Ryka Strategic Position
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Key Issues
Ryka is a new entrant to a highly competitive and concentrated industry. The major concern for this rookie company is the lack of sufficient funding, where the firm has to rely on low budget marketing tactics – “guerrilla marketing” in order to compete with industry giants like Nike and Reebok. Due to their “shallow” pockets, Ryka cannot afford the legal fees to protect their patent and has failed to hire better employees. According to Rykas financial statement, they have not posted any net profit since 1988. Despite the increase in net sales, it can be difficult for Ryka to survive in the long term. In addition, their lag in delivery time indicates an inefficient distribution system that will result in lost grounds to competitors who can produce and deliver products faster and cheaper. With strained financial resources, the overall result is the lack of a nationally recognized brand name where retailers are unwilling to carry Rykas shoes as they prefer to stock brands that are comparably more easily recognized.
Strategic Position
Rykas products are developed and advertised exclusively for women, where their shoes are designed specifically to meet female customers unique fitness needs. Its products differentiate from other competitors through its focus on performance rather than fashion, resulting in highly functional and superior quality shoes. Ryka competes in three market segments: aerobic, walking and cross-training. They have now also considered entering into a new market of medical footwear as an increasing number of podiatrists and chiropractors recommend Rykas walking shoes to their patients. Geographically, Rykas products are mainly sold in US and Canada. One of its main marketing tactics is the emphasis on contributing back to the community and the social responsibility of the company, where the charitable ROSE foundation was established to support women who have been victims of violent crimes.
Performance
Ryka relies on targeting smaller markets such as women doing aerobics and walking, in order to yield profit. The company has proven successful in projecting positive brand images and generating good reputation among women but its overall industry market share is less than 1%. The firms financial performance is weak as the company has been experiencing net losses since 1988 resulting in negative numbers for both ROA and ROE. On the other hand, there was a favorable turn for Ryka in 1992 as the operating income was positive. Interest expense increased due to extensive borrowing and the company starting pricing products relatively low in exchange for greater market share. In addition, by switching to South Korean manufactures who offer better quality control over the production, the increased cost of goods drove down Rykas profit margin.
External Environment Analysis
Economic Characteristics: The athletic footwear industry is a global market with highly concentrated firms. The top three companies, Nike, Reebok, L.A. Gear, account for 62% of the market share. The industry is capital intensive and at its mature stage with growth rate dropping from 20% to 4%. The industry is competitive and women are the fastest growing segment.
Porters Five Forces
Entry Barriers: The barriers to entry are high as the industry requires high initial marketing and R&D costs for innovative technologies. Large firms in this market have great market power and have accumulated brand equity where it will be hard for new entrants to contract retailers and thus have limited access to retail space.
Supplier Power: Bargaining power of raw material suppliers is low as it is a commodity with rubber, leather, ethyl vinyl acetate, and etc, which can be easily obtained from the market at a fair price. The suppliers of finished goods also have low bargaining power, because there are numerous suppliers and they all may have excess manufacturing capacity.
Buyer Power: Bargaining power from final customers is medium. Strong brand loyalty amongst some customers will result in a higher bargaining power as they will not easily switch to a new brand. On the other hand, other customers are price-sensitive which decrease bargaining power. Switching cost is therefore low as it requires no learning.
Threat of substitute: This is minimal as the only close substitute for athletic shoes are normal shoes. However, normal shoes should not be used for athletic purposes