puma strategic management
...y Zeits has been. Then, in 2002, relative R&D expenses were rather high compared to the competitors (2.6% of revenues for Puma while Adidas spent only 1.3% of its revenues). Nevertheless the money dedicated to R&D is still low in absolute terms compared to the big competitors such as Nike which spent $280 millions while Puma only spent $24 millions. Comparative overview of financial situation of Puma’s competitors: Equity value March 2003 (in millions) Net sales 2002 (in millions) Change compared to 1999 Net income 2002 (in millions) Change compared to 1999 Income to sales ratio Puma 1,010 € 910€ 143% 85 844% 10,71 Nike 8,148$ 9,893$ 12.7% 668 48% 14,81 Adidas-Salomon 3,575€ 6,523€ 22% 229 0% 28,48 Reebok 1,911$ 3,128$ 7% 126 1045% 24,83 Fila 31€ 860€ - 5% 81 237% 10,62 LVMH (2001) 20,695€ 12,229 NA - 455 NA -26,88 Hugo Boss 901€ 1,095 NA 107 NA 10,23 The main lessons we can draw from this table is that Puma is far more dynamic in gaining market shares than its competitors. Then, the company is also very competitive on the evolution of net income compared to its competitors. Only Reebok is better with an evolution of 1045% but when we consider its income to sales ratio, Reebok is not profitable as Puma, Fila or Hugo Boss (which ratio is 1:10). Nike, the biggest competitor has a ratio of 1:15 which is quite good given its gigantic size. Adidas is not so profitable with an income to sales ratio of 1:28. The equity value of Puma is quite good because the gap between the company and its competitors is relatively fewer than the difference of size. For example Fila, which is comparable in size and results to Puma has an equity value of only $31 millions while Puma’s one is $1,010 millions. To sum up, we can say that Puma is a healthy company which is highly dynamic with a consistent growth of sales and net income. Compared to its competitors, despite its small size regarding the giants of the market, the finance of Puma proved that the company has fully recovered from the past while some competitors seem to reach a plateau. The interesting point is to wonder why Puma is able to be so profitable when competitors suffer from the maturity of the market. The reasons are: • Presence on emerging sports’ market, referred as niches (skateboarding, golf, snowboarding) • Efficient sourcing, procurement and logistics allows to increase profit margin • Presence on the new lifestyle market segment of sportswear (high potential) • Large range of old products ready to be re-launched. 3. Compare the competitive strengths of the 6 major competitors in the following categories: breadth of the product line, brand power, financial strength, and product appeal. 1- Breadth of product lines Puma’s strategy is customer oriented. They created 2 big product lines: puma football (plus accessories) and Puma running. Their product categorization is segmented with the footwear (64%), the apparel (28%) and the accessories like bags, watches, glasses (7%). Nearly 60% of their sales are made with footwear. It is the same thing for the main competitors but some of them like Adidas or Nike have bigger sales in the category of apparel. Globally it is true that the Puma’s product line is not as large as for the biggest companies of sportswear but they involve a lot of money in Research and Development (3.3% of their revenues- more than all competitors) so that their products are often innovative, market oriented and so logically successful. 2- Brand power Puma had some difficulties in the 80’s because of his image. They really reacted in 1997 where they decide to define a new positioning, a new brand image associated with a new philosophy. The new image is a complex harmony between strength, dynamism, independence, fashion and joy of living and playing. They decide to work with some charismatic personalities in order to give this image of strength and dynamism and independence but they really acquired their new philosophy for instance thanks to their partnership with the Jamaican team who was playing the role of underdog… but by a funny way. The new philosophy of the brand was Joy of living, sunshine, athletic spirit but very street fashioned. They also realized some excellent marketing operation as for the Olympic Games press conference with Lindford Christies and his contact lenses with the Puma cat symbol. The brand appeared also in some Hollywood production and they communicated thanks to MTV in order to rich directly their main public: young people. Puma has an advantage in the “new” major trend of lifestyle wear because it is less associated to a pure sport brand like Nike or Reebok. The new challenge for the Puma cat’s brand will be to stay and become more popular while keeping this image of differentiation and exclusivity (independence). 3- Financial strengths In this part we will analyse some ratios that are relevant to compare the main competitors. The financial organisation of Puma as been changed in 1991 when they realized they were in a critical situation. In order to make Puma profitable again they decided to create a stable financial basis. They introduced some new accounting practice in the company like for instance a product per product cost and gain analysis. This new method allowed them to avoid too low margin on product and so “unhealthy” sales. Puma also decided to create Profit centre, they define a new controlling oriented distribution to manage margin of each products, they decreased their working capital and account receivable. In 1997, puma announced record earnings of 37 millions Euros. 2002 (%) 1. Net sales/Net income 2. Acc. rec. /Assets 3. Acc. payable/Equity 4.Shareholders equity/Equity Puma 9,34 25,86 22,43 47,91 Nike 6,75 28,05 7,82 59,58 Adidas 3,51 36,61 15,70 25,37 Reebok 4,03 24,82 8,23 46,66 Fila 9,42 34,40 20,11 (1) The first ratio gives us an idea of the profitability. Puma and Fila are the more profitable companies in comparison with their sales. Maybe thanks to an efficient cost control policy. (2) The second ratio gives the percentage of accounts receivable. The fewer it is, the better it is because you can directly involve the money you receive in other operations. Puma and Reebok have the best rate. (3) This third ratio is the opposite of the second one. It computes the rate that the company will be allowed to pay later to his suppliers. In this case Puma is in the worst situation. They pay quickly their suppliers, the finances are healthy but you can not use the money. (No data for Fila). (4) The last ratio measures the importance of shareholders in comparison with the total amount of equity. The fewer it is the more independent you are but it also represent a bigger risk in case of economic difficulties. 4. Comparison of product appeal between the main competitors. Adidas: soccer lines, ski (Salomon), tennis. Nike: traditional American sports equipment, footwear and sportswear with innovative products. Reebok: footwear (key market), aerobic products (example: Female sports shoes freestyle sine 1983), street and casual products. Fila: Active wear, sports wear, athletic footwear, running basket and fitness products also. Prada: Handbags (high prices), Miu Miu lines (lifestyle wear), sport lines also since few years Diesel: Jeans and fashioned products (use of sports wear as a successful trend). 4- What strategic options do you see for Puma to continue to improve its position? As it is said in the case, the company core competencies are marketing, brand management and product management. So Puma have to focus on these competencies in order to increase its position. In term of brand management, the company have to continue its sponsorship with athletes, national teams and in events in order to improve its brand awareness worldwide. Moreover, the facts to be present during these kinds of events can build a stronger image for the company as a major actor of the sport market. Concerning its marketing strategy, Puma have to focus on the exclusiveness and uniqueness of its product on this very competitive market. Indeed, we can say that the company is in a niche market for its apparel and footwear products. Thanks to the structure of the company and its position all over the world, Puma can not only develop a range of product adapted to the cultural differences of each region b...