SAMPLE REEBOK CASE STUDY

Reebok Case Study Sample for CIPS

Questions to: Stephen Ibaraki, sibaraki@[Link]
 Reebok Case 2

Executive Summary

Overview
Reebok, ranked second in revenues, is a profitable global company selling products such as
footwear, apparel, and accessories.

Performing a careful analysis ensures Reebok’s continued growth and profitability in an

environment with strong competitive forces, weak economies, and nine years of flat growth. The
analysis summary appears below with the conclusion.

EFE: External Factor Evaluation Matrix

The EFE indicates there are significant revenue opportunities in meeting the needs of aging
leisure-oriented Baby-boomers (BBs), and the young Generation-Y (GY), who desire
fashionable sportswear and are Internet savvy. Two significant threats to the industry are the
disruption in product supply from foreign manufacturers such as Indonesia where there is
political unrest and not keeping pace with rapid changes in consumer preferences.

CPM: Competitive Profile Matrix

Nike is a stronger competitor overall. Reebok is weaker in R&D, product breadth, and
production location. The critical success factors of R&D for product innovation, and marketing
research to keep pace with consumer preferences, need Reebok’s attention.

IFE: Internal Factor Evaluation Matrix

Reebok receives great value from their brand image. Their contracts with the NBA/NFL increase
brand visibility, promote sales, and provide licensing revenues. In the short term, there is risk
from Reebok’s global restructuring activities which could negatively affect their internal
operations and financial position. Reebok declining R&D expenditures is a weakness since they
must keep pace or stay ahead of innovations from competitors.

Objectives
During 2002 to 2004, Reebok must decrease their dependency upon potentially unreliable
suppliers, develop successfully marketed product innovations, and anticipate changes in
consumer preference creating promotional success. In addition, Reebok must further capitalize
on the large GY and BB groups by increasing sales to these groups, and promote sales by
leveraging their brand value and NBA/NFL sponsorship/licensing arrangements.

TOWS: Threats, Opportunities, Weaknesses, Strengths Matrix

TOWS analysis generated alternative intensive, integration, diversification, and defensive
strategies. However, matching to objectives refined the list. Increased revenues are driven by
product development and marketing penetration (advertising) of: leisure products to BBs;
fashionable sportswear/footwear to GY; and licensed NFL/NBA performance/lifestyle products.
Concentric diversification through new accessories adds revenues to the NFL/NBA sports
licensing business. Forward integration through new online direct sales expands distribution. A
backward integration strategy of using production from alternative reliable suppliers satisfies the
problem with Indonesia. Increasing R&D expenditures will support the product development
strategy of continuing product innovation and staying ahead of competitors. Using marketing
research teams focused on target market segments will allow Reebok to keep pace with
consumer preference changes, matching product design/promotions to changing tastes.
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 Reebok Case 3

SPACE: Strategic Position and Action Evaluation Matrix

SPACE analysis reveals Reebok’s financial strength is good, competitive advantage is very
good, industry strength is slightly above average, and the environment strength is slightly below
average, giving them a “mildly” aggressive strategic position of (2.4, .75). This allows Reebok to
pursue any intensive, integration, or diversification strategy though they need to be sensitive to
risky acquisition strategies. Aligning with objectives would produce similar strategies to those
listed with TOWS. Additional strategies include market development through European
expansion, horizontal integration by acquiring a youth-oriented competitor, horizontal
diversification by the acquisition of a rap music company, and conglomerate diversification by
acquiring an outsourcing computer Web company. Acquisition strategies have higher risk,
greater costs, and require careful consideration or delay, especially with Reebok’s current high
debt and restructuring activities. Financing these strategies through added new debt or stock
issuance (diluting stock value) is not recommended.

GSM: Grand Strategy Matrix

Due to Reebok’ strong competitive position and the flat market growth, they are placed in
Quadrant IV which suggests diversification or joint venture--strategies essentially dictating
getting into other markets due to a strong cash position and slow growth in the current industry.
With Reebok targeting high growth segments (e.g. GY, NFL/NBA, European expansion),
combined with the reasons noted in the SPACE analysis, horizontal, and conglomerate
diversification require short-term elimination. However a Joint Venture to provide an on-line
direct sales channel to GY is recommended.

QSPM: Quantitative Strategic Planning Matrix

Two strategies were evaluated; product development for the youth (GY) market versus
concentric diversification development of new accessories for the NFL/NBA licensing business.
The product development strategy has the higher ‘sum total attractiveness score’ indicating it is
the better of the two though the small difference in scores indicates there is no major advantage
of one versus the other.

Conclusion:
Already in a strong competitive position, a successful restructuring will lower expenses
increasing margins and cash flow to further help fund new product lines and strong promotional
programs for the large market GY, BBs, and NFL/NBA sports licensing business. A new online
direct-sales presence provides an additional marketing channel. These strategies will be
implemented in 2002 with the addition of new accessories for NFL/NBA licensing by July 2003.
GY, the NFL/NBA relationship, and European expansion (starting 2003), provide major future
growth opportunities. With ‘current’ and new strategies, Reebok is strengthening their casual
products position; growing the vital GY sub-segment, young women-in-sport; and expanding
their presence in the performance area. With a possible future economic recovery (2004), retail
sales will pick up, providing improvements all around. Competitive advantage is driven by good
brand image, continuing innovation, quality product design, and strong marketing—all very
strong suites for Reebok. With new sources of reliable, inexpensive supply, these factors
position Reebok to meet its objectives and for continued growth and success.

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 Reebok Case 4

Table of Contents

Introduction.....................................................................................................................................5
Vision..............................................................................................................................................6
Mission............................................................................................................................................6
External Factor Evaluation Matrix (includes the list of opportunities and threats).........................7
Analysis:......................................................................................................................................8
CPM List of Critical Success Factors..............................................................................................9
Competitive Profile Matrix ............................................................................................................10
Analysis:....................................................................................................................................10
IFE List of Internal Forces and IFE Matrix combined ..................................................................11
Analysis:....................................................................................................................................13
Objectives.....................................................................................................................................14
TOWS...........................................................................................................................................15
Analysis.....................................................................................................................................16
Here are examples that tie-in most directly with objectives:.................................................16
Space Matrix Table and Graph.................................................................................................18
Summary................................................................................................................................19
Analysis:....................................................................................................................................20
Tied to TOWS recommendations that meet objectives.........................................................20
Other strategies tied to objectives.........................................................................................20
Grand Strategy Matrix...................................................................................................................22
Analysis.....................................................................................................................................22
QSPM ...........................................................................................................................................24
Analysis.....................................................................................................................................25
Conclusion....................................................................................................................................27
Current strategic situation.........................................................................................................27
Recommendations: objectives, strategies, and implementations.............................................27
Additional policies/actions and controls....................................................................................28
General:.................................................................................................................................28
Finance:.................................................................................................................................29
Production:.............................................................................................................................29
Marketing:..............................................................................................................................29
R&D:......................................................................................................................................30
MIS:........................................................................................................................................30
Final comments.........................................................................................................................30
..................................................................................................................................................30
References....................................................................................................................................31

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 Reebok Case 5

Introduction

Reebok, ranked second in revenues, is a profitable global company addressing the athletic and
lifestyle needs of all people by selling fashionable footwear, apparel, and accessories. In 2002,
there are concerns over possible adverse affects from the global restructuring activities. Other
challenges include reducing the threats to supply from unreliable foreign manufacturing,
anticipating changes in consumer preference creating promotional success, and staying ahead
of competitor technology breakthroughs by technical innovation. Offering strategic opportunities
are increasing sales to the large youthful GY and leisure-oriented BB groups; promoting sales
by leveraging Reebok’s brand value; and enhancing brand visibility and revenues from
NBA/NFL licensing.

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 Reebok Case 6

Vision

To become the world’s largest, most innovative, exciting, and profitable company serving the
athletic and lifestyle needs of all people.

Mission

At Reebok, we are contributing corporate citizens standing for human rights, equal respect, and
fair treatment of all people, including our valued employees. For all people around the globe, we
employ the best technologies offering the highest quality athletic and lifestyle footwear, apparel,
and accessories. Our leading brands include Reebok, Rockport, the Greg Norman Collection,
and the Ralph Lauren-Polo sport line. Through advanced computing technology, we
communicate valued customer needs to our global divisions. We strive to be the leader, at the
best prices and profit levels, generating benefits and growth for our customers, shareholders,
partners, and employees.

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 Reebok Case 7

External Factor Evaluation Matrix (includes the list of opportunities and threats)

External Factors W R WS
Opportunities
1. Generation-Y (GY) is 60M strong, oriented to fashion-
sportswear. Targeting this present and large future market by
meeting their needs will increase sales. Moreover, born 1979-
1994, they have particular exploitable traits (prefer truthful/non-
glossy ads, cynical, practical, Internet savvy) for effective
promotional programs. 0.09 3 0.27
2. Baby-boomers (BBs), at/near their top earning years, are
increasing their leisure activities. Targeting this trend and large
market with leisure apparel/footwear will increase sales. 0.08 3 0.24
3. “Girls/women” sports participation increasing; represents increased
sales by targeting their needs. 0.07 4 0.28
4. European market with unification is growing, is crucial for athletic
footwear, and represents sales growth when targeted. 0.05 3 0.15
5. On-line apparel sales increasing having doubled to $7B+ from 1999
to 2001 and represents increases in sales when targeted. The
Internet is a major sales channel for apparel and footwear. 0.05 3 0.15
6. On-line fashion buyers are generally 35+ years and earn $60K+ and
are a sales growth opportunity since they have ample funds and are
not as sensitive to economic fluctuations. 0.04 2 0.08
7. Seasonal increases in demand for footwear/apparel can be
anticipated and provide predictability in supply meeting demand. 0.03 2 0.06
8. Increasingly, positive public sentiment toward demonstrated social
responsibility (human rights) increases the image of the company
fostering consumer loyalty and increased sales. 0.02 4 0.08
9. Continuing advances in computing technology allows faster reaction
to changing consumer/business conditions. Keeping pace with
changes increases market share and sales. 0.04 4 0.16
10. Using foreign contract manufacturing (e.g. Thailand) reduces capital
investment allowing focus on R&D, marketing, and product design. 0.02 4 0.08
Threats
1. Instability within a country such as Indonesia can disrupt or
delay product supply, preventing or delaying future deliveries to
retailers resulting in cancelled orders, sales/market share
decline, and loss of competitive position. 0.08 1 0.08
2. Companies must keep pace with rapid consumer preference
changes such as shift to casual products or face losing market
share, and sales decline. The shift from athletic footwear to
“casual” products is affecting Reebok and others. The
“increasing” shift to more leisure activities by Baby Boomers
would be one explanation for the lost revenues. 0.07 2 0.14
3. Competitor technology breakthroughs decrease sales for other
competitors; companies must keep pace or lose market share. 0.06 3 0.18
4. Increases in US duties and EU anti-dumping duties (China, 0.05 2 0.10

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 Reebok Case 8

Indonesia) add to costs squeezing profit margins.

5. Counterfeiting of trademarks/logos means lost business and
revenues. 0.04 3 0.12
6. Intense competition (Nike is leader) increases risk of promotional
success from a competitor, revenue decline, and loss of market
share. 0.05 4 0.20
7. Poor economy, 9/11 reduces consumer purchasing power and
decreases sales. 0.05 3 0.15
8. Foreign currency fluctuations can reduce profits; adversely affect
sales comparisons. 0.04 3 0.12
9. Cow diseases can reduce leather supply increasing raw materials
prices and squeeze profit margins. 0.01 2 0.02
10. Increases in EU quotas can limit China product imports limiting retail
shipments, reducing sales and potentially market share. 0.02 2 0.04
11. Flat growth for industry (maturing athletic footwear market)—sales
growth occurs at the expense of market share of others and this
increases competition. 0.04 3 0.12
Total 1.00 2.82
Note 1: W: Weights; R: Rating; WS: Weighted Score

Analysis:

A total weighted score of 2.5 is average. An increase in sales/net income for 2001 and number
two revenue position behind Nike supports Reebok’s above average score of 2.82 in responding
to external forces.

The justifications for the two top opportunities and threats as evidenced by their top two
positions in weighting are in the matrix (bolded).

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 Reebok Case 9

CPM List of Critical Success Factors

Critical success factor Justification

1 R&D investment into continual Reebok’s R&D spending [needed for innovation] is
breakthrough innovation declining.
2 Focused marketing research to Reductions in Reebok’s revenues came from not
anticipate preference changes in keeping pace with the shift to “casual.”
targeted consumer groups
3 Breadth of product line provides Reebok has broadened their Classic “lifestyle”
sales to multiple market offerings. Their footwear sales have declined but their
opportunities and insulates from apparel sales have increased nearly 19% from 2000.
declines in any one market
4 Location of low wage contract Instability in Indonesia threatens the delivery of nearly
manufacturing with consistent 33% of Reebok’s shoes. Reebok’s China products are
supply; not subject to high duties subject to changing EU/US duties and EU quotas that
or quota restrictions could increase costs or limit supplies.
5 Strong endorsements, These enhance brand exposure and promote sales.
sponsorships Reebok has endorsements from sports stars; ongoing
sponsorships with leagues, federations, and Survivor
shows; and added licensing arrangements with the
NBA/NFL providing revenue.

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 Reebok Case 10

Competitive Profile Matrix

Competitive Profile Matrix for Reebok and Nike

Reebok Nike
Critical Success Factors Weight Rating Score Rating Score
1 R&D 0.25 3 0.75 4 1.00
2 Marketing research 0.22 2 0.44 2 0.44
3 Breadth of product line 0.20 3 0.60 4 0.80
4 Location of production 0.15 2 0.30 3 0.45
5 Endorsements, sponsorships 0.18 4 0.72 3 0.54
TOTAL 1.00 2.81 3.23

Analysis:

Reebok’s lower total score relative to Nike indicates Nike is a stronger competitor overall. Nike’s
#1 position in revenues and 37% market share (2001) versus 15% for Reebok supports this
assessment. Reebok is weaker in R&D, product breadth, and production location. The high
weighting of R&D and marketing research indicates these areas need Reebok’s attention.
Reebok is stronger in endorsements/sponsorships.

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 Reebok Case 11

IFE List of Internal Forces and IFE Matrix combined

Internal Factors W R WS
Strengths
1. Reebok’s widely recognized strong brands are associated with
making a fashion statement and encouraging freedom of
expression. Strong brand image provides differentiation,
associated consumer loyalty, some immunity from price
differences. 0.08 4 0.32
2. Exclusive NFL, NBA sponsorships provide high brand visibility
to millions of fans, promoting sales, and provide added
licensing revenues estimated at $200M for NFL apparel for 2002. 0.07 4 0.28
3. Reebok’s strong history with women’s sports/fitness linked to their
effective promotional programs and product/brand positioning such
as their Defy Convention ads provides strong marketing position for
this market segment. 0.06 4 0.24
4. 204 retail locations in the US providing good market presence and
selling opportunities. 0.04 3 0.12
5. Strong innovations in the past as evidenced by DMX/Viz-DMX
(footwear), HYDROMOVE (apparel), Traxtar for children indicate
their ability to keep pace with technical improvements which is
important for sales success. 0.05 4 0.20
6. Strength in apparel since sales increased nearly 19% from 2000. 0.04 4 0.16
7. Reebok’s market share has increased from 12 to 15% in 2001
indicating successful promotional marketing. 0.04 4 0.16
8. Good indicators of financial health (from 2000 to 2001): 27%
increase in net income; revenue increase despite foreign currency
fluctuations affecting sales figures; liquidity (2.88) is good; 23%
increase in EPS. 0.03 4 0.12
9. Using foreign contract manufacturing reduces capital investment
allowing focus on R&D, image, marketing, and product design. 0.03 4 0.12
10. Good product breadth (casual/leisure, lifestyle, fashion, performance,
fitness, sports, dress [shoes]: apparel, footwear, accessories)
through four major brands provides greater opportunity for market
segmentation and product positioning to increase sales. 0.05 3 0.15
11. Growing e-commerce arrangements with Retailers to sell products
(Reebok, Greg Norman) provides additional sales channels 0.03 3 0.09
12. Strong marketing department with many attractive ad campaigns,
strong endorsements from sports stars in all fields, and sponsorships
increasing sales and successful promotional campaigns (Defy
Convention, Survivor, Vogue, and Vanity Fair). 0.06 4 0.24
13. Advanced MIS systems provides changing consumer needs updates
to their global operations allowing them to keep pace with the
changing needs (in their mission statement) 0.02 4 0.08
14. Commitment to human rights work builds consumer loyalty. 0.01 4 0.04

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 Reebok Case 12

Weaknesses
1. Risk from global restructuring activities in the short term could
affect product delivery, logistical operations, and produce
increased expenditures and charges due to inefficiencies. With
so many internal areas impacted, it is a significant risk factor.
For example, impeding product deliveries affects Reebok’s
competitive position in meeting delivery commitments, reduces
sales, and results in lost market share. Increases in
expenditures/charges negatively affect net income, and investor
confidence. 0.06 2 0.12
2. R&D expenditures have declined yearly from 1999 to 2001 (33%
in total) which could affect future product innovation. Reebok
needs continuing breakthrough innovations to stay ahead or
keep pace with competitors. 0.05 2 0.10
3. Using Indonesia for nearly 33% of shoe supplies where political
instability can affect production and ability to deliver, decreasing
sales and market share. 0.04 1 0.04
4. Main suppliers are in China and Indonesia, which are subject to high
US/EU duties increasing costs, reducing profit margins. China is also
subject to EU quotas and further limits will require sourcing Reebok
shipments elsewhere causing delays, added costs. 0.02 2 0.04
5. 30-45 day delay to create new shoe molds when shifting production,
which affects ability to fill orders, delaying shipments, reduce sales. 0.03 1 0.03
6. Marketing research did not anticipate the shift from athletic footwear
to “casual” products, which decreased sales. 0.04 2 0.08
7. Ralph Lauren sales declined 8.8% from 2000 to 2001. 0.03 2 0.06
8. Rockport sales declined 5.4% from 2000 to 2001. 0.03 2 0.06
9. Overall footwear sales are flat having declined slightly from 2000 to
2001. 0.01 2 0.02
10. Senior management structure is limited, reducing diversity in
decision-making and dedicated focused attention on market
segments. 0.01 2 0.02
11. Not serving European market or International markets well since
sales to the UK are greater. 0.03 2 0.06
12. Higher LT Debt to Equity relative to competitors like Nike requires
added cash to service the debt reducing cash needed for operations. 0.02 2 0.04
13. Online activities are limited to select retailers selling only Reebok
and Greg Norman products reducing sales opportunities to the
rapidly growing online market. 0.02 2 0.04
Total 1.00 3.03
Note: Justifications are from David (2003).

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 Reebok Case 13

Analysis:

A weighted score of 2.5 is average. Reebok’s score of 3.03 indicates above average internal
strength. Their increase in sales, net income, and market share for 2001, and their second place
position behind Nike in total revenues supports this weighted score.

The two most important strength and weakness factors are those with the highest weights
(“bolded” in the IFE) indicating they can have a great impact on organizational performance.
Justifications are included in the matrix.

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 Reebok Case 14

Objectives

According to Sorli (2003), objectives are specific desired results that answer, “How much and by
when” and are SMART. Here are the objectives for Reebok.

1. Develop two successfully marketed updates/innovations in footwear and apparel for

2002, 2003, and 2004.
2. Reduce dependence on Indonesia as a footwear source to 10% of total in 2002 and 0%
by 2004.
3. Identify two yearly changes in consumer preference that receives focus and produces
promotional success in 2002, 2003, and 2004.
4. Increase sales of leisure products 5% in 2002, 10% in 2003, and 10% in 2004.
5. Increase sales of youth-oriented fashion-sportswear/footwear 10% in 2002, 15% in 2003,
and 20% in 2004.
6. Increase sales resulting from NFL/NBA licensing arrangements by 20% in 2003 and 30%
in 2004.

Note: The paper uses the shorthand notation, Ob1 to Ob6, to reference the objectives.

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 Reebok Case 15

TOWS

Strengths Weaknesses
Note: The first 1/2 letters of 1. Strong brand 1. Restructuring
the alternative strategy 2. NFL/NBA 2. R&D spending
indicate the category. The 3. History with women 3. Indonesia
codes are used throughout 4. Main suppliers:
this paper. 4. Strong innovations Indonesia, China
Intensive: 5. Strength in Apparel 5. New shoe mold delay
1. MD: Market 6. Foreign manufacturing 6. Missed “casual” shift
development 7. Product breadth 7. Ralph Lauren sales
8. E-commerce arrangements decline
2. MP: Market
penetration 9. Marketing 8. Rockport sales declines
10. MIS systems 9. European market
3. PD: Product 11. Financial health
development 10. Online activities limited
12. Market share
Integration: 13. 204 retail locations
4. FI: Forward
5. BI: Backward
6. HI: Horizontal
Diversification:
7. CD: Concentric
8. HD: Horizontal
9. CGD: Conglomerate
Defensive:
10. R: Retrenchment
11. D: Divestiture
12. L: Liquidation
13. JV: Joint
venture/partnership
Opportunities S-O W-O
1. Gen-Y (GY) 1. Use youthful ads, to promote sales 1. Extend with apparel then sell
2. Baby-boomers (BB) of fashionable sportswear/footwear to Ralph Lauren fashionable
3. Women in sports GY: S1, S5, S7, S9, S13, O1=MP- products online: directly and
Ob5 through expanded retailer
4. Europe Union (EU) 2. Use lifestyle ads to promote sales network: W7, W10, O2, O5,
5. On-line footwear / of casual products to BBs: S1, S5, O6=FI-Ob4
apparel sales S7, S9, S13, O2=MP-Ob4 2. Increase R&D expenditures to
6. On-line fashion 3. Use youthful women ads, to support producing new
buyers promote sales of sports products to innovations to meet future market
7. Advances in women in sports: S1, S3, S5, S7, S9, segment needs (e.g. GY, BB,
computing S13, O1, O3=MP-Ob5 women-in-sports): W2, O1, O2,
8. Foreign contracting 4. Develop new fashionable O3=PD-Ob1, 4-6
sportswear/footwear products for the 3. Expand further into Europe,
GY market: S4, O1=PD-Ob1,5 partnering with Adidas who is the
5. Launch sporty ads to promote the market leader taking advantage
sales of licensed NFL/NBA products of their distribution channels: W9,
to the sport market: S1, S2, S5, S7, O4=JV; MD-Ob4-5
S9, S13, O1, O3=MP-Ob5, 6 4. Sell youth-oriented products
6. Expand further into Europe: S1, online since GY are Internet
S4, S9, S11, S12, O4=MD-Ob4, 5 Savvy: W10, O1=FI-Ob5-6
7. Acquire European company to 5. Acquire an outsourcing Web-
support further penetration into EU: services computer company to
S11, S12, O4=HI-Ob4, 5 direct-sell online: W7-10, O1-7=
8. Develop NFL/NBA licensed CGD, FI, BI-Ob4-6
product lines for the sport market: S2, 6. Partner with Web company to

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 Reebok Case 16

S4, S7, O1, O3=PD-Ob1, 5, 6 direct-sell online: W7-10, O1-

7=JV, FI-Ob4-6

Threats S-T W-T

1. Political instability 1. Develop products to match the 1. Use production from stable
2. Consumer casual shift: S4, T2, T3=PD-Ob1, 4 countries with low labour costs,
preference changes 2. Develop products for different possibly not subject to EU quotas
3. Competitor market segments (fitness, and possible lower duties
technology performance, lifestyle, sports) and to imposed: W3, W4, T1, T4, T7=BI-
breakthroughs stay ahead of competitors: S4, T2, Ob2
T3=PD-Ob1, 3-6 2. Create shoe molds in advance
4. US/EU duties 3. Develop new accessory NFL/NBA of shifting production: W5, T1=BI-
5. Intense competition products (e.g. equipment, watches). Ob2
6. Poor economy The exclusive relationship minimizes 3. Marketing research will monitor
7. EU quotas competition: S2, S4, S7, T5, T8=CD- consumers to forecast and keep
8. Flat growth Ob5-6 pace with changing tastes/needs:
4. Repackage and then sell mid- W6-8, T2, T5, T6=MP/PD-Ob1, 3-
range priced Retro products to the 6
youth market affected by poor 4. Divest weak foreign operations
economy: S1, S7, S9, T2, allowing cash to acquire rap
T6=MP/PD-Ob5 music company: W1, T5, T8=D,
5. Acquire Skechers or Vans, who is HD-[Ob5]
particularly strong in the growing 5. Merge common operations
youth market, to better competitive between business units to
position and market share: S11, S12, increase efficiencies, reduce
T5, T8=HI, CD (for Vans)-Ob5 expenses providing cash for
researching consumer preference
changes, new product
development and furthering
competitive position: W1, W2,
W6, W9, T2, T3, T5=R-Ob1, 3-6
6. Initiate new senior
management structure increasing
diversity in decision-making and
providing dedicated focused
attention on market segments
improving competitive position:
W1, W7-9, T5, T8=R-Ob4-6
7. Pause strategy where no risky
new strategies are employed
allowing focus on increasing
sales: W1, W7-8, T6, T8=R-Ob4-
6

Note 1: Links to objectives appear as Ob1-6.

Note 2: Products refer to footwear and apparel unless stated otherwise.

Analysis

Recommended strategies to meet the objectives, tie into existing strategies, and current
resources, include the categories: MP, PD, BI, FI (online sales), and CD:

Here are examples that tie-in most directly with objectives:

Ob1

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 Reebok Case 17

SO4
ST1-2
WO2
WT3
An increased R&D budget will produce updated and new product designs in footwear and
apparel affecting all market segments (e.g. BBs, GY; performance, sports, leisure).

Ob2
WT1-2
The strategy is to shift production away from Indonesia (possibly China). Backup shoe molds
provide a rapid shift capability.

Ob3
WT3
Marketing research will actively monitor changing tastes and communicate this to product
design groups to match design to tastes.

Ob4
SO2
ST1
WO1, 6
WT3
Reebok will use brand image and strong promotional programs to take existing and newly
designed products and actively promote them to the BB/leisure market.

Ob5
SO1, 3-5
ST2
WO2, 4, 6
WT3
Reebok will use brand image and strong promotional programs to take existing and newly
designed products and actively promote them to the GY market.

Ob6
SO5, 8
ST3
WO6
WT3
Some 100 million+ people watch NFL/NBA games providing a tremendous opportunity to build
brand image and a sports-licensed business focusing on apparel, footwear, and new
accessories tailored to the sports. Since the arrangement is exclusive, the growth potential is
large and ties into the youth market.

Note: TOWS-based MD, HI, CGD, HD strategies appear with SPACE and GSM examples.

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 Reebok Case 18

SPACE Matrix

The SPACE matrix stage 2 tool was the preferred choice for the following reasons:
1) Financial strength (FS), competitive advantage (CA), environmental stability (ES) and
industry strength (IS) are the most important determinants of an organization’s strategic position
(David, 2003)
2) The IE matrix works best when used with BCG in evaluating strategies for different divisions
in multi-divisional firms, typically competing in different industries. Reebok does not ideally fit
this profile.

Space Matrix Table and Graph

Note: FS and CA are comparisons to competitors; ES and IS are comparison to other industries
FS
1. Good EPS increases 5
2. 27% increase in net income in 2001 5
3. Good liquidity 5
4. High long-term debt to equity 2
---
17/4=
Avg. 4.25

Good
ES
1. Political instability, quotas/duties with foreign contracting -5
2. Strong competition -4
3. Demand variability is limited as indicated by 9 yr. flat sales growth -3
4. Ease of exit due to contract manufacturing -2
---
-14/4=
Avg. -3.5

Below
Avg.
IS
1. Sales growth flat for 9 years but not in decline as in other industries 2
2. Profit potential is good 4
3. Financial stability is good 4
4. Technological know-how is good 4
5. Segments are growing (apparel sales) 5
---
19/5=
Avg. 3.8

Above
Avg.
CA
1. Market share increased at the expense of competitors -1

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 Reebok Case 19

2. 204 retail outlets -2

3. Strong ads, endorsements, promotional campaigns -1
4. Strong history of technical innovation -1
5. Strong brands -2
---
-7/5=
Avg. -1.4

Very
Good

Summary
1. CA/ES: -1 (best) -6 (worst)
2. FS/IS: 6 (best) 1 (worst)
3. X-axis: 3.8 (IS) + (-1.4) (CA) = 2.4
4. Y-axis: 4.25 (FS) + (-3.5) (ES) = .75
5. Mildly Aggressive position

Conservative FS Aggressive

+6

+5

+4

+3

+2

+1

+0
CA IS
-6 -5 -4 -3 -2 -1 +0 +1 +2 +3 +4 +5 +6
-1

-2

-3

-4

-5

-6

Defensive ES Competitive

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 Reebok Case 20

Analysis:

The aggressive quadrant suggests intensive (MP, MD, PD), integration (FI, BI, HI),
diversification (CD, HD, CGD) strategies.

Reebok can pursue “mildly” aggressive strategies. Acquisition strategies need careful
consideration since the position is not strong (e.g. +4, +4).

Tied to TOWS recommendations that meet objectives

All the strategies discussed under the TOWS “Analysis” section would apply here.

Here are a few examples with links back to TOWS:

The recommendation would be “Intensive” PD, MP promotional strategies to GY, BBs, and
involving the NFL/NBA relationships selling apparel and footwear. FI provides another online
sales channel.
a) MP:
Ob3: WT3
Ob4: SO2
Ob5/6: SO1, 3, 5

b) PD:
Ob1, 4-5: SO4, 8; ST1-2, WO2

c) FI:
Ob4: WO1, 6
Ob5: WO4, 6

Another priority is ensuring reliable supplies through BI strategies with another Far East supplier
(e.g. Thailand, Vietnam).
a) BI:
Ob2: WT1

A good strategy is CD through the development of new lines of accessories based upon the
NFL/NBA licensing arrangement followed by marketing penetration promotional strategies to sell
these new products. The TOWS strategy description and GSM analysis outlines the advantages
for CD.
a) CD:
Ob6: ST3

Other strategies tied to objectives

a) MD:
Ob5: SO6
Expand further into the Europe Union targeting the youth market in the long term. The
unification provides a stable and expanding business/consumer market especially with the
untapped former Eastern Block countries.

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 Reebok Case 21

b) FI:
Ob5: WO4, 6
Sell youth-oriented fashionable sportswear/footwear products online through a dedicated web
site. Development and support costs are low and GY is Internet Savvy.

c) HI:
Ob5: ST5
Acquire a competitor who has a strong market presence in the youth market.

d) HD:
Ob5: WT4
Acquiring a rap music company can tie in with rap-star endorsement ads to youth.

e) CGD:
Ob4-5: WO5
Use the purchased outsourcing company to provide dedicated Reebok web sites for selling
youth and BBs products.

Note: The HI, HD, CGD acquisition strategies are not recommended. Reebok’s current high
debt load and restructuring makes them vulnerable to higher risk strategies. In addition,
financing any acquisitions would increase debt or when using stock, it would dilute share value,
and reduce Fireman’s control.

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 Reebok Case 22

Grand Strategy Matrix

RAPID
MARKET
GROWTH

Quadrant II Quadrant I

WEAK
COMPETITIVE STRONG
POSITION COMPETITIVE
POSITION
Reebok

Quadrant III Quadrant IV

SLOW
MARKET
GROWTH

Quad IV
1. CD
2. HD
3. CGD
4. JV

Analysis

Positioned in Quadrant IV, Reebok has available the diversification and joint venture strategies
(see table).

Providing support for their strong competitive position is their strong 3+ IFE score, 2.82 EFE,
SPACE -1.4 CA score, and increasing net income and market share.

The market has experienced 9 years of flat growth. Increases in market share occur at the
expense of competitors, an indication of no growth overall though some segments (including
sports licensing and youth markets) have growth potential.

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 Reebok Case 23

Flat growth with strong competitive position places Reebok in Quadrant IV.

Reebok’s strong competitive position produces good cash flow in excess of their internal growth
needs (due to the slow market growth). Since the present market is slow, a suggested strategy
is diversifying or JV to get into other products/markets with higher growth.

The CGD and HD strategies outlined from the TOWS and SPACE analysis could apply here but
are not recommended. Here are the reasons for not pursuing them:
1. HD is riskier and normally recommended when the industry has no growth and returns are
low. CGD is the riskiest and recommended when industry sales and profits are declining.
These are employed when there are no opportunities for growth in the industry.
2. Reebok is targeting industry growth segments and are finding increases in EPS and profits
so intensive strategies apply.

Concentric diversification (adding products/accessories for the NFL/NBA sports licensing

business (ST3)) could be pursued due to the lower risk.

In addition, a joint venture would be acceptable such as the TOWS WO6. With the Web JV, the
partner could handle setup and site management so there are no conflicting interests, little
added costs, and potential to increase sales.

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 Reebok Case 24

QSPM

STRATEGIC ALTERNATIVES
Develop Develop
NFL/NBA products
accessories for youth
(ST3) (SO4)
Key Factors Weight AS TAS AS TAS
Opportunities
1 GY 0.09 3 0.27 4 0.36
2 BBs 0.08 3 0.24 2 0.16
3 Young women in sports 0.07 2 0.14 4 0.28
4 European Union 0.05 2 0.10 3 0.15
5 On-line footwear / 0.05 2 0.10 4 0.20
apparel sales
6 On-line fashion buyers 0.04 2 0.08 1 0.04
7 Seasonal demand 0.03 2 0.06 3 0.09
8 Human rights 0.02 2 0.04 3 0.06
9 Advances in computing 0.04 2 0.08 3 0.12
1 Foreign production 0.02 2 0.04 3 0.06
0

Threats
1 Political instability 0.08 2 0.16 1 0.08
2 Consumer preference 0.07 2 0.14 1 0.07
changes
3 Competitor technology 0.06 2 0.12 1 0.06
breakthroughs
4 US/EU duties 0.05 2 0.10 1 0.05
5 Intense competition 0.05 2 0.10 1 0.05
6 Poor economy 0.05 2 0.10 1 0.05
7 Flat growth 0.04 3 0.12 2 0.08
8 Cow diseases 0.01 3 0.03 1 0.01
9 Counterfeiting 0.04 - - - -
1 EU quotas 0.02 2 0.04 1 0.02
0
1 Foreign currency 0.04 2 0.08 1 0.04
1
1.00
Strengths
1 Brand value 0.08 2 0.16 3 0.24
2 NFL/NBA 0.07 4 0.28 2 0.14
3 History with women 0.06 2 0.12 4 0.24
4 204 retail locations 0.04 2 0.08 3 0.12
5 Strong innovations 0.05 2 0.10 4 0.20
6 Strength in apparel 0.04 2 0.08 4 0.16
7 Market share 0.04 2 0.08 3 0.12
8 Financial health 0.03 3 0.09 2 0.06

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 Reebok Case 25

9 Foreign production 0.03 2 0.06 3 0.09

1 Product depth 0.05 2 0.10 3 0.15
0
1 E-commerce 0.03 2 0.06 3 0.09
1
1 Strong marketing 0.06 3 0.18 4 0.24
2
1 Advanced MIS 0.02 2 0.04 3 0.06
3
1 Human rights 0.01 2 0.02 3 0.03
4

Weaknesses
1 Restructuring 0.06 1 0.06 2 0.12
2 R&D spending 0.05 1 0.05 2 0.10
3 Using Indonesia 0.04 2 0.08 1 0.04
4 Main suppliers in China 0.02 2 0.04 1 0.02
and Indonesia
5 Delay to create new 0.03 2 0.06 1 0.03
shoe molds
6 Missed “casual” shift 0.04 3 0.12 2 0.08
7 Ralph Lauren sales 0.03 3 0.09 2 0.06
decline
8 Rockport sales declines 0.03 3 0.09 2 0.06
9 Flat footwear sales 0.01 3 0.03 2 0.02
1 Senior management 0.01 - - - -
0
1 Europe 0.03 3 0.09 2 0.06
1
1 High debt 0.02 1 0.02 2 0.04
2
1 Limited online 0.02 3 0.06 2 0.04
3
Sum Total 1.00 4.38 4.64
Attractiveness Score
(STAS)

Analysis

This analysis is useful to choose one strategy over another due to limited resources (poor cash
situation, high debt, inability to raise necessary funds). Reebok is in good financial health
allowing the pursuit of both strategies. However, if the restructuring process does not go as
planned limiting cash flow (and added debt or issuing stock is not wanted), then the “youth”
strategy would be pursued. CD can be riskier requiring more MP/PD resources.

The product development strategy for the youth market is more attractive than concentric
diversification into NFL/NBA accessories, due to its higher STAS. However, the scores are so
close that there is no major advantage of one versus the other. Moreover, the scores are mid-

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 Reebok Case 26

range indicating that the strategies are only reasonably attractive versus scores above six,
which would be highly attractive.

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 Reebok Case 27

Conclusion
Note: TOWS table strategy codes are used.

Current strategic situation

1. Retrenchment with global restructuring can improve efficiency/costs but makes Reebok
vulnerable to risk if problems occur.
2. There are product developments in footwear/apparel to keep pace with competitors but
declining R&D expenditures is a problem.
3. GY, BB, NFL/NBA, Europe are large market opportunities.
4. Three of the major market penetration programs are: young women (Defy Convention),
older/educated (Vanity Fair), and performance/sport with NFL/NBA sponsorships.
5. Economy is affecting retail sales causing the decline in Ralph Lauren and Rockport sales.
6. Product segmentation (Classic: lifestyle products), ads (Vanity Fair), Survivor sponsorships
suggests initial corrective action to keep pace with the shift to casual. Keeping pace with
consumer preferences is essential.
7. There are risks with BI strategy using low wage contract manufacturing since Indonesian
supply is unstable. Transferring to China is the contingency but this presents problems since
China is subject to quota restrictions and EU anti-dumping duties.
8. Reebok places a high emphasis on brand image, marketing, product quality and making a
fashion statement—strong competitor (high 3+ IFE, 2.82 EFE) within a flat growth
environment.

Recommendations: objectives, strategies, and implementations

General
1. Continue existing MP, PD programs. Due to current retrenchment, recommend a minimal
risk approach until at least July 2002, since disruptions from a problematic restructuring will
affect all areas of the company. Focus on ensuring the restructuring is successful.
2. For 2002, due to high-debt load, current restructuring, and the weak economy, [in order
of increasing risk], avoid costly acquisition strategies: HI, HD, and CGD. Moreover,
acquisition-based strategies require financing that would increase debt or when using stock,
dilute share value, and reduce Fireman’s control.
3. MD requires more resources for MP/PD so European expansion is delayed until Jan
2003 when restructuring is completed. The expansion will target the youth market. New
economies emerging from the E-Union provides a stable business market and untapped
growth opportunities.
4. All MP, PD, BI, FI, and CD strategies detailed below were chosen since they are low risk,
closely support the vision/mission/objectives, tie into major strengths/opportunities, are inline
with current strategies, within the resources and capabilities of the company, and actively
support increases in sales to each market segment.

Specific
5. Reduce dependence on Indonesia as a footwear source to 10% of total by 2002-end and
0% by Jan 2004. Use a low cost, quality, contract manufacturer from a more reliable
environment (e.g. Vietnam, Thailand). Replace China with Vietnam/Thailand, as a
contingency plan for sudden supply loss by Qtr1 2002. By Qtr1 2002, backup shoe molds
are required to allow no delays when shifting production.

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 Reebok Case 28

6. Increase sales of youth-oriented fashion-sportswear/footwear 10% in 2002, 15% in 2003,

and 20% in 2004. For 2002-2004, design and promote fashionable streetwise footwear and
sportswear for the youth market (GY). Use GY music artists/sports stars, extreme sports
stars in quarterly endorsement/ad campaigns using GY-oriented media channels (MTV,
print, online). Create a GY focused streetwise brand image in Jan 2002 (e.g. Reebok XK-
brand).
7. Increase sales of leisure products 5% in 2002, 10% in 2003, and 10% in 2004. For 2002-
2004, design and promote fashionable casual footwear and apparel for the older BB market.
Use BB celebrities in quarterly endorsement/ad campaigns in BB-oriented media (TV, print)
channels (e.g. Survivor, Vanity Fair).
8. Increase sales resulting from NFL/NBA licensing arrangements by 20% in 2003 and 30%
in 2004--2002 sales forecasts are 200M. For 2002-2004, design and promote licensed
performance (on field/court) and lifestyle (off field/court), footwear/sportswear based upon
the NFL/NBA sports business. Use NFL/NBA stars in seasonal endorsement/ad campaigns
and orient towards the GY market. Add new youth-oriented related products and accessories
(e.g. equipment, watches) to the product line by July 2003. Justifications for riskier CD
strategy include: a) Excess cash due to strong competitive position b) Moderate internal
cash needs due to industry flat growth providing cash for diversification c) Move into areas
where there can be growth d) Exclusive licensing arrangements remove competitive
pressures. However, diversification has higher risk/costs; current restructuring leaves the
company vulnerable to risk warranting a delay to 2003. This allows time for a better
understanding of the new licensing business.
9. Develop two successfully marketed updates/innovations in footwear and apparel for
2002, 2003, and 2004. Increase the R&D budget by 10% annually, 2002 to 2004, producing
product design updates, and new technology innovations for GY segments, NFL/NBA fans,
and leisure markets. Release two major R&D-based technology innovations (to DMX,
Hydromove, etc.) by July 2002 and July 2004. Produce marketing-mix product design
improvements as needed within existing policy timeframes to selected target segments
based upon consumer need.
10. Identify two yearly changes in consumer preference that receive focus and produces
promotional success in 2002, 2003, and 2004. Marketing research will use computing
technology to actively monitor changing tastes and communicate this to product design
groups to make design changes to match needs. A team approach, one for each major
market segment (GY, BB, NFL/NBA, Young Women, etc.), would be used combining R&D,
Marketing, and Operations personnel focused on continually monitoring changing segment
needs, and making required design and technology improvements. Higher or lower
frequency of design changes will be adapted from prior Rumelt’s “feasibility” experiences.
Extensive market testing will precede any product launch to ensure success.

Additional policies/actions and controls

General:
1. Pursue a FI strategy by setting up a JV in Qtr 1 2002 with a Web services company who
does the setup, and management of a direct-sales online channel by Qtr 2 2002. Pro-forma
analysis would reveal minimal risk due to low costs but good revenue/profit potential. Start
with the youth MP program since GY is online savvy.
2. Each year-end reassess feasibility of European expansion, and acquisition
integration/diversification strategies. Sound pro-forma projections, economic growth,

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 Reebok Case 29

exceeding yearly objectives, increases in market share, and debt reduction are triggers for
considering these strategies.
3. Implement policies to ensure all strategies/policies/actions support the vision, mission, and
objectives within pre-defined timeframes and then monitor for Rumelt’s consistency,
consonance, feasibility, and advantage and take corrective action when underperforming.
4. Implement policies at all levels to encourage continual weekly monitoring of progress on
objectives with trigger points (falling below thresholds) for immediate corrective action.
5. Implement incentive programs for continual progress towards objectives at all levels:
executive, divisional, functional, and individual.
6. Examine IFE/EFE, competitors IFE/strategies for changes monthly. Take corrective action if
changes.
7. Monthly, compare expected to actual results, deviations from plan, evaluate individual
performances, and continual progress towards stated objectives. Take corrective action
when results fall below expectations.
8. Monitor performance (weekly) towards functional objectives using computing systems
triggering action when performance falls or does not keep pace.

Finance:
1. Perform pro-forma analysis on all strategies with revisions monthly ensuring keeping within
resource (human, physical, financial, technological) capabilities and establish cash budgets
(revised monthly) to ensure proper and timely utilization of resources.
2. Measure existing performance using monthly financial ratios (comparing different periods,
against competitors, and industry averages) and take corrective action if negative trends.
3. Forecast increases in duties and quotas to allow advance contingencies of shifting
production.
4. Use existing cash flow to finance strategies. As a contingency, delay Europe expansion to
begin Jan 2004.
5. As a contingency, EPS/EBIT analysis reveals debt financing could be used, however, this
increases ‘leverage’, which is high for Reebok, put constraints on raising future capital and
reduces profitability (EAT). New stock issuance dilutes control for Fireman, so is not
recommended.

Production:
1. Implement policies for consistent product quality and delivery reliability to necessary
standards. Use continual (daily) sampling to ensure quality and continually monitor delivery
delays, taking corrective actions immediately.
2. Look for any indications of rising costs, instability or supply disruption with contingency to
shift production to another low-cost source.

Marketing:
1. Work continually with marketing mix 4P variables, refining for each segment: NFL/NBA,
Leisure/BB, and GY. For example, monitor different distribution channels per segment: retail,
department, specialty, online. Find the best channels for added promotion.
2. Use strong brand image, and focus on quality/good value in all promotions.
3. Further, sub-segment the youth market (performance, lifestyle, young women in sports, etc.)
and perform product positioning for focused product design and marketing promotions (ads).
4. Make adjustments based upon continual test marketing.

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 Reebok Case 30

5. Monitor sales weekly checking for steady progress towards monthly and yearly goals for
each marketing penetration strategy to: NFL/NBA, GY, and Leisure. Use continual marketing
research to check consumer response and make changes to ad content, media selection,
and frequency to ensure progress.

R&D:
1. Implement policies of continually monitoring competitors and research centers for new
product innovations.
2. Monitor product developments bi-weekly to ensure continual progress towards objectives
and take corrective action such as reallocation of funds.

MIS:
1. Institute online/print reporting infrastructure to ensure continual monitoring and progress
towards objectives including alerting to significant variances.
2. Improve integration between supply, operations, and distribution including real time
monitoring and reporting of product quality, delivery delays, and consumer preference
changes.
3. Implement online upgrades for ease-of-use and promotion in online marketing.
4. Monitor continually quality, reliability, availability, response-times, and other critical factors of
MIS services and take corrective action when standards fall below guidelines. Develop
contingencies in the event of MIS failure (e.g. outsourcing).

Final comments

A successful restructuring will lower expenses increasing margins and cash flow to further fund
new product lines and strong promotional programs for the large market GY, Leisure/BBs, and
NFL/NBA sports licensing business. GY, NFL/NBA, and European expansion provide major
future growth opportunities.

Reebok is already strong in the growing, young women-in-sport GY sub-segment. With current
and new strategies, they have an expanding casual/leisure line to further address the casual
trend and an expanding presence in the performance area. With a possible future economic
recovery (2004), retails sales will pick up, providing improvements all around.

Competitive advantage is driven by good brand image, continuing innovation, quality product
design, keeping pace with consumer needs, and strong marketing—all very strong suites for
Reebok with the implementation of the new strategies. With reliable and inexpensive product
sources, these factors position Reebok to meet its objectives and for continued success.

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 Reebok Case 31

References

David, F. (2003). Strategic management: Concepts & cases (9th ed.). Upper Saddle River, NJ:
Prentice Hall.

Sorli, G. (2003). Goals, objectives, and visions, (p. 3). Retrieved August 04, 2004, from the
Centre for Innovative Management.

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