Adidas, Puma – Pricing the Animal and the Three Stripes

Pricing a product is generally the job of the accountants and the most important aspect of pricing is that the company must make profits. In order to achieve a positive profit accountants use a simple formula to determine the price of a product:

Profit = total revenues – total costs

What every organization wants is to push the total costs to a minimum and increase the total revenues as much as possible.

However when it comes to pricing it is important to understand that “price is the value placed on what is exchanged” (Dibb et al., 2005, p623). This does not mean that the total costs is the actual value of a product, but that the products value increases with different factors like promotion, brand image and quality. Furthermore the price can be influenced by the price of the market and a company´s competitors (Dibb et al., 2005).

Adidas

As one of the leading organizations in the sport equipment industry and its reputation for quality and design, Adidas and its retailers can blow up the pricing bubbles to a limit where it is only influenced by competitive pricing and the customers perceived value for their money. However the production of most of Adidas products take place in third world countries with cheap labour and low overall costs.

For example the Adidas Yeezy Boost 750´s production cost is about $76 but have a retail price of $350.

However if we take a regular $100 Adidas shoe, it is astonishing how much net profit to company actual makes. Considering costs of production, marketing, taxes and other expenses, Adidas only makes $2 pound of net profit. However the retailer is getting the biggest cut with $50 which makes 50% of what the end-user has to pay.  

 

Another important Aspect when it comes to pricing is that Adidas uses price skimming, which is a strategy that first sets a high price for a product and lowers the price over time. This mainly applies to new products in the market and charges the highest price that customers would pay for the desired product. “Price skimming can be beneficial, especially when a product is in the introductory stage of its life cycle. A skimming approach can generate much needed initial cash flows to help off-set sizeable developmental costs.” (Dipp et al., 2005, p660).

Puma

Just as Adidas, Puma is producing its products in countries with cheaper labour and lower overall costs. Furthermore new products and clothing lines will also have a price when being introduced to the market as Puma is using price skimming as well.

However what influences Puma more than its brother is competitive pricing. Compared to its competitors Nike and Adidas, Puma sets its prices in a more affordable level which does not mean that it is cheap in the world of sport equipment. Puma is still viewed as a premium product that can compete with its elite competitors and therefore uses premium pricing. However Puma believes that you get the same quality products as Adidas and Nike but also wants to attract customers with its good pricing.

Rihanna Sneaker Boots

Just as comparison to Adidas Kanye West Yeezy Boost 750´s which cost $350, the Rihanna Sneaker Boots, which even look similar, have a price of $250.

However when it comes to Puma´s net profit from selling one pair of shoes, it should not differ that much compared to its competitors Nike and Adidas.

Adidas, Puma – Place and Distribution

The goal is to make the product available to as many customers, in the fastest and easiest way as possible. Similar to the pricing both Adidas and Puma are using the same concepts when it comes to place and distribution. There are three main distribution channels:

Manufacturing à Own Retail Stores à End Customer

Manufacturing à Distributor à Multi Brand Retailer

Manufacturing àOnline Fashion Website / Own Website à End Customer

While their own retail stores and websites differ from each other, the way their products find its way to the multi brand retailer are very similar. The distributor who connects the manufacturer and the multi brand retailer could work both ways meaning that a multi brand retailer might seek out a manufacturer or that the manufacturer uses selling agents to get their products to multi brand retailers.

Both Puma and Adidas have certain contracts with wholesalers or multi brand retailers who they would continuously supply with their products and some cases they would only supply those with a certain equipment or clothing line. A multi brand retailer may be stores like Sports Direct or JD Sports. However Adidas and Puma prefer to use their own retail stores for their newest products.

Own Retail Stores

Puma

Puma has over 600 of its own retail stores operating in more than 40 countries worldwide. With actual stores operating in 40 different countries the brand wants to get the product as close to its customers as possible but also wants the end-user to experience a brand enhancing shopping experience. Furthermore by being present in a specific retail location the company provide a credible brand image.

Puma Outlet in Herzogenaurach

In 2009 Puma constructed a massive building as its headquarters in its hometown Herzogenaurach which was mainly office buildings but also included a huge retail store. As being Puma´s headquarters the retail store located right next to it had to resemble the company´s typical values and shopping experience. This special factory outlet does not only offer the Puma shopping experience but also special deals that attract thousands of customers a year.

Adidas

Just like Puma, Adidas wants their customers to have a whole experience when it comes to shopping at their retail stores. Therefore the brand with the three stripes retails their products at 1700 concept stores worldwide. A concept store usually represents a retail store with a high quality selection and an extraordinary shopping experience with a close connection to the customers. Furthermore with 1700 stores it outnumbers Puma by a 100% and this excludes the 880 factory outlets. With over 2500 of its own retail stores Adidas makes sure that it is wide spread and that their customers have access to gain the whole Adidas shopping experience.

Just like their online presence in social media, some of their concept stores are divided into the three different market segments. This means that some of the stores would exclusively sell either Adidas Performance, Adidas Originals or Adidas Neo since each market segment is supposed to target different groups and give the shoppers a different shopping experience.

Not even one mile away from Puma´s factory outlet you will find the Adidas Factory Outlet in Herzogenaurach. Considering this Herzogenaurach is the Mekka of the sport world, with shoppers driving detours of hundreds of kilometres to visit.

Because of this Adidas has created a massive building only for retail that almost looks like the colosseum from the outside. This concrete building looks like a fashioned abandon factory from the inside which perfectly resembles the idea of being a factory outlet. Again this is done on purpose just to give their customers a different shopping experience. On the top of the building you will find a massive TV screen showing their latest adverts and football matches during the World Cup and the UEFA European Championship.

E-Commerce

Like mentioned in an earlier post the whole world is turning online. Most people are continuously hooked up to the world wide web and with more and more people shopping online rather than going out to buy what they need or desire. It is easier, faster and more comfortable and has a wider and better reach to more customers than a physical shop. The UK Centre for Retail Research suggests that E-Commerce is the fastest growing retail market in Europe.

Numbers show that in Europe alone, online sales were expected to increase from 132.05 billion GBP in 2014 to 156.67 billion GBP in 2015 (Centre for Retail Research, 2014).

No wonder if one considers that e-commerce is by far the easiest distribution channel for both, the producer and the consumer with a direct link between them. Furthermore costumers can read others reviews and their shopping experience which could replaces the need to see and test the product in real before buying it.

Adidas

With 600 million euros in revenue in 2015, Adidas can be more than pleased and seems to be doing something right.

The men´s shoe department itself features over 1140 products which is a bigger variety than you could fit in most stores, offering the product in different colours and sizes. Additional to that Adidas has a section on its website where you customize certain shoes and even put your name on them. This service is only provided on their websites and nowhere else.

With a huge variety of products and a website that has a very easy structure and a beautiful overview, the brand literally invites one to do their shopping.

Puma

Now Puma´s revenue only through e-commerce was nowhere to find. However the company is investing more and more money on their online shopping website and improving their IT section which can be seen on their online shop. It has a beautiful overview and operates in over 50. This was the company can reach out more customers compared to their retail stores which only operated in 40 different countries worldwide.

Furthermore just like Adidas, Puma offers a wider range of options for their products with different sizes and colours and offers free standard shipping on orders over 60 GBP.

Adidas, Puma – Online Presence in Social Media

With over 3.4 billion internet users worldwide in 2016 (Statista, 2016), online presence is more than vital to a company´s existence if you don’t want to go down like Blockbuster. Furthermore with an ever growing social media presence on the internet, you need to continuously adapt and explore new areas that are available to reach out to potential customers. Once the first step is done and you reached out to the customer and got his attention, he or she starts exploring the product which eventually leads them to buying it.

With 1.71bn active Facebook, 500 million Instagram and 317 million Twitter users worldwide, social media has been one of the biggest platforms to reach out to people online. The US Facebook users spend an average of 16 minutes per hour hooked up to the internet. “Seventy per cent of consumers now learn about brands through their online articles rather than traditional forms of broadcast and print advertising” (Dibb et al., 2016).

Adidas

Adidas is just doing right. They are booming and successful when it comes to social media and selling their brand. With millions of followers on each of the three big social media platforms Adidas just proves that they did not miss to catch the online wave.

Twitter

@adidas has 2.9 million followers on Twitter and posts mostly to promote their already on going advertisements, retweets post from other Adidas brand channels or uploads pictures and hash-tagges athletes that use Adidas equipment at real live events like the UEFA Champions League Final.

Facebook

With 25 million likes on their Adidas Originals site and 20 million on both Adidas and Adidas Football, the sports company is rocking it on Facebook. Also on Facebook has Adidas separated its market segments to reach out to more specific target groups. Similar with Twitter, Adidas is promoting its brand image rather than its products. One of the ongoing brand images is Adidas being a creator and furthermore creative including an ad with Basketball legend James Harden. Adidas tries to resemble a life style on its social media platforms.

Another point why Adidas is so successful on this platform is because they are linking their accounts to others like teams they are sponsoring or that of athletes that Adidas is equipping. This way their network continuously increases.

Instagram

With the very successful Yeezy Boost line by Kanye West Adidas Originals jumped up to 78.8 million likes on its Instagram account in 2015 thus making it the most popular sneaker brand on the social media platform. This is astonishing considering that Vans and Nike only have half the amount of likes.

Puma

Puma´s online presence in the social media is impressive but unfortunately does not come near to that of Adidas. With 16 million likes on Facebook it definitely outruns several other sport enterprises but is far behind that of Nike with 27 million and the 25 million of Adidas. Furthermore Puma has only half as many followers as Adidas on Twitter and 3.2 million followers on Instagram.

What differs from Adidas is mainly that Puma is promoting its brand image as well, but with a focus on their products as well.

One reason why Adidas scores in this category way better than its brother is because it uses these social platforms to represent a lifestyle rather than trying to sell a product. Most social platform users don’t want to be persuaded to buy a product when using social media and Adidas does this on a rather subconscious level.

Adidas, Puma – Celebrity Brand Endorsement

“The digital media contributed to rethink concepts of self-image, originality and creativity”(Adidas)(Horizont,2015).

Celebrity endorsement is nothing new and has already proven that it can have a positive impact on financial returns (Erdogan, 2001)

However Adidas and Puma believe that the media is changing and therefore marketing strategies need to adapt to the changing concepts. One way to do this efficiently is to take celebrity endorsement to the next level in a world of ever growing media. More and more celebrities are using “social websites” for business and marketing purposes, which buys them an even bigger influence over their fans.

How do you take celebrity endorsement to the next level? Rather than being only associated with a celebrity, you let the celebrity become your brand.

Adidas – Kanye West

After Nike was slowly pushing Adidas out of the U.S. market and even lost some ground in Europe it was time to conquer back their share in the market. So Adidas nicked Kanye West from Nike and took him under contract in 2013 and created a new shoe and clothing line called the Yeezy Boost together with the famous singer.

Kanye West at the New York Fashion Week 2015

The Yeezy Boost line took over the 2015 New York Fashion Week according to the L.A Times when Kanye showed up unannounced with his new clothing line. Sales confirms that the Yeezy Boost was more than successful with all seven iterations sold out. Adidas Chief Executive Herbert Hainer admitted:“The collaboration with Kanye West has significantly elevated the perception of our brand,” (Kell, 2016)

Puma – Rihanna

Rihanna clothing line has grabbed and pulled out Puma of its dark and weak financial years in 2013 and 2014. With 458 million Euros (plus 12.3%) in 2016´s third quarter it nearly contributed half of Puma´s sales, according to Puma CEO Bjorn Gulden.

Rihanna who was ranked as the fourth most powerful celebrity in 2012 by Forbes Magazine and was on Time´s “100 Most influential People in the World” was certainly the right choice for Puma to buy more influence and target customers. Furthermore Rihanna´s line has also resulted that all of Puma´s sport lifestyle products began to be more desirable by customers according to Gulden, which can be seen by a turnover of 2.7 billion Euros (plus 6.4%) in the first nine months of the year.  

PUMA – “Forever Faster”

After couple of devastating financial years for Puma it reached rock bottom in 2013 with a net profit of only 5.3 million € (Puma, 2013).

“Forever Faster” Puma´s new brand platform since 2014. The aim is to boost back the brand image and be the fastest sports brand in the world. “Forever Faster is about PUMA making a statement as a brand and reminding people that we are and will continue to be the fastest sports brand in the world,” said Adam Petrick, Global Marketing Director at PUMA. 

Puma is specifically looking for individual athletes that do not only stand out as athletes but also with a strong personalities "troublemakers" as brand ambassadors like Usain Bolt, Mario Balotelli, Sergio Agüero. Like in this add that is calling all troublemakers.

They already have the fastest human on the world, Usain Bolt, under contract in order to boost their new slogan and brand image. Bolt is by far one of the top earners amongst all Olympic athletes and one of the reasons is Puma paying him around ten million Euros a year.

However Puma knows how to make use of the fastest man in the world and demonstrated it during the 2016 Olympics in Rio when Bolt won the 100m sprint in only 9.81 seconds. It was Ambush  Marketing when Usain Bolt took of his shiny golden Puma running shoes right after crossing the finishing line and carried them around like a trophy. Considering that Puma is not an official Olympic sponsor, this was a genius PR stunt to associate Puma with a gold medal.

Shortly after the race Puma went active on their social media platforms adjusting their new slogan: “When you are @Usain Bolt, you are #ForeverFastest”.

Adidas – Three Stripes, Three Market Segments

Adidas divided its brand into three different market segments during the 1990s, Adidas Originals, Adidas Performance and Style Essentials. This way it was easier to divide the market and position itself in each and target the customers more specifically. Each of those branches has a different positioning, which differ in the type of people who use it, its strengths, memorable characteristics, the price and value it represents (Dibb et al., 2005).

In order to achieve this Adidas uses a differentiated strategy, which has the advantage of targeting more people specifically (Dibb et al., 2005)

Adidas Originals

Adidas Originals is aiming for a retro look between the decades of 1940s to 1980s. It even uses its Trefoil logo which was prior to the famous three stripes.

The Originals series focuses mainly on creativity and passion rather than purely on sports. Most of its clothing lines are streetwear and not necessarily aimed for sporty activities. This is very smart since Adidas is mainly associated with sports and therefore had to somehow cover the market of casual clothing as well.

When it comes to advertising and branding the Original series, Adidas uses mainly creative representatives like Madonna or Pharerell Williams as celebrity endorsement rather than athletes in order to separate it from the image of sporty clothing.

Adidas Performance

Adidas Performance with the typical three stripe logo is what Adidas was from the beginning on, sportswear for athletes. Even though Adidas was divided into three segments in order to cover a bigger market, its main focus is still to maintain and strengthen its status and image as the best sportswear for athletes around the world.

The Performance line tries to cover as many sports as possible from Football, Running, Jiu Jitsu to Kabaddi and to be the number one sportswear in each category.

Compared to the Adidas Originals, the main focus of advertising lies within sponsoring whole teams or representatives of each sport. This is an ongoing race against brands like Nike and Puma, where each brand equips a whole team in order to represent them.

Adidas Style

This branch focuses purely on fashion and works close with fashion designers like Yoji Yamamoto. The Y-3 (Yoji Yamamoto) series is just an example how Adidas collaborates with famous designers in order to create regular streetwear. However when it comes to pricing the Y-3 clothing line is one of Adidas most expensive clothing lines compared to any other Adidas products.

Adidas Style also includes other branches like Adidas Neo, which is new branch that resembles “fresh and hip” clothing which is supposed to target younger market groups.