Executive Summary
Puma SE is one of the leading firms in the sports industry. Started in 1948, this German company has had growth in its market share, making it the second largest firm in the sports industry. Initially a shoe making company, this firm soon started producing all types of sportswear, including balls. The company lost its ground to its arch rival, Addidas and other new entrants.
In its quest to recapture its lost markets, the company has set programs that would ensure that it regains its lead in the market. It has redefined its value proposition, extended its line of production and ventured into new industries. All these are meant to give it a new direction towards success. This effort has seen it capture some new markets in that it had lost to some of its competitors in this industry.
Introduction
Puma SE is one of the leading companies in the world in the sports industry. Established in 1948 when two brothers, Rudolf Dassler and Adolf Dassler broke up, Puma has grown from a family owned business to a partnership, and currently a public company with its shares listed in the country’s stock market (Woodruff 1997, p. 45).
It has a worldwide coverage, with a brand name that is known by many people across the world. In this sports industry, the company faces very strong competition from its arch rival which is also a sister company, Addidas. The Company has had cordial relationship with this firm, which is currently the market leader in this industry.
In this industry many firms have come into existence from various regions across the world. These new entrants are producing products with similar features as Puma, a fact that has seen competition sore in the world markets. The market share of Puma SE, from a technical view point, has significantly dropped (Payne & Holt 2001, P. 42).
Addidas still occupies the largest portion of home market share, and the world market in general. Presence of other international firms in this industry has further eaten up its market share. The firm is left with a limited market share, a fact that has seen it loose the glory it had in early 1970s.
Despite all these challenges, this firm has developed structures that would ensure that it remains competitive. It has broadened the scope of its products to go beyond shoes and balls. Currently, Puma produces virtually every sportswear. According to the reports given by Barnes and Pinder (2009, P. 45), the firm also plans to open a new line of designer clothes, outside its current sportswear productions.
Strategic Analysis
Profile of the Business
Puma SE operates in the sports industry. It sells among other items, sports shoes, sports clothing, and balls. Although the firm has specialized in various sportswear and designer clothes, the company basically started out as a shoe making company (Andreson & Rossum 2006, p. 45). Although it makes profit from other lines of products, its leading revenue earner still remains shoe making.
According to Cunningham (2000), Puma SE comes second in the world in production of sportswear. The sports shoes have proven to be the best income earner for the company that has diversified its products to various industries. In Germany, which is the home country, the firm has had a huge market for its shoes in various disciplines in sports.
Although the brother company, Addidas has maintained the lead in this sector, the company has had huge profits from the sale of shoes. According to Eggert and Ulaga (2002, p. 78), football shoes accounts for the largest income earner for the firm. Its market share within the home country in production of sports shoes is 26 percent.
Although this local market is controlled largely by Addidas, Puma has maintained a close pursuit of the firm. Puma also comes second to the sister company Addidas in supply of sportswear.
Its sports products have widely gained acceptance in the world market because of its associated quality. Dubois, Jolibert, and Muhlbacher (2007, P. 75) observe that this company positioned itself as a company that has the interest of customers at heart.
This firm started out as a small shoe manufacturing company following the fallout between Adolf and Rudolf who were managing the parent company. They agreed to split the parent company, a move that saw the inception of the two world’s leading sportswear companies: Addidas and Puma in 1948 (Cohen & Morrison 2000, p. 39).
This company experienced consistent growth since its inception to early 1990s. The external environment was conducive for growth. The main competitor within the local market was the sister company, Addidas.
The two companies avoided direct competition, always operating as a unit. Through this, they were able to exercise full control of the market. They could set the prices they felt preferable to them. Because they had full control of the industry, they could easily control the suppliers. Due to this monopoly kind of operation, the company was able to amass a large capital base.
Through this, it was able to expand its market share to cover the entire country of Germany after operating for only four years (Kotler, Keller, Brady, Goodman, & Hansen 2009, p. 63). It would later venture into other European markets. It started by selling its products in Russia, France, and the Great Britain. Milroy (1983, p. 46) reports that this firm grew rapidly in the European markets.
Having realized the potential that existed in the American markets, this firm opened a number of shops in the two American continents. In the north, it identified a number of exclusive distributers within United States of America. It would later open other shops in Canada.
In the south, it opened exclusive shops in Brazil. It would later open other shops in Uruguay, Paraguay, and Chile. Business was doing well and by 1992, this German firm had exerted its presence in the entire Europe, the American continents, Asia and most parts of Africa.
According to Piercy (2009, p. 73), this company currently ranks second in the world in production of sportswear, after the sister company, Addidas. Although Addidas has dominated over 50 percent of the world’s market in this industry at the expense of Puma SE, there is still a room for the firm’s expansion.
Best (2009, p. 36) reports that according to the current economic condition of the firm, Puma SE stands out as a very strong company in this.
A statement issued by the chairman, Mr. Jochen Zeitz, and the Chief Executive Officer, Mr. Franz Koch, in the last annual conference shows that the company has laid down proper strategies that would enable it recapture most of the markets it lost to its sister company, Addidas and other new entrants into this industry from various countries in the world (Atkinson 1990, p. 124).
This scholar reports that the chairperson was very categorical in his statement on the firm’s opinion about their arch rival company: Addidas. The chairman is reported to have said that Addidas was and would remain a sister company to Puma SE. This was a strong indication that the firm was not considering any direct confrontational competition with Addidas in its quest to recapture the markets it had lost to it.
However, the firm’s Chief Executive Officer gave a very strong pointer that the firm would engage in fierce battles in the world markets against new entrants that were threatening its existence in various world markets.
Currently, Puma SE has more than 9350 employees located in different regions across the world. These are individuals who are directly employed by this firm as full time employees. However, the firm employs over half a million individuals across the world indirectly. Most of these individuals are people who work as the exclusive shop owners who stock the products of Puma, or their employees.
Others are employed in the logistics of this company while down the ladder are the cobblers who would repair the shoes in case they are in bad shape.
By the close of 2010 financial year, the firm had a strong financial base which was an indication that it was doing well in this industry (Andreson, Narus, & Rossum 2011, P. 98). This was an indication that it was still competitive despite the new entrants that have heightened the rate of competition.
The company’s balance sheet as at the end of this period was very strong. It showed that the company was in a position to finance most of its planned activities. It also showed that the company was able to settle all the debts, both long term and short-term, and still be in a position to run all its operations normally.
This supports the chairman and the chief executive officers’ statements that Puma is determined to ensure that it remained competitive in the world market. Its financial statements, in the appendix below show that the firm is in a position to manage competition.
Company Purpose
Puma’s vision is based on four values: fairness, honesty, positivity and creativeness. In their profile, Puma envisions a world that is peaceful, safer, and more creative than what we have today (Ahmed & Rafiq 2002, p. 83). In achieving this, the company sets to play its part by ensuring that it is fair to its customers and honest in all its dealings. It strives to achieve positivity in all its activities and creativity in its products.
The Business Environment
According to Adam & Healy (2000, p. 30), business environment plays a very important role in a firm’s success or failure. No business operates in a vacuum. Every business has various environmental factors that affect its operations in one way or the other.
As such, businesses around the world has been keen to monitor the environment and manipulate those that can be manipulated to its advantage, and conform to those forces that cannot be manipulated. As Holbrook (2003, p. 74) says, environmental factors can be grouped into three broad categories.
The first category is the internal environment, which can be analyzed through SWOT analysis, the external environment that can be done using PESTEL analysis and the competitive environment.
The Internal Environment: SWOT Analysis
Puma SE can be analyzed through the above-mentioned tool to ensure that its internal environment is completely understood.
Strength of this company arises from a number of factors. The main source of strength of Puma SE in this industry is its many years of experience (Weiss 1994, p. 82). This firm has been in operation for a considerably long period and currently understands exact needs of the market.
This gives it an edge over other firms in this industry. Moreover, its huge financial base, committed employees and dominance in the world markets have seen it edge out other competitors in the market.
However, as Gilbert (2001, 65) notes, one main weakness of Puma SE has been its slow adoption to the emerging technologies. The technology is changing very fast and with it comes various changes that every firm should get adapted to. Puma, although currently uses the modern means of production, took too long to embrace technological changes. This saw its competitors like Addidas overtake it as the market leader. Its financial base is also comparative less, taking into account the economic strength of its main competitor, Addidas.
Opportunities arise in the market that has seen this firm prosper. The Olympics, World Cups and such other major sporting events offer this company opportunity to market its products.
This company manufactures balls and other sports gear. Major world sports events offer it a huge opportunity to sell its products in mass. Within the local market, the firm also sells its products to local teams and organization found in this country.
The environment is marred with a number of threats. One main threat to Puma SE is the ease with which new entrants come into this industry.
Many firms producing the same products as Puma have eaten into its market share, threatening to drive it out of the market (Ward 1999, p. 43). Governments’ policies in various countries have also hindered its growth as some are restrictive. Volatile fuel prices also increases cost of production, lowering the profits of the firm.
External Environment PESTEL Analysis
Puma SE also experiences external environmental forces that have very strong influence in its operations. The external forces can best be analyzed through PESTEL analysis.
The political environment within its home country, Germany has been very stable. Germany has had a long period of political stability, a fact that has seen Puma grow to other regions of the world. The government has also been supportive to this firm, always ready to offer financial support (Ulaga & Chacour 2001, p. 41). It has also created a conducive environment where firms can access funds for development with ease.
However the political environment in other world regions has not been very conducive. Other governments have been hostile, while in other regions like Afghanistan, there lacks political stability that can sustain normal running of business.
The economic environment of this firm has had mixed fortunes. Germany is the only European country that never experienced the 2008/2009 world economic recession (Andreson, Narus, & Rossum 2010, 45). This means that Puma SE’s local market was not affected by the recession.
However, the firm operates in various other regions across the world, including the US, which was greatly affected by the recession. As the local market remained conducive, the international market was volatile, and to an extent, very weak.
Sports is a recreational activity, hence it enhances the social welfare of mankind. The social environment of Puma SE is much dictated by the industry in which it plays. Sports are loved across the world.
Being one of the facilitator of various sports popular in various regions, Puma has gained popularity in various regions. Having sponsored renowned sportsmen like Pele, Etoo and Maradona, many people have come to identify with its products, especially the football shoes (Lindgreen & Finn 2005, p. 16).
Technological environment plays a major role in the firm’s development in this industry. Technological changes have seen new methods of production come into existence. Technology brings with it mixed blessings. If a firm adapts technology at the right time and in the right manner, it would reap positively from it.
However, if it is slow to its adaption or adopts wrong technologies, the effect can be adverse. Puma learnt this and has adopted the new technologies. This has seen it prosper within this industry.
Environmental concerns like pollution have been a major issue within this industry. This firm, alongside the sister company, Addidas and their suppliers have been accused by an environmentalist group called Greenpeace of playing a major role in pollution of the environment (Frankfort-Nachmias & Nachmias 1992, p. 91).
In response to this, Puma has promised to reinvent its methods of production to minimize its levels of pollution. This was an attempt to ensure that it builds its public image.
As Bailey (1996, p. 72) states, no firm can operate in a lawless environment. Law is very important in ensuring that as an individual or entity enjoys his or her freedom, he or she does not interfere with others.
This way, business environments would have peace that it requires. Puma has always strove to ensure that its entire operations are within the confines of the law. This is to ensure that it does not face litigation in case it can be avoided.
The competitive environment has been tough for Puma. Once a flourishing firm with only Addidas as the main competitor, Puma currently operates in a very competitive market. New firms have emerged in various regions challenging the position of Puma in the world market.
Although Puma is still considered the second largest company in this industry, its market share has been significantly reduced in the world market (Flint, Woodruff, & Fisher 2002, p. 124). Back at home, Addidas takes a larger part of the market share, straining this firm even further. However, the firm has managed to keep afloat the competition through devising competitive strategies that has seen it increase its profitability.
Stakeholder Theory
Stakeholder theory helps in understanding the company’s in entirety in regard to individuals and corporate bodies that play part in its running. By conducting stakeholder analysis on Puma, it would be possible to determine the main decision makers, and how their decisions affect other members and the firm in general.
Puma has its shares traded publicly, and therefore its board of directors would have the final say in decision making. As such, it is important to understand factors that influence their decision-making.
Markowitz Portfolio Theory
Puma operates as a public company. The shareholders of this company expect returns from their investment. Markowitz Portfolio theory holds that shareholders’ return can be evaluated from two fronts, which are current dividend yield and capital gains yields. When investors buy shares of this company, their hope is that their shares would appreciate and they would be able to get profits after some time.
This can only be realized if the company is recording gains in its operations. Puma has registered some growth over the last three years as can be seen in its financial statements shown in the appendix below. For this reason, shareholders capital gains yield is positive.
Strategic Development
Puma has had a slow growth over the last part of the twentieth century. The firm was doing well in the early seventies when it was threatening to floor its arch rival, Addidas. Briggs (1986, P. 37) reports of an incident during the1972 World Cup when Puma used Pele to market its football boots even after an agreement between Puma and Addidas that the two competitors would avoid using Pele in that tournament.
Since then, the trust between the two firms has dropped, a fact that has seen both of them treat each other with some elements of suspicion, though they have maintained cordial relationships, always avoiding scenarios that could lead to direct confrontation. Puma SE has developed strategic plans that would enable it prosper in the highly competitive market.
Basis of Competition
As stated above, completion in this industry is very rife. Bryman (2001, p. 73) laments that most of the new firms that come into existence are merely copy cuts. He asserts that most of them lack creativity that would see to it that they prosper in this competitive market.
As such, competition has become so stiff because items taken to the market are identical. In the sports industry, Puma faces the same problem. Many of the new firms that have come into existence are producing products that are exactly similar to Pumas’ products. It forces the company to devise methods that would ensure that it is able to manage this stiff competition.
Puma has ensured that it attracts customers to its products. To help in doing this, the firm has differentiated its products by its company logo for ease of identification from an array of similar products. The company has then positioned its products as user defined. Every product has its specific use as per the customer’s needs, and Puma is available to provide this.
It has developed value proposition that makes the brand be associated with quality for every single product they avail to the market. Always avoiding pricing as a market strategy, Puma has focused on providing quality to enhance its competitiveness (Fifield 2007, p. 63).
Its products have therefore acquired a special niche in the market, making them stand out among the rest as the preferred quality provider. As such, many customers have come to like the products and are making purchase of the products at the peril of other compotators.
Existing Strategy
Puma has reinvented its strategies to match the competitive environment. Competition in the market is so stiff and it would be very easy for a firm to fall if care is not taken. Many firms in many countries across the world have started producing similar products as Puma in markets that were previously dominated by Puma. What is worse is the fact that these firms receive their government’s protections (Edkins & Maja 2009, p. 79).
With the current rising nationalisms in various countries and the need to ensure that local firms prosper, governments have formulated policies that would ensure that local firms are protected from external aggression. The policies are meant to bar firms like Puma and other related foreign firms from operating in such countries.
Having realized this, Puma has decided to embrace collaboration with local firms to facilitate national acceptance. Local firms are permitted by Puma to operate under the brand name Puma, but with full independence from the parent Puma.
The firms would in turn be expected to stock Puma products, besides other products that such local firms may wish to stock, provided the products are not direct competitors of Puma’s products. The firm has also aggressively gotten into massive development of new products to ensure that it remains relevant in the market (Cukor-Avila 2000, p. 46).
Some products like the Puma sports shoes are currently considered cash cows for the firm because of their constant income generation over the years. Some designs of shoes and clothing that were considered out of fashion (dogs) were eliminated. The firm plans to venture into clothing industry other than sportswear. This strategy is to ensure that the firm increases its revenue base.
Generation of Strategic Options
Puma SE has designed programs that would help it capture new market. As mentioned above, the company currently produces other lines of products besides the sportswear. It produces designer clothes. The firm has also made concerted effort to recapture its lost market share, by creating patents in various locations around the world (Balnaves & Caputi 2001, p. 79).
With its impressive balance sheet, this company is in a position to finance most of its expansion plans. Its adoption of new technologies is meant to ensure that it reduces cost of production as it increase profits.
Evaluation and Ranking Options
The strategies that this firm has plans to adopt or has adopted already comes at a cost. Installing technological equipments have huge financial consequences. However, it is cost effective in the long run. Starting new lines of production may mean putting more on investment.
However, it would help the firm venture into new markets. The most important point is that the firm has to be in a position to withstand the financial consequences of the move it makes.
Choice of Strategies
Based on the above analysis, the best option for this firm would be to open new lines of production. Because most of its products have reached their full life circle, new products would ensure continuity and increased profitability. It would also ensure that as the cash cows bring in money, there are other fall back options.
Implementation
Puma should devise a plan on how it would implement its planned strategies. The chart below would help summaries the process this firm should take in the implementation.
There should be a team within research and development department part that should be responsible for idea screening. The idea should undergo a full process of scanning to determine its viability. If viable, market research should be done to ensure that the product would receive expected acceptance.
The management should allocate enough finance to this department to ensure that all the stages are carried out successfully. The next stage would involve production of sample which would then be taken to the market for testing. If the product passes this stage, it can then be commercialized.
Recommendations
Because of the heightened competition that exists in this industry, Puma should consider getting an edge over other competitors in this industry. The following recommendations should be considered by this company when implementing the new strategies:
- The management should consider adopting emerging technologies of production as a way of ensuring that their production method meets the market standards.
- The top management should actively involve all the employees in idea generation because it is the employees who are always in touch with the customers.
- Research on new products, improvement of existing products or new technologies should always be in line with the market requirements.
- In launching new products in the market, the research and development team and the marketing department should ensure that they create a special niche for the product in the market.
- Puma should consider having a collaborative relationship with its arch rival, Addidas in order to face other emerging competitors as a unit. This would help the two companies have stronger bargaining power both with the suppliers and the market.
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