New Balance

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New Balance

Situation Analysis

New Balance International was founded during the early 1990s specializing in orthopedic footware to improve the fit of their shoes. Today the company continues its founding values in a highly specialized niche business of providing athletic footware in a wide range of widths and sizes which distinguishes the product from its competitors. With the philosophy of “one size did not fit all,” New Balance expanded operation from the US and currently markets its product in 160 countries in six continents. New Balance Inc. first appeared in South Africa In 1976 when a Durban based company obtained a license to distribute the brand. Under this distribution plan the company held a very small percentage of the market share and decide in 2000 to open a subsidiary, with the head office located in Cape Town. From 2000 to 2006, New Balance SA experienced double digit sales growth as well as obtaining a siginificant increase in market share. The success of New Balance SA from 2000 to 2006 can be attributed to their focus of providing the highest quality fit with consistant performance, targeting independent sports retailers, and ensuring that the brand was well known amongst their target population, all runners in South Africa. The marketing strategy was a grass root initiative that consisted of direct marketing, promotions and sponsorships, making their first point of reference by word of mouth. Eventually, New Balance SA diversified out of running to other sports such as netball, squash, padding and cycling. They also embarked into co-branding for corporate clothing by targeting the army, air force and police force and offering them quality sportswear with an international branding. New Balance does face challenges in its efforts to maintain and grow market share. It falls behind other major competitors, Nike, Adidas and Reebok, in the area of marketing. New Balance does not endorse top athletes which puts them at a disadvantage when it comes to brand building. Nike, Adidas and Reebok generate strong brand regognition through celebrity endorsements in sporting events that gives them the momentum to carry their brand name further into the market. Another challenge New Balance faces is its limited product line. New Balance’s montra is providing quality fit athletic shoes for the serious athlete. However, the market has been shifting to not only the serious athlete, but to a more fashion oriented crowd. This group tends to be more from the younger generation. Although New Balance does make products for all ages, its focus is geared toward the seasoned generation, which limits the company’s ability to expand into new product areas and remain competitive in the changing market. Manufacturing cost is also a challenge due to competitor outsourcing and the multiple widths selection which adds to the production cost. This will become more of a challenge as material prices increase and the company tries to maintain the entry-level shoe cost below that of its competitors.

Threat of New Entrants: The global shoe industry is becoming a global oligopoly. There are many barriers of entry preventing new entrants from capturing market share. This is a highly saturated and challenging industry in which large athletic shoe manufactures enjoy economies of scale that create cost advantages over new rivals. Because the shoes have become very technical, an extremely large capital investment is required for new rivals to open athletic shoe factories and conduct the research and design needed to create a popular athletic shoe. Athletic manufacturing companies utilize economies of scale by spending millions on advertising, endorsements and sponsorships spreading the high cost over yearly sales. The marketing campaigns makes their product common houshold names making it laborious for new firms to compete. However, an existing shoe manufacturer can enter the industry by re-tooling their plant. The...
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