Reebok International Ltd.

Peter Hayashida Lynn Maikke Marketing 642 / Fall 2003

Outline
Background Why has Reebok been successful? Strengths & weaknesses How consumers by footwear Market Segmentation Proposed communications programs Umbrella brand campaign HRN Tour sponsorship

The Beginning
Founded in England in 1895 as J.W. Foster and Sons, a manufacturer of track shoes Renamed Reebok in 1958. North American distribution rights purchased by Paul Fireman in 1979 Fireman and a few investors bought the parent company in 1984.

Aggressive Growth
First products Fireman imported to the U.S. were three models of high-end running shoes 1982 introduced The Freestyle,first shoe for aerobics, and first athletic shoe targeted at women Ushered in rapid growth for Reebok as running mania subsided Firm ranked top among major U.S. firms in sales growth, earnings growth & return on equity 300 different shoes in 10 categories by 1988.

Reebok Footwear Division Net Sales Growth

1000 900 800 700 600 500 400 300 200 100 0 1983 1984 1985 1986 1987

Diversification
At the same time, company began diversifying into other products Aerobic shoes dropped in share of total shoes produced from 56% to 29%
100% 80% 60% 40% 20% 0% 1984 Aerobic Shoes 1987 All Others

Manufacturing & Distribution

Manufacturing was contracted out to firms in South Korea, Taiwan, China, Thailand, the Philippines and Indonesia Labor disruptions and high demand resulted in supply problems in 1987 Sold direct to retailers using a limited distribution strategy through a dedicated, commissioned sales force Avoided mass merchandisers and discount stores to keep its margins high

Market Share
Competition was intensified by increases in labor rates, leather costs, and a weakened value of the dollar Increasing costs exerted extreme pressure on profit margins Changes in retailer practices to limiting the number of brands and lines (minimize markdowns) Shortening product life cycles for athletic shoes (9 months)

Market Share
25 Others 30.9% Reebok 32.2%

Asics Tiger 2.2% Avia/LA Gear 2.3% Adidas 5.7% C Nike 18.6%

Consumer preferences are constantly changing, and future progress is linked to our skill in understanding the messages sent from the marketplace so we can deliver the right products Paul Fireman Reebok International, Ltd.

The Secret to Reeboks Success

Ability to respond to consumers needs & desires High brand recognition.
1987 survey: 95% of athletic shoe owners were aware of Reebok v. 57% two years prior
98% when only considering teens, who purchased more than three pairs of shoes per year

Unaided awareness of Reebok doubled between 1985 and 1987

Compared with a drop by Nike on the same measure 57% of teens dubbed Reebok the in shoe (38% for Nike)

More Strengths
Market penetration
52% had ever owned Reeboks (70% of the teens) 45% were Reebok owners higher than any other brand (customer retention is easier than acquisition)

High brand loyalty

2 out of 3 consumers who last purchased Reebok intended to make Reebok their next purchase Reebok owners more likely to purchase athletic shoes at regular price than non-owners

Even More Strengths

Access to retailers through its direct distribution strategy Field service and promotion representatives
Add value by traveling the U.S. teaching retailers and consumers about the products features and benefits

Well equipped to handle future supply shortages (like the ones in 1987) by manufacturing in multiple countries

How Do Consumers Buy Shoes?

Information Source Friend or relative Coach or instructor Salesperson Article in magazine Advertisement Reebok Total 72% 65 54 50 45 Users 69% 64 53 52 43 Nonusers 74% 65 54 48 47

Psychographic Trends
Pre 1987 Innovative Vivid Adventurous Experimental Special Vibrant New 1987 Comfortable Youthful Energy Fun Diverse Clean Leader A standard Middle class

Market Segments
Weekend warriors use their shoes for sports but are not zealous athletes Casual wearers use athletic shoes only for street-wear
Largest segment: 80% of sales Demand comfort and style

Market Segments
Serious athletes
Smallest segment Perceived by industry analysts to be opinion leaders for both of the other segments (Pyramid of Influence) Led manufacturers to focus on the eliteness
Restricting new products to exclusive sports shops Emphasizing technological breakthroughs that enhanced performance

1998 Communications Program

Category advertising
A variety of communications to promote specific product lines

Reeboks let U.B.U. umbrella advertising

Stress freedom of expression and individuality to rekindle the vitality of the Reebok name while maintaining the brands mass appeal

Olympics advertising
Associate Reeboks with sports to excite brand dealers

Energy Return System (ERS)

Performance-based print campaign to reach active sports participants

Category Advertising ($22M)

$8M earmarked for category-specific print and television ads $14M allocated to athlete endorsements and grassroots promotional events Communications program for each category varies widely Major category examples:
Basketball targeted young adults using performance-based TV ads and athlete endorsements 73% of the tennis expenditures allocated to athlete endorsements and tournament sponsorship, along with 15% for print ads geared toward casual usage

1988 Business Environment

Increasing costs of Far East production puts pressure on margins Retailers narrow selections to fewer brands Shorter athletic shoe product life cycles Competition intensifies in all categories Shift in the way Reebok wearers talk about their shoes Does Reebok need a new umbrella campaign?
Boost brand image High awareness, market penetration, and brand loyalty

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U.B.U. Umbrella Ads ($11M)

Campaign objectives:
Stress freedom of expression and individuality Maintain the brands mass appeal

Targeted at 18 to 34 year olds, particularly women TV ads run during prime-time and late-night shows on cable channels such as MTV and ESPN Print ads run (Aug-Dec) in fashion, entertainment, and life style or special-interest magazines
July editions of five athletic shoe trade magazines

Olympics Advertising ($6M)

Assured Reebok brand exclusivity in athletic footwear advertising during NBCs television coverage of the Summer Games Ads featured real people wearing Reebok shoes and engaging in street or yard sports
Example tagline: Summer Games, Bronx, NY End commercial with slogan And you thought all the excitement was in Seoul

Expected to excite Reebok brand dealers

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Energy Return System (ERS)

A $600,000 performance-based print campaign featuring Reeboks new Energy Return System ERS design competes with Nikes Air line and is intended to reach active sports participants
$75-90 per pair retail price range Ads carry the slogan The Revolution is Over in response to Nikes successful 1987 Revolution campaign Ad will run in sports magazines (Jun-Dec)

Program Evaluations
Overall communications objectives
Boost brand image to be unique and exciting Maintain mass appeal

Category advertising
Performance-based communications maintain credibility with opinion leaders Fashion as a secondary focus captures broader market of casual wearer Move toward standard core communications with subtle adjustments to tailor to specific categories

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Program Evaluations
Overall communications objectives
Boost brand image to be unique and exciting Maintain mass appeal

Reeboks let U.B.U.

Necessary to meet objectives efficiently and effectively Appropriate to both objectives
Message stresses self-expression and individuality Placement of TV and print ads attempts to reach the mass market Exception: Ad placement in July editions of trade magazines

Program Evaluations
Overall communications objectives
Boost brand image to be unique and exciting Maintain mass appeal

Olympics advertising
Summer Olympics are exciting and appeal to the worldwide mass market Association with sports appeals to Reeboks dealers
Recommendation: Print ads should replace the U.B.U ads in July editions of trade magazines

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Program Evaluations
Overall communications objectives
Boost brand image to be unique and exciting Maintain mass appeal

ERS new product advertising

New innovation is exciting and ads are appropriately performance-based
Reebok is not known for its innovative technology Requires a brand image stretch, rather than a mere boost

Target market is the active sports participants

Print ads placed in hard core athletic magazines

Direct competition with Nike and niche competitors

Requires heavy television advertising

Human Rights Now! Tour

Objective is to reach young people with a positive message about Reebok Advantages:
Association with the most exciting event of the year High awareness and favorable attitude among Reeboks target market Mass pre-event, event, and post-event exposure
18 concerts in 16 countries on 5 continents Extensive advertising, promotions, and public relations

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Human Rights Now! Tour

Objective is to reach young people with a positive message about Reebok Disadvantages:
As the sole underwriter of the tour, the risks are high
Financial risk: $2M tour expenses + up to $8M tour deficit + $5M marketing = up to $15M / 1 Potential negative tour publicity

AI has the final decision on most aspects of the tour Net profits from tour merchandise donated to AI

How will this sell shoes?

Market research
Attitude and usage survey Involve consumers, dealers, distributors, and employees Consensus maps: music concert athletic shoes
Positive results => aggressively market Reeboks association with HRN! Tour, exploiting every opportunity including POS Negative results => limit usage of Reebok name in ads and on merchandise with no retail store promotions

Enlist additional sponsors to reduce financial risk

$15M / 2 = $7.5M, and $15M / 3 = $5M, and so on...

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Questions

Discussion

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