New Balance - South African Market in 2000

Introduction

New Balance entered the South African Market in 2000, and had grown market share substantially. The year is now 2006, and the company faces some strong decisions - one to keep up with their phenomenal growth (and ensure that New Balance International kept faith), and two to outstrip current performance through strategies of Diversification, Integrative, or Intensive growth (Kotler and Keller 2009). Below are some of the key issues facing the organisation (based on the case prepared):

* The company was steeped in providing high quality, transparent, accommodating and caring service to retailers and consumers - pursuing a strategy of retailing its own products could prove to be risky to the overall growth of the business.

* New Balance had set high expectations, achieving double digit growth since 2000 - the challenge it now faces was how to grow market share of R70 million - New Balance was at the point at which it had grown enough to challenge the big players in the market (Nike at $63m US, Adidas at $51m US, Puma at $20m US, and Reebok at $17m US).

* New Balance had a marketing budget of 7-10% which almost doubled that of competitors (though this has yielded good returns according to Gary van Rooyen). Any growth strategy will have a considerable impact on the marketing budget.

* Independent stores made up 36% of New Balance's business based on a strategy of targeting the 'smaller guys' - a war will need to be fought with big players like Nike and Adidas with larger retailers like Sportsman's Warehouse, Total Sports, Edgars etc.

SWOT analysis

The SWOT analysis has been conducted using the methodology prescribed in Kotler and Keller (2009):

New Balance's Strengths

* Has a good reputation with retailers - a 'friend'. Retailers wanted to stock their brands as opposed to being forced to.

* Had a 'foot-in-the-door' with key retailers and offered 26 different sizes that 'fit all'.

* The company was totally flexible - bending over backwards for 'any business thrown their' way.

* Sufficient warehouse space to ensure that retailers did not have to stock large quantities of their shoes - thereby inconveniencing retailers.

* New Balance had a strong and capable team - Gary van Rooyen was a strong leader who managed to grow the business substantially.

* The company operated on a 38-40% margin while market leaders operated on 50% - this was one key lever at their disposal to improve profitability (though this would depend on the price elasticity of demand).

New Balance's Weaknesses

* New Balance focused primarily on running - though offered a variety of products across different categories.

* All footwear was manufactured internationally which lent the company to exchange rate fluctuations - this was more risky as the company was small compared to its national competitors, and may have huge implications on its pricing strategy.

New Balance's Opportunities

* The brand was currently the third most popular brand (in terms of running shoes - there is an opportunity to challenge the top two.

* The company has thus far concentrated on the smaller retailers - huge opportunities exist to forge better relationships with larger retailers.

* The establishment and roll-out of New Balance outlets pose a clear business opportunity (initial investment of R600,000 + the additional shoe retail).

* The company had an opportunity to diversify into sports apart from running - unlocking the soccer and rugby opportunity (which accounted for around 20% of Adidas'/Nike's market) is something that New Balance will need to consider.

* Embrace on-line retailing and increase direct marketing techniques.

New Balance's Threats

* New Balance faces a serious threat of complacency - past success has been defined on entry into the market and subsequently stealing share from smaller competitors (and larger ones to a lesser degree). A serious threat exists from smaller players (Saucony, Brooks, Retail in-in-house) to follow a similar strategy to that of New Balance.

* Larger players could take notice of New Balance's success in the Trail, Tennis, Cross Training market - tactics like predatory pricing could lead to serious sales declines for New Balance.

Competitor Analysis

The following list of competitors have been defined based on the info provided in the case: Nike, Adidas, Reebok, and ASICS (Kotler and Keller 2009).

Competitor Strategies and Objectives Strengths Weaknesses

Nike * Grow revenues/Profit

* Leverage its scale

* Maintain large footprint in Key Retailers

* Focus on Soccer/Rugby

* Large marketing budgets using big sports stars * Market share of 37%

* Well represented in all categories

* Large international player - big backing: net revenues of $13.7bn

* Large retail footprint - large representation in all major retailers

* Could command share of floor space * Could be construed as being arrogant

Adidas * Concentrated focus on soccer and rugby

* Grow revenues/Profit

* Leverage its scale * Market share of 30%

* Large international player - big backing

* Large retail footprint - large representation in all major retailers * Focus on soccer lead to market being open for new entrants/competitors

Reebok * Large focus on classics/retro

* Focus well spread across the various categories * Market share of 10%

* Strong share in classics/retro and Men's/Woman's running

* Large backing from owner