Executive Summary

This report covers the feasibility of launching INNO-MEGAs ultra soft and lightweight running shoes in the United States of America. It implements the marketing management process by providing an overview of the global, regional and domestic US footwear industry, analysis of the current market opportunities and competitors as well as a segment of the market that INNO-MEGA is advised to target, which are young adults or more specifically, the college student target market. A positioning strategy, followed by a product, pricing and promotion strategy is then further recommended.

1.0Introduction

This report is authorized by marketing director, Ms. Carolina Sandra Giang and prepared for INNO-MEGA. INNO-MEGAs newest invention is their ultra soft and lightweight running shoes, which hold considerable appeal and potential. The purpose of this report is to analyze the current industry, market situation and viability of launching INNO-MEGAs ultra soft and lightweight running shoes in the United States of America.

2.0Industry Definition

Soft and lightweight running shoes would fall under the shoe and footwear industry. According to Panteva (2013), this industry manufactures footwear for men, women and children designed for dress, street and work with rubber or plastic soles and leather or vinyl uppers, while the industrys primary activities include rubber and plastic, house slipper, athletic and cleated athletic shoes as well as ballet slipper manufacturing.

Global industry

According to Footwear Industry: Market Research Reports, Statistics and Analysis (2011), the global shoe and footwear market is anticipated to reach US$195 billion by 2015 with volume sales surpassing 13 billion pairs by 2012. Global major players include Bata, Kenneth Cole, Nine West, Timberland, Puma, Gucci, Vans, Nike, Adidas and many others (Footwear Industry: Market Research Reports, Statistics and Analysis 2011).

Regional industry

In the American footwear market, big companies as well as smaller independent brands acquired by larger companies operate and diversify their product offerings with a focus on economical athletic brands at affordable prices (Footwear Industry: Market Research Reports, Statistics and Analysis 2011).

According to Footwear Industry: Market Research Reports, Statistics and Analysis (2011), China exports the most shoes than any other Asian country, manufacturing almost 13 billion pairs of shoes, which represents 63.0% of overall production in the Asian region. In addition, online shopping trends and increasing demand for specific brands aided by the respective companies promotional methods have driven sales in China.

Footwear Industry: Market Research Reports, Statistics and Analysis (2011) also states that other emerging markets in countries such as Poland, Hungary, Brazil, South Africa and Taiwan are expected to reach a combined value of approximately US$24,219 million in 2014 at an annual growth rate of 4.0% over a span of five years.

National industry

According to Panteva (2013), the athletic footwear segment makes up 4.7% of revenue in the US footwear industry and this segment has been experiencing a decline over the past five years as major operators have moved their manufacturing facilities to low-cost producing countries for example, 97.0% of Nikes footwear is produced in offshore third party factories.3.0Competitor Overview

According to Panteva (2013), the basis of competition between players in the American shoe and footwear industry stems from price and quality, as price is often perceived to indicate the quality of the product. Meanwhile, the primary competition for footwear manufactured domestically in the United States of America comes from footwear imported from low labor-cost countries such as China, allowing American consumers to take advantage of the cheaper priced shoes (Panteva 2013).

As such, BISWorld defines a major player as a company that generates at least five percent of industry revenue.

Figure 1: Market share of major players in the US footwear industry(Panteva 2013)

Major player:

New Balance Athletic Shoes Inc.Based in Boston, Massachusetts and founded in 1906, New Balance is the only athletic shoe company that possesses manufacturing facilities in the United States in addition to the United Kingdom (Panteva 2013). 25.0% of its footwear products are manufactured domestically in Massachusetts, Maine and California. However, the remaining 75.0% of its footwear products are manufactured in China and Vietnam, much like the rest of the industry. Other than athletic shoes, New Balance manufactures athletic apparel and accessories for example, socks and sunglasses.

Strength:

According to New Balance Athletic Shoe SWOT Analysis (2014), the company is known for its technologically innovative footwear and uses value-added features such as gel arch support to differentiate its products.

Weakness:

According to Panteva (2013), due to New Balances domestic manufacturing, their footwears price point is slightly higher than its competitors because of the high labor costs in the United States. According to Panteva (2013), companies operating within the shoe and footwear industry are not considered to hold a large portion of the market since most of the manufacturing takes place outside of the United States. Although Nike and Adidas do not manufacture their footwear products in the United States, they can still be treated as examples of strong external competitive forces in the industry (Panteva 2013).

External competitive forces: Adidas AGAdidas AG is a German-owned sportswear and equipment designer, manufacturer and distributor and during 2005, Adidas AG purchased the US company Reebok (Panteva 2013). 97.0% of total footwear production for the Adidas and Reebok brands is produced in Asia while the remaining 3.0% are produced in Europe, Africa and the Americas.

Strength:

The Reebok deal made Adidas similar in size to Nike and gave it a much larger US market presence, with the group deriving more than 40.0% of its sales in North America alone and a market share of 8.0% (Panteva 2013).

Weakness:

Overdependence on third party manufacturing limits Adidas AGs flexibility to shift to more productive product lines and since the company obtains its merchandise from overseas manufacturers, it has little control over product quality (Adidas-Salomon AG SWOT Analysis 2014).

Nike Inc.Phil Knight and Bill Bowerman founded Nike in 1962 and was originally known as Blue Ribbon Sports and made Tiger shoes that were manufactured by Japanese shoe company, Onitsuka Tiger (Panteva 2013). Panteva (2013) goes on to state that Nike products are sold to 18,000 US retail stores through independent distributors, licensees and subsidiaries and in addition, the company designs and manufactures shoes for a diverse range of sports such as baketball, skateboarding and golf to name a few. Overseas independent contractors manufacture about 97.0% of total Nike footwear. Vietnam makes up 37.0% of Nike manufacturing, followed by China (34.0%), Indonesia (23.0%), Thailand (2.0%) and India (1.0%). Nike also has manufacturing agreements in South and North America.

Strength: Panteva (2013) states that Nikes manufacturing facilities are located overseas in China, Vietnam Indonesia, Thailand and India and this enables Nike to take advantage of the low production and labor costs in these countries. Nike is currently the worlds largest shoe company and holds approximately 40.0% share of the American athletic footwear market (Panteva 2013).

Weakness: The third party contract manufacturers of Nike in China, Vietnam, Indonesia and Mexico have been condemned for the infringement of labor laws, particularly paying their workers below minimum wage and issues of working overtime (NIKE, Inc. SWOT Analysis 2013). These incidents exposes Nikes limited control over its contract manufacturers and damages its reputation.SWOT Analysis: INNO-Mega

Strength:

High quality product

INNO-MEGA shoes are a high quality product with value-added features as the shoes are made of ultra soft and lightweight material that is durable and comfortable at the same time.

Weakness:

Lack of size compared to competitors

As INNO-MEGA is a new company, it is naturally lacking in size compared to large companies like New Balance, Reebok, Nike and Adidas. These companies competitive actions may be an obstacle to INNO-MEGAs growth.

Opportunities:

Growing online retail market and preference to shop online

According to New Balance Athletic Shoe, Inc. SWOT Analysis (2014), the US online retailing market is growing at a swift pace and the trend of online shopping is expected to continue. In the year 2013, online retail sales in the US have risen from US$165.8 billion in 2010 to US$262.5 billion. If INNO-MEGA were to offer an online shopping service to their customers through their website, this would be a cost-efficient method of developing brand awareness in addition to testing market acceptance of the ultra soft and lightweight running shoes. Increasing progression of international tradeAccording to Global Footwear Manufacturing: C1321-GL (2010), the increasing progression of international trade in the US has helped increase exports as well as imports. Manufacturers from developed nations are unable to compete with cheaper overseas imports and this trend is projected to continue as the demand for footwear and pressure placed on manufacturers to keep their prices low grows simultaneously.Threats:

High competition in the footwear industry

According to New Balance Athletic Shoe, Inc. SWOT Analysis (2014), high competition in the footwear industry would be the biggest threat to a new company like INNO-MEGA. Major competitors such as Nike and Adidas have vast financial, marketing and technological resources compared to INNO-MEGA. Besides that, INNO-MEGA also faces tough competition from inexpensive footwear imported from Asian countries for example, China. Hence, high competition and availability of low-cost footwear products places further pressure on the pricing of INNO-MEGAs ultra soft and lightweight running shoes and may affect the companys margins. Increasing minimum wage rates in the US

According to New Balance Athletic Shoe, Inc. SWOT Analysis (2014), the minimum wage rate in the US increased from US$5.85 per hour in 2008, followed by US$6.55 per hour in 2009 and finally US$7.25 per hour in 2010. Due to higher costs of living, many US states actually impose minimum wage rates that are even higher than the standard rate of US$7.25 per hour. The increase in minimum wage rates may affect INNO-MEGAs overall costs of operation if they were to operate in the US.

4.0Macroenvironment Analysis

Demographic environmentArmstrong et al. (2012, p. 80) defines the demographic environment as the study of human populations in terms of size, density, lovation, age, gender, race, occupation and other statistics.

According to NPD Group (2012), the prime consumer demographic for athletic footwear sales are millenials, especially adults aged 18 to 34 with an estimated contribution of 60.0% of all athletic footwear sales in 2011. Armstrong et al. (2012, p. 80) defines millenials as the children of baby boomers who were born between 1977 and 2000 and consists of several age groups namely tweens (aged 11 to 12), teens (13 to 18) and young adults (19 to 34).

Besides millenials, demographic research of runners participants within the sport tend to be comparatively affluent and college-educated as shown in the table below:

Total RunnersMen: 16 million / Women: 14.4 million

Total Percentage of RunnersMen: 52.6% / Women: 47.4%

Median Age44 years old

College Educated93%

College Graduates74%

Married74.4%

Individual IncomeUS$74,400 (Average) / US$63,000 (Median)

Household IncomeUS$139,000 (Average) / US$113,00 (Median)

Household Net WorthUS$943,000 (Average) / US$500,000 (Median)

Table 1: Demographic profile of runners(Market Analysis and Demographic Study Running Store/Athletic Shoe Store 2009)

Economic environmentArmstrong et al. (2012, p. 87) defines the economic environment as factors that affect consumer purchasing power and spending patterns. For instance, disposable household disposable income levels are a vital economic factor for footwear and affect the quantity, quality and frequency of footwear purchases (Global Footwear Manufacturing: C1321-GL 2010). As the level of real household disposable income increases, demand for footwear increases as well. Correspondingly, as real household disposable income decreases, so does the frequency of purchases by consumers. This factor is also applicable the price of footwear.

Cultural environmentArmstrong et al. (2012, p. 97) defines the cultural environment as institutions and other forces that affect a societys basic values, perceptions, preferences and behaviours.

According to Stern (2008), the rising fitness awareness in the US was driven by cultural changes that swept along several generations and transformed the leisure habits of Americans. Exercise became preventative medicine for individuals increasingly aware of medicines limitations and to enhance and extend healthy living for young and old alike. Regarding peoples views of themselves, when they spend their time exercising, they can see changes in their physicality and feel better about themselves as exercising allows them to boost their self-esteem and confidence.

5.0Consumer Behaviour Analysis

Need recognition

According to Armstrong et al. (2012, p. 160), the buying process begins with need recognition when the buyer recognises a problem or need that can be activated by internal stimuli which in this case, footwear, a part of the basic human need of being clothed grows strong enough to become a drive. A need can also be activated by external stimuli for example, an advertisement or a discussion with a friend about a new pair of running shoes could influence the persons interest in purchasing the running shoes (Armstrong et al. 2012, p. 160).

Information searchAccording to Armstrong et al. (2012, p. 161), an interested consumer may or may not search for more information, if the consumers drive is strong and a satisfying product is near at hand, the consumer is likely to buy it then. Nowadays, the most quick and convenient way for consumers to search for information is through the Internet or alternatively, consumers will visit retail stores and compare brands prices and features.

Evaluation of alternativesAccording to Armstrong et al. (2012, p. 161), the consumer arrives at attitudes towards different brands through some evaluation procedure. In the context of running shoes, there are many other alternatives of different brands such as New Balance, and the consumer will then decide to purchase running shoes from the brand that fits his or her criteria mostly.

Purchase decisionAccording to Armstrong et al. (2012, p. 162), the consumers purchase decision will be to buy the most preferred brand, but two factors can come between the purchase intention and the purchase decision and that includes attitudes of others and unexpected situational factors. Attitudes of others in this situation would refer to the positive or negative responses and opinions by others towards the running shoes and unexpected situational factors would be an unexpected situation by the consumer whereby the money intended to be spent on running shoes is used for an urgent purpose such as sending the car to be serviced.

Post-purchase behaviourAccording to Armstrong et al. (2012, p. 162), after purchasing the product, the consumer will engage in post-purchase behaviour for example, the consumer will be satisfied if the products perceived performance reaches or exceeds the consumers expectations. However, consumers may engage in cognitive dissonance and feel some discomfort over obtaining the drawbacks of the chosen brand of shoes and losing out on the benefits of the alternative brands (Armstrong et al. 2012, p. 162).

6.0Segmentation, Targeting & Positioning

SegmentationGeographic segmentation:Armstrong et al. (2012, p. 187) define demographic segmentation as dividing a market into different geographical units such as nations, states, regions, counties and cities. For INNO-MEGA, segmentation by urban, suburban and rural density would be appropriate.

Demographic segmentation:Armstrong et al. (2012, p. 187) define demographic segmentation as dividing a market into segments based on variables such as age, gender, family size, family life cycle, occupation, income, education, religion, race, generation and nationality. Young adults from the age of 18-34 years old and are college educated are the largest segment of the footwear industry.

Psychographic segmentation:Armstrong et al. (2012, p. 189) define psychographic segmentation as dividing a market into different segments based on social class, lifestyle or personality characteristics.For example, psychographic segments important to the footwear industry are outdoor sports enthusiast, active and adventurous as well as fashion-interested.

Behavioural segmentation:Armstrong et al. (2012, p. 192) define behavioural segmentation as dividing a market into segments based on consumer knowledge, attributes, uses or responses to products. Most runners seek benefits such as support, comfort, shock reduction and long wear in purchasing running shoes and are mostly heavy users who run 60 miles per week.

Segment Profile

Young Adult Segment Profile

GeographicUrban, suburban and rural density

Demographic 18-34 years old

College-educated

Median individual income (US$63,000/year)

Psychographic Outdoor sports enthusiast

Active and adventurous

Fashion-interested

Behavioural Heavy user

Runs 60 miles/week

Benefits sought: Support, comfort, shock reduction and long wear

Table 2: Segment profile of young adultsTarget Market

Wolburg & Pokrywczynski (cited in Noble, Haytko & Phillips 2009) state that the young adult, specifically the college student target market is one of the most highly coveted consumer segments due to its market size, college students role as trendsetters, the lifelong brand loyalties acquired during these formative years, their position as early-adopters, their influence over parental purchases, and the probability of a higher standard of living associated with a college degree. Yoh & Pitts (2005) state that the buying power of college students was estimated to be over US$200 billion in 2004 and it is projected that college students spending will surpass US$230 billion by the end of 2010. Besides that, college students spend US$52 to buy a pair of athletic shoes on average, which was considerably higher than any other age group (Yoh & Pitts 2005). Hence, college students would fit the young adult segment profile above and make the perfect target market for INNO-MEGA.Positioning

Figure 2: Proposed positioning strategy

INNO-MEGAs ultra soft and lightweight is positioned as a high quality product but is slightly below New Balances quality as New Balance is a larger company with more advanced footwear technology and resources. In terms of price, INNO-MEGA is positioned as a product with a slightly above average price in accordance to its rather high quality. Price is often an indicator of quality, for instance, if INNO-MEGAs price is too cheap, consumers may perceive it to be a low quality product. However, it is cheaper than New Balances running shoes at the same time to allow INNO-MEGA to achieve some market penetration.

7.0Marketing Promotion Strategies

Marketing Objectives:Marketing Perspective: Expose the market to INNO-MEGAs ultra soft and lightweight running shoes and build brand recognition.

Financial Perspective: Sell 1 million pairs of ultra soft and lightweight running shoes in 1 year.

Marketing Strategies:Product:Elliott, Rundle-Thiele & Waller (2010, p. 216) state that product differentiation is the creation of product attributes that distinguish one product from another. This includes value added features such as air pocket soles, which INNO-MEGA could implement in their running shoes which already have value-added features such as being ultra soft and lightweight. This product differentiation is perceived as one of the prominent factors consumers use at the point of purchase, aside from price (Panteva 2013).Price:

According to Noble, Haytko & Phillips (2009), consumers focus on attempting to find the best price and quality relationship in their purchases, trying to find quality products at good prices under the value-seeking theme. Hence, value-pricing is a strategy that INNO-MEGA could consider, offering a high quality product that is value for money and offers many benefits.

Promotion:

According to Panteva (2013), product branding is a crucial determinant as established brand names such as Nike have created huge brand image and recognition through varying marketing activities and created a loyal consumer base which can be influenced by companies market share and recognition. Athletic footwear markets rely on recognition of brand names, logos and trademarks so INNO-MEGA could perhaps come up with a trademark slogan such as INNO You Want It! which is a play on the phrase, I know you want it! as well as a logo.

Place:

INNO-MEGAs running shoes can be distributed through specialty footwear retailers and INNO-MEGA can also take advantage of the preference for consumers to shop online by setting up an online official store website which is cost-effective at the same time.

8.0Conclusion

In conclusion, INNO-MEGA should consider implementing the aforementioned marketing strategies such as focusing on product differentiation, value-pricing, branding and distributing their ultra soft and lightweight running shoes throughout department stores as well as through an official store website online. By doing so, INNO-MEGA will be well-equipped and have a good start when they enter the US footwear market and hopefully obtain a substantial amount of market share and build brand recognition. Besides that, INNO-MEGA should also take advantage of the preference by consumers for inexpensive shoes imported from low-cost labour countries and consider producing shoes back in the home country of Malaysia and following its labor laws and legislation so that INNO-MEGA can be considered as a strong and respectable competitive force to be reckoned with.

Bibliography

'adidas AG SWOT Analysis' 2014, Adidas-Salomon AG SWOT Analysis, pp. 1-10, Business Source Complete, EBSCOhost, viewed 6 May 2014.

Armstrong, G, Adam, S, Denize, S & Kotler, P 2012, Principles of Marketing, 5th edn, Pearson Australia, Frenchs Forest.

Elliott, G, Rundle-Thiele, S & Waller, D 2010, Marketing, John Wiley & Sons Australia, Milton.

Footwear Industry: Market Research Reports, Statistics and Analysis 2011, Reportlinker, viewed 2 May 2014, < http://www.reportlinker.com/ci02119/Footwear.html>.

Global Footwear Manufacturing: C1321-GL 2010, IBISWorld.

Market Analysis and Demographic Study Running Store/Athletic Shoe Store 2009, Random Analytics, viewed 7 May 2014, < https://www.elance.com/file/Coral_Springs_Market_Research_Report.pdf?crypted=Y3R4JTNEcG9ydGZvbGlvJTI2ZmlkJTNEMjM2MDAxMTclMjZyaWQlM0QtMSUyNnBpZCUzRDE3MzEzOTk=>.

'New Balance Athletic Shoe, Inc. SWOT Analysis' 2014, New Balance Athletic Shoe SWOT Analysis, pp. 1-7, Business Source Complete, EBSCOhost, viewed 6 May 2014.'NIKE, Inc. SWOT Analysis' 2013, NIKE, Inc. SWOT Analysis, pp. 1-9, Business Source Complete, EBSCOhost, viewed 6 May 2014.

Noble, SM, Haytko, DL & Phillips, J 2009, What drives college-age Generation Y consumers?, Journal of Business Research, vol. 62, no. 6, pp. 617-628.NPD Group 2012, The NPD Group: Lightweight Performance Running Shoes Setting the Pace for U.S. Athletic Shoe Sales, NPD Group, viewed 7 May 2014, < https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120620a/>.Panteva, N 2013, Shoe & Footwear Manufacturing in the US, IBISWorld, 31621.

Stern, M 2008, The Fitness Movement and the Fitness Center Industry,

1960-2000, Business and Economic History, vol. 8, pp. 1-26.

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Yoh, T & Pitts, B 2005, Information Sources for College Students Athletic Shoe Purchasing, Smart Online Journal, vol. 1, no. 2, pp. 28-34.

Total RunnersMen: 16 million / Women: 14.4 million

Total Percentage of RunnersMen: 52.6% / Women: 47.4%

Median Age44 years old

College Educated93%

College Graduates74%

Married74.4%

Individual IncomeUS$74,400 (Average) / US$63,000 (Median)

Household IncomeUS$139,000 (Average) / US$113,00 (Median)

Household Net WorthUS$943,000 (Average) / US$500,000 (Median)

Appendices

Table 1: Demographic profile of runners(Market Analysis and Demographic Study Running Store/Athletic Shoe Store 2009)

Young Adult Segment Profile

GeographicUrban, suburban and rural density

Demographic 18-34 years old

College-educated

Median individual income (US$63,000/year)

Psychographic Outdoor sports enthusiast

Active and adventurous

Fashion-interested

Behavioural Heavy user

Runs 60 miles/week

Benefits sought: Support, comfort, shock reduction and long wear

Table 2: Segment profile of young adults

Figure 1: Market share of major players in the US footwear industry(Panteva 2013)

Figure 2: Proposed positioning strategy

Azizul Hakim bin Sapiee (4313372)HBM110N Fundamentals of MarketingPage 23