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MBA Case Study;Reebok races into the urban market

Reebok’s UK founder, Joseph Foster, produced some of the first ever running shoes with spikes, as athletes in the late 1890s wanted to run even faster.  In 1924, J.W. Foster and Sons was making by hand the running shoes used in the 1924 Summer Games, as depicted in the hit film Chariots of Fire.  In 1958, two of the founder’s grandsons started a sister company called Reebok, named after a type of African gazelle.  By 1979, three running shoe styles were introduced to the USA: at US $60 per pair, they were the most expensive on the market.  In 1982, Reebok caught the market unawares with the launch of Freestyle, the first ever athletic shoe designed specifically for women.  By the 1980s, Reebok was a publicly quoted company active in more than 170 countries. Continual product innovation and customer research gave the company leadership in most of its key target markets.  But Nike emerged.

Step Reebok followed in 1989, a totally revolutionary workout programme that led to millions of users across the globe.  By 1992, the company was broadening its ranges to include footwear and clothing products linked to many sports.  These moves were supported with major sponsorship deals linked with leading sports stars, teams and sporting events.  Venus Williams was one of the Reebok stars.  In the summer of 2008, Reebok and driving ace Lewis Hamilton announced a multi-year partnership at a spectacular 3-D event in Amsterdam, home of Reebok’s European Headquarters.  At the event, Reebok unveiled ‘The Athlete within the Driver’, giving media a rare insight into Hamilton’s demanding fitness regime.  Hamilton revealed how Reebok’s Smoothfit training footwear and apparel range helped him to train better than ever before.

Flying JUKARI
Recently, Reebok has again transformed the way in which people train, with the creating of the JUKARI Fit to Fly workout programmes, based on Cirque du Soleil’s artistry and Reebok’s knowledge of fitness, as always building on the company’s philosophy that it should be fun to stay in shape and that sport and life are entwined for the good of the individual.  The workouts have been created on a specially-designed piece of equipment called the FlySet.  The result is a workout that gives the sensation of flying while strengthening and lengthening the body through cardio, strength, balance and core training.

Reebok has also made a pledge to tone butts and legs of women around the world with its innovative EasyTone footwear.  Featuring first-of-its-kind balance pod technology, the shoe generates incredible results thanks to proprietary technology invested by a former NASA engineer.

German Adidas-owned Reebok wants to give frontrunner Nike a run for its money in the race for market share in athletic footwear, clothing and equipment. Reebok, now based in Massachusetts, USA, gained speed from the 1980s into the early 1990s by marketing special aerobics shoes for women, before Nike pulled ahead with new clothing and equipment endorsed by high profile athletes such as Michael Jordan and Tiger Woods.  Nike has remained the market leader, completely out distancing all competitors to dominate the industry with a 35 per cent share of the market.  In contrast, Reebok is seeking to close the gap by changing its selection of target markets.  In  the process, Reebok is aiming to change consumer’ perceptions of and attitudes towards its brand and its products, with the objective of boosting  both sales and profits.

Breaking tradition with hip-hop

Traditionally, manufacturers of athlete shoes have captured market attention by signing successful or up- and –coming sports stars to promote their shoes.  Reebok still likes to link its brand to popular sports and individual champions.  The fierce rivalry with Nike continues on the playing field: Reebok has lucrative contracts to make branded hats for the US National Basketball Association (NBA) and to supply the US National Football League (NFL) with uniforms and equipment, while Nike has an exclusive contract to provide performance wear to all 30 Major League Baseball teams.  Many other sports around the world are similarly supported by Reebok and Nike, including stadia, teams and individual players.

Looking beyond sports, Reebok’s marketers investigated the urban market, where fashion, rather than performance is the deciding factor in buying decisions.  Urban teams tend to be extremely style-conscious, buying as many as ten pairs of athletic shoes a year so they can be seen in the very latest thing.  In the States, many are also fans of hip-hop music and buy clothing designed by hip-hop celebrities such as Jay-Z, Sean ‘P.Diddy’ Combs and Russell Simmons.  Reebok’s marketing research confirmed this market’s considerable buying power and the influence of hip-hop artists. To reach this market effectively, Reebok needed a new brand, new products and new promotional efforts: the Reebok brand did not have a suitably desirable image with this youth market in any of the company’s principle countries of operation.  First, the company took the focus off its mainstream Reebok brand by creating  Rbk as a new brand specifically for the urban market.  Next, it partnered with hip-hop artists such as Jay-Z and 50 Cent to develop special footwear collections, backed by targeted promotional efforts emphasizing style with attitude.

New street credibility

Reebok found it was tapping into a significant marketing opportunity. Soon after it introduced its soft leather, flat-soled S.Carter shoes – after Jay-Z’s original name, Shawn Carter- the line sold out.  Demand for the US $100 shoes quickly peaked, leading to eager buyers bidding up to US %250 for one pair on the eBay auction website.  Within eight months, the company had shipped 500,000 pairs to retailers around the USA and was preparing to launch a second S Carter shoe.

On the back of this success, Reebok introduced G-Unit footwear, name after a hit song by rapper 50 Cent, who says that ‘Reebok’s Rbk Collection is the real thing when it comes to connecting with the street and hip-hop culture’.  Hip-hop’s Eve was also asked to design a shoe.  ‘She is one of the first artists in the campaign who has male and female appeal, urban and suburban,’ observed Reebok’s director of global advertising; ‘ she is as much a fashion icon as a music  icon’.
The company also found a way to bring sports and hip-hop together by launching the 13 Collection line of shoes by basketball start Allen Iverson.  Iverson promoted the line by appearing in a serious of fast-paced adverts filmed in rap video style.  Although he was shown playing basketball for a second or two, the adverts focused more on his off-court style than his on-court technique.

Despite the added credibility that such celebrities bring to the Rbk brand, the strategy entails some risks.  Fad in street fashion and music can come and go at a dizzying pace, which means a shoe that is ’red hot’ on one day and may be ‘ice cold’ the next. Reebok could also suffer from negative repercussions if one of its celebrities runs into trouble.  Still, the company’s chief marketing executive is committed to the strategy.  ‘ With  athletes, they wear the shoes for the length of a basketball season,’  he comments.  ‘With hip-hop, the publicity is intense but short, just like movies.’ The advantage, in his view, is that, ‘you’ll know very quickly whether you hit or miss’.

Targeting urban markets in China

In pursuit of growth, Reebok is also targeting promising global markets, with China high on its list of priorities.  Interest in sports is skyrocketing in China, thanks in part to Chinese basketball star Yao Mong’s move to the NBA.  According to the company’s research, 93 per cent of Chinese males aged 13-25, a prime market for athlete shoes, watch NBA broadcasts on a regular basis. Reebok’s Asia Pacific general manager cites one projection showing 50 per cent annual growth in footwear sales, stating that ‘it’s hard to say what the [actual sales] numbers are going to be, but they are going to be huge.’ China’s successes at the 2004 Olympics in Athens merely fuelled market growth, which simply exploded when China then staged the 2008 Games.

To make the most of this opportunity, Reebok set up ‘Yao’s House’ basketball courts around central Shanghai.  Each features the Reebok trademark and a giant Sports Illustrated cover showing the basketball star.  By giving teens and young adults a place to hone their slam-dunks, Reebok hopes to shape their attitudes towards its products.  ‘The trends [in China] are made in the urban areas and on street basketball courts, just like in the United States,’ says one Reebok executive.  Reebok is not the only athletic shoes manufacturer entering this market.  Nike sponsors a basketball court in Beijing, New Balance is building awareness of its shoes and Pony is selling sneakers in Beijing, Shanghai and Guandong.

Reebok’s ‘vector’
Nike has one of the most recognized trademarks in the world and now Reebok has its Vector, a streamlined trademark designed to communicate the brand’s attributes in a fast and fun way.  The idea is to make the Vector synonymous with Reebok, just as the Swoosh is synonymous with Nike. ‘Our research suggests that consumers react better to logos than words, and it’s a very effective marketing tool,’ stresses Reebok’s head of marketing.

In addition, the company is giving its brand a touch of glamour with ‘showcase stores’ in major cities.  In New York City, for example, Reebok opened a new men’s store right next to its women’s store.  Both feature footwear, clothing and accessories, and both share the building with the Reebok Sport Club/NY.  The displays are as stylish as the products, showing a mix of cashmere sweaters, jackets, wrist-watches and sunglasses along with shoes.  ‘We want people to say, “I didn’t know Reebok made that”,’ noted Reebok’s director of retailing.

Questions

1.    Identify and discuss the segmentation variables Reebok is using for its products? Why are these variables appropriate?
2.    Which of the three targeting strategies is Reebok applying? Explain fully
3.    Identify and critically discuss the influences on consumer buying decision process that appear to have the most impact on Reebok’s customers’ purchase decision.
Source: http://corporate.reebok.com/en/reebok_history/default.asp.July 2011