The Importance of Customer-Oriented Innovations to the Athletic Footwear Industry Leaders

The Importance of Customer-Oriented Innovations to the Athletic Footwear Industry Leaders

Year 2012 was historic for the global athletic footwear industry, because at the end of this year, the German athletic footwear giant, Adidas made the debut of its new running shoe model，the Energy Boost, in which a brand new midsole material—the boost foam—was implemented for the first time. Then with the following releases of other two flagship products of the running product line and the casual product line, the Ultra Boost and the NMD R1, in 2014 and 2015, respectively, Adidas’ footwear sales in the North America market have turned from years of decline to an increase. According to the NPD Group Inc. (Matt Powell, 2017, Para. 6), in the first quarter of 2017, Adidas outpaced its two biggest competitors, NIKE and Under Armour (UA), with its sales soaring by 85% in the U.S. market.

It is interesting that for so many years, since the birth of NIKE’s AIR Sole in 1987, Adidas has been struggling against its competitors for the market share in the North America market. As a veteran in the athletic footwear industry, this company has tried different strategies, such as broad differentiation and multi-brand strategy, (Hussain, Mohammed, Taher & Shaju, 2015, P.171) to maintain competitive advantages, while the European giant still could not beat the natives in the North American land during the past decades. How come this time it tasted the success? I think the answer should be the customer-oriented innovations. Thus, my argument in this paper is that in the athletic footwear industry, ability of customer-oriented innovations is the most important core competence for the industry leaders. Please note that I narrowed the scope of my argument to the industry leaders, as I think for those companies who are not in the tier one group, other strategies such as focus or cost leadership could help more on establishing their own core competences.

The athletic footwear industry is in a fully competitive environment, especially for those companies in tier one, for instance, NIKE, Adidas, PUMA and UA. These companies have broad product categories, strong research and development (R&D) teams, wide distributor networks, mature global supply chains and plenty of marketing tactics. If we adopt Porter’s Five Force (1979) analysis tool to do some research, we will find that customers in this industry have strong bargain power to the companies. This is because there are so many choices of styles, functions, qualities and prices provided to them and it is so easy for their customers to switch between different brands. The most efficient way to debilitate customers’ bargain power is to build up their loyalty to the brand. And the most efficient way to build up clients’ loyalty is to create their eagerness for novelty, that is to say products new and different. According to Porter’s Five Forces theory (1979), companies who have robust R&D and creative sales and marketing teams can employ the differentiation strategy so as to make their products significantly outstanding in the competition and also to enhance their value to the public, surely including the customers. In this case, innovations act as engines of differentiation, through which, new products work as the basis of the companies’ value carrier.

There are two dimensions of customer-oriented innovations—product  innovations and marketing innovations.

Product innovations refer to innovations associated with different components of a product, inspired by customers’ different kinds of needs. Taking a pair of sport shoes as an example, related product innovations could come up with its better design for fashion, the new materials of its upper and out-sole for lighter weight, more duration and breathablity, the structure of its mid-sole for more energy return and even the working mechanism of its lace system for more friendly using. Among all the product innovations, revolutionary innovations or disruptive innovations are of the most importance for industry leaders. Let’s retrospect into the history of the athletic footwear industry, where we can notice those highlighted moment: NIKE’s AIR tech for mid-soles in 1984, NIKE’s Flyknit woven tech for uppers in 2012, and also in 2012 Adidas’ Boost tech for mid-soles. All these revolutionary innovations led to a surge of market share of the brand,respectively.

There are two reasons why those industry leaders should put endeavors to revolutionary innovations. One is that if successful, revolutionary innovations can generate huge excess income, but at the same time revolutionary innovations are highly risky—they can on the other hand cause huge expenditure or even huge loss if unsuccessful, and failures often have higher proportion than successes. Industry leaders have better R&D and marketing teams to ease the success of revolutionary innovations and as well have thicker profit cushion to tolerant innovation failures. The second reason is that industry leaders have higher possibility to trigger a new product life cycle with revolutionary innovations. According to the BCG (Boston Consulting Group) Matrix Model, through stronger sales and marketing advantages, industry leaders have more opportunities to turn revolutionary products from question mark products to super star products and then to cash cow products. In the first half of 2013, Adidas released only one Boost line product, the Energy Boost running shoe, to test the acceptance of customers to this new technology. After seeing the remarkable enthusiasm from the market to this series of products, Adidas injected huge efforts thereafter on this technology as above mentioned and now the Boost products are no doubt its superstar products that bear high growth rate for both sales and market share.

The other sort of innovations are marketing oriented, associated with new ideas for advertising, cooperation, distribution or other activities connected to external factors. Such kinds of innovations also contribute to companies competitive advantages, but meanwhile need to be customer-oriented:

“Competitive advantage can, and usually does, also relate to an organization’s knowledge of, and relationships with, its stakeholders whether customers, suppliers, shareholders or employees. “ (Stonehouse & Minocha, 2008, P.29, Para.4)