:

In Completion of Requirements for the Subject Management 18: Business Policy and Strategy

Nonesa, Quennie Sandra L. Lasmarias, Mylene P. Sayson, Caesar Neil B. Paracuelles, Jay Mark T.

Executive Summary Su
To be on the top is an endeavor all athletes strive for in their sporting involvement. In an industry where being the best is very profitable, Under Armour aims to achieve what the consumers of its products desire. Under Armours objective is to be the market share leader in sporting apparel. The goal is to achieve this objective through a high-quality product. An elite status is exactly what Under Armour intends to provide - setting a high price but not to the expense of sales volume because the products excellence makes the consumers willing to pay an additional cost.

Under Armour uses a selective distribution strategy. It chooses its retailers based on the characteristics of the retailer. Using a hybrid channel, consumers can purchase Heat Gear from Under Armour or any retailer distributing the product. I n terms of its product pricing, Under Armour have been effective in implementing its value-based pricing strategy, reflecting a notable supposition of consumers that high price is equivalent to high quality. Its pricing is right in line with buyer expectation. It compensates the greater value buyers get when they purchase Under Armours products. While it is true that Under Armour faces competition with large competitors such as Nike and Adidas/Reebok, the superior quality of its products allows them to price products outside of competitors. The prices are not based on competitor prices, they are consumer-based they manifest consumer expectations but still within the boundary of what the consumers deem acceptable pricing. Consumers are aware of the advantages of the product over its rivals and do not need any explanation or help purchasing it. In addition to the quality of Under Armour products, the company has done an excellent job enticing the public to purchase its products. It uses a pull marketing communication mix strategy. It is a softer, but potentially more costly approach, where Under Armour encourages customer demand by tactics like advertising and promotions, such as sponsorships and competitions. This is a good strategy for Under Armour since the demand for its products is high, buyers use the brand as part of their purchase decision, and also taking into consideration that it uses differentiation strategy that focuses on the uniqueness of its products. The year 2009 was a turning point for Under Armour. This year posed many marketing and strategic challenges for the company. "Under Armours success in 2010 and beyond will be significantly impacted by the decisions we make in 2009," said Kevin

Plank, founder and CEO of Under Armour. Under Armour will be competing with Nike, Adidas, Reebok, Puma, and other sports apparel manufacturer. The challenges that Under Armour and all of its competitors face are stiff competition from one another and very high expectations from current and potential customers. In order for Under Armour to continue its success in the sports apparel industry and rise above competition with rival firms, it must program and execute a strategic game plan. Under Armour must lay effective strategies for the company to overcome the challenges it is bound to face. How does Under Armour stay on top of its game? Their decision may determine the future of Under Armour.

Company Background

Founded in 1996 by former University of Maryland football player Kevin Plank, a then 23-year old former special teams captain of the University of Maryland football team, Under Armour is an American sports clothing and accessories company. The company is a supplier of sportswear and casual apparel. Under Armour is the originator of performance apparel - gear engineered to keep athletes cool, dry and light throughout the course of a game, practice or workout. The technology behind Under Armour's diverse product assortment for men, women and youth is complex, but the program for reaping the benefits is simple: wear HeatGear when it's hot, ColdGear when it's cold, and AllSeasonGear between the extremes. Under Armour's mission is to provide the world with technically advanced products engineered with our superior fabric construction, exclusive moisture management, and proven innovation. Every Under Armour product is doing something for you; it's making you better (aubiz.com, 2009). Under Armour received its big break in 1999 when Warner Brothers contacted Under Armour to outfit its two upcoming films. The following year, Under Armour became the outfitter of a new football league, gaining even more attention during the league's debut on national television. In 2003, the company launched its first television commercial, which centered in their motto, Protect this House. In late 2007, Under Armour opened its full-line, full-price retail location at a mall in Maryland. The Under Armour brand is positioned as the highest quality and best available. Under Armour is advertised as higher quality thus demanding higher price points. It is an expanding company/brand that is trying to take on the giants of Sports Apparel Industry, that is, Nike and Adidas. Even though it is considered an upstart compared to its competitors, Under Armour is quickly becoming a leader in this industry, and with its

widespread popularity amongst top name athletes and sports programs and teams, it is a major player in the market.

Strategic Challenges
Under Armour is faced with three tough problems since the commencement of its operations lack of proprietary product rights, concentration on domestic sales, and too much dependence on few third-party suppliers. Lack of proprietary product rights could adversely affect the long-term sustainability of the firm. Under Armour runs the risk of exposing their innovative ideas to competitors since their suppliers and producers are not bound only to them. Concentration on domestic sales, on the other hand, accounts for Under Armours smaller sales volume and net income compared to large competitors who already had established an international market across different countries. Whereas too much dependence on few third-party suppliers, gives the suppliers the ability to demand higher prices from Under Armour and if ever demand of the suppliers products exceed their supply, it could affect Under Armours operations due to lack of supplies and raw materials.

Strategic Questions
These strategic challenges create several important questions that need to be answered to ensure continued success at Under Armour. Questions such as: Should Under Armour pursue acquiring property rights such as patent to secure its innovative ideas? Will this move serve as defense for the company or just another investment that runs a risk? Will Under Armour be ready, financially and strategically, to further expand its operations outside US and have a decent share in the international market? What should Under Armour do to lessen the control its suppliers have over the companys cost of goods? And lastly, what must Under Armour u ndertake to stay on top of its game?

Recommendations

First Problem Lack of Proprietary Product Rights Due to constraints, the company would be in a difficult situation in obtaining proprietary property rights. Constraints include costly and time-consuming investment that it wouldnt be feasible to acquire patent rights on every innovative ideas they got; another constraint is that the technology, fabrics, and processes use to manufacture Under Armours products are not unique to them and are generally owned by their suppliers, hence, intellectual rights are already owned by them; another is that if defective products are offered to the market, patent infringement is of high possibility. Since intellectual property rights cannot be feasibly obtained, our recommendation would be to establish a secured relationship with its suppliers and producers to whom the quality of final product depends. This involves constant monitoring, evaluation and upkeep of security among its products.

Second Problem -- Concentration on Domestic Sale Under Armour may have been considered a major player in the Sports Apparel industry within U.S., but the same is not true in the global market compared to internationally-renowned Nike and Adidas brands. One component of the overall growth strategy of Under Armour must be to expand its international operations instead of focusing most of its efforts on domestic revenues. Taking these into consideration, our recommendation would be to increase efforts toward international markets. Specifically, this would call for an establishment of retail outlets to Asian countries (e.g. China, Malaysia, India) as potential markets; sponsorship to international sports teams such as Brazilian National Sports Teams and China Football League; increase of international advertising through partnering with international television channels as CNN and AXN and also making use of social media like YouTube, Facebook, Twitter, and others; and making alliances with international companies in the same industry such as UNIQLO and Penshoppe. Third Problem Too much dependence on few third-party suppliers Under Armour relies heavily on suppliers and manufacturers outside of United States, particularly, China and Hong Kong. Furthermore, seventy to 75% of the fabrics used in

its products come from only six suppliers giving them a control over Under Armours inbound logistics. This will, in turn, have an unfavourable effect on its product pricing. Our recommendations cater two phases. The first is with the existing suppliers. Under Armour must maintain good relationship with its suppliers by allowing them to participate in the companys corporate social responsibility (CSR) activities. Under Armour must also establish long-term contracts and close communication with its suppliers. The second phase is to find other potential and reliable suppliers and evaluate the quality of products they supply. If possible, research on the most feasible suppliers in terms of its geographic locations so that transportation costs will be reduced when moving products from suppliers to various distributors across different geographical areas.

Summary for Solutions and Recommendations SWOT ANALYSIS AND SWOT MATRIX
Strengths Weaknesses 1. Good Leadership 1. Small Total Sales and 2. SAP system Net Income 3. Brand Loyalty compared to rivals 4. Brand Equity 2. Dependent on 5. Core Competence domestic market in Innovation 3. High prices 6. High Quality 4. Not a Synthetic Apparel Marketing Campaign 7. Increase in Sales 5. Heavily Dependent every Year on PA for Sales 8. Wide Range of (80%+) Apparel 6. Target Male Market 9. Athletes and Team more than Female Sponsorships Market 10. Intelligent and 7. 27% of Sales come Efficient R&D from 2 Distributors; Team Dicks and The Sporting Authority Opportunities Strategy Strategy 1. Media Product Placement Recommendations Recommendations 2. Growth of PA Industry 1. Continue 1. Expand into (Domestic and International) developing International Market 3. Consumers focus on Innovative (W2,02,010) Quality, not Price Products into 2. Establish larger 4. Economic Recovery existing and female market 5. Corporate Social emerging (W6,04) Responsibility markets 3. Focus on basketball 6. Consumers becoming more (S3,010,08) foot wear to health conscious 2. Sponsorship as increase sales on 7. Sport participation is a key aspect of U.S. culture a form of shoes ( W5,01) 8. Increase in sports advertisement participation in emerging and promotion markets (S8,01,09) 9. E-commerce and media 3. Increase 10. Internet allows footwear advertising using companies to purse a social networking direct-to-consumer sales (S8,01,011) channel Threats Strategy Strategy 1. FDI Policies Recommendations Recommendations 2. Increase in cost of raw 1. Expand product line 1. Continue on materials and resources; and further diversify

shipping costs 3. i.e. cotton, all man made fibers, and the big one being OIL/GAS 4. Inflation in China Increasing 5. Chinese Labor Costs Increasing 6. Obesity Rates in U.S.

establishing premium branding image. (s3,s4,s6,t2) 2. If possible, avoid product innovation requiring much labor intensive production and high material costs than the current production system. (s3,s9,t4,t5) 3. Seek for other trusted suppliers offering standard quality to strengthen the firms supply chain and achieve greater production. (t1,t2,s7,s5)

to be distributed into wide range of possible target markets to spread fixed component of labor costs. (w1,w2,w5,w6,w7 & t3, t4,t5) 2. Maintain high product quality to compensate high selling price and at least maintain or increase sales. (w1, w3, t2,t3,t4) 3. Consider marketing on fitness activities involving women rather than focusing on athletic activities alone. (w4, w6, t6)

Appendix 1 IFE Matrix

Key Internal Factors Strengths Good Leadership SAP System Core Competence in Innovation High Quality Apparel Increase in Sales Every Year Brand Loyalty Wide Range of Apparel Athlete and Team Sponsorships and Endorsements Very Intelligent and Efficient R & D Team Brand Equity Weaknesses

Rating 4 3 4 4 4 4 3 3 3 4 Rating

Weight .08 .05 .06 .07 .07 .05 .05 .05 .06 .06 Weight

Weighte d Score .32 .15 .24 .28 .28 .20 .15 .15 .18 .24 Weighte d Score .12 .07 .10 .10 .07 .10 .06 Total 2.80 =

Small Total Sales and Net Income compared to Rival Heavily Dependent on Domestic Market High Prices Not a Synergistic Marketing Campaign Heavily dependent on PA for Sales (80%+) Target Male Market more than Female Market 27% of Sales come from only 2 Distributors Internally Strong Position

2 1 2 2 1 2 1

.06 .07 .05 .05 .07 .05 .06

Appendix 2 EFE Matrix Opportunity Rating Weight Weighted Score

Potential market for basketball shoes Increase in Retail Sales Growth of PA Industry (Domestic and International) Female Market Consumers focus on Quality, not Price Corporate Social Responsibility Economic recovery Consumers becoming more health conscious Sport participation is a key aspect of U.S. culture Increase in sports participation in emerging markets E-commerce and media Threat Too much dependence on few third-party suppliers Lack of Proprietary Product Rights Increase in cost of raw materials and resources; shipping costs i.e. cotton, all man made fibers, and the big one being OIL/GAS Inflation in China Increasing Chinese Labor Costs Increasing Obesity Rates in U.S.
Externally Strong Position

2 2 3 3 4 3 2 4 3 3 3 Rating 1 2 1 1 1 1

.04 .08 .06 .08 .07 .06 .06 .05 .05 .06 .05 Weight .07 .08 .06 .04 .04 .05

.08 .16 .18 .24 .28 .18 .12 .20 .15 .18 .15 Weighted .07 .16 .06 .04 .04 .05
Total = 2.32

Appendix 3 Product BCG Matrix

Appendix 4 Grand Strategy Matrix

Under Armour is located on the first quadrant of the Grand Strategy Matrix (Rapid Market Growth with Strong Competitive Advantage). The company is in an excellent strategic position. It may concentrate on its current markets or products which generate most of its revenues. That is, maintaining its innovative competence in Performance Apparel's sales in Domestic Region. However, it may also take risks aggressively when necessary. Thus, it may pursue into international expansion. Product development calls for focusing products that could be potential revenue generators (e.g. Basketball shoe wear).

Appendix 5 Projected Trends

Data from 2005 to 2009 were given and projected gross profit and expenses from 2010 to 2013 were computed thru analysis of companys annual growth rate plus consideration of expansion expenses and GDP forecasted rate in China where the company assumes to expand in its first year.

References:
http://investor.underarmour.com/annuals.cfm https://www.facebook.com/underarmour http://www.uabiz.com/company/managementTeam.cfm http://blog.euromonitor.com/2013/03/new-apparel-research-part-1-a-focuson-geographies.html http://www.atkearney.com/consumer-products-retail/global-retaildevelopment-index/full-report//asset_publisher/oPFrGkbIkz0Q/content/2013-global-retail-developmentindex/10192 http://shrinkthatfootprint.com/average-electricity-prices-kwh http://blog.euromonitor.com/2013/03/new-apparel-research-part-1-a-focuson-geographies.html