SAMPLE REEBOK CASE STUDY

Reebok Case Study Sample for CIPSQuestions to: Stephen Ibaraki, sibaraki@cips.ca

Reebok Case 2

Executive Summary

OverviewReebok, ranked second in revenues, is a profitable global company selling products such as footwear, apparel, and accessories.

Performing a careful analysis ensures Reebok’s continued growth and profitability in an environment with strong competitive forces, weak economies, and nine years of flat growth. The analysis summary appears below with the conclusion. EFE: External Factor Evaluation MatrixThe EFE indicates there are significant revenue opportunities in meeting the needs of aging leisure-oriented Baby-boomers (BBs), and the young Generation-Y (GY), who desire fashionable sportswear and are Internet savvy. Two significant threats to the industry are the disruption in product supply from foreign manufacturers such as Indonesia where there is political unrest and not keeping pace with rapid changes in consumer preferences. CPM: Competitive Profile MatrixNike is a stronger competitor overall. Reebok is weaker in R&D, product breadth, and production location. The critical success factors of R&D for product innovation, and marketing research to keep pace with consumer preferences, need Reebok’s attention.

IFE: Internal Factor Evaluation MatrixReebok receives great value from their brand image. Their contracts with the NBA/NFL increase brand visibility, promote sales, and provide licensing revenues. In the short term, there is risk from Reebok’s global restructuring activities which could negatively affect their internal operations and financial position. Reebok declining R&D expenditures is a weakness since they must keep pace or stay ahead of innovations from competitors.

ObjectivesDuring 2002 to 2004, Reebok must decrease their dependency upon potentially unreliable suppliers, develop successfully marketed product innovations, and anticipate changes in consumer preference creating promotional success. In addition, Reebok must further capitalize on the large GY and BB groups by increasing sales to these groups, and promote sales by leveraging their brand value and NBA/NFL sponsorship/licensing arrangements.

TOWS: Threats, Opportunities, Weaknesses, Strengths MatrixTOWS analysis generated alternative intensive, integration, diversification, and defensive strategies. However, matching to objectives refined the list. Increased revenues are driven by product development and marketing penetration (advertising) of: leisure products to BBs; fashionable sportswear/footwear to GY; and licensed NFL/NBA performance/lifestyle products. Concentric diversification through new accessories adds revenues to the NFL/NBA sports licensing business. Forward integration through new online direct sales expands distribution. A backward integration strategy of using production from alternative reliable suppliers satisfies the problem with Indonesia. Increasing R&D expenditures will support the product development strategy of continuing product innovation and staying ahead of competitors. Using marketing research teams focused on target market segments will allow Reebok to keep pace with consumer preference changes, matching product design/promotions to changing tastes.

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Reebok Case 3

SPACE: Strategic Position and Action Evaluation Matrix SPACE analysis reveals Reebok’s financial strength is good, competitive advantage is very good, industry strength is slightly above average, and the environment strength is slightly below average, giving them a “mildly” aggressive strategic position of (2.4, .75). This allows Reebok to pursue any intensive, integration, or diversification strategy though they need to be sensitive to risky acquisition strategies. Aligning with objectives would produce similar strategies to those listed with TOWS. Additional strategies include market development through European expansion, horizontal integration by acquiring a youth-oriented competitor, horizontal diversification by the acquisition of a rap music company, and conglomerate diversification by acquiring an outsourcing computer Web company. Acquisition strategies have higher risk, greater costs, and require careful consideration or delay, especially with Reebok’s current high debt and restructuring activities. Financing these strategies through added new debt or stock issuance (diluting stock value) is not recommended.

GSM: Grand Strategy MatrixDue to Reebok’ strong competitive position and the flat market growth, they are placed in Quadrant IV which suggests diversification or joint venture--strategies essentially dictating getting into other markets due to a strong cash position and slow growth in the current industry. With Reebok targeting high growth segments (e.g. GY, NFL/NBA, European expansion), combined with the reasons noted in the SPACE analysis, horizontal, and conglomerate diversification require short-term elimination. However a Joint Venture to provide an on-line direct sales channel to GY is recommended.

QSPM: Quantitative Strategic Planning MatrixTwo strategies were evaluated; product development for the youth (GY) market versus concentric diversification development of new accessories for the NFL/NBA licensing business. The product development strategy has the higher ‘sum total attractiveness score’ indicating it is the better of the two though the small difference in scores indicates there is no major advantage of one versus the other.

Conclusion:Already in a strong competitive position, a successful restructuring will lower expenses increasing margins and cash flow to further help fund new product lines and strong promotional programs for the large market GY, BBs, and NFL/NBA sports licensing business. A new online direct-sales presence provides an additional marketing channel. These strategies will be implemented in 2002 with the addition of new accessories for NFL/NBA licensing by July 2003. GY, the NFL/NBA relationship, and European expansion (starting 2003), provide major future growth opportunities. With ‘current’ and new strategies, Reebok is strengthening their casual products position; growing the vital GY sub-segment, young women-in-sport; and expanding their presence in the performance area. With a possible future economic recovery (2004), retail sales will pick up, providing improvements all around. Competitive advantage is driven by good brand image, continuing innovation, quality product design, and strong marketing—all very strong suites for Reebok. With new sources of reliable, inexpensive supply, these factors position Reebok to meet its objectives and for continued growth and success.

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Reebok Case 4

Table of Contents

Introduction................................................................................................................................... 5Vision............................................................................................................................................ 6Mission..........................................................................................................................................6External Factor Evaluation Matrix (includes the list of opportunities and threats).........................7

Analysis:....................................................................................................................................8CPM List of Critical Success Factors............................................................................................9Competitive Profile Matrix...........................................................................................................10

Analysis:..................................................................................................................................10IFE List of Internal Forces and IFE Matrix combined..................................................................11

Analysis:..................................................................................................................................13Objectives................................................................................................................................... 14TOWS......................................................................................................................................... 15

Analysis...................................................................................................................................16Here are examples that tie-in most directly with objectives:................................................16

SPACE Matrix.............................................................................................................................18Space Matrix Table and Graph................................................................................................18

Summary............................................................................................................................. 19Analysis:..................................................................................................................................20

Tied to TOWS recommendations that meet objectives........................................................20Other strategies tied to objectives........................................................................................20

Grand Strategy Matrix.................................................................................................................22Analysis...................................................................................................................................22

QSPM......................................................................................................................................... 24Analysis...................................................................................................................................25

Conclusion..................................................................................................................................26Current strategic situation........................................................................................................26Recommendations: objectives, strategies, and implementations............................................26Additional policies/actions and controls...................................................................................27

General:...............................................................................................................................27Finance:...............................................................................................................................28Production:...........................................................................................................................28Marketing:............................................................................................................................28R&D:.................................................................................................................................... 29MIS:..................................................................................................................................... 29

Final comments.......................................................................................................................29References..................................................................................................................................30

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Reebok Case 5

Introduction

Reebok, ranked second in revenues, is a profitable global company addressing the athletic and lifestyle needs of all people by selling fashionable footwear, apparel, and accessories. In 2002, there are concerns over possible adverse affects from the global restructuring activities. Other challenges include reducing the threats to supply from unreliable foreign manufacturing, anticipating changes in consumer preference creating promotional success, and staying ahead of competitor technology breakthroughs by technical innovation. Offering strategic opportunities are increasing sales to the large youthful GY and leisure-oriented BB groups; promoting sales by leveraging Reebok’s brand value; and enhancing brand visibility and revenues from NBA/NFL licensing.

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Reebok Case 6

Vision

To become the world’s largest, most innovative, exciting, and profitable company serving the athletic and lifestyle needs of all people.

Mission

At Reebok, we are contributing corporate citizens standing for human rights, equal respect, and fair treatment of all people, including our valued employees. For all people around the globe, we employ the best technologies offering the highest quality athletic and lifestyle footwear, apparel, and accessories. Our leading brands include Reebok, Rockport, the Greg Norman Collection, and the Ralph Lauren-Polo sport line. Through advanced computing technology, we communicate valued customer needs to our global divisions. We strive to be the leader, at the best prices and profit levels, generating benefits and growth for our customers, shareholders, partners, and employees.

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Reebok Case 7

External Factor Evaluation Matrix (includes the list of opportunities and threats)

External Factors W R WSOpportunities      

1. Generation-Y (GY) is 60M strong, oriented to fashion-sportswear. Targeting this present and large future market by meeting their needs will increase sales. Moreover, born 1979-1994, they have particular exploitable traits (prefer truthful/non-glossy ads, cynical, practical, Internet savvy) for effective promotional programs. 0.09 3 0.27

2. Baby-boomers (BBs), at/near their top earning years, are increasing their leisure activities. Targeting this trend and large market with leisure apparel/footwear will increase sales. 0.08 3 0.24

3. “Girls/women” sports participation increasing; represents increased sales by targeting their needs. 0.07 4 0.28

4. European market with unification is growing, is crucial for athletic footwear, and represents sales growth when targeted. 0.05 3 0.15

5. On-line apparel sales increasing having doubled to $7B+ from 1999 to 2001 and represents increases in sales when targeted. The Internet is a major sales channel for apparel and footwear. 0.05 3 0.15

6. On-line fashion buyers are generally 35+ years and earn $60K+ and are a sales growth opportunity since they have ample funds and are not as sensitive to economic fluctuations. 0.04 2 0.08

7. Seasonal increases in demand for footwear/apparel can be anticipated and provide predictability in supply meeting demand. 0.03

2 0.06

8. Increasingly, positive public sentiment toward demonstrated social responsibility (human rights) increases the image of the company fostering consumer loyalty and increased sales. 0.02 4 0.08

9. Continuing advances in computing technology allows faster reaction to changing consumer/business conditions. Keeping pace with changes increases market share and sales. 0.04 4 0.16

10. Using foreign contract manufacturing (e.g. Thailand) reduces capital investment allowing focus on R&D, marketing, and product design. 0.02 4 0.08Threats      

1. Instability within a country such as Indonesia can disrupt or delay product supply, preventing or delaying future deliveries to retailers resulting in cancelled orders, sales/market share decline, and loss of competitive position. 0.08 1 0.08

2. Companies must keep pace with rapid consumer preference changes such as shift to casual products or face losing market share, and sales decline. The shift from athletic footwear to “casual” products is affecting Reebok and others. The “increasing” shift to more leisure activities by Baby Boomers would be one explanation for the lost revenues. 0.07 2 0.14

3. Competitor technology breakthroughs decrease sales for other competitors; companies must keep pace or lose market share. 0.06 3 0.18

4. Increases in US duties and EU anti-dumping duties (China, 0.05 2 0.10

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Reebok Case 8

Indonesia) add to costs squeezing profit margins. 5. Counterfeiting of trademarks/logos means lost business and

revenues. 0.04 3 0.126. Intense competition (Nike is leader) increases risk of promotional

success from a competitor, revenue decline, and loss of market share. 0.05 4 0.20

7. Poor economy, 9/11 reduces consumer purchasing power and decreases sales. 0.05 3 0.15

8. Foreign currency fluctuations can reduce profits; adversely affect sales comparisons. 0.04 3 0.12

9. Cow diseases can reduce leather supply increasing raw materials prices and squeeze profit margins. 0.01 2 0.02

10. Increases in EU quotas can limit China product imports limiting retail shipments, reducing sales and potentially market share. 0.02 2 0.04

11. Flat growth for industry (maturing athletic footwear market)—sales growth occurs at the expense of market share of others and this increases competition. 0.04 3 0.12Total 1.00 2.82

Note 1: W: Weights; R: Rating; WS: Weighted Score

Analysis:

A total weighted score of 2.5 is average. An increase in sales/net income for 2001 and number two revenue position behind Nike supports Reebok’s above average score of 2.82 in responding to external forces.

The justifications for the two top opportunities and threats as evidenced by their top two positions in weighting are in the matrix (bolded).

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Reebok Case 9

CPM List of Critical Success Factors

Critical success factor Justification1 R&D investment into continual

breakthrough innovation Reebok’s R&D spending [needed for innovation] is declining.

2 Focused marketing research to anticipate preference changes in targeted consumer groups

Reductions in Reebok’s revenues came from not keeping pace with the shift to “casual.”

3 Breadth of product line provides sales to multiple market opportunities and insulates from declines in any one market

Reebok has broadened their Classic “lifestyle” offerings. Their footwear sales have declined but their apparel sales have increased nearly 19% from 2000.

4 Location of low wage contract manufacturing with consistent supply; not subject to high duties or quota restrictions

Instability in Indonesia threatens the delivery of nearly 33% of Reebok’s shoes. Reebok’s China products are subject to changing EU/US duties and EU quotas that could increase costs or limit supplies.

5 Strong endorsements, sponsorships

These enhance brand exposure and promote sales. Reebok has endorsements from sports stars; ongoing sponsorships with leagues, federations, and Survivor shows; and added licensing arrangements with the NBA/NFL providing revenue.

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Reebok Case 10

Competitive Profile Matrix

Competitive Profile Matrix for Reebok and NikeReebok Nike

Critical Success Factors Weight Rating Score Rating Score1 R&D 0.25 3 0.75 4 1.002 Marketing research 0.22 2 0.44 2 0.443 Breadth of product line 0.20 3 0.60 4 0.804 Location of production 0.15 2 0.30 3 0.455 Endorsements, sponsorships 0.18 4 0.72 3 0.54

TOTAL 1.00 2.81 3.23

Analysis:

Reebok’s lower total score relative to Nike indicates Nike is a stronger competitor overall. Nike’s #1 position in revenues and 37% market share (2001) versus 15% for Reebok supports this assessment. Reebok is weaker in R&D, product breadth, and production location. The high weighting of R&D and marketing research indicates these areas need Reebok’s attention. Reebok is stronger in endorsements/sponsorships.

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Reebok Case 11

IFE List of Internal Forces and IFE Matrix combined

Internal Factors W R WSStrengths      

1. Reebok’s widely recognized strong brands are associated with making a fashion statement and encouraging freedom of expression. Strong brand image provides differentiation, associated consumer loyalty, some immunity from price differences. 0.08 4 0.32

2. Exclusive NFL, NBA sponsorships provide high brand visibility to millions of fans, promoting sales, and provide added licensing revenues estimated at $200M for NFL apparel for 2002. 0.07 4 0.28

3. Reebok’s strong history with women’s sports/fitness linked to their effective promotional programs and product/brand positioning such as their Defy Convention ads provides strong marketing position for this market segment. 0.06 4 0.24

4. 204 retail locations in the US providing good market presence and selling opportunities. 0.04 3 0.12

5. Strong innovations in the past as evidenced by DMX/Viz-DMX (footwear), HYDROMOVE (apparel), Traxtar for children indicate their ability to keep pace with technical improvements which is important for sales success. 0.05 4 0.20

6. Strength in apparel since sales increased nearly 19% from 2000. 0.04 4 0.167. Reebok’s market share has increased from 12 to 15% in 2001

indicating successful promotional marketing. 0.04 4 0.16

8. Good indicators of financial health (from 2000 to 2001): 27% increase in net income; revenue increase despite foreign currency fluctuations affecting sales figures; liquidity (2.88) is good; 23% increase in EPS. 0.03 4 0.12

9. Using foreign contract manufacturing reduces capital investment allowing focus on R&D, image, marketing, and product design. 0.03 4 0.12

10. Good product breadth (casual/leisure, lifestyle, fashion, performance, fitness, sports, dress [shoes]: apparel, footwear, accessories) through four major brands provides greater opportunity for market segmentation and product positioning to increase sales. 0.05 3 0.15

11. Growing e-commerce arrangements with Retailers to sell products (Reebok, Greg Norman) provides additional sales channels 0.03 3 0.09

12. Strong marketing department with many attractive ad campaigns, strong endorsements from sports stars in all fields, and sponsorships increasing sales and successful promotional campaigns (Defy Convention, Survivor, Vogue, and Vanity Fair). 0.06 4 0.24

13. Advanced MIS systems provides changing consumer needs updates to their global operations allowing them to keep pace with the changing needs (in their mission statement) 0.02 4 0.08

14. Commitment to human rights work builds consumer loyalty. 0.01 4 0.04

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Reebok Case 12

Weaknesses      1. Risk from global restructuring activities in the short term could

affect product delivery, logistical operations, and produce increased expenditures and charges due to inefficiencies. With so many internal areas impacted, it is a significant risk factor. For example, impeding product deliveries affects Reebok’s competitive position in meeting delivery commitments, reduces sales, and results in lost market share. Increases in expenditures/charges negatively affect net income, and investor confidence. 0.06 2 0.12

2. R&D expenditures have declined yearly from 1999 to 2001 (33% in total) which could affect future product innovation. Reebok needs continuing breakthrough innovations to stay ahead or keep pace with competitors. 0.05 2 0.10

3. Using Indonesia for nearly 33% of shoe supplies where political instability can affect production and ability to deliver, decreasing sales and market share. 0.04 1 0.04

4. Main suppliers are in China and Indonesia, which are subject to high US/EU duties increasing costs, reducing profit margins. China is also subject to EU quotas and further limits will require sourcing Reebok shipments elsewhere causing delays, added costs. 0.02 2 0.04

5. 30-45 day delay to create new shoe molds when shifting production, which affects ability to fill orders, delaying shipments, reduce sales. 0.03 1 0.03

6. Marketing research did not anticipate the shift from athletic footwear to “casual” products, which decreased sales. 0.04 2 0.08

7. Ralph Lauren sales declined 8.8% from 2000 to 2001. 0.03 2 0.068. Rockport sales declined 5.4% from 2000 to 2001. 0.03 2 0.069. Overall footwear sales are flat having declined slightly from 2000 to

2001. 0.01 2 0.0210. Senior management structure is limited, reducing diversity in

decision-making and dedicated focused attention on market segments. 0.01 2 0.02

11. Not serving European market or International markets well since sales to the UK are greater. 0.03 2 0.06

12. Higher LT Debt to Equity relative to competitors like Nike requires added cash to service the debt reducing cash needed for operations. 0.02 2 0.04

13. Online activities are limited to select retailers selling only Reebok and Greg Norman products reducing sales opportunities to the rapidly growing online market. 0.02 2 0.04Total 1.00 3.03

Note: Justifications are from David (2003).

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Reebok Case 13

Analysis:

A weighted score of 2.5 is average. Reebok’s score of 3.03 indicates above average internal strength. Their increase in sales, net income, and market share for 2001, and their second place position behind Nike in total revenues supports this weighted score.

The two most important strength and weakness factors are those with the highest weights (“bolded” in the IFE) indicating they can have a great impact on organizational performance. Justifications are included in the matrix.

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Reebok Case 14

Objectives

According to Sorli (2003), objectives are specific desired results that answer, “How much and by when” and are SMART. Here are the objectives for Reebok.

1. Develop two successfully marketed updates/innovations in footwear and apparel for 2002, 2003, and 2004.

2. Reduce dependence on Indonesia as a footwear source to 10% of total in 2002 and 0% by 2004.

3. Identify two yearly changes in consumer preference that receives focus and produces promotional success in 2002, 2003, and 2004.

4. Increase sales of leisure products 5% in 2002, 10% in 2003, and 10% in 2004.5. Increase sales of youth-oriented fashion-sportswear/footwear 10% in 2002, 15% in 2003,

and 20% in 2004.6. Increase sales resulting from NFL/NBA licensing arrangements by 20% in 2003 and 30%

in 2004.

Note: The paper uses the shorthand notation, Ob1 to Ob6, to reference the objectives.

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Reebok Case 15

TOWS

Strengths WeaknessesNote: The first 1/2 letters of the alternative strategy indicate the category. The codes are used throughout this paper.Intensive:

1. MD: Market development

2. MP: Market penetration

3. PD: Product development

Integration:4. FI: Forward 5. BI: Backward 6. HI: Horizontal

Diversification:7. CD: Concentric 8. HD: Horizontal9. CGD: Conglomerate

Defensive:10. R: Retrenchment11. D: Divestiture12. L: Liquidation13. JV: Joint

venture/partnership

1. Strong brand 2. NFL/NBA 3. History with women 4. Strong innovations 5. Strength in Apparel 6. Foreign manufacturing7. Product breadth 8. E-commerce arrangements 9. Marketing 10. MIS systems 11. Financial health12. Market share13. 204 retail locations

1. Restructuring 2. R&D spending3. Indonesia4. Main suppliers:

Indonesia, China5. New shoe mold delay6. Missed “casual” shift 7. Ralph Lauren sales

decline8. Rockport sales declines 9. European market10. Online activities limited

Opportunities S-O W-O 1. Gen-Y (GY)2. Baby-boomers (BB)3. Women in sports 4. Europe Union (EU)5. On-line footwear /

apparel sales 6. On-line fashion

buyers 7. Advances in

computing8. Foreign contracting

1. Use youthful ads, to promote sales of fashionable sportswear/footwear to GY: S1, S5, S7, S9, S13, O1=MP-Ob52. Use lifestyle ads to promote sales of casual products to BBs: S1, S5, S7, S9, S13, O2=MP-Ob43. Use youthful women ads, to promote sales of sports products to women in sports: S1, S3, S5, S7, S9, S13, O1, O3=MP-Ob54. Develop new fashionable sportswear/footwear products for the GY market: S4, O1=PD-Ob1,55. Launch sporty ads to promote the sales of licensed NFL/NBA products to the sport market: S1, S2, S5, S7, S9, S13, O1, O3=MP-Ob5, 66. Expand further into Europe: S1, S4, S9, S11, S12, O4=MD-Ob4, 57. Acquire European company to support further penetration into EU: S11, S12, O4=HI-Ob4, 58. Develop NFL/NBA licensed product lines for the sport market: S2, S4, S7, O1, O3=PD-Ob1, 5, 6

1. Extend with apparel then sell Ralph Lauren fashionable products online: directly and through expanded retailer network: W7, W10, O2, O5, O6=FI-Ob42. Increase R&D expenditures to support producing new innovations to meet future market segment needs (e.g. GY, BB, women-in-sports): W2, O1, O2, O3=PD-Ob1, 4-63. Expand further into Europe, partnering with Adidas who is the market leader taking advantage of their distribution channels: W9, O4=JV; MD-Ob4-54. Sell youth-oriented products online since GY are Internet Savvy: W10, O1=FI-Ob5-65. Acquire an outsourcing Web-services computer company to direct-sell online: W7-10, O1-7= CGD, FI, BI-Ob4-66. Partner with Web company to direct-sell online: W7-10, O1-7=JV, FI-Ob4-6

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Reebok Case 16

Threats S-T W-T1. Political instability2. Consumer

preference changes 3. Competitor

technology breakthroughs

4. US/EU duties 5. Intense competition 6. Poor economy7. EU quotas 8. Flat growth

1. Develop products to match the casual shift: S4, T2, T3=PD-Ob1, 42. Develop products for different market segments (fitness, performance, lifestyle, sports) and to stay ahead of competitors: S4, T2, T3=PD-Ob1, 3-63. Develop new accessory NFL/NBA products (e.g. equipment, watches). The exclusive relationship minimizes competition: S2, S4, S7, T5, T8=CD-Ob5-64. Repackage and then sell mid-range priced Retro products to the youth market affected by poor economy: S1, S7, S9, T2, T6=MP/PD-Ob55. Acquire Skechers or Vans, who is particularly strong in the growing youth market, to better competitive position and market share: S11, S12, T5, T8=HI, CD (for Vans)-Ob5

1. Use production from stable countries with low labour costs, possibly not subject to EU quotas and possible lower duties imposed: W3, W4, T1, T4, T7=BI-Ob22. Create shoe molds in advance of shifting production: W5, T1=BI-Ob23. Marketing research will monitor consumers to forecast and keep pace with changing tastes/needs: W6-8, T2, T5, T6=MP/PD-Ob1, 3-64. Divest weak foreign operations allowing cash to acquire rap music company: W1, T5, T8=D, HD-[Ob5]5. Merge common operations between business units to increase efficiencies, reduce expenses providing cash for researching consumer preference changes, new product development and furthering competitive position: W1, W2, W6, W9, T2, T3, T5=R-Ob1, 3-66. Initiate new senior management structure increasing diversity in decision-making and providing dedicated focused attention on market segments improving competitive position: W1, W7-9, T5, T8=R-Ob4-67. Pause strategy where no risky new strategies are employed allowing focus on increasing sales: W1, W7-8, T6, T8=R-Ob4-6

Note 1: Links to objectives appear as Ob1-6.Note 2: Products refer to footwear and apparel unless stated otherwise.

Analysis

Recommended strategies to meet the objectives, tie into existing strategies, and current resources, include the categories: MP, PD, BI, FI (online sales), and CD:

Here are examples that tie-in most directly with objectives:

Ob1SO4ST1-2

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Reebok Case 17

WO2WT3An increased R&D budget will produce updated and new product designs in footwear and apparel affecting all market segments (e.g. BBs, GY; performance, sports, leisure).

Ob2 WT1-2The strategy is to shift production away from Indonesia (possibly China). Backup shoe molds provide a rapid shift capability.

Ob3WT3Marketing research will actively monitor changing tastes and communicate this to product design groups to match design to tastes.

Ob4SO2ST1WO1, 6WT3Reebok will use brand image and strong promotional programs to take existing and newly designed products and actively promote them to the BB/leisure market.

Ob5SO1, 3-5ST2WO2, 4, 6WT3Reebok will use brand image and strong promotional programs to take existing and newly designed products and actively promote them to the GY market.

Ob6SO5, 8ST3WO6WT3Some 100 million+ people watch NFL/NBA games providing a tremendous opportunity to build brand image and a sports-licensed business focusing on apparel, footwear, and new accessories tailored to the sports. Since the arrangement is exclusive, the growth potential is large and ties into the youth market.

Note: TOWS-based MD, HI, CGD, HD strategies appear with SPACE and GSM examples.

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Reebok Case 18

SPACE Matrix

The SPACE matrix stage 2 tool was the preferred choice for the following reasons:1) Financial strength (FS), competitive advantage (CA), environmental stability (ES) and industry strength (IS) are the most important determinants of an organization’s strategic position (David, 2003)2) The IE matrix works best when used with BCG in evaluating strategies for different divisions in multi-divisional firms, typically competing in different industries. Reebok does not ideally fit this profile.

Space Matrix Table and Graph

Note: FS and CA are comparisons to competitors; ES and IS are comparison to other industriesFS1. Good EPS increases2. 27% increase in net income in 20013. Good liquidity 4. High long-term debt to equity

5552---17/4=Avg. 4.25

GoodES1. Political instability, quotas/duties with foreign contracting 2. Strong competition 3. Demand variability is limited as indicated by 9 yr. flat sales growth 4. Ease of exit due to contract manufacturing

-5-4-3-2----14/4=Avg. -3.5

Below Avg.

IS1. Sales growth flat for 9 years but not in decline as in other industries2. Profit potential is good 3. Financial stability is good 4. Technological know-how is good5. Segments are growing (apparel sales)

24445---19/5=Avg. 3.8

Above Avg.

CA1. Market share increased at the expense of competitors -1

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Reebok Case 19

2. 204 retail outlets3. Strong ads, endorsements, promotional campaigns4. Strong history of technical innovation5. Strong brands

-2-1-1-2----7/5=Avg. -1.4

Very Good

Summary

1. CA/ES: -1 (best) -6 (worst)2. FS/IS: 6 (best) 1 (worst)3. X-axis: 3.8 (IS) + (-1.4) (CA) = 2.44. Y-axis: 4.25 (FS) + (-3.5) (ES) = .755. Mildly Aggressive position

Conservative FS Aggressive

CA IS

Defensive ES Competitive

-6

-5

-4

-3

-2

-1

+0

+1

+2

+3

+4

+5

+6

-6 -5 -4 -3 -2 -1 +0 +1 +2 +3 +4 +5 +6

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Reebok Case 20

Analysis:

The aggressive quadrant suggests intensive (MP, MD, PD), integration (FI, BI, HI), diversification (CD, HD, CGD) strategies.

Reebok can pursue “mildly” aggressive strategies. Acquisition strategies need careful consideration since the position is not strong (e.g. +4, +4).

Tied to TOWS recommendations that meet objectives

All the strategies discussed under the TOWS “Analysis” section would apply here.

Here are a few examples with links back to TOWS:

The recommendation would be “Intensive” PD, MP promotional strategies to GY, BBs, and involving the NFL/NBA relationships selling apparel and footwear. FI provides another online sales channel.a) MP: Ob3: WT3Ob4: SO2Ob5/6: SO1, 3, 5

b) PD: Ob1, 4-5: SO4, 8; ST1-2, WO2

c) FI: Ob4: WO1, 6Ob5: WO4, 6

Another priority is ensuring reliable supplies through BI strategies with another Far East supplier (e.g. Thailand, Vietnam). a) BI: Ob2: WT1

A good strategy is CD through the development of new lines of accessories based upon the NFL/NBA licensing arrangement followed by marketing penetration promotional strategies to sell these new products. The TOWS strategy description and GSM analysis outlines the advantages for CD.a) CD:Ob6: ST3

Other strategies tied to objectives

a) MD:Ob5: SO6Expand further into the Europe Union targeting the youth market in the long term. The unification provides a stable and expanding business/consumer market especially with the untapped former Eastern Block countries.

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Reebok Case 21

b) FI:Ob5: WO4, 6 Sell youth-oriented fashionable sportswear/footwear products online through a dedicated web site. Development and support costs are low and GY is Internet Savvy. c) HI:Ob5: ST5Acquire a competitor who has a strong market presence in the youth market.

d) HD:Ob5: WT4 Acquiring a rap music company can tie in with rap-star endorsement ads to youth.

e) CGD:Ob4-5: WO5Use the purchased outsourcing company to provide dedicated Reebok web sites for selling youth and BBs products.

Note: The HI, HD, CGD acquisition strategies are not recommended. Reebok’s current high debt load and restructuring makes them vulnerable to higher risk strategies. In addition, financing any acquisitions would increase debt or when using stock, it would dilute share value, and reduce Fireman’s control.

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Reebok Case 22

Grand Strategy Matrix

RAPID MARKET GROWTH

 Quadrant II   Quadrant I

    

WEAK  COMPETITIVE   STRONGPOSITION             COMPETITIVE

  POSITION  Reebok     

Quadrant III   Quadrant IV 

SLOW MARKET GROWTH

Quad IV1. CD2. HD3. CGD4. JV

Analysis

Positioned in Quadrant IV, Reebok has available the diversification and joint venture strategies (see table).

Providing support for their strong competitive position is their strong 3+ IFE score, 2.82 EFE, SPACE -1.4 CA score, and increasing net income and market share.

The market has experienced 9 years of flat growth. Increases in market share occur at the expense of competitors, an indication of no growth overall though some segments (including sports licensing and youth markets) have growth potential.

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Reebok Case 23

Flat growth with strong competitive position places Reebok in Quadrant IV.

Reebok’s strong competitive position produces good cash flow in excess of their internal growth needs (due to the slow market growth). Since the present market is slow, a suggested strategy is diversifying or JV to get into other products/markets with higher growth.

The CGD and HD strategies outlined from the TOWS and SPACE analysis could apply here but are not recommended. Here are the reasons for not pursuing them:1. HD is riskier and normally recommended when the industry has no growth and returns are

low. CGD is the riskiest and recommended when industry sales and profits are declining. These are employed when there are no opportunities for growth in the industry.

2. Reebok is targeting industry growth segments and are finding increases in EPS and profits so intensive strategies apply.

Concentric diversification (adding products/accessories for the NFL/NBA sports licensing business (ST3)) could be pursued due to the lower risk.

In addition, a joint venture would be acceptable such as the TOWS WO6. With the Web JV, the partner could handle setup and site management so there are no conflicting interests, little added costs, and potential to increase sales.

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Reebok Case 24

QSPM

STRATEGIC ALTERNATIVES  Develop

NFL/NBA accessories (ST3)

Develop products for youth (SO4)

Key Factors Weight AS TAS AS TASOpportunities

1 GY 0.09 3 0.27 4 0.362 BBs 0.08 3 0.24 2 0.163 Young women in sports 0.07 2 0.14 4 0.284 European Union 0.05 2 0.10 3 0.155 On-line footwear /

apparel sales 0.05 2 0.10 4 0.20

6 On-line fashion buyers 0.04 2 0.08 1 0.047 Seasonal demand 0.03 2 0.06 3 0.098 Human rights 0.02 2 0.04 3 0.069 Advances in computing 0.04 2 0.08 3 0.12

10 Foreign production 0.02 2 0.04 3 0.06

Threats1 Political instability 0.08 2 0.16 1 0.082 Consumer preference

changes 0.07 2 0.14 1 0.07

3 Competitor technology breakthroughs

0.06 2 0.12 1 0.06

4 US/EU duties 0.05 2 0.10 1 0.055 Intense competition 0.05 2 0.10 1 0.056 Poor economy 0.05 2 0.10 1 0.057 Flat growth 0.04 3 0.12 2 0.088 Cow diseases 0.01 3 0.03 1 0.019 Counterfeiting 0.04 - - - -

10 EU quotas 0.02 2 0.04 1 0.0211 Foreign currency 0.04 2 0.08 1 0.04

1.00Strengths

1 Brand value 0.08 2 0.16 3 0.242 NFL/NBA 0.07 4 0.28 2 0.143 History with women 0.06 2 0.12 4 0.244 204 retail locations 0.04 2 0.08 3 0.125 Strong innovations 0.05 2 0.10 4 0.206 Strength in apparel 0.04 2 0.08 4 0.167 Market share 0.04 2 0.08 3 0.128 Financial health 0.03 3 0.09 2 0.069 Foreign production 0.03 2 0.06 3 0.09

10 Product depth 0.05 2 0.10 3 0.1511 E-commerce 0.03 2 0.06 3 0.09

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Reebok Case 25

12 Strong marketing 0.06 3 0.18 4 0.2413 Advanced MIS 0.02 2 0.04 3 0.0614 Human rights 0.01 2 0.02 3 0.03

Weaknesses1 Restructuring 0.06 1 0.06 2 0.122 R&D spending 0.05 1 0.05 2 0.103 Using Indonesia 0.04 2 0.08 1 0.044 Main suppliers in China

and Indonesia0.02 2 0.04 1 0.02

5 Delay to create new shoe molds

0.03 2 0.06 1 0.03

6 Missed “casual” shift 0.04 3 0.12 2 0.087 Ralph Lauren sales

decline0.03 3 0.09 2 0.06

8 Rockport sales declines 0.03 3 0.09 2 0.069 Flat footwear sales 0.01 3 0.03 2 0.02

10 Senior management 0.01 - - - -11 Europe 0.03 3 0.09 2 0.0612 High debt 0.02 1 0.02 2 0.0413 Limited online 0.02 3 0.06 2 0.04

Sum Total Attractiveness Score (STAS)

1.00 4.38 4.64

Analysis

This analysis is useful to choose one strategy over another due to limited resources (poor cash situation, high debt, inability to raise necessary funds). Reebok is in good financial health allowing the pursuit of both strategies. However, if the restructuring process does not go as planned limiting cash flow (and added debt or issuing stock is not wanted), then the “youth” strategy would be pursued. CD can be riskier requiring more MP/PD resources. The product development strategy for the youth market is more attractive than concentric diversification into NFL/NBA accessories, due to its higher STAS. However, the scores are so close that there is no major advantage of one versus the other. Moreover, the scores are mid-range indicating that the strategies are only reasonably attractive versus scores above six, which would be highly attractive.

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Reebok Case 26

ConclusionNote: TOWS table strategy codes are used.

Current strategic situation

1. Retrenchment with global restructuring can improve efficiency/costs but makes Reebok vulnerable to risk if problems occur.

2. There are product developments in footwear/apparel to keep pace with competitors but declining R&D expenditures is a problem.

3. GY, BB, NFL/NBA, Europe are large market opportunities.4. Three of the major market penetration programs are: young women (Defy Convention),

older/educated (Vanity Fair), and performance/sport with NFL/NBA sponsorships.5. Economy is affecting retail sales causing the decline in Ralph Lauren and Rockport sales.6. Product segmentation (Classic: lifestyle products), ads (Vanity Fair), Survivor sponsorships

suggests initial corrective action to keep pace with the shift to casual. Keeping pace with consumer preferences is essential.

7. There are risks with BI strategy using low wage contract manufacturing since Indonesian supply is unstable. Transferring to China is the contingency but this presents problems since China is subject to quota restrictions and EU anti-dumping duties.

8. Reebok places a high emphasis on brand image, marketing, product quality and making a fashion statement—strong competitor (high 3+ IFE, 2.82 EFE) within a flat growth environment.

Recommendations: objectives, strategies, and implementations

General1. Continue existing MP, PD programs. Due to current retrenchment, recommend a minimal

risk approach until at least July 2002, since disruptions from a problematic restructuring will affect all areas of the company. Focus on ensuring the restructuring is successful.

2. For 2002, due to high-debt load, current restructuring, and the weak economy, [in order of increasing risk], avoid costly acquisition strategies: HI, HD, and CGD. Moreover, acquisition-based strategies require financing that would increase debt or when using stock, dilute share value, and reduce Fireman’s control.

3. MD requires more resources for MP/PD so European expansion is delayed until Jan 2003 when restructuring is completed. The expansion will target the youth market. New economies emerging from the E-Union provides a stable business market and untapped growth opportunities.

4. All MP, PD, BI, FI, and CD strategies detailed below were chosen since they are low risk, closely support the vision/mission/objectives, tie into major strengths/opportunities, are inline with current strategies, within the resources and capabilities of the company, and actively support increases in sales to each market segment.

Specific5. Reduce dependence on Indonesia as a footwear source to 10% of total by 2002-end and 0%

by Jan 2004. Use a low cost, quality, contract manufacturer from a more reliable environment (e.g. Vietnam, Thailand). Replace China with Vietnam/Thailand, as a contingency plan for sudden supply loss by Qtr1 2002. By Qtr1 2002, backup shoe molds are required to allow no delays when shifting production.

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Reebok Case 27

6. Increase sales of youth-oriented fashion-sportswear/footwear 10% in 2002, 15% in 2003, and 20% in 2004. For 2002-2004, design and promote fashionable streetwise footwear and sportswear for the youth market (GY). Use GY music artists/sports stars, extreme sports stars in quarterly endorsement/ad campaigns using GY-oriented media channels (MTV, print, online). Create a GY focused streetwise brand image in Jan 2002 (e.g. Reebok XK-brand).

7. Increase sales of leisure products 5% in 2002, 10% in 2003, and 10% in 2004. For 2002-2004, design and promote fashionable casual footwear and apparel for the older BB market. Use BB celebrities in quarterly endorsement/ad campaigns in BB-oriented media (TV, print) channels (e.g. Survivor, Vanity Fair).

8. Increase sales resulting from NFL/NBA licensing arrangements by 20% in 2003 and 30% in 2004--2002 sales forecasts are 200M. For 2002-2004, design and promote licensed performance (on field/court) and lifestyle (off field/court), footwear/sportswear based upon the NFL/NBA sports business. Use NFL/NBA stars in seasonal endorsement/ad campaigns and orient towards the GY market. Add new youth-oriented related products and accessories (e.g. equipment, watches) to the product line by July 2003. Justifications for riskier CD strategy include: a) Excess cash due to strong competitive position b) Moderate internal cash needs due to industry flat growth providing cash for diversification c) Move into areas where there can be growth d) Exclusive licensing arrangements remove competitive pressures. However, diversification has higher risk/costs; current restructuring leaves the company vulnerable to risk warranting a delay to 2003. This allows time for a better understanding of the new licensing business.

9. Develop two successfully marketed updates/innovations in footwear and apparel for 2002, 2003, and 2004. Increase the R&D budget by 10% annually, 2002 to 2004, producing product design updates, and new technology innovations for GY segments, NFL/NBA fans, and leisure markets. Release two major R&D-based technology innovations (to DMX, Hydromove, etc.) by July 2002 and July 2004. Produce marketing-mix product design improvements as needed within existing policy timeframes to selected target segments based upon consumer need.

10. Identify two yearly changes in consumer preference that receive focus and produces promotional success in 2002, 2003, and 2004. Marketing research will use computing technology to actively monitor changing tastes and communicate this to product design groups to make design changes to match needs. A team approach, one for each major market segment (GY, BB, NFL/NBA, Young Women, etc.), would be used combining R&D, Marketing, and Operations personnel focused on continually monitoring changing segment needs, and making required design and technology improvements. Higher or lower frequency of design changes will be adapted from prior Rumelt’s “feasibility” experiences. Extensive market testing will precede any product launch to ensure success.

Additional policies/actions and controls

General:

1. Pursue a FI strategy by setting up a JV in Qtr 1 2002 with a Web services company who does the setup, and management of a direct-sales online channel by Qtr 2 2002. Pro-forma analysis would reveal minimal risk due to low costs but good revenue/profit potential. Start with the youth MP program since GY is online savvy.

2. Each year-end reassess feasibility of European expansion, and acquisition integration/diversification strategies. Sound pro-forma projections, economic growth,

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Reebok Case 28

exceeding yearly objectives, increases in market share, and debt reduction are triggers for considering these strategies.

3. Implement policies to ensure all strategies/policies/actions support the vision, mission, and objectives within pre-defined timeframes and then monitor for Rumelt’s consistency, consonance, feasibility, and advantage and take corrective action when underperforming.

4. Implement policies at all levels to encourage continual weekly monitoring of progress on objectives with trigger points (falling below thresholds) for immediate corrective action.

5. Implement incentive programs for continual progress towards objectives at all levels: executive, divisional, functional, and individual.

6. Examine IFE/EFE, competitors IFE/strategies for changes monthly. Take corrective action if changes.

7. Monthly, compare expected to actual results, deviations from plan, evaluate individual performances, and continual progress towards stated objectives. Take corrective action when results fall below expectations.

8. Monitor performance (weekly) towards functional objectives using computing systems triggering action when performance falls or does not keep pace.

Finance:

1. Perform pro-forma analysis on all strategies with revisions monthly ensuring keeping within resource (human, physical, financial, technological) capabilities and establish cash budgets (revised monthly) to ensure proper and timely utilization of resources.

2. Measure existing performance using monthly financial ratios (comparing different periods, against competitors, and industry averages) and take corrective action if negative trends.

3. Forecast increases in duties and quotas to allow advance contingencies of shifting production.

4. Use existing cash flow to finance strategies. As a contingency, delay Europe expansion to begin Jan 2004.

5. As a contingency, EPS/EBIT analysis reveals debt financing could be used, however, this increases ‘leverage’, which is high for Reebok, put constraints on raising future capital and reduces profitability (EAT). New stock issuance dilutes control for Fireman, so is not recommended.

Production:

1. Implement policies for consistent product quality and delivery reliability to necessary standards. Use continual (daily) sampling to ensure quality and continually monitor delivery delays, taking corrective actions immediately.

2. Look for any indications of rising costs, instability or supply disruption with contingency to shift production to another low-cost source.

Marketing:

1. Work continually with marketing mix 4P variables, refining for each segment: NFL/NBA, Leisure/BB, and GY. For example, monitor different distribution channels per segment: retail, department, specialty, online. Find the best channels for added promotion.

2. Use strong brand image, and focus on quality/good value in all promotions.3. Further, sub-segment the youth market (performance, lifestyle, young women in sports, etc.)

and perform product positioning for focused product design and marketing promotions (ads).4. Make adjustments based upon continual test marketing.

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Reebok Case 29

5. Monitor sales weekly checking for steady progress towards monthly and yearly goals for each marketing penetration strategy to: NFL/NBA, GY, and Leisure. Use continual marketing research to check consumer response and make changes to ad content, media selection, and frequency to ensure progress.

R&D:

1. Implement policies of continually monitoring competitors and research centers for new product innovations.

2. Monitor product developments bi-weekly to ensure continual progress towards objectives and take corrective action such as reallocation of funds.

MIS:

1. Institute online/print reporting infrastructure to ensure continual monitoring and progress towards objectives including alerting to significant variances.

2. Improve integration between supply, operations, and distribution including real time monitoring and reporting of product quality, delivery delays, and consumer preference changes.

3. Implement online upgrades for ease-of-use and promotion in online marketing.4. Monitor continually quality, reliability, availability, response-times, and other critical factors of

MIS services and take corrective action when standards fall below guidelines. Develop contingencies in the event of MIS failure (e.g. outsourcing).

Final comments A successful restructuring will lower expenses increasing margins and cash flow to further fund new product lines and strong promotional programs for the large market GY, Leisure/BBs, and NFL/NBA sports licensing business. GY, NFL/NBA, and European expansion provide major future growth opportunities.

Reebok is already strong in the growing, young women-in-sport GY sub-segment. With current and new strategies, they have an expanding casual/leisure line to further address the casual trend and an expanding presence in the performance area. With a possible future economic recovery (2004), retails sales will pick up, providing improvements all around.

Competitive advantage is driven by good brand image, continuing innovation, quality product design, keeping pace with consumer needs, and strong marketing—all very strong suites for Reebok with the implementation of the new strategies. With reliable and inexpensive product sources, these factors position Reebok to meet its objectives and for continued success.

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Reebok Case 30

References

David, F. (2003). Strategic management: Concepts & cases (9th ed.). Upper Saddle River, NJ: Prentice Hall.

Sorli, G. (2003). Goals, objectives, and visions, (p. 3). Retrieved August 04, 2004, from the Centre for Innovative Management.

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