Case Analysis,Runners World
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Problem Recognition:
Tamara started her running shoe business in 1994 when she was 24. Tamara was a nationally ranked runner herself and hence she recognized a market for high quality running shoes specifically designed for serious runners. Tamara made good profits in the first six years of business from 1994 to 2000. Initially, she emphasized on Nike because it was well accepted and considered a top quality product.
She did not have much of a problem doing business in the initial years because of the jogging boom. She earned good returns on her investment and made profits.
However Lately, Tamara’s sales figures have started declining slowly. This has hurt her profitability and Tamara had flat sales figures and there was no further growth. The profits declined and there was significant decline in demand for Nike as a brand.
Tamara tried to manage the declining sales by selling running accessories ankle weights, T-shirts, water bottles, etc and she also tried offering more choices in athletic shoes for serious walkers.
But all these efforts did not help much because other stores in the neighbourhood offered them at a lower price. Tamara while talking to her customers found that there was demand for style, fashion and economy these days than high quality specially designed shoes.
So, Tamara had flattened out sales and reduced profitability as her main problems. The main reasons for reduction in sales are as follows:
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Reduced interest in jogging.
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Committing heavily on Nike.
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Initially she offered only Nike runner shoes.
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Higher prices as compared to other department stores.
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Customers do not have more options in terms of fashion and style.
Situation Analysis:
We will need to carry out Situational Analysis on Tamara’s business as a whole and her market position as compared to competition around. This size-up would give us an idea on how better she is placed in the market and what the competitors are doing which if she could adapt to and grow her business.
Environmental Scanning:
Social Factors:
Baby boomers and “Gen-X”, believed in jogging to be a healthy form of an exercise. There is a change in perception towards jogging and it is now considered to be hard work and not really good for the knees. They are more driven by quality and reputation of a brand and bought Nike for the same reason for many years. These generations are now ageing and not into active running.
The “Gen-Y”, which is a huge upcoming market segment close to quarter of the total market, is driven by fashion and style than function. They are also looking for economy together with value and are willing to pay prices as high as baby boomers.
The “Gen-Y” is also more demanding in terms of variety, products like shoes are being customized to cater to needs of a particular segment. In some matured markets, younger generations buy shoes and sports accessories to show support to an event like soccer world cup or cricket world cup.
Preferences of “Gen-Y” change quite often and accordingly they want their brands to adapt to these changes quickly and often they are found to be loyal to brands which are perceived to be smarter and faster in doing this. The example for this could be taken from a customized range of shoes from Puma. Puma has formed a partnership with Italian luggage manufacturer “Schedoni” for offering range of customized shoes.
Companies have to be vigilant to tap these changes in social factors that may influence considerable surge in sales within a short period of time.
Economical Factors:
As stated earlier, the need of the hour is value with economy. Companies can No more demand higher prices for their plain vanilla product. The customers today are smarter and more informed; they know what price could be quoted for a particular quality. There are many ways to reduce costs like outsourcing and latest manufacturing technologies.
The disposable income and buying power has increased in the developing countries which has increased the total shoe market size. Younger people in all these emerging economies are ready to spend money for a branded shoe.
Competition Factors:
Many of the big established shoe brands have seen consolidation and hence they have become bigger and more powerful in terms of competing with the rest.
These established big shoe firms like Nike, ADDIDAS sign up with international sports personalities and sponsor annual sports events like soccer world cup or cricket world cup. They also sign up the entire teams or clubs like NBA, NFL, and the Indian Cricket Team and then sponsor their clothing and accessories. This attracts a lot of youngsters to a particular brand.
The new small entrants are coming out with completely new idea which eats out of the existing segment of buyers. For an example, Heelying Shoes’ unique shoe with imbedded and detachable wheel turned out to be a success. They sold 1 million pairs in the first year of operations.
The big retail stores have the advantage of making the highest possible margin as they buy in bulk from the suppliers and hence they can afford to play with their prices.
Regulatory Factors:
The shoe market is completely governed by competition. There are no monopolies or any other rules defining the pricing here.
There are regulations on the materials which is to be used while manufacturing shoes.
Technological Factors:
The new technological advances have made it easier for even small time stores to come out with some unique idea like designing your shoe online. For an example, Customix offers 3 billion trillion combinations to design your shoes.
The need is being innovative in the use of technology even in the day to day needs of the business. The smaller stores can make use of RFID technology to minimize their store inventory.
Being a small store, it has the advantage of being more flexible and customizable and hence with use of latest technologies like a dedicated small corner for offering solutions to people