“Adidas have been a household name since 1936 when Adi Dassler got four time Olympic Gold medallist Jessie Owens to wear his spikes but now the company that was started in a Bavarian kitchen risks being disrupted by a suite of new technologies that will fundamentally change the way that brands interact with their customers.”
Started in 1924 by Rudolf and Adolf, also known as ‘Adi’ Dassler in their mother’s kitchen in Bavaria with nothing but pedal power from a stationary bicycle to run their equipment and make their sportswear Adidas, as they are now known profess a single mission – “To create desirable brands that have a clear focus on performance”. Now the world’s second largest sportswear brand behind Nike Adidas is one of world’s most iconic brands with a list of celebrity endorsements that would make even the brightest celebrity socialite green with envy and they look, to all intents and purposes, unassailable but there are forces at work that, if harmonised by a competitor could push their business into decline and undermine the empire.
In 1936, in what would turn out to be a pivotal move, Adi drove to the Olympic Village with a suitcase full of spikes and persuaded US sprinter Jesse Owens to wear them. Jessie powered his way to four Olympic Golds and since then Adidas’ business has boomed, since then Adidas have done everything by the book, leveraging the success and scale of their core Athletic apparel business to help them branch out into other sports such as Basketball, Tennis, Football and Golf.
A traditional growth tactic employed by countless organisations around the globe this common approach lets organisations leverage the core businesses existing operational efficiencies, such as people, processes and technology to build out new businesses at lower cost and with lower risk, these economies of scale then become formidable barriers to entry for any new entrants all the while posing a threat to the incumbents both of whom will struggle to match their competitors lower cost of operation but now the world is changing and when we analyse their business it’s clear that, principally, they have two modes of operation – Promotion and Manufacturing and it’s clear that it’s their heavy, and continued focus on promotion that creates the demand that drives sales. Think of Adidas and are you thinking about their apparel hanging on a rail in a shop or are you thinking about the sportsmen and women wearing it during their battles on the field of play and the lifestyle image that that creates?
Stepping back twenty years ago a new market entrant trying to unseat Adidas in one or more of their core markets would have had to invest tens or hundreds of millions of dollars developing their supply chain and promoting their products but today the cost of scaling up a supply chain has plummeted to the point where you or I can reach out through Alibaba, create a bespoke sportswear range and have it delivered quickly and efficiently to our customers doors – all for a fraction of what it would have cost in the past. In addition to this the advent of 3D Printing, or Additive Manufacturing as it’s also known, which is already being used to print products as diverse as clothes, shoes, food, prosthetics, human organs and aircraft parts is getting cheaper, faster and better and as time marches on this new technology will increasingly allow potentially millions of new entrants to manufacture a wealth of quality, bespoke apparel on demand and en masse. Suddenly the supply chain that Adidas, and their peers have taken decades to craft and perfect is no longer the great barrier to entry that it once was.
This then leaves us with the problem of how a new entrant can promote their brand in a way that competes with Adidas’ sheer power – after all I don’t know many Entrepreneurs who could afford to sponsor the FIFA World Cup or even one percent of the sports stars that wear and promote Adidas’ products today. Despite this though the cost of promotion too, in the broad sense, has plummeted and a myriad of new channels and platforms have emerged that can help manufacturers of all sizes grow their brand recognition and this is where Adidas could face one of its greatest threats because if a company could undermine, or usurp Adidas’ promotional power then it would have a ripple effect on revenues and margins throughout their organisation.
We all know about YouTube, we all know about Facebook and Twitter and we all know that individuals, as well as brands use these platforms to create communities of loyal followers and generate legions of new customers. While we all know the power of these low cost social platforms Adidas faces another, potentially deadlier threat and this time it’s from two new market entrants and two of their biggest rivals, I am, of course talking about Fitbit, Jawbone, Nike and Under Armour.
Adidas, Nike and Under Armour are old foes and have been trading blows for as long as they’ve all been in existence and while they conventionally trade a couple of market share points every year between them neither one of them has been able to significantly dent the revenues of the others but all that could change. A new digital platform is emerging and exploited correctly it could create a titanic shift in the way that brands engage their customers and Adidas, for reasons we’ll discuss are the only brand still on the side line, furthermore it might already be too late for Adidas to boot up.
Over the past five years a new category of products known as Wearable Technology has been emerging from the shadows and as organisations race to infuse an increasing variety of sensors into an increasing variety of products, from watches and footwear to headphones and apparel a competition to dominate this new market has already begun but today many organisations are still struggling to craft a vision that will let them maximise the opportunity in front of them. Wearable Technology, unlike any technology that’s gone before it gives brands the opportunity to harvest real time biochemical, biomechanical, emotional and environmental data from their customers and can help them create intensely personalised, connected customer relationships.
Nike’s first salvo into the wearable technology fitness tracker market was a single format consumer product, the FuelBand, Under Armour released a multi format consumer line, Armour39 and Adidas launched MiCoach, a multi format line whose main objective is to help professional and semi-professional teams, rather than individuals, improve their sporting skills and performance. Despite being the undisputed Giants of the sports world in 2013 a study by the NPD Group showed that this new market was dominated not by Nike, Under Armour or Adidas but by Fitbit and Jawbone – two organisations that have never manufactured a single piece of sports equipment but despite this they now own 88% of this new $330 Million market leaving Nike trailing the field with just 10% and Adidas and Under Armour bringing up the distant rear. This year analysts predict that the market will double and the data is already starting to show that the gap between the two market leaders and their ‘rivals’ is getting wider.
While the market is still in its formative years it’s still fair to say that none of our three Giants, despite their brand dominance have seen anywhere near the sales volumes they’d hoped for but now the category, with Apple’s release of HealthBook and the release of Google’s Andriod Wear SDK the category is about to get a shot in the arm and the promotion it needs to push it closer to the main stream but Adidas, unfortunately, might have already scored an own goal.
The mass market for these new fitness devices is undoubtedly the consumer market and in order for the Giants, 93% of whose combined revenues come from the consumer space, to reassert their position as market and thought leaders they will have to reach beyond their current core manufacturing and retail businesses and embrace the world of consumer devices, apps and technology – none of which until even three years ago meant very much to any of them, after all if you made a football or a pair of spikes why would you care about digital experiences, smart phones or an app store?
Two of our Giants have realised this and to bridge this gap Nike recently announced a strategic development partnership with Apple and Under Armour announced a similar partnership with Samsung, both Giants in consumer mobile and devices with combined global market shares of over 46%. Adidas however, so far, have been absent from the table and this lack of a symbiotic partnership could have dire repercussions for them down the line because if Apple, with iOS and Samsung, with its forked version of Android and its emerging Tizen platform begin embedding Nike and Under Armours’ proprietary technology directly into their developing closed wall Health and Wellness ecosystems then they could create a formidable alliance that Adidas will find hard to undermine and for reasons I’ll show this could be a Must Win channel.
Unlike today’s traditional marketing and advertising platforms today’s sensor packed wearable technology fitness and wellness trackers, which have both consumer and Enterprise use cases, can gather and analyse a growing variety of real time data from you on the fly to provide contextualised coaching and information that helps you improve your performance, mood and wellbeing. Ultimately organisations can use this wealth of data to help you improve your life in a way that no other technology can match.
Using just a simple example imagine that you have gone for a run, jog or walk – your fitness tracker already knows how fit, or ‘Well’ you are as well as your physical limits. It knows your goals, but can also create goals for you based on your preferences and past behaviours that will help you improve and while it’s monitoring your vitals it automatically starts playing the right tempo tracks for you to work out to, it coaches you on your posture, it maps an optimal route, it knows where the hill climbs are and knows how to use them to your advantage, it pits you against other local runners in a virtual race then it senses your energy levels are flagging and that you’re becoming dehydrated and the platform sends you a voucher for a bottle of water and directions to a participating local store. As you begin to near the end of your workout it transmits a signal to your Connected Home instructing it to start the shower, it notifies your partner you’ll be back in five minutes, makes a meal recommendation and pushes the recipe to your tablet, it then notices that your running shoes are wearing out and sends you a voucher for a new pair… and that’s just the beginning.
When you buy an item of clothing or sports equipment you interact with that brand’s retailers once but as these platforms continue to push notifications, advice and promotions to our devices we will find ourselves interacting with them more and more. To use a marketing turn of phrase it increases ‘Eyeballs’ and that is marketing Gold, now Fitbit, Jawbone, Nike or Under Armour own your mind share. With a platform that is this powerful and intertwined with your lifestyle and wellness it’s in prime position to know, really know, you and your behaviours, provide contextualised advice and connect you to meaningful products and services in a way that no other platform can but if you’re locked out, as Adidas could be then the impact of this new channel on your business will be negligible, meanwhile if Adidas’ competitors, old and new, manage to harmonise this platform and leverage it to create deep, intensely personal customer relationships then they’ll be able to grow their brand recognition and undermine Adidas’ market dominance then all that will be left is for them to bring out their own, sports specific apparel which they’ll know how to market the benefits of to you because, well, they already know the sports you play and your behaviours… Marketing 301.
Emerging technologies, whatever their origin or purpose can create great opportunity for those organisations who can understand and tap into their potential but organisations who fail to look beyond todays horizons and who fail to embrace and leverage everything these new technologies have to offer often find themselves disrupted and out paced by new entrants and nimbler rivals. Eventually, unfortunately, many of them eventually find themselves on the wrong end of a shareholder rout.