1. Introduction
Founded by William Riley in 1906 as the New Balance Arch Company, in Belmont, MA, New Balance manufactured arch supports and orthopedic shoes. During the fifties and sixties, athletes turned to the company for customized running shoes due to New Balance’s unique expertise in handcrafting specialized footwear. Paul Kidd bought the company in 1956 and increased the shoe-making sector as demand grew. Production of running shoes soon became the company’s primary source of business. The New Balance “Trackster”, one of the first running shoes made, grew very popular not only because of its technical innovation, but because it was available in a wide range of widths.
In 1972, New Balance was purchased by current Chairman and CEO, James (Jim) S. Davis. Four years later, the New Balance 320 running shoe was rated number one on the market, which launched the company into worldwide prominence. Since then, New Balance has diversified into making a complete range of athletic shoes for a variety of athletic activities.
Throughout the years New Balance has maintained the same principles it was founded upon: extensive width sizing, a commitment to domestic manufacturing, and leadership in technological innovation. Its Annual Sales for 2000 was Domestic $750 million and worldwide $1.1 billion.
New Balance Athletic shoe, INC. is the second-largest maker of running shoes in the America and has wide range of athletic footwear for males and females, athletic apparel and accessories. New Balance Athletic Shoe, Inc is an American private owned company, who has more than 2500 associates in the world and distributes the products in over 120 countries. The company has been running for over 30 years and has 12 wholly-owned subsidiaries and numerous licensees, joint ventures and distributors all over the globe, for instance, Australia, New Zealand, UK, Canada, Japan and South Africa. Its U.S. market share rose from 2% in 1997 to 12% in 2003. (http://www.newbalance.com./aboutus/where_we_are/index.html)
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In Australia, New Balance is not that popular and product ranges are not as wide as America and Asia. The sale distribution channels are poor for New Balance in Australia. It only has 2 exclusive shops in Sydney and few products that display by Foot Locker. The products that sell through Foot Lockers are mostly running shoes with basic features and poor appearance.
1221 is a latest model for running shoes that introduced last October in Australia. It has lots new features and improved appearance but its sale volume is still limited due to lack of advertising. Therefore, this marketing plan is aimed to penetrate more market shares through better distribution channels and advertising. Also, its target area will also switch to whole Australia rather than only Sydney.
2. EXTERNAL and INTERNAL ANALYSES
2.1 Market Definition and Segmentation
New Balance currently into running, walking, cross training, basketball, tennis, adventure sports, football and kids etc. In its new balance training shoes category, it will have its share in the major part in the business.
2.1.1 Primary Research
Primary information that can directly affect decisions of targeting, positioning, and the marketing effort as a whole, can be obtained through a survey. The survey was conducted in Sydney at the UTS Business
The survey aims to identify the total segment potential. We will be able to understand the position of our competitors in the market and the perception of the targeted customers about those brands as well as of New Balance. We can also find out what people look for in New Balance Shoes and identify the areas where we can focus to provide maximum satisfaction to the customer.
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2.1.2 Secondary Research
Market Size and Growth
New Balance has its share in the world and Australian shoe market. It faces competition from brands such as Nike, Adidas, Reebok and others which include Colorado, Puma, Fila etc. These have a fair level customer loyalty, and their own market share.
2.2.1 PEST Analysis
Political Factors
The Australian Government’s ambitious trade policy is geared towards increasing economic activity, creating jobs and getting a fair deal for Australia in the international marketplace. The Government places a high priority on consultation with business and the community, to ensure that the trade policy objectives developed by the Government sufficiently reflect the views, concerns and ambitions of the Australian public. The Australian Government provides services to Australian business to access overseas markets. This can be highlighted through the multilateral, bilateral and regional trade policies adopted by the Government.
Australia, through the World Trade Organization (WTO) (http://www.dfat.gov.au./trade/negotiations) negotiates trade agreements which provide the legal ground-rules for international trade. As a result, since the political arena in Australia is stable, there seems to be great prospect for trade in Australia. In Australia, the TCFL industry (textile, clothing, footwear and leather) is a major component of the trade industry. Consequently, the TCFL industry is influenced by Government and economic policies such as interest rates, budgetary control, trade agreements etc.. The Australian Government, in an attempt to encourage trade in the footwear as well as in the clothing sector, decided to freeze the Footwear and Clothing tariffs from ” July 1, 2000 levels until January 1, 2005″ ( refer to Table 1) (http://www.tcfoz.com.au).
Sub-Sector 2000 – 2005 After 2005
Clothing & finished textiles 25 % 17.5 %
Cotton sheeting & fabrics 15 % 10 %
Carpet 15 % 10 %
Footwear 15 % 10 %
Sleeping bags, table linen 10 % 7.5 %
Footwear parts 10 % 7.5 %
Other (yarns, leather) 5 % 5 %
Table-1: Australian Tariffs on the Textile Clothing and Footwear Industry
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(Source: http://www.tcfoz.com.au)
The Australian Government’s decision at freezing the Footwear and Clothing Tariff will enable New Balance Footwear to reinforce its competitive position in the Australian market. Moreover, the change in the imports of footwear increased from “36.4% to 64.9%” (http://www.industry.gov.au) and this emphasize the fact that high quality shoes is in great demand in Australia.
Economic Factors
The International Monetary Fund (IMF) expects the Australian economy to record strong growth of 3.5% in 2004 and 3.6% in 2005. (http://www.trademinister.gov.au/releases/2004/mvt027_04.html).
Moreover, the total GDP per Capita is estimated to be US$ 27.00, while the Real GDP Growth rate is estimated at 3.6% (CIA, The World Fact Book 2003).
And, according to the Trade Minister Mark Vaile, the Free Trade Agreement recently negotiated between Australia and the United States proves beyond doubt that the agreement will provide enormous benefits to the Australian economy. (http://www.trademinister.gov.au/releases/2004/mvt027_04.html) Low unemployment is expected to support growth in household spending. Indeed, the Australian Bureau of Statistics recorded a 6% unemployment rate in August 2003 which supports the fact that unemployment has remained fairly constant. Inflation is expected to remain between 2% and 3% (Reserve Bank of Australia, April 2004).
As far as Australia’s total import is concerned, it is estimated at US$ 66.3 and imports are around us 68 Billion (The World Fact book).
These economic pointers emphasize an increase in personal economy. An increase in earnings results in a rise in the standard of living and consequently a rise in the purchasing power of Australian. People will undoubtedly, consider buying better goods if they have enough disposable income.
Social Factors
The target market segment or the consumers are placing more importance on lifestyle and practicality more so now than before as a lot of importance is given to health and the idea of being physically fit. Australians being lovers of sport…have an inclination to what they want from a pair of sport shoes, it could be an influence of their favourite sports star wearing the kind or for a simple reason that they would love to be found in them. As a result of this the demand of products and their services have considerably effected and influenced the kind of lifestyle one leads and how well it appeals to them.
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The simple and most appealing reason why a consumer would choose to go for a pair of New Balance shoes would certainly be the price range that they are offered. New Balance Australia offers a various range of shoes for Men, Women, Kids of all ages for various purposes; could be running, walking, cross-training, tennis, basketball, adventure sports, etc., New Balance also asks the consumers a question of what they would prefer. Athletic shoes built around the belief that the marketing prowess of an NBA superstar can sell anything? Or athletic shoes built around the belief that better fit and technology mean better performance? They prefer the latter; that’s why they adhere to a unique “Endorsed By No One®” philosophy. Instead of paying celebrities to tell you how great our products are, they invest in research, design, and domestic manufacturing and let their products speak for themselves. By adhering to this philosophy, they are able to celebrate the true stars: every day athletes who choose New Balance footwear and apparel because they fit and because they perform.
Technological Factors
New Balance may not be the first brand name that comes to mind when thinking of athletic shoes. Indeed, New Balance has less than a 7% share of the US market, which is dominated by Nike and Reebok. However, this is a highly cultivated market share: New Balance pursues the serious athlete with its no-nonsense design and carefully crafted American-made shoes for running, walking, fitness, cross-training, tennis, basketball, hiking and jogging.
New Balance does not simply automate the back end of the process: IT has been thoroughly integrated into the entire product life cycle. Over the past three years, IT techniques and solutions have also reduced the time it takes to make a pair of shoes from 45 minutes to 25 minutes or less. In addition to cutting and stitching, computerized machines perform injection moldings.
Looking to the future, New Balance is working with computer engineers and designers at the Massachusetts Institute of Technology. The shoemaker is using MIT’s knowledge of IT, computers, robotics and other advanced technologies to develop systems that are new to the shoe industry, as well as others that don’t yet exist.
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2.2.2 Porter’s Five Force Model
Using the Porter’s Five Force Industry Model we will analyse the market for our new product of the Training shoes. The five forces look at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes and the competitive rivalry.
Threat of New Entrants/Barriers for Entry and Exit
New Balance in Australia is already an established company in the sports footwear segment. With a plan to enter the training shoes as a new segment within the footwear industry there would be no major barrier to entry. The cost of entry for New Balance is estimated to be relatively low, as it will be using its existing infrastructure of the company and manufacturing plants from overseas to import this new range of training shoes into Australia. The company already has many distribution channels and its main sales team works from Victoria. It will utilise its existing network to distribute and sell this new range through these outlets. Hence competitors do not pose a major threat of entry.
Bargaining Power of Customers (Mediators= retail shops view)
New Balance Australia has an established network of its own dealers. The company has a good reputation of offering the best of its service and good margins to its dealers as compared to its other competitors. There has even been an increase in the retail sales as there has been a good increase in the consumer demand for New Balance products. Orders from the dealers have therefore increased. Thus the dealers show more interest in purchasing as they expect even more sales in the future. Hence the company enjoys a good level of control over its dealers.
Bargaining Power of Customers (Consumer view)
The bargaining power of Customers is relatively high as the end-user has a large amount of choice if looking for a certain kind of training shoes or a model. The consumer has much choice in the market as he can choose from other major brands like Nike, Adidas, and Reebok etc. Due to this factor the New Balance could lack in its market attractiveness. Hence these large groups of customers possess a greater buying power which could lead New Balance to negotiate through lowering its price or adding some extra features to its product to get back its share of consumers.
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Bargaining Power of Suppliers
The footwear supplied to New Balance Australia is from the manufacturing units located overseas. They are predominantly from the United States of America. Highly efficient re-stocking systems have improved relations with retailers. The company – supplier relationship is favorable. There are a large number of manufacturing plants spread in this area and therefore the supplier power is less as the company has maintained a certain amount of control over them through the years.
Threat of Substitutes
The threat of substitutes can be said as neutral because there are very limited substitutes in the market as the customers can opt for any other sports shoes they regularly use instead of this training shoes offered by its competitors like Nike and Adidas. Since New Balance-training shoes uses a high quality and a unique material like its other products. No other competitor will be able to easily duplicate this product. Therefore the threat from the substitutes could be minimised.
Competitive Rivalry
New Balance has a very high risk of competitors in its training shoes segment the major competitors are Nike, Adidas, Reebok, Fila, Asics and Puma. As it plans to launch a new line of shoes in the sports segment it will face intense competition from companies like Nike, Adidas, Fila, Reebok. Other smaller companies could include Windsor, Royal and Portland. Also there are multi branded outlets selling unbranded imported shoes adding as other competitors in the market. New Balance could maintain its own share if it constantly launches new innovative and good quality products which would offer high performance to its customers in comparison to its competitors.
2.2.3 Competitor Analysis
New Balance in Australia has a good influence as a prominent force in the sports footwear segment. Its main competitors in this segment include Nike, Adidas, Reebok, Fila and Puma. The company faces a tough competition with Nike which is the market leader in this segment as it holds approximately 39% of the market share followed by Adidas with10% and keeping us neck to neck with Reebok at a 12%.
The New Balance has already a good grip in Australia in its sports footwear segment, thus launching its training shoes would not be a problem. This training shoes segment does not have any major market leader in terms of market share since there are many competing brands in the market. This segment includes direct competitors like Nike, Adidas, Reebok, Puma and other Multi Brand Outlets selling unbranded imported shoes. The company’s main competitor’s are.
NIKE
Nike Inc., is based in United States of America, is one of the biggest sports footwear companies in the world, Nike its own reputation as a market leader in this segment as it holds approximately 39% of the market share. Nike has become one of the most popular sports brands in the world. With a starting annual turnover of just US $8000.00 in 1972, it has reached an annual turnover of US $9893.00 million in financial year 2002 with 42% sales done only outside the United States in a period of just 30 years.
Sales & Distribution – The Company sells through its existing distribution channel and sales team of 8 employees in Sydney. It has a retail network of 4 Nike exclusive outlets and 1 Nike Factory outlet. Nike uses its existing network to distribute and sell its range of models through these outlets. It also sells its range of sports shoes through its e-commerce site.
Product – The huge product range of Nike include athletic footwear, apparel and sports equipment. Nike in its sports categories footwear has the running, cross training, basketball, tennis and football.
Price – Nike offers a price range from $100 to $250. Some of their shoes from their sports range can be a substitute to New Balance training shoes.
Market Share – Nike presently has a market share of 39%.
Brand Awareness – Looking at the company’s popularity it is estimated that Nike enjoys high brand awareness more than any other Brands.
Competitive Advantage – Nike’s biggest competitive asset is its market share and Nikes brand awareness.
ADIDAS
Adidas is a major player not only in Australia but worldwide. Our product compares with Adidas not only competes with New Balance in its footwear segment but also in its apparels. Adidas was born in the year 1949, and since then gradually grew and grabbed its share in the market. The company is so confident about their shoes that it introduces promotions to attract its customers like they have recently introduced a promotion of a 28 day use trail or bring it back policy.
Sales & Distribution – It sells exclusively through Adidas group stores, shopping malls and factory outlets located all over Australia. It also sells its range of sports shoes through its e-commerce site. The web site has enhanced the relationship with its existing customer base and has enhanced its reach to customers who cannot access its stores.
Product – Adidas has a big range of clothing and footwear. Its footwear sector includes adventure, basketball, field hockey track, training, tennis etc. Adidas aims in building a formidable range of shoes for mid and up market segment.
Price – Adidas offers a price range from $100 to $180. Some of their shoes from their Sports range can be a substitute for the Training shoes.
Market Share – Adidas presently has a market share of 10%.
Brand Awareness – From the companies reputation it is estimated to have 15% brand awareness.
Competitive Advantage – Its main competitive advantage is its wide range of products and the Australian athletes who resemble Adidas like Andy, Anthony, Brad, Harry, Ian and Jana and also from its involvement in many sports events.
REEBOK
Reebok was acquired in 1890. Since then it has been internationally marketing its shoes globally. In December 2000, Reebok and the National Football League announced the formation of an exclusive partnership that serves as a foundation of the NFL’s restructured consumer products business.
Sales & Distribution – It is vigorously marketing its brand in Australia through retail and multi brand outlets. In Sydney it is selling its range of shoes through an exclusive franchisees outlets and department stores namely David Jones, Grace Brothers and In-sport. Reebok also sells its shoes through its official website and other shopping websites like shoes.com.
Product – Reeboks main products include its large range of men and women footwear including work shoes, active casual, business casual and everyday casual shoes its clothing and apparels.
Price – Reebok offers a price range from $150 to $200 for its range of sports shoes.
Market Share – Reebok presently has a market share of 12%.
Brand Awareness – Reebok enjoys a high brand awareness of 20% in the market.
OTHERS
In the training footwear segment there are a large number of small competitors, which include Puma, K-Swiss, Dicks sporting goods, Columbia,
Skechers and Tx Traction which sells through their showrooms and shopping centres.
There are also many large number of multi brand outlets selling unbranded and imported training shoes. The price range of these shoes lies between $75 to $150. This accounts for a market share of 23.15%.
2.3 Internal analysis – Organisational competencies
The company’s worldwide sales have increased from $210 million in 1991 to $1.3 billion in 2003 with 131 percent growth in sales. It is now “grown to be the fourth largest athletic footwear and apparel company in the world” (http://www.newbalance.com./aboutus/where_we_are/index.html) There are few reasons for its success.
Firstly, New Balance’s high quality performance footwear is well known. It has unique expertise in producing the athletic shoes. New Balance sales all kind of athletic-shoes, running, cross training, walking, basketball, tennis, hiking, kids and outdoor shoes. It aims to provide most fitted shoes for customers and therefore it is the first company to invest in technological research and development. Moreover, it continues to manufacture a percentage of athletic shoes in America in order to gain better quality controls while most of footwear factories move to Asia now.
Secondly, use the appropriate technology to help manufacturing athletic shoes and as well as for its internal control such as demand forecasting, business intelligence and enterprise resource planning. (http://common.ziffdavisinternet.com/download/0/2298/Baseline1103-p042-062.pdf) New Balance switched to this software that enables to do more accurate and timeliness sale forecasts few years ago. This program projects the more accurate sales for the coming month or year for each major retailer of New Balance, allows managers to review the previous sales at same time last year for each retailer shop, and checks the amount of orders that have been sent to factories.
Sales distribution channels are crucial for New Balance. It has own exclusive shops to deliver more varieties of footwear, athletic apparel and accessories for customers. Also, the online sales channel allows potential customers to have access to its products without timely and geographic constraints. The other distribution channel for it is athletic-shoe retailer such as Foot Locker. New Balance gains its successful sales by keeping in touch with its retailers. In other words, the retailers are not only for sale its products, but also to collect information from customers such as their flavour on shoes and most affordable prices ranges. Therefore, having a good relationship with its retailers is another factor to gain successful sales. (http://www.eweek.com/article2/0,4149,1382653,00.asp?kc=EWRSS03129TX1K0000621)
3. Summary of external and internal analysis – SWOT analysis
The SWOT analysis is just a summary of our external and internal market analyses. It provides an overview of New Balance’s strengths, weaknesses, opportunities and threats.
Strengths
Provides higher qualities for consumers as New B invests lots on development of sports shoes
There is a wide products range, for instance, running, cross training, walking, basketball, tennis, hiking, kids and outdoor shoes.
Follow latest technologies and innovations
Many people aware of New Balance
Good relationship with suppliers
Regular promotions for customers who concern with price factors
Weaknesses
New Balance is an overseas brand
Low market share in global market and as well as in Australia
Distribution channel is limited as it does not have lots retailer shops(such as Foot Locker) or own shop to distribute the shoes
Conservative approaches to its advertising
Did not have as stylish shoes for casual wearer as Nike does
Opportunities
Lower tariffs after 2005 will make market be more competitive
Having online distribution channel due to increased demand of internet users
Online homepage allows customers to access latest information on products without time and geographical constraints
A great demand in training shoes since Australians are sports lovers
Large potential market as Australian’s population and unemployment rate are quite stable
Threats
There are lots of competitors in Australia such as Nike, Adidas and Reebok
The tariff is quite high now, ie 15%
The exchange rate against USA is not stable. It has influences on the price of products since they are imported from USA.
4. Strategic objectives and issues
4.1 Key target market segment and size
The athletic footwear market has enjoyed steady and at times record-breaking growth through much of the past decade. This sector is credited with being central to the increased popularity of the overall sporting goods market. For New Balance new model shoes reference 1221, the positioning is the main cities of Australia. Australia has been selected since the brand New Balance is already famous in Sydney. Australia particularly appeals to us since it is among one of the biggest multicultural countries with around 20 millions population. (http://www.abs.gov.au/Ausstats/abs%40.nsf/94713ad445ff1425ca25682000192af2/bdda207cf3d7349aca256cae00053fa9!OpenDocument)
The market segment for New Balance 1221 is adults between the ages of 18 – 35 years old. Men and women between this ages represent about 23% of the Australian population. OpenDocument) Under this age group, we have mainly undergraduate students, master students and white/blue collar workers. Consequently, since this segment represents the young population of Australia, they are more health, figure conscious and sports-minded than the rest of the Australian population. According to our survey, the running shoes for this segment are mainly for 1221 for Gymnasiums, exercises such as fast walking or running and sports competition.
However, as more varieties of running shoes are available in the market, the distinction between running shoes and casual wearing has created blurred boundaries. As the survey outcome shown, there are major portion of this segment prefer running shoes for casual wearing such as for shopping, university, and even casual gathering. Also, this population tends to more interested with comfortableness of shoes. Taking the market change and change in consumer tastes into account, New Balance 1221 has been specifically created for the purpose of being both a running shoes and casual footwear.
4.2 Strategic objectives
To increase exclusive shops all over the Australia
To penetrate the market share to 7% in Australia within 3 years
To achieve the overall strategic objectives of the company
4.3 Core issues
From the SWOT, there is a high potential to introduce this new training shoes for primary target segment, which is age 18 to 35. As mentioned earlier, New Balance still owns much less market share compared to other competitors such as Nike, Adidas and Reebok. Hence, the challenge for market strategy will be how to obtain more market share through effective distribution channel and awareness. Moreover, according to the findings from our primary research, there is a huge demand for stylish shoes. Hence, it will be necessary to introduce more multi-purpose shoes with stylish features, as what Nike has done already.
5. Competitive marketing strategy
In order to achieve 7% market shares in 3 years period, NB needs to adopt offensive strategic market plans as 1221 is very attractive but lack of competitive advantages (refers to Appendix 1&2).
Fundamentally, offensive strategic market plans are designed to boost the overall performance of the company and hence market penetration strategy can help to develop the existing market.
The reason for NB to follow this particular strategy is that, it has a well establish market in Australia. This enables NB to have better working knowledge of consumers, competitors and market conditions. Moreover, it has existing resources to have strong market position. All bright situations influence NB to follow an offensive market plan to further penetrate the product market it already serves.
NB will follow tactics to grow market demand for its strategy to penetrate the existing market at first stage then will concentrate to broaden the market share of the product.
The strategy to grow market demand means that in any given market, for instance for NB, there are a finite or countable number of potential customers and their demands of any particular product. With this strategy, NB can attract or focus on growing demand by attracting new customers in the market. This means that NB can attract many potential customers who are not in the market at any given time for various reasons and forces or the absence of certain factors. If strategies are implemented properly to overcome these problems then NB can grow its market demand for this category.
NB in its 1st year will tailor its strategy to grow demand by increasing awareness of product category. They can make people aware of this product by:
Invest a considerable amount for advertisement. In this way people will be aware of this product and its availability in the market.
Effective communications to potential and existing customer about the benefits of using this product.
To increase attractiveness, NB will arrange vast promotional activities around the market and can held festivals to highlight the product’s features.
To match customers’ emotion with this product’s image, NB will customize its marketing activities to suit this requirement.
NB will maintain some level of social and environmental involvements that are associated with this product. In this way it will have useful tools to deal with ever increasing ethical issues in commerce.
NB at the same time must address the need for observing competitors’ activities. If competitors will change its strategy, NB should try to respond in an effective way. This will ensure that any activity that can draw away customers can be checked.
During 2nd year, NB will try to engage in strengthening its distribution channel and increase competitiveness. With a sound distribution network and responsive and proactive nature to match competitors’ actions, NB can grow its market demand considerably. Way of doing:
NB will open new distribution sites where the investment can be justified by the potential demand.
It will provide these distributors with financial and marketing assistance to conduct their operations.
Distributors of NB will be required to allocate a certain display space.
To attract new customers, NB must arrange and help to decorate its distributors’ stores.
NB will make sure that proper and timely availability of its product to distribution channels will be met.
Distributor network system should be bind in a legal system so that they cannot withdrawal from the networks at their will without proper procedure.
NB must have a system being developed by 2nd year to modify its product according to market change.
Regardless of the competitors, it must ensure consistent R & D of it product. So that it can offer new version of the product after regular interval.
Exclusivity must be maintained. This will help to be unique in market for some time until competitors match it. Thus target segments can be served and demand will grow.
Close monitor of potential competitors in terms of product design, market offerings, channel networks and price will be carried out regularly. By doing this NB can have better understanding of possible market transformation and likely actions of its rivals. This can help NB to forecast about market demand growth pattern in a broader sense.
For the 3rd year, NB will drop the price for 1221. This strategy is to attract potential customers from other segments such as younger age’s customers who can not afford the original prices.
6 Marketing mix tactics
6.1 Product tactic
The potential customers in the key target segment, tend to concern less with pricing of the running shoes. The performance, quality, features, comfortableness, and appearance of the shoes are even more attractive to them. Therefore, product differentiation strategy will be the best approach for New Balance to delivery1221 to customers. As it is well-known for its high quality of the athletic shoes, it is best to have own brand name for a new sports footwear. Hence, 1221 is the new product that introduced with more features and better appearance. It has “ultimate supportive cushion for high mileage runner” (http://www.newbalancestore.com.au/1221/index.html), by having full bed of ABZORB SBS in the forefoot and rear foot to absorb shock and enhance protection and flexibility, TS2 for a smoother gait cycle, TPU ROLLBAR for stability and ACTEVA which is a more lightweight materials. In addition, the company might interest to have more vertical product line extension such as more colour varieties to enhance sales.
6.2 Distribution tactic
Place, distribution, channel, or intermediary
Distribution is also known as channel, place or intermediary. It is the mechanism through which goods and/or services are moved from the manufacturer/ service provider to the user or consumer. Distribution can be done in two ways, by using a direct or an indirect channel (e.g. ‘direct’ to a consumer, ‘indirect’ via a wholesaler)
Types of Channel Intermediaries
There are many types of intermediaries such as wholesalers, agents, retailers, the Internet, overseas distributors, direct marketing (from manufacturer to user without an intermediary), and many others. The company uses a mixed channel system which is a combination of a direct channel system and an indirect channel system. This is the best way to reach and serve target customers. An indirect channel system is through retailers who take over the sales in consumer markets and assume responsibility in business-to-business markets.
1.1) Exclusive New Balance outlets:
The objective of the exclusive distribution system is that the company has a stronger customer selling support and more control over promotion, credit and services and will enhance the product’s image there are two exclusive New Balance retailers located in Australia at New Balance Sydney, 198 Pacific Hwy Crows Nest, NSW and Kumfs New Zealand, Westfield Parramatta, NSW.
1.2) New Balance Retailers:
Retailers will have a much stronger personal relationship with the consumer. These retailers hold several other brands and products. A consumer will expect to be exposed to many products Some of New Balance retailers include
New England Foot Clinic 3/ 224 Rusden St Armidale NSW
New Image Clothing 108 Auburn St Wollongong NSW
New Balance Australia Pty Ltd 47 Wangara Rd Cheltenham VIC
New Ashman’s The 40 Williamson St Bendigo VIC
New York Tailors 99 James St Northbridge WA
1.3) New Balance Selling Online:
New Balance Online has a geographically disperse market. The company will sell its new product along with its other products online through its exclusive shopping web site (www.newbalancestore.com.au).The main benefit of this is that niche products reach a wider audience There are low barriers to entry as set up costs are low and also there is a paradigm shift in commerce and consumption which benefits distribution via the Internet.
1.4) Others:
It also sells through department stores like Grace Brothers which are located in the city area. New Balance also sells through other factory out lets like Paul’s ware house, Sporty’s ware house and other shoe stores like Foot Locker, Glue and Rebel sports which is Australia’s and New Zealand’s leading retailer of sporting equipment and footwear.
New Balance aims in getting its goods to these outlets at the right time for a minimal cost. The company has a strong logistics and operations department located in Victoria who plays an important role in the distribution to these retailers.
6.3 Pricing strategy
The pricing strategy is to apply the Skimming pricing strategy. According to this strategy, New Balance has decided on a price of $ 220 for the new model 1221. The reason behind this is that since New Balance is offering quality footwear, it has decided on a price similar to Nike which actually occupies a major share of the market. Moreover, New Balance aims at skimming maximum revenue from the segment willing to pay high price since where a highly innovative product is launched, research and development costs are likely to be high, as are the costs of introducing the product to the market via promotion, advertising etc. In such cases, the practice of price-skimming allows for some return on the set-up costs. The company will make fewer but more profitable sales.
The psychological pricing also has been taken into account. By charging high prices initially, New Balance can build a high-quality image for its product since normally people associate price with quality. Charging initial high prices will allows the company the luxury of reducing them when the threat of competition arrives. By contrast, a lower initial price would be difficult to increase without risking the loss of sales volume. In fact, for New Balance 1221, the company has decided to maintain the same price in the second year but new varieties of 1221 like different colours, will be offered to the consumers. However, once the image of good quality is set, New Balance will reduce its price to $180 in the third year so that the price sensitive layer of customers can enter the market. In this way, New Balance can skim a maximum number of revenue from various segments of the Australian market.
6.4 Promotion tactic
A promotion strategy sketches the promotional tools or tactics you plan to use to accomplish your marketing objectives. To the new or inexperienced marketer, the promotion plan might be mistaken as the entire marketing plan because it outlines where the majority of the marketing budget will be spent. It is, however, just one component of the marketing plan-there are additional strategy and planning components described in a marketing plan.
New Balance’ promotion tactics over the next 3 years should completely highlight the increasing customer awareness. Components such as description of the promotional tactics that are planned to use, projected costs for the year, explanation of how your promotion tactics will support your marketing objectives and Description of promotional adjustments for cyclical businesses, if yours is indeed cyclical. When we decide upon the best promotional strategy for reaching the target market we need to do the research, keep the customer in mind and be creative.
A full-scale advertisement campaign where we choose to produce and distribute materials like brochures, newsletters, fliers and posters. Promotional activities like sponsorships for special events (like fun runs) through participation of boards of directors and other sport fans. A trade show where 1221 might be one that is suited by the target audience. Health fairs where the main focus would be on how 1221 contributes towards physical health and fitness. Offer give-always like baseball caps and mugs with the New Balance 1221logo. Also consider print advertising such as that in programs for events, trade journals, magazines and newspapers, Direct mail, outdoor advertising, such as billboards and bus boards and broadcast advertising on radio and TV and Internet sites. The objective to maintain market share in a growing market may be achieved by targeting mass-market advertising.
7. Marketing Budgeting
The budgeting part is purely based on the assumptions drawn from the past performance of the company.
7.1 Planning Assumptions
The marketing plan for the launch of NewBalance – TRAINING SHOES will cover 3 years plan, from the period of June 1, 2004 to May 31, 2007.
The company will maintain 2 months inventory.
The retailer margin will be 36.25% on MRP (Maximum Retail Price).
The retailer will be required to maintain an inventory of 2 to 3 weeks.
The market demand in the formal footwear segment grows by 5% every year.
NEWBALANCE market share is calculated as a percentage of market demand.
7.2 Forecast Sales and Costs
In the 1st year:
The forecasted sale for the period from 01/06/2004 to 31/05/2007 is 20,400 pairs and in terms of revenue is AUS$ 2,213,400. The sales will be generated from the exclusive retail stores and up-market department stores. The contribution of each store will be as follow:
– Footlocker…………………………….25%
– Rebel sports…………………………..15%
– Glue…………………………………..10%
– Pauls………………………………….15%
– Grace Brothers………………………..20%
– New balance Executive shops………. 10%
– The Online Shopping Websites………..5%
The cost of sales will be A$990,828.00. R&D, Promotion, Sales and Distribution expenditures will be very high in the 1st year of product launch, and amounts to AUS$863,226. The profit after tax will be A$251,542.20. The company will achieve a market share of 4.88% in the 1st year.
In the 2nd year:
The forecasted sale for the period from 01/06/2004 to 31/05/2005 is 25,000 pairs and in terms of revenue is AUS$ 2,570,400. The sales will be generated from the exclusive retail stores and up-market department stores. The contribution of each store will be as follow:
– Footlocker ………………………….20%
– Rebel sports…………………………15%
– Glue…………………………………10%
– Pauls…………………………………15%
– Grace Brothers………………………15%
– New balance Executive shops……….20%
– The Online Shopping Websites………..5%
The cost of sales will be AUS$1,077,963.03. R&D, Promotion, Sales and Distribution expenditures will be reduced in the 2nd year, and will amount to AUS$796,824. The profit after tax will increase in the 2nd year to AUS$486,929.08. The company will achieve a market share of 5.40% in its 2nd year, which will be .40% over the market growth
In the 3rd year:
The forecasted sale for the period from 01/06/2005 to 31/05/2006 is 33,000 pairs and in terms of revenue is AUS$ 3,050,520. The sales will be generated from the exclusive retail stores and up-market department stores; and dead stock will be sold through the Nike factory outlets. The contribution of each store will be as follow:
– Footlocker……………………………….15%
– Rebel sport………………………………15%
– Glue………………………………………5%
– Pauls…………………………………….10%
– Grace Brothers………………………….15%
– The Newbalance executive shops ………20%
– The Online Shopping Websites…………10%
– Factory Outlets…………………………..10%
The cost of sales will be AUS$1,274,334.45. R&D, Promotion, Sales and Distribution expenditures will increase in the 3rd year, and will amount to AUS$945,661.20. The profit after tax will increase in the 3rd year to AUS$581,367.05. The company will achieve a market share of 6.10% in its 3rd year, which is 1.10% over the market growth.
7.2.1 Market Share of NEWBALANCE – Training shoes
Region: Sydney
Year Brand Name Market Share Cost To Retailer Volume Share Total
2003 Newbalance 4.88 108.5 20400 2213400
2004 Newbalance 5.40 102 25200 2570400
2005 Newbalance 6.1 92.44 33000 3050520
7.3 Break – Even Analysis
A break – even chart shows the total costs and total revenue expected at different sales volume levels. Fixed costs are incurred regardless of sales volume; variable costs are added to fixed costs to form total costs, which rise with volume. The total revenue curve starts at zero and rises with each unit sold. The total revenue and total costs curve cross at 17,088 number of pairs. This is Break – Even Volume..
Break – Even Analysis is the price at which the company will break – even or make the target profit it is seeking. Newbalance has a total fixed cost of A$148,716; and variable cost of A$1,637,712. The total cost incurred is A$1,786,428. In order to reach a break – even, it has to sell pair of shoes. This will be achieved in the 1st year of sale.
Break – Even Volume = fixed cost / (unit sell price – unit variable cost)
= 148,716 / (108.50 – 80.28 )
= 5,270 pairs
Break – Even Revenue = 5,270 * 108.5
= $571,795
The Break – Even Graph is as follows:
Graph-1: Break – Even Analysis.
7.4 Sensitivity Analysis
The sensitivity analysis is a tool, which will help in analysing the Best-case scenario and the Worst-case scenario. The sales volume will be taken into consideration as a variable in this analysis.
The Best Case Scenario
Year Estimated Plan Best case Scenario
01/06/2004 to 31/05/2005 20400 pairs 10% more than estimate 22440 pairs
01/06/2005 to 31/05/2006 25200 pairs 10% more than estimate 27720 pairs
01/06/2006 to 31/05/2007 33000 pairs 10% more than estimate 36300 pairs
In case the plan achieves a 10% increase over the estimate sales volume each year the sales revenue will increase considerably. The company will increase its market share and this will result in additional profits. The company will achieve economies of scale. The company therefore will not have to drop the prices in the second and third years.
The Worst Case Scenario
Year Estimated Plan Worst case Scenario
01/06/2004 to 31/05/2005 20400 pairs 15% less than estimate 17340 pairs
01/06/2005 to 31/05/2006 25200 pairs 15% less than estimate 21420 pairs
01/06/2006 to 31/05/2007 33000 pairs 15% less than estimate 28050 pairs
In case the plan achieves 15% lesser than the estimated targeted each year the sales revenue will drop. The company will achieve a market share lower than the market growth. It will take a longer time to achieve break-even volume. It will reduce profitability, as it may have to reduce prices to increase sales and incur additional promotion costs.
8. IMPLEMANTATION AND CONTROL
8.1 Delivering customer value and satisfaction
The most important task of an organization that revolves around “marketing” is “to produce or create customers.” This marketing plan aims at building customer value by presenting them a new commodity or a product with the highest quality, durability and reliability. The final and ultimate objective is to meet the customer’s expectation by providing a high performance product, which will finally lead to customer satisfaction. For a marketer’s modus operandi for success the main and important contents are customer value and customer satisfaction that go hand in hand together.
The value chain is a systematic approach to examining the development of competitive advantage. The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The ‘margin’ depicted in the diagram is the same as added value. The organization is split into ‘primary activities’ and ‘support activities.’ The organization is composed of nine main value-creating activities, which consists of five primary activities and four support activities. The support activities occur within each of the primary activities and the completion of this plan is based on how well each sector or department of the organization performs and how well the activities of the departments are in sync with one another. This plan will help in designing and managing a superior value delivery system to reach target markets. In other words, it will help to gain more competitive advantages by better understanding with the activities. (http://www.quickmba.com/strategy/value-chain/)
8.2 Implementation and monitoring of action plans
Base on the value chain theory, we have developed a program that specific for implementing and monitoring action plans. The awareness level of 1221 are expected to be increased by complete this program and as well as the sales level.
1. Employee orientation
2. Dealer invitation
3. Trade exhibitions and ordering
4. Sales and distribution planning
5. Deliver the goods to warehouse
6. Warehousing
7. Promotion
8. Feedback
Employee orientation and training
The employees in various departments will be given a detailed description about the product launch of New Balance – 1221. The internal marketing program will help employees of each department to orient itself with the product, its customers and the new target segment they would have to concentrate on with the 1221 in mind. An in-depth research will be done to help the employees get familiarized with the market. The top management will play a major role in encouraging employees within the organization. The sales and marketing team will go through product and sales training. The internal marketing program will give impetus in improving teamwork to deliver service quality. Individual responsibilities, performance, indicators and review dates will be set to put the plan into motion. This will take about 2 months in average.
Dealer Invitation
The main dealers of the organization or the company will be briefed about the trade exhibition for the new product line of New Balance 1221. Sending them formal invitations from the company will do this.
Trade exhibition and ordering
The trade exhibition will be conducted over a period of 3 days where dealers will be invited to place their orders. Employees from the department of sales and merchandising will make a product line presentation describing the product features. The trade exhibition will be held bi-annually. Dealers will book orders 6 months prior in advance in the month of December for the winter and spring season. The dealers will also be required to book orders in the month of June for the summer and autumn season. The main managers who deal with 1221 will give enough training to the retailer’s sales staff on enhancing and learning shopfloor-selling techniques. They will provide them with enough product information.
Sales and distribution Planning
A better distribution system for 1221 is needed. Hence, sales and marketing department needs to plan the distribution channels to ensure that these goods are made available to the customers at the right time. The distribution channels are Foot Locker, Gras Bros and Rebel Sport, as mentioned in distribution tactic above. The sales department will set targets according to the dealers for every quarter over the period of the plan.
Deliver the goods to warehouse
As New Balance does not have factory to manufacturing shoes in Australia, it does take time to deliver finished goods from America. As estimated, it takes around one month.
Warehousing
It will reduce costs for storing the inventories if New Balance follows Just-in-time approach. As mentioned above, the dealers are required to book orders 6 months prior in advance. There is only one warehouse in Australia for New Balance because it is only needed for overnight storage or some inventories for emergency orders. We are planned to maintain one month inventory at warehouse at this stage.
