Case Study 20 Marks - Under Armour Enters the Basketball Shoe Market

For the Case:'Under Armour' Enters the Basketball Shoe Market (Total Marks 20)

The following Questions have to be answered.

All Questions are compulsory - Each Question carries 5 Marks

1.What are the reasons for the success of Under Armour since its founding by Kevin Plank?What do you view the most important factors that have contributed to the growth of the company?

2.What are the key components of Under Armour's integrated marketing communications program?Discuss the role IMC has played in helping build the Under Armour brand.

3.Evaluate Under Armour's decision to enter the mainstream athletic shoe market and compete in product/market segments such as cross training, running and basketball shoes?

4.Evaluate the strategy used by Under Armour to enter the basketball shoe market and compete against Nike as well as adidas and Reebok.Discuss the pros and cons of the company's decision to use Brandon Jennings as their primary endorser for its new basketball shoe line.

5.Do you think Under Armour will be successful in entering the basketball shoe market?Why or why not?

case study for above question :-

Under Armour Enters the Basketball Shoe Market

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This case was written by Professors George E. Belch and Michael A. Belch. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.

The case was compiled from published sources.

Company Background

Under Armour (UA) was founded in 1996 by Kevin Plank, a former Maryland football player, who began by selling compression clothing that could "wick" sweat away from the body to college sports teams out of the trunk of his car.Plank was a football player at the University of Maryland, and hated wearing cotton shirts to practice in the hot, humid Maryland climate. Knowing that he would never be an NFL player, Plank devoted his efforts to starting a company that could make a product that would be an improvement over cotton, in that it would not absorb sweat and be much more functional and comfortable to wear. Once made, he started selling the shirts to the lacrosse and football teams at the University of Maryland out of the trunk of his car.

In 1998, the football oriented movie "Any Given Sunday" was being filmed in Baltimore where Under Armour is based. The producers of the movie were looking for a product that would represent the athletic nature of the movie and be comfortable to wear during filming. Under Armour agreed to provide products, and UA shirts were used throughout the filming and appeared in the movie itself, resulting in national exposure for the brand. At about the same time, ESPN was initiating a sports magazine and looking for advertisers. Plank called in his dozen or so employees at the time, and said if they would agree to skip one pay check, UA could purchase a full page ad in the new magazine, which they all agreed to do. The product placement and ESPN The Magazine ad led to a dramatic increase in website traffic and sales, and helped jump start the nascent company.

A similar situation arose in 2003. This time it was sports cable giant ESPN who came calling, asking UA to be part of their new HBO series about football players called "Playmakers." ESPN thought that since everyone in locker rooms seemed to be wearing Under Armour, it would be more realistic if the players in the movie were shown in UA clothing. At about this same time, the original "We Must Protect This House" commercial featuring "Big E" (Eric Ogbogu), an NFL football player, was released. The combination of the product placement in the series and the commercial again led to yet another major gain in sales. Perhaps even more importantly, the commercial immediately became immensely popular.Fans began holding up signs saying "We must protect this house" at college and NFL football games and the tagline would be shown on scoreboards during critical parts of games as a crowd prompt.David Letterman talked about the commercials on his late night television show, and mentions by Oprah Winfrey led to the line becoming part of the American lexicon. UA was off and running.

In 2005 Under Armour went public and the stock nearly doubled the first day it was traded. Since becoming a public company, UA has had a compound annual growth rate of 33 percent, with sales reaching $856 million in fiscal 2009.The company derives most of its revenue from men's and women's apparel (76%), footwear (16%), accessories (4.1%) and license revenue which includes international sales (3.9%).Figure 1 shows Under Armour's sales growth over the past five years as well as net revenues by product category.

Under Armour Marketing and Branding

Under Armour achieved success by focusing on niche markets many of the major athletic shoe and apparel companies such as Nike, Adidas, and Rebook overlooked. The initial product was a line of tight-fitting T-shirts made of a synthetic compression fabric- targeted to professional athletes and fitness buffs, offering them a way to stay cool and dry during workouts and games. The line has been expanded to serve a variety of sports and activities including include everything from running suits to yoga pants. Under Armour became successful through strong product positioning, quality products, and dynamic advertising. The company developed a unique brand identity through its "Protect This House" TV advertising campaign. The commercials featured a football squad huddled around Eric "Big E" Ogbogu, one of Kevin Plank's former teammates at the University of Maryland, who was playing for the Dallas Cowboys when the commercial was shot. The spots show Ogbogu and a number of other well-conditioned athletes working out while wearing Under Armour and end with him standing in the middle of a huddle of the players and shouting"We must protect this house!" as if his life depended on it.The tagline has become a symbol of what Under Armour stands for as a brand and the company continues to use it in much of its advertising.

An important part of Under Armour's marketing strategy is selling its products to high-performing athletes and teams on the collegiate and professional levels. This strategy is executed through collegiate sponsorships, individual athlete agreements and direct sales of products to team equipment managers and athletes.Under Armour's sports marketing program is an integral part of its strategy as its provides exposure to consumers through a variety of media including television, magazines, the Internet and sponsorships. For fans seeing the product live at sporting events, the exposure helps establish authenticity for UA products. Under Armour is the official outfitter of a number of Division I men's and women's collegiate athletic teams including Auburn, Boston College, Texas Tech, Maryland, South Carolina, Utah, Hawaii and South Florida.The company also has sponsorship agreements with individual athletes including skier Lindsey Vonn (who won a gold medal in the 2010 Olympics), swimmer Michael Phelps (who won a record 8 gold medals in the 2008 Olympics), UFC welter-weight champion Georges St-Pierre, snowboarder Lindsey Jacobellis, freestyle skier Jen Hudak, and many others.Under Armour also has an impressive list of NFL players on its endorsement roster including Brandon Jacobs, Ray Lewis, Devin Hester, Vernon Davis and Patrick Willis.In November of 2010 the company announced a multiyear endorsement deal with New England Patriots quarterback Tom Brady, which included an undisclosed financial stake in the company.

Under Armour has also expanded its sponsorships and become the official outfitter of a number of high school teams throughout the country. One of the first event marketing initiatives the company took on was the creation of the Under Armour Lacrosse All-American Game, which debuted in June 2006 and brought together the top high school male and female senior lacrosse players in the US.The company also named its own All-American team, and held a game for underclassmen coined the "Undeniably Best Underclassmen Game." In 2008, the company partnered with ESPN and became the title sponsor of the ESPNU High School All-American Game, which features the top prep football prospects in the U.S.Under Armour also sponsors an All-American Game for the country's top high school baseball players each year.

Another important component of Under Armour's marketing program is its distribution system, which includes retail stores as well as direct to consumer sales. In 2009, 78 percent of UA's sales were through retail stores such as Dick's Sporting Goods, Academy Sports and Outdoors, Hibbett Sporting Goods, and The Sports Authority.This same year, 18 percent of UA sales were generated through direct to consumer channels including sales through Under Armour owned factory outlet stores and specialty stores, as well as through its global website and catalog.

Under Armour Enters The Athletic Footwear Market

Building on its strong brand reputation, Under Armour made a strategic decision to expand into the football cleat market in 2006.To launch the new product line in this highly competitive market, the company's in-house agency developed the "Click-Clack" campaign which engaged viewers with the sound of football cleats in the tunnel as players head onto the field.While there was no direct mention of Under Armour cleats in the initial spots, the statement "I think they hear us coming" was a message to consumers, as well as the competition, that Under Armour was entering the market.

Under Armour was an official supplier of the NFL Europe professional football league from 1998-2000, and a provider of gear worn under the uniform to as many as 20 to 25 other NFL teams. However, the company did not have the status of Nike and Reebok on the most visible sports playing field in the Untied States - the National Football League (NFL). This changed in 2006 when the company signed a six-year, $50 million deal with the NFL to become the authorized supplier of cleats, allowing them to join Nike and Reebok as the only logos permitted to be displayed on players' shoes. The NFL affiliation gave Under Armour almost instant credibility among football fans - an estimated 120 million of whom watch an NFL game on an average weekend. It also gave them the opportunity to use the NFL logo to promote their footwear, and lock-up advertising and promotion commitments on the NFL Network, NFL.com and all of the networks that air NFL football games. The NFL deal was a major coup for Under Armour and was made possible because the company had established a strong brand image in the athletic apparel market, particularly among young people who had adopted it as the brand of their generation

In 2008 Under Armour moved into another segment of the athletic equipment market when the company introduced its Under Armour Performance Footwear line which included cross training shoes. To introduce its New Prototype line, Under Armour ran its very first ad on the 2008 Super Bowl, which included nearly two dozen high profile male and female athletes and was done in the UA typically intense style.The company's new Proto shoes outperformed Nike's SPARQ cross trainer line, which was backed by a major advertising campaign featuring NFL star and Nike pro football athlete LaDainian Tomlinson. However, the performance training category is a relatively small $250 million market as these types of shoes are worn primarily for athlete training activities such as weight lifting.

The launch of performance training shoes was an important strategic move for Under Armour as it gave the company a foothold in the mainstream athletic footwear market. The company views this market as one of its key drivers of future growth and achievement of its goal of becoming a multi-billion dollar global brand. Under Armour has been very successful in the cleated footwear market with its football, baseball, softball and lacrosse shoes. However, the company also wanted to expand into other segments of the athletic shoe market including running and basketball. In early 2009 Under Armour launched its first line of running shoes with a multi-platform IMC campaign called "Athletes Run" that highlighted the company's point of view that all runners are athletes and all athletes run. The campaign included television ads across a variety of cable channels as well as ads in a variety of running and fitness magazines including Runner's World, Running, Shape, Men's Health and others. However, Under Armour faced strong competition in the running shoe market which is dominated by brands such as Nike, adidas, Asics, New Balance and Saucony.

Under Armour was successful in gaining distribution for its new line of running shoes in mall-based retail stores such as Footlocker and Finish Line. However, runners tend to be very loyal to specific brands of running shoes, and Under Armour found it difficult to gain traction in the running shoe market. The company decided to forego any new product launches in 2010, as it took steps to clear out unsold running and training shoes from retailer's inventories before introducing new shoe models in 2011. By the end of 2010, Under Armour held less than a 2 percent market share for the overall athletic shoe market. However, athletic shoes accounted for nearly 16 percent of the company's overall revenue in 2009, versus 12 percent in 2008, and showed the largest dollar increase of the UA's growth drivers. Under Armour decided to revamp their footwear strategy in and planned to reposition its training and running shoe products in 2011 and look to new footwear categories for future growth.Of particular interest to the company was basketball shoes which are a $2.5 billion market in the U.S, even though sales in the category had declined by 17 percent since 2005 as fewer people were playing the sport.

Under Amour Launches Basketball Shoes

Despite its limited success with cross trainers and running shoes, Under Armour decided to continue to pursue the athletic shoe market by launching a new line of basketball shoes in late 2010. The new line was called Micro G, and included four models: The Micro G Fly, The Micro G Blur and the Micro G Lite, along with the Micro G Black Ice which was the centerpiece of the collection. Features of the shoes included being lightweight and low to the ground, thus providing an alternative to heavier, thicker foam shoes, while providing additional protection, cushioned comfort and security for the foot. The shoes ranged in price from $80 to $110 a pair, and were launched in November to coincide with the start of the National Basketball Association (NBA) season, as well as the holiday shopping season. Under Armour tested its basketball shoes with collegiate and top high school basketball programs for three years and also did extensive product testing with consumers in preparation for the launch.

An integral part of the IMC strategy for Under Armour's new Micro G line was to have NBA player Brandon Jennings of the Milwaukee Bucks wear the Micro G Black Ice and serve as the endorser for the new shoe line.Jennings was a high school All American who played basketball for the powerhouse Oak Hill Academy in Virginia. He was an outstanding player who won numerous accolades including the 2008 Naismith Prep Player of the Year award and was also a McDonald's All American.Jennings had intended upon attending the University of Arizona, but instead decided to take an alternative path to the National Basketball Association (NBA) by playing professional basketball in Europe for a year rather than attending college. (The NBA no longer allows players to join the league immediately out of high school). In September of 2008, Under Armour signed Jennings to a four year, $2 million endorsement deal to be the face of UA basketball. The company wanted Jennings to showcase its shoes and other products in the European League, even though UA had not announced plans to enter this segment of the athletic shoe market dominated by Nike. After playing one season in Italy, Jennings was the 10^th pick in the 2009 NBA draft by the Milwaukee Bucks and had a very good rookie season as an NBA player.He made the NBA all rookie team as a guard and became the youngest player in league history to score 50 or more points in a game as he helped lead the Bucks to the Eastern Conference Playoffs in 2010.Jennings continued to play well through the first two months of the 2010-11 season, as he was averaging 18 points per game until breaking his foot in mid-December which sent him to the sidelines for the next four weeks.

Under Amour ads featuring Jennings debuted on various cable channels including TNT, ESPN, and NBA TV, as well as in sports publications such as ESPN The Magazine.One of the print ads featuring Jennings is shown in Figure 2. Under Armour also develop an online marketing campaign for the Micro G which included a presence on Facebook, YouTube and Twitter as well as a blog site called The Diary of Brandon Jennings. The new basketball shoes were also worn by a number of college basketball teams including Maryland, Boston College, South Florida, Texas Tech and Auburn.

Under Armour decided to roll out its new basketball shoes slowly with limited distribution to hopefully create demand for the Micro G line rather than trying tomake an all out assault on the market. One reason for this measured approach was the challenge the company faces in capturing a significant amount of market, as Nike controls 95 percent of the U.S. basketball shoe market through its various brands such as the signature Air Jordan, Zoom Kobe and Converse lines. Nike also has endorsement contracts with many of the top NBA players including Kobe Bryant, Kevin Durant, LeBron James, Dwayne Wade, Paul Pierce, Amare Staudemire and numerous others.In addition to Nike, Under Armour would have to compete with other major athletic shoe companies such as adidas and Reebok.Adidas had endorsement deals with several top NBA players such as Derrick Rose of the Chicago Bulls and Dwight Howard of the Orlando Magic. Reebok recently decided to refocus on the basketball shoe market by signing John Wall, the number one pick in the 2010 NBA draft by the Washington Wizards, to a five year $25 million endorsement deal.

Under Armour recognized that it had much at stake as it entered the basketball shoe market. Kevin Plank reached outside the company for expertise in the marketing of its new basketball shoes by hiring Eugene McCarthy, who previously ran the Jordan brand for Nike, as a senior vice president for footwear.McCarthy brought along several other top Nike staffers including a new creative director and sourcing chief. Plank also insisted that employees start thinking of Under Armour as a performance footwear brand, not just an apparel maker.Eugene McCarthy described the launch of the Micro G basketball line as "a much-anticipated and significant milestone for Under Armour as we continue to elevate our presence in the sort of basketball from grassroots to the elite level."The key question on many observers' mind, however, was whether Under Armour would be able to succeed in the basketball shoe and take market share away from Nike. Under Armour CEO Kevin Plank noted that "our goal for getting into basketball is to be No. 1. I'm 38. I've got a long time."However,a number of industry analysts doubted whether Under Armour really had a long time to succeed in the basketball shoe market. They noted that failure in the basketball shoe market would lead to questions as to whether the company could move beyond apparel and be successful in the non-cleated athletic shoe market.

Sources

Steve Battista, "True Confessions of a Super Bowl Ad Virgin," Advertising Age, February 4, 2008 , p. 44.

Hannah Cho, "Under Armour Jumps Into Line of Basketball Shoes With Both Feet," Baltimore Sun, August 2, 2010, p A.1.

Jack Gage and Christina Settimi, "200 Best Small Companies: The Top 10," Forbes, October 29, 2007, p. 114.

Sean Gregory, "Under Armour's Big Step," Time, May 26, 2008, p.44.

Terry Lefton, "The Contender," Sports Business Journal, May 5, 2008, pp. 1, 18.

Stephanie N. Mehta, "Under Armour Reboots," Fortune February 2, 2009, p. 29.

Jeremy Mullman, " Under Armour Can't Live Up to Its Own Hype, Advertising Age, November 2, 2009, p. 3.

Jeremy Mullman, "No Sugar and Spice Here," Advertising Age, June 18, 2007, pp. 3-4;

Ryan Sharrow, "Under Armour basketball shoes to hit shelves in November," Baltimore Business Journal, August 19, 2010, p. 1.

Rich Thomaselli, "Despite its way with women, underdog Reebok fixates on Nike," Advertising Age, July 12, 2010, pp 2, 22.

Matt Townsend, "A Half-Court Shot for Under Armour," BusinessWeek, November 1, 2010, p. 1.

Andrea Walker."Under Armour signs quarterback Tom Brady to endorsement deal,"McClatchy-Tribune Business NewsNovember 9, 2010.

Andrea K.Walker, "Gaining foothold in NFL: Baltimore's Under Armour signs a $50 million deal to become an authorized supplier of shoes to league," Knight Ridder Tribune Business News, August 8,2006, p. 1.

Figure 1

Under Armour Revenue Sources

Under Armour Revenue Sources NET REVENUES 605-2009 NET REVENUES BY PRODUCT CATEGORY 1856411 $725,244 $606,561 FOOTWEAR $281.053 ACCESSORIES LICENSE REVENUES ICENSING DIRECT -TO-CONSUME "S-Year Comp Dom Than bad Growth Rate Based on fiscal year 2004 net revenues of $205,181