||| Contents |||

Background................................................3

adidas in India...........................................3

Industry Scenario.........................................5

Scope of Study............................................6

Consumers.................................................7

Consumer Behaviour........................................8

Environmental Analysis...................................10

Retail...................................................12

Competitors..............................................13

Segmentation.............................................15

Targeting & Positioning..................................16

Recommendations..........................................19

Appendix.................................................21

||| Background |||

adidas AG is a German sports apparel manufacturer, part of

the adidas Group. It registered as adidas AG on 18 August

1949 (with lower-case lettering: "adidas"). The company was

named after its founder, Adolf (Adi) Dassler, who started

producing shoes in the 1920s in Herzogenaurach, near

Nuremberg, with the help of his brother Rudolf Dassler who

later formed rival shoe company PUMA AG. The company's

clothing and shoe designs typically include three parallel

stripes of the same color, and the same motif is

incorporated into adidas' official logos.

adidas plans to become the leader in the organised sports

footwear and sportswear market.

||| adidas in India |||

adidas first entered India in 1989 through a licence

agreement with Bata. adidas later re-entered India for the

2

second time in 1996 through a joint venture with Magnum

International Trading Company Ltd with an initial investment

of $2.5 million to form adidas (India) Trading Pvt. Ltd.

adidas holds a 100 percent stake in the company.

The company launches every six months between 600 and 800

new designs in footwear and between 1,500 and 2,000 new

designs in apparels. The apparel range is priced between

Rs279 and Rs2700, while the footwear is priced between Rs499

to over Rs12499. adidas' products in India are sold through

140 own outlets (excluding multi-brand outlets).

The company, which is known for football and running shoes,

introduced its cricket gear in India in 2004.

The company adheres to strict quality and design

specifications and uses the manufacturing unit of Lakhani

Footwear to manufacture the locally produced adidas range in

India.

3

Around 30-40 percent of the components are locally sourced.

4

||| Industry Scenario |||

(as of 2003-04)

Footwear brands drew up ambitious plans targeting a larger

audience and higher market share.

MNC brands like Reebok and Adidas launched television

commercials after a gap of four years and brand shops were

filled with a fresh and upgraded product line-up.

The new distribution strategy focused on extending the reach

rather than exclusivity and at broad-basing distribution

through tie-ups with branded retailers and setting up shop

in shopping malls.

For adidas, sales of higher priced footwear recorded strong

growth in 2003-2004 and the company expected to close the

year with a 30 percent growth.

5

Pre-1997, adidas had tied up with Bata and Woodland and

first began exploring multi-brand outlets and retail malls.

Reebok was slated to grow by almost 30 percent against 22

percent in 2002-03 and focused on its global Performance

Range products. Bata started retailing other brands like

Reebok, Nike and Lee Cooper.

As of 2005-06, the current premium sports goods market in

India was valued around Rs 500 crore. Within this market,

adidas enjoys considerable brand equity and is considered

among the leading international brands in the country.

||| Scope of Study |||

Our group has selected the Indian Footwear (Athletic) as

Product Category.

The main multinational players in this industry are Nike,

Puma, Fila, adidas & Reebok. Indian players include Action

Shoes Ltd., Liberty Footwear Co., and Bata India Ltd.

6

This report will mainly consider Nike & Rbk (Reebok) as

competitors for adidas.

By way of research, we have conducted a consumer survey, as

well as spoken to a few retailers of the 3 top brands in the

industry.

7

||| Consumers |||

In 1999, when adidas entered the Indian market, it

introduced the cheapest range of shoes it had ever sold. The

new line took into account the importance of affordability

in the Indian market, and the company expected the move to

expand their customer base by 20%.

But today, the customer has changed. Andreas Gellner, MD of

adidas India, tells us: “Today’s Indian customer is aware of

international fashion and technology and he cares about

them. He is also a big sports enthusiast. We have also noted

the need for constant change—which implies faster turnaround

for designs and therefore newer products.

On the other hand, the buying experience is becoming

crucial. The retail scenario in sportswear is changing

accordingly—marketers are focusing on shop design and

service and on brand consistency across outlets; they are

paying a premium on technology and innovation. This has also

8

been impacted to a large extent by the mall mania and the

growth of the high street.”

From our meeting with adidas’ marketing executives we

gathered information about how they defined their target

demographic. They target the 15-35 age group, both males and

females, with a monthly income of over Rs15000.

The consumer is typically an image-conscious sports fan, but

not necessarily a sportsman.

||| Consumer Behaviour |||

Our market research delves into the customer mindset, trying

to assess the population and coming up with demographic

details as to who our target customer is. This is being done

by a two-pronged strategy of reaching out to the young

working class on the one hand (in and around NCR) and also

by assessing the student strata who are pursuing their post-

graduation (IMT, DSE, FMS etc). This would leave us with

roughly 120 separate assessments on buyer behaviour on which

we plan to base our studies.

9

Status so far:

Respondents: 118

Dates of response: 27-08-2006 to 17-09-2006

Demography: Students (post-graduate – 107, young working

class – 11)

Method of survey: Online

Some of our observations so far:

Only around 3% of the total respondents cited Price as

the number one factor influencing their purchase decision,

and another question showed that comfort, weight and styling

of the shoe were important elements of the shoe. This

initially seems to indicate that the Indian customer no

longer fits the price-sensitive stereotype, but a closer

look at the results shows a different picture. The survey

also showed that 62.93% budgeted less than Rs. 2000 for

their sports shoes. This shows that while Price is almost

never the most important factor for most respondents, it is

certainly a very important consideration.

10

More respondents own a Reebok pair than adidas (second

place) and Nike (third), but when asked which brand they

would like to own, Nike topped list, followed by adidas and

Reebok. This shows that Reebok’s Indian pricing has managed to

attract more market share than its rivals, but Nike still

has the highest brand equity and perceived value.

Nike being the world-wide leader does well on

advertisements and viewer/customer attention-catching and

carries the best image of the 3 top brands. It is the brand

that people want to own.

The survey also revealed that customers felt that Sales

Staff Service was the most important part of the buying

experience. With 51.46%, it beat the other 4 factors by a

long way.

11

||| Environmental Analysis |||

FIFA World Cup 2006 and other Football

Tournaments

The World Cup's global TV and Web audience was bigger than

the Olympics' or the Super Bowl's -- 38 billion in-home

viewers worldwide. Adidas was an official sponsor and paid

for the rights to shut Nike out of TV advertising in the

U.S. for all 64 games.

The retailers we spoke to acknowledged that the World Cup

caused a sharp spike in sales, both of the football

(Teamgeist) and footwear & jerseys.

Globally, by end-June 2006, adidas had already sold $1.5

billion worth of football products this year owing to the

then ongoing World Cup. Football-related sales were expected

to stabilise at slightly above 1.0 billion euros in 2007

before rising again in 2008, when the football European

Championships take place. It had already sold a record three

12

million replica jerseys in the wake of the football event,

including 1.5 million jerseys of the German national team.

At the previous World Cup in 2002, the company sold 1.5

million federation jerseys and 250,000 German jerseys.

It has also sold more than 15 million of its "Teamgeist"

World Cup match balls, compared with 6.0 million of the

replica ball for the 2002 tournament.

Adidas is an official sponsor, supplier and licensee of the

World Cup and is sponsoring six national teams in the

tournament, including host country Germany. Three teams

sponsored by Adidas - Germany, France and Argentina -

reached the quarter-finals and France went through to the

finals.

Adidas estimated its global share of the soccer footwear

market rose by 1-2 percentage points to 35-36 percent at the

end of the first quarter.

The company also announced that it has signed a long-term

partnership to be the global sponsor for Euro 2008, which

13

will take place in Austria and Switzerland. It has also

extended its partnership with the UEFA Champions League to

become the official ball supplier until 2009.

BPO Boom

This booming industry has emerged as a boon for the hundreds

of thousands of job-hunting Indian youth and aims to grow

into Rs.100,000 crore industry generating over 1.1 million

jobs by 2008.

As we shall explain later, the Call Centre Crowd is

characterised by high disposable income, which is spent on

lifestyle products. Therefore, this constitutes a segment of

increasing importance for adidas.

14

||| Retail |||

We visited retailers of leading footwear brands in Saket

(South Delhi), and we gained an insight into the workings of

the retail business. Periodical meetings are held, where the

company shows samples of its various models and products to

the retailers. It is up to the retailers to decide which

products they will stock in their shops, how and when they

will put them on display and when they will be put up for

sale. Thus, retail outlets of the same brand might well have

different stocks of different products at the same time.

Sales staff is another important factor. The Reebok

retailer told us that Reebok does not allow retailers to

hire their own sales staff without company approval. All

sales staff must pass the company’s test before getting the

job. The same does not apply to adidas though. Retailers for

this company are allowed to hire salespersons they feel will

be effective. Training for salespeople, however, happens

across the board. Reebok believes that investing in

15

salespeople is a cause for their higher sales, and will be a

source of sales growth in the future.

Area Sales Managers (ASMs) are in constant touch with

their retailers and actively take their feedback and

suggestions. adidas mentioned that they occasionally

employ mystery shoppers to get a better feel of the customer’s

perspective.

The décor and ambience of the stores is under the control

of the retailer, but still guided by the company’s

direction. The number of posters within the store, the type

of music, etc. generally conforms to company policy.

||| Competitors |||

Nike

Nike, Inc. is a major American manufacturer of athletic

shoes, apparel, and sports equipment. It is well known for

its strong sponsorship agreements with athletes, leagues and

federations, as well as many of the world's top football

clubs and national teams, including Manchester United,

Arsenal F.C, Brazil and even India.

16

Nike is the leading brand in sports footwear worldwide.

In India, we have seen that although its brand image is

good, its sales are not. Nike products don’t compromise on

quality, and are always full-price. They do not have post-

season discount sales on footwear unlike adidas and Rbk.

While no brand can neglect the highly price-sensitive

consumer, Nike certainly does not target them. They use

their higher perceived value to charge a premium for their

products.

17

Reebok

Also known by its contraction Rbk, Reebok International

Limited is an Anglo-American Fortune 500 company, now

subsidiary of Adidas AG, and producer of athletic footwear,

apparel, and accessories.

Founded in 1895, the family-owned business proudly made the

running shoes worn in the 1924 Summer Olympics by the

athletes, Harold Abrahams and Eric Liddell celebrated in the

film Chariots of Fire.

In August 2005, one of the company's largest rivals, Adidas,

announced that it would acquire Reebok for $3.8 billion. The

acquisition would increase adidas' market share in North

America and allow it to pose a serious threat to the world's

biggest maker of sports apparel, Nike. The deal was

completed in January of 2006.

We gathered from the retailers that in India, adidas and

Reebok are still very much in competition with each other.

Both are trying to get to the #1 position presumably to

18

garner as much market share as they can, and in the process

take some from Nike as well.

19

||| Segmentation |||

For adidas the market segments in consideration are based on

demographics, psychographics and behaviour. The demographic

segmentation is based on age, gender, income and occupation.

The market is segmented into three main categories based on

age. These segments are age groups 1-15 years, 15-35 years

and above 35 years.

Based on monthly household income the market is segmented

into below Rs.15000 pm, Rs.15000 to Rs.50000 pm and above

Rs.50000 pm. The market is also segmented based on gender

and occupation (which leads to differential disposable

incomes).

Psychographic segmentation is of great importance for the

sport shoe industry. The higher income groups are classified

based on their tendencies into four major categories; the

innovators, thinkers, achievers and experiencers. As for the

20

groups with lesser resources, they are categorized into

believers, strivers, makers and survivors.

Under behavioral segmentation an important user group is the

sports and fitness conscious population. This segment is

further subdivided into gym regulars, professional and

amateur athletes and even drawing-room sports enthusiasts.

||| Targeting & Positioning |||

Based on information gathered from retailers and adidas

executives, it is evident that the major demographic segment

targeted by adidas is the age group of 15-35 years. Very few

footwear products are aimed at the female market.

adidas targets households with monthly incomes greater than

Rs. 15,000. Households with incomes between 15,000 and

30,000 rupees per month don’t buy a new pair as often as

higher income brackets. This is primarily because they use

shoes as shoes and not as style/image products. It is

21

important that when this group enters the market with an

intention to buy, they should buy from adidas. To ensure

this, adidas should sell durable, comfortable shoes at a

reasonable price to this group.

A crucial segment adidas has identified is the Call Centre

Crowd. This segment is substantial in the metros and is

expected to continue its rapid growth. It consists of image-

conscious youth who are earning but are not yet

independents. This means that their entire income is

disposable. adidas seeks the highest share of wallet from

these consumers.

Under psychographic segementation, adidas targets…

Experiencers: young, enthusiastic, impulsive people who

seek variety and excitement.

Strivers: Trendy and fun-loving people who are

resource-constrained but favour stylish products that

emulate the purchase of those with greater material

wealth.

22

Image Drivers: The wealthy few who set the trends in

their social circle. This is the segment responsible

for the selling out of the Rs.12499 adidas One -

adidas’ most expensive shoe in India.

The company targets behavioural segments also: The sports

and fitness conscious population is further subdivided into

gym regulars, professional and amateur athletes and even

drawing-room sports enthusiasts. adidas has specific

products for each of these sub-categories.

Cross-training shoes, running shoes, etc. are aimed at gym

regulars and runners. Shoes are designed specifically for

sports like cricket, football, basketball and now even

adventure sports like rock-climbing. We can take a

particular segment which we call Hardcore football. It refers

to young footballers, passionate about playing the sport,

with the means to pay. A good example here would be adidas’

“Predator”, which sets the standard for football studs.

adidas rightly sees themselves as the world leaders in

football shoes. This is the only sport market in which they

23

lead Nike. The brand has been synonymous with football ever

since Adi Dassler invented the first adjustable rubber

screw-on studs. An interesting fact: Every World Cup winning

team before 2006 wore adidas football boots!

Sport-inspired designs are incorporated into adidas’

lifestyle products for the sports enthusiast. For example,

there is a shoe that is designed like an F1 driver’s shoe.

The heel is molded to fit into the floorboard of an F1 car

and the sole is made of Goodyear rubber – the same rubber

that F1 tyres are made of! Despite the effort put into

design and manufacturing of the shoe, it is still meant to

be a lifestyle product.

24

||| Recommendations |||

After analysing the data, we find that although adidas has a

greater market share than its arch-rival Nike, it still lags

behind in brand image. To tackle this problem, we will now

show you what very few Indians have seen. Globally, adidas

sells products under 3 divisions.

www.adidas-group.com provides us with a clear definition of

these divisions.

Divisional Strategy The divisional strategy has been developed to provide three distinct consumer segments with product and marketing concepts that fulfill theirunique needs and desires. The three divisions are:

Sport Performance Division Innovate to perform. This division is completely focused on the athlete who demands performance first and style second. Every sport is important, but the main categories of running, football, basketball, as well as the women’ssegment, are the primary focus in terms of both footwear and apparel.

Sport Heritage Division Celebrate Originality. This division looks to our past for inspiration and direction for the authentic and contemporary products of the future. These are footwear and apparel products that clearly have a foundation in sport but are meant for lifestyle and street wear.

Sport Style DivisionModern Sportswear. The newest division is directed at the style and fashion conscious

25

consumer who still desires the look and attitude of sport but in a new, more sophisticated interpretation. It is the foundation in sport that adidas and this consumer share that makes this division so exciting and full of potential for both footwear and apparel.

adidas can claim the prime position in the elite SEC,

capturing share of both mind and heart if they introduce

adidas Originals (also known as Heritage) and adidas Style.

These are extremely up-market products: High profile

designers of the likes of Stella McCartney and Yohji

Yamamoto combine cutting-edge technology with unique styling

and passion for sport.

This will enable adidas to target the Achievers psychographic

segment, i.e. “success, goal-oriented people who focus on

career and family and favour premium products that

demonstrate success to their peers.”(Kotler & Keller)

After acquiring a stagnating Reebok for 3.8 billion pounds,

adidas must prove the deal was more than a market share grab

and integrate the companies smoothly. Considering that

adidas themselves admitted that the female market is not

catered to properly but still has great potential for

26

growth, we think that Reebok should be used to tackle the

relatively untapped women’s sport shoe market. It could

additionally tackle the price-sensitive market.

Reebok has previously grown on the base of an urban, street,

hip-hop image. This image does not conflict with any of

adidas’ target markets and should thus be exploited to the

full.

adidas could benefit from taking a leaf out of Reebok’s

retail book. Reebok does not allow retailers to hire sales

staff. All sales staff have to have passed a centralised

test. This ensures that Reebok hires employees that are

equipped with the right knowledge and attitude towards

service that is required to succeed in the Indian market. We

know that service at the point of sales is a crucial element

of the buying experience because 51.46% of the respondents of

our survey marked it as the single most important element.

||| Appendix |||

Consumer Survey

Age 19-21 53 (44.92%)

27

22-24 54 (45.76%) 25-27 8 (6.78%) >27 3 (2.54%) Gender Male 89 (75.42%) Female 29 (24.58%) Do you own a pair of sport shoes? Yes 111 (94.07%) No 7 (5.93%) If yes which Brand/s? (you can chose more than one) Nike 39 (22.94%) Adidas 43 (25.29%) Reebok 48 (28.24%) Puma 4 (2.35%) Power 13 (7.65%) Other 23 (13.53%) For how many years do you use a pair of sport shoes? 1-2 73 (61.86%) 2-3 23 (19.49%) 3-4 7 (5.93%) 4-5 3 (2.54%) >5 12 (10.17%) What is the highest price range that you are willing to keep as a budget when buying sport shoes? 500-999 30 (25.42%) 1000-1499 23 (19.49%) 1500-1999 21 (17.80%) 2000-2499 15 (12.71%) 2500-2999 9 (7.63%) 3000-3999 9 (7.63%) >4000 11 (9.32%)

28

Which is the most important factor to you while purchasing sneakers/sport shoes? Price 4 (3.39%) Durability 16 (13.56%) Comfort 58 (49.15%) Looks and styling 30 (25.42%) Brand image 6 (5.08%) Other 4 (3.39%) What elements of the shoe are important to you? (you can mark more than one) Sole 45 (12.82%) Inside cushioning 59 (16.81%) Weight of the shoe 71 (20.23%) Laces 7 (1.99%) Material 48 (13.68%) Styling 65 (18.52%) Color 53 (15.10%) Other 3 (0.85%) Which brands advertisements do you like the most? Adidas 44 (37.29%) Nike 43 (36.44%) Reebok 27 (22.88%) Other 4 (3.39%) Which brand of shoes would you like to own? Adidas 40 (33.90%) Nike 45 (38.14%) Reebok 25 (21.19%) Others 8 (6.78%) Which aspect of buying experience do you consider most important? Shop Design 14 (13.33%) Service 53 (50.48%) Ambience 14 (13.33%) Shop Location 19 (18.10%) Others 5 (4.76%)

29

Respondents: 118; largely from IMT Ghaziabad, Delhi School ofEconomics, Jawaharlal Nehru University, FMS and MICA.* note: the bar graphs are not actual representations of thefigures besides themSurvey designed on createasurvey.com and circulated online

30