. These are footwear and apparel products that clearly have a foundation in sport but are meant for lifestyle and street wear.

Sport Style DivisionModern Sportswear. The newest division is directed at the style and fashion conscious consumer who still desires the look and attitude of sport but in a new, more sophisticated interpretation. It is the foundation in sport that adidas and this consumer share that makes this division so exciting and full of potential for both footwear and apparel.

adidas can claim the prime position in the elite SEC, capturing share of

both mind and heart if they introduce adidas Originals (also known as

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Heritage) and adidas Style. These are extremely up-market products:

High profile designers of the likes of Stella McCartney and Yohji

Yamamoto combine cutting-edge technology with unique styling and

passion for sport.

This will enable adidas to target the Achievers psychographic segment,

i.e. “success, goal-oriented people who focus on career and family and

favour premium products that demonstrate success to their

peers.”(Kotler & Keller)

After acquiring a stagnating Reebok for 3.8 billion pounds, adidas must

prove the deal was more than a market share grab and integrate the

companies smoothly. Considering that adidas themselves admitted

that the female market is not catered to properly but still has great

potential for growth, we think that Reebok should be used to tackle the

relatively untapped women’s sport shoe market. It could additionally

tackle the price-sensitive market.

Reebok has previously grown on the base of an urban, street, hip-hop

image. This image does not conflict with any of adidas’ target markets

and should thus be exploited to the full.

adidas could benefit from taking a leaf out of Reebok’s retail book.

Reebok does not allow retailers to hire sales staff. All sales staff have

to have passed a centralised test. This ensures that Reebok hires

employees that are equipped with the right knowledge and attitude

20

towards service that is required to succeed in the Indian market. We

know that service at the point of sales is a crucial element of the

buying experience because 51.46% of the respondents of our survey

marked it as the single most important element.

||| Appendix |||

Consumer Survey

Age 19-21 53 (44.92%) 22-24 54 (45.76%) 25-27 8 (6.78%) >27 3 (2.54%) Gender Male 89 (75.42%) Female 29 (24.58%) Do you own a pair of sport shoes? Yes 111 (94.07%) No 7 (5.93%) If yes which Brand/s? (you can chose more than one) Nike 39 (22.94%) Adidas 43 (25.29%) Reebok 48 (28.24%) Puma 4 (2.35%) Power 13 (7.65%) Other 23 (13.53%) For how many years do you use a pair of sport shoes? 1-2 73 (61.86%) 2-3 23 (19.49%) 3-4 7 (5.93%) 4-5 3 (2.54%) >5 12 (10.17%) What is the highest price range that you are willing to keep as a budget when buying sport shoes? 500-999 30 (25.42%) 1000-1499 23 (19.49%) 1500-1999 21 (17.80%) 2000-2499 15 (12.71%)

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2500-2999 9 (7.63%) 3000-3999 9 (7.63%) >4000 11 (9.32%)

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Which is the most important factor to you while purchasing sneakers/sport shoes? Price 4 (3.39%) Durability 16 (13.56%) Comfort 58 (49.15%) Looks and styling 30 (25.42%) Brand image 6 (5.08%) Other 4 (3.39%) What elements of the shoe are important to you? (you can mark more than one) Sole 45 (12.82%) Inside cushioning 59 (16.81%) Weight of the shoe 71 (20.23%) Laces 7 (1.99%) Material 48 (13.68%) Styling 65 (18.52%) Color 53 (15.10%) Other 3 (0.85%) Which brands advertisements do you like the most? Adidas 44 (37.29%) Nike 43 (36.44%) Reebok 27 (22.88%) Other 4 (3.39%) Which brand of shoes would you like to own? Adidas 40 (33.90%) Nike 45 (38.14%) Reebok 25 (21.19%) Others 8 (6.78%) Which aspect of buying experience do you consider most important? Shop Design 14 (13.33%) Service 53 (50.48%) Ambience 14 (13.33%) Shop Location 19 (18.10%) Others 5 (4.76%)

Respondents: 118; largely from IMT Ghaziabad, Delhi School of Economics, Jawaharlal Nehru University, FMS and MICA.* note: the bar graphs are not actual representations of the figures besides themSurvey designed on createasurvey.com and circulated online

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