under armour case study analysis

5/28/2018 Under Armour Case Study analysis

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In Completion of Requirements for the Subject

Management 18: Business Policy and Strategy

Nonesa, Quennie Sandra L.

Lasmarias, Mylene P.

Sayson, Caesar Neil B.

Paracuelles, Jay Mark T.


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To be on the top is an endeavor all athletes strive for in their sporting involvement. In an

industry where being the best is very profitable, Under Armour aims to achieve what the

consumers of its products desire. Under Armours objective is to be the market share

leader in sporting apparel. The goal is to achieve this objective through a high-quality

product. An elite status is exactly what Under Armour intends to provide - setting a

high price but not to the expense of sales volume because the products excellence

makes the consumers willing to pay an additional cost.

Under Armour uses a selective distribution strategy. It chooses its retailers based on the

characteristics of the retailer. Using a hybrid channel, consumers can purchase Heat

Gear from Under Armour or any retailer distributing the product.

I n terms of its product pricing, Under Armour have been effective in implementing its

value-based pricing strategy, reflecting a notable supposition of consumers that high

price is equivalent to high quality. Its pricing is right in line with buyer expectation. It

compensates the greater value buyers get when they purchase Under Armours

products. While it is true that Under Armour faces competition with large competitors

such as Nike and Adidas/Reebok, the superior quality of its products allows them to

price products outside of competitors. The prices are not based on competitor prices,

they are consumer-based they manifest consumer expectations but still within the

boundary of what the consumers deem acceptable pricing. Consumers are aware of the

advantages of the product over its rivals and do not need any explanation or help

purchasing it.

In addition to the quality of Under Armour products, the company has done an excellent

job enticing the public to purchase its products. It uses a pull marketing communication

mix strategy. It is a softer, but potentially more costly approach, where Under Armour

encourages customer demand by tactics like advertising and promotions, such as

sponsorships and competitions. This is a good strategy for Under Armour since the

demand for its products is high, buyers use the brand as part of their purchase decision,and also taking into consideration that it uses differentiation strategy that focuses on the

uniqueness of its products.

The year 2009 was a turning point for Under Armour. This year posed many marketing

and strategic challenges for the company. "Under Armours success in 2010 and

beyond will be significantly impacted by the decisions we make in 2009," said Kevin

Executive Summary


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Plank, founder and CEO of Under Armour. Under Armour will be competing with Nike,

Adidas, Reebok, Puma, and other sports apparel manufacturer. The challenges that

Under Armour and all of its competitors face are stiff competition from one another and

very high expectations from current and potential customers. In order for Under Armour

to continue its success in the sports apparel industry and rise above competition with

rival firms, it must program and execute a strategic game plan.

Under Armour must lay effective strategies for the company to overcome the challenges

it is bound to face. How does Under Armour stay on top of its game? Their decision may

determine the future of Under Armour.

Founded in 1996 by former University of Maryland football player Kevin Plank, a then

23-year old former special teams captain of the University of Maryland football team,

Under Armour is an American sports clothing and accessories company. The company

is a supplier of sportswear and casual apparel. Under Armour is the originator of

performance apparel - gear engineered to keep athletes cool, dry and light throughout

the course of a game, practice or workout. The technology behind Under Armour's

diverse product assortment for men, women and youth is complex, but the program for

reaping the benefits is simple: wear HeatGear when it's hot, ColdGear when it's cold,

and AllSeasonGear between the extremes. Under Armour's mission is to provide the

world with technically advanced products engineered with our superior fabric

construction, exclusive moisture management, and proven innovation. Every UnderArmour product is doing something for you; it's making you better (aubiz.com, 2009).

Under Armour received its big break in 1999 when Warner Brothers contacted Under

Armour to outfit its two upcoming films. The following year, Under Armour became the

outfitter of a new football league, gaining even more attention during the league's debut

on national television. In 2003, the company launched its first television commercial,

which centered in their motto, Protect this House. In late 2007, Under Armour opened

its full-line, full-price retail location at a mall in Maryland.

The Under Armour brand is positioned as the highest quality and best available. Under

Armour is advertised as higher quality thus demanding higher price points. It is an

expanding company/brand that is trying to take on the giants of Sports Apparel Industry,

that is, Nike and Adidas. Even though it is considered an upstart compared to its

competitors, Under Armour is quickly becoming a leader in this industry, and with its

Company Background


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widespread popularity amongst top name athletes and sports programs and teams, it is

a major player in the market.

Under Armour is faced with three tough problems since the commencement of its

operationslack of proprietary product rights, concentration on domestic sales, and too

much dependence on few third-party suppliers. Lack of proprietary product rights could

adversely affect the long-term sustainability of the firm. Under Armour runs the risk of

exposing their innovative ideas to competitors since their suppliers and producers are

not bound only to them. Concentration on domestic sales, on the other hand, accounts

for Under Armours smaller sales volume and net income compared to large

competitors who already had established an international market across different

countries. Whereas too much dependence on few third-party suppliers, gives the

suppliers the ability to demand higher prices from Under Armour and if ever demand of

the suppliers products exceed their supply, it could affect Under Armours operations

due to lack of supplies and raw materials.

These strategic challenges create several important questions that need to be

answered to ensure continued success at Under Armour. Questions such as: Should

Under Armour pursue acquiring property rights such as patent to secure its innovative

ideas? Will this move serve as defense for the company or just another investment that

runs a risk? Will Under Armour be ready, financially and strategically, to further

expand its operations outside US and have a decent share in the international market?

What should Under Armour do to lessen the control its suppliers have over the

companys cost of goods? And lastly, what must Under Armour u ndertake to stay on

top of its game?

Strategic Challenges

Strategic Questions


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First ProblemLack of Proprietary Product Rights

Due to constraints, the company would be in a difficult situation in obtaining proprietary

property rights. Constraints include costly and time-consuming investment that it

wouldnt be feasible to acquire patent rights on every innovative ideas they got; another

constraint is that the technology, fabrics, and processes use to manufacture Under

Armours products are not unique to them andare generally owned by their suppliers,

hence, intellectual rights are already owned by them; another is that if defective

products are offered to the market, patent infringement is of high possibility.

Since intellectual property rights cannot be feasibly obtained, our recommendationwould be to establish a secured relationship with its suppliers and producers to whom

the quality of final product depends. This involves constant monitoring, evaluation andupkeep of security among its products.

Second Problem-- Concentration on Domestic Sale

Under Armour may have been considered a major player in the Sports Apparel

industry within U.S., but the same is not true in the global market compared to

internationally-renowned Nike and Adidas brands. One component of the overall growth

strategy of Under Armour must be to expand its international operations instead of

focusing most of its efforts on domestic revenues.

Taking these into consideration, our recommendation would be to increase efforts

toward international markets. Specifically, this would call for an establishment of retail

outlets to Asian countries (e.g. China, Malaysia, India) as potential markets;

sponsorship to international sports teams such as Brazilian National Sports Teams and

China Football League; increase of international advertising through partnering with

international television channels as CNN and AXN and also making use of social media

like YouTube, Facebook, Twitter, and others; and making alliances with international

companies in the same industry such as UNIQLO and Penshoppe.

Third ProblemToo much dependence on few third-party suppliers

Under Armour relies heavily on suppliers and manufacturers outside of United States,

particularly, China and Hong Kong. Furthermore, seventy to 75% of the fabrics used in

Recommendations


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its products come from only six suppliers giving them a control over Under Armours

inbound logistics. This will, in turn, have an unfavourable effect on its product pricing.

Our recommendations cater two phases. The first is with the existing suppliers. Under

Armour must maintain good relationship with its suppliers by allowing them to

participate in the companys corporate social responsibility (CSR) activities. Under

Armour must also establish long-term contracts and close communication with its

suppliers. The second phase is to find other potential and reliable suppliers and

evaluate the quality of products they supply. If possible, research on the most feasible

suppliers in terms of its geographic locations so that transportation costs will be reduced

when moving products from suppliers to various distributors across different

geographical areas.


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Summary for Solut ions and Recommendations

SWOT ANALYSIS AND SWOT MATRIX

Strengths

1. Good Leadership2. SAP system3. Brand Loyalty4. Brand Equity5. Core Competence

in Innovation6. High Quality

Apparel7. Increase in Sales

every Year8. Wide Range of

Apparel

9. Athletes and TeamSponsorships10. Intelligent and

Efficient R&DTeam

Weaknesses

1. Small Total Sales andNet Incomecompared to rivals

2. Dependent ondomestic market

3. High prices4. Not a Synthetic

Marketing Campaign5. Heavily Dependent

on PA for Sales(80%+)

6. Target Male Market

more than FemaleMarket

7. 27% of Sales comefrom 2 Distributors;Dicks and TheSporting Authority

Opportunities1. Media Product Placement2. Growth of PA Industry

(Domestic and International)3. Consumers focus on

Quality, not Price

4. Economic Recovery5. Corporate SocialResponsibility

6. Consumers becoming morehealth conscious

7. Sport participation is a keyaspect of U.S. culture

8. Increase in sportsparticipation in emergingmarkets

9. E-commerce and media

10. Internet allows footwear

companies to purse adirect-to-consumer saleschannel

StrategyRecommendations

1. ContinuedevelopingInnovativeProducts into

existing andemergingmarkets(S3,010,08)

2. Sponsorship asa form ofadvertisementand promotion(S8,01,09)

3. Increaseadvertising using

social networking(S8,01,011)


1. Expand intoInternational Market(W2,02,010)

2. Establish larger

female market(W6,04)

3. Focus on basketballfoot wear toincrease sales onshoes ( W5,01)

Threats1. FDI Policies2. Increase in cost of raw

materials and resources;

Strategy

Recommendations

1. Continue on


1. Expand product lineand further diversify


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shipping costs3. i.e. cotton, all man made

fibers, and the big onebeing OIL/GAS

4. Inflation in China Increasing5. Chinese Labor Costs

Increasing6. Obesity Rates in U.S.

establishing

premium branding

image. (s3,s4,s6,t2)

2. If possible, avoid

product

innovation

requiring much

labor intensive

production and

high material

costs than the

current

production

system.

(s3,s9,t4,t5)3. Seek for other

trusted suppliers

offering standard

quality to

strengthen the

firms supply

chain and

achieve greater

production.

(t1,t2,s7,s5)

to be distributedinto wide range ofpossible targetmarkets to spreadfixed component of

labor costs.(w1,w2,w5,w6,w7 &t3, t4,t5)

2. Maintain highproduct quality tocompensate highselling price and atleast maintain orincrease sales. (w1,w3, t2,t3,t4)

3. Consider marketing

on fitness activitiesinvolving womenrather than focusingon athletic activitiesalone. (w4, w6, t6)


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Appendix 1

IFE Matrix

Key Internal Factors

Strengths

Rating Weight Weighte

d ScoreGood Leadership 4 .08 .32SAP System 3 .05 .15

Core Competence in Innovation 4 .06 .24High Quality Apparel 4 .07 .28Increase in Sales Every Year 4 .07 .28

Brand Loyalty 4 .05 .20Wide Range of Apparel 3 .05 .15

Athlete and Team Sponsorships and

Endorsements

3 .05 .15

Very Intelligent and Efficient R & D Team 3 .06 .18Brand Equity 4 .06 .24

Weaknesses Rating Weight WeightedScore

Small Total Sales and Net Incomecompared to Rival

2 .06 .12

Heavily Dependent on Domestic Market 1 .07 .07High Prices 2 .05 .10

Not a Synergistic Marketing Campaign 2 .05 .10Heavily dependent on PA for Sales(80%+)

1 .07 .07

Target Male Market more than FemaleMarket

2 .05 .10

27% of Sales come from only 2Distributors

1 .06 .06

Internally Strong Position Total =

2.80


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Appendix 2

EFE Matrix

Opportunity Rating Weight Weighted

ScorePotential market for basketball shoes 2 .04 .08Increase in Retail Sales 2 .08 .16

Growth of PA Industry (Domestic andInternational)

3 .06 .18

Female Market 3 .08 .24Consumers focus on Quality, not Price 4 .07 .28

Corporate Social Responsibility 3 .06 .18

Economic recovery 2 .06 .12

Consumers becoming more healthconscious

4 .05 .20

Sport participation is a key aspect ofU.S. culture 3 .05 .15

Increase in sports participation inemerging markets 3 .06 .18

E-commerce and media 3 .05 .15

Threat Rating Weight Weighted

Too much dependence on few third-partysuppliers

1 .07 .07

Lack of Proprietary Product Rights 2 .08 .16

Increase in cost of raw materials andresources; shipping costsi.e. cotton, all man made fibers, and thebig one being OIL/GAS

1 .06 .06

Inflation in China Increasing 1 .04 .04

Chinese Labor Costs Increasing 1 .04 .04

Obesity Rates in U.S. 1 .05 .05Externally Strong Position Total = 2.32


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Appendix 3

Product BCG Matrix


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Appendix 4

Grand Strategy Matrix

Under Armour is located on the first quadrant of the Grand Strategy Matrix (Rapid Market

Growth with Strong Competitive Advantage). The company is in an excellent strategic position.It may concentrate on its current markets or products which generate most of its revenues. That

is, maintaining its innovative competence in Performance Apparel's sales in Domestic Region.

However, it may also take risks aggressively when necessary. Thus, it may pursue into

international expansion. Product development calls for focusing products that could be potential

revenue generators (e.g. Basketball shoe wear).


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Appendix 5

Projected Trends

Data from 2005 to 2009 were given and projected gross profit and expenses from 2010 to 2013

were computed thru analysis of companys annualgrowth rate plus consideration of expansionexpenses and GDP forecasted rate in China where the company assumes to expand in its first

year.


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References:

http: / /investor .underarmour.com/annuals.cfm

https: / /www.facebook.com/underarmour

http: / /www.uabiz.com/company /managementTeam.cfm

http://blog.euromonitor.com/2013/03/new-apparel-research-part-1-a-focus-

on-geographies.html

http://www.atkearney.com/consumer-products-retai l /global-retai l-

development- index/ful l-report/-

/asset _p ub l isher /oPFrGkbIk z0Q/conten t/2013 -g lobal-retai l-dev elopment-

index/10192

http://shrinkthatfootprint.com/average-electr ici ty-pr ices-kwh

http://blog.euromonitor.com/2013/03/new-apparel-research-part-1-a-focus-

on-geographies.html

under armour case study analysis

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