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.