Under Armour’s strategy – Porter’s five forces and extended version of the Ansoff matrix

Introduction

Under Armour, Inc. is a sports apparel company that sells sports clothes for women and men. They are an established brand in the USA and exploring new geographic areas rapidly. They started primarily in the big typically American sports (NFL, NBA, NHL and MLB). A while ago Under Armour have expanded their brand into golf and more recently tennis and continental football (soccer) is targeted. This is visible in the recent endorsement by Andy Murray and an increasing number of football and rugby teams in Europe that wear Under Armour kit. Later in this essay this difference in American approach and European market will be explored. Under Armour is very successful in Japan and Korea, potentially because they like America and its products. This is something to explore.

The aim of this essay is to assess and analyse the strategy of Under Armour, therefor we will look at their vision mission and values first to get an idea of what they intend to achieve. All of the following is sourced from the Under Armour career website. (“Under Armour | Mission & Values,” 2015)

Vision: “EMPOWER ATHLETES EVERYWHERE”

Mission: “MAKE ALL ATHLETES BETTER THROUGH PASSION, DESIGN AND THE RELENTLESS PURSUIT OF INNOVATION”

Values: “MAKE GREAT PRODUCT, TELL A GREAT STORY, PROVIDE GREAT SERVICE, BUILD A GREAT TEAM”

Apart from an obsession with capitals these statements are followed by stating 4 ‘wills’. These are statements about corporate values that are followed by ‘I WILL’. The themes that are used for these ‘wills’ are; act, think, create and perform (“Under Armour | Mission & Values,” 2015). This might indicate a strong corporate culture. It will be interesting to keep this in mind during the evaluation and analysis of Under Armour’s strategy. Under Armour puts the athletes at the centre of their mission and values. The returning word ‘great’ is interesting as it resonates with the American market and culture.

Industry analysis

To analyse Under Armour’s strategy the focus will be on how it takes on other brands in the same market and how they plan their overseas operations. In a market that produced revenue of $158 billion (Statista, n.d.) in 2016 there is a lot to play for. With big players like Nike, Adidas, Reebok and Puma there may or may not be room for another big name. It seems like Under Amour is trying to take on these big brands, whose slogans contain about three words, with their shorter “I Will” slogan. This is all marketing and does not tell us a lot in terms of strategy, we will have to dig a bit deeper to see how Under Armour takes on their competitors, primarily Nike. The rivalry between Nike and Under Armour seems to increase as Under Armour (UA) try and sell similar products to the same customers as Nike. In 2011 UA had half of Nike’s market share in the USA (Roberts, 2011a). The rumours about Nike bidding on Under Armour (Roberts, 2011b) are not surprisingly as the names of Under Armour, Nike and Adidas pop up together all the time as they are in a war for endorsement by the big names in sport.

Under Armour (UA) is the new kid on the block when it comes to sports apparel. The company has different products to suit the modern active lifestyle (appendix1). They are very progressive in terms of technology in both connected fitness as in product development. To analyse the strategy that UA is using/has used to gain market share Porter’s five forces is used. The American market is used for this analysis as they have gained significant market share over the last decade. The sports apparel market is subjected to Porter’s five forces (appendix 2). In this analysis all five forces that play a part in making an industry competitive and affect margins. The sports apparel market is highly competitive in terms of other similar companies. The other four forces are not as strong in the market, materials are relatively easy to source, buyers hold little power, threat of entry is low even though entering the market is not hard and there are no real substitutes available.

Considering that most of the five forces are not very significant, Under Armour had to battle with the very competitive marketplace and capital investment required to survive and grow. Under Armour has an interesting strategy to deal with competition and on the sly reduce supplier power even further. With the technology UA puts in their premium sports clothes is different from competitors and they source different materials as a result of that. This technology that UA emphasises is the reason they can charge customers more for these products than competitors. Under Armour does not seem to battle the substitutes, if anything Under Armour’s revolutionary heatgear and coldgear ranges would be considered substitutes when they first were introduced. The production of these technologically advanced products for retail purposes may once have been a core competency, however now it is a key success factor. UA is dealing with the buyer power by heavily investing in marketing and they are successful in getting their merchandise in shops so far. Mr Plank is good at building his brand and he uses his network in professional sports to create brand awareness. UA is now one of the big brands in America. A couple of concerns arise when looking at this company in relation to the five forces. Does the marketing tactic works in new geographic areas and how long does his current network last? Is it possible to increase the scale of production? Does the American heroism and focus on technology translate to Europe and Asia? The current approaches may not be sustainable over time.

We can see that Under Armour has gained a lot of market share over the years. It is taking on Nike and Adidas openly and they have slowly but steadily taking more market share each year. UA is aware of the advantage that an economy of scale might give. There is a bit of a contradiction in their strategy regarding cost. Their patented and more successful ‘gear’ series are sold at a premium compared to the competitions base layers. The materials this requires are a bit more expensive, even though scaling up might bring this down. This suggests that UA is aware of the limited supplier power and UA as a purchaser can easily influence price by up scaling. In the competition paragraph (Under Armour, 2016, p. 7) the competitors are identified and then the focus goes to the battle for floor space in stores. UA considers the margins that retailers might appreciate, even when the high-end clothing lines are sold at a high premium. For this premium the costumer gets very advanced materials and premium design. Under Armour is flirting with Apple and in interview they have been mentioning Apple as an invitation to work together. As they both develop high technology products for the consumer market.

The consumer (buyer) on the other hand is spoiled for choice, many big and established brands to choose from. UA’s strategy focuses primarily on the competition, which does make sense according to the five forces analysis. All the big brands try and create a different brand image so their marketing is hardly ever about specific products, it is mostly about the great sports people they dress. UA is no different, the advertisement is the about hard work needed to achieve greatness. It looks like Under Armour takes on the role of underdog in the market, the brand name is derived from the base-layer that made high tech sports clothing available to the wider public. The physical products are made all over the world, in 16 different countries by outsourced production (Under Armour, 2016, p. 1).

If we look at the market there is not a lot of supplier power affecting the profitability in the sports clothing industry. However, UA themselves indicate that their high-tech products can only be sourced from a limited number of suppliers. This makes the company a bit more dependable on these suppliers. Under Armour are highly involved in the supply chain as even the suppliers to their manufacturers are pre-approved (Under Armour, 2016, p. 6). This involvement makes them more vulnerable to price changes because it is not easy to switch suppliers. This strategy has advantages and disadvantages, this sort of dependability can be risky, but also gives UA a high level of control in terms of quality assurance.

Under Armour conform themselves to ‘the American dream’ post 9/11 the combination of Under Armour and the American army is more obvious and out there. This could be because the NFL is the army’s marketing channel for nation branding (Weedon, 2012). Also Weedon hypothesises that UA developed some sort of corporate nationalism. There are a lot of signals that Under Armour has a strong relationship with American nationalism. The slogan ‘I will, I will, protect this house’ makes sense in America because it is used in the NFL. The strategy in the USA is to align their communication with the nation wide one. They may even try and fade the line between their corporation and government. This strategy seems to work to compete with Nike and Adidas, at least in the US. In line with this nationalism the approach to dress the American icons in NFL and movie stars is not surprising.

The start of Under Armour was a differentiated product that the market had not seen before. An under layer for athletes is now more than normal. Some of these materials and products are patented, but not all of them. Is Under Armour planning on expanding into new countries and have they got more differentiated products up their sleeve? How much growth does the current strategy enable? It seems to be finite to grow as a company unless they exploit the alignment with the American values and invest in big government contracts. The strategy seems to be to conquer America and then the world, but is that possible with the current strategy?

International strategy

To analyse Under Armour’s expansion into new geographic areas the Ansoff matrix is used. In appendix 3 the analysis can be found. It looks like Under Armour does not adjust their marketing and product development strategy to exploit new geographic areas. This might be a mistake as the Europeans may have different needs to the Americans. Through licensing they anticipate this in Japan and Korea, however there is no evidence of this for Latin America and Europe. The company values are very Americanised as the Porter’s analysis displays. These values may translate very well in the Japanese and Korean culture, however do they translate in the Europe and Latin American cultures? It may be a very American to make sport stars into heroes, this may not translate very well into other cultures.

If we therefor look at the diversification matrix and Under Armour’s strategy it looks like the company is very aware of the importance of diversification in terms of products to penetrate new markets. However, the importance of diversification in new cultures may have been overlooked so far. This is something identified by analyst Andrew Burns in an interview (Dreier, 2012). He says the strong connection between Under Armour and the NFL and MLB. The current strategy may not be sufficient to increase market share over for example Nike who approach the European market with different sports. Letting a independent company run the distribution (Under Armour, 2016, p. 5) does not show a lot of intend.

All of this considered it seems like Under Armour does now how to penetrate a new market segment in America. They are displaying this in golf, the emphasis is on relating to the athletes in this sport and ‘talking their language’ (Gaines, 2016). The same might be applicable to a new area in the world. With the sponsorships deals of Andy Murray and Tottenham Hotspur they do show intend and are seemingly picking more European sports to display their brand.

It seems like the big danger in Under Armour’s strategy is the way they run the supply chain. They have made themselves highly dependable on a limited number of suppliers because of the specialised materials. Outsourcing the production under license in Japan and Korea could work, however it may be a danger to the quality that Under Armour wants to ensure. The third party distribution in Europe may not be viable over time. They are a relatively young company and that is showing in the way that they work with emergent strategies that they not always have under control. When reading through annual statements and interviews it all looks a bit random and sometimes like a rudderless boat.

Conclusion

On conclusion UA has been very successful in gaining market share on Nike and Adidas. The Americanised corporate values work in America. They have a strategy for Japan and Korea and it seems to work if we look at sales in those countries. Considering that UA has big plans to expand in Europe they should think carefully about the supply chain there and creating brand awareness the European way. In Europe there is not a lot of awareness about what Under Armour do and what sort of products they make. The slogan that got them really far in America would not work in Europe, so they will have to think about specific strategies for Europe and Asia. The corporate strategy to be at the centre of the athletes’ life works anywhere. The five forces analysis shows very little significant forces in the sports apparel market, UA seems to be aware of this and invest heavily in marketing and PR to gain on Nike and Adidas. The strategy does not seem to be any different than it was when Plank run the company out of his car by handing out merchandise to his friends. To be a serious player in the market UA needs to get serious about strategy and potentially take control over their distribution channels overseas.

References

Ansoff, H.I., 1958. A Model for Diversification. Manag. Sci. 4, 392–414.

App Annie [WWW Document], n.d. . App Annie. URL http://www.appannie.com (accessed 3.7.17).

Dreier, F., 2012. Under Armour Flexing Its Muscles Overseas [WWW Document]. Forbes. URL http://www.forbes.com/sites/freddreier/2012/04/04/under-armour-flexing-its-muscles-overseas/ (accessed 3.12.17).

Gaines, C., 2016. Under Armour has a brilliantly simple strategy to do something Nike has been unable to do — conquer the golf world [WWW Document]. Bus. Insid. URL http://uk.businessinsider.com/how-under-armour-plans-to-do-something-nike-failed-to-do-conquer-the-golf-world-2016-3 (accessed 3.12.17).

Nike, 2015. 2015 Annual report.

Porter, M.E., 1979. How competitive forces shape strategy. Harv. Bus. Rev. March-April, 137–145.

Roberts, D., 2011a. Under Armour Gets Serious. Fortune 164, 152–162.

Roberts, D., 2011b. Under Armour Gets Serious. Fortune 164, 152–162.

Statista, n.d. Total revenue of the global sports apparel market 2011-2018 | Statistic [WWW Document]. Statista. URL https://www.statista.com/statistics/254489/total-revenue-of-the-global-sports-apparel-market/ (accessed 2.23.17a).

Statista, n.d. Net sales Under Armour worldwide by product category, 2016 | Statistic [WWW Document]. Statista. URL https://www.statista.com/statistics/518389/global-net-sales-under-armour-by-product-category/ (accessed 3.7.17b).

Strider, J., 2016. Analyzing Porter’s Five Forces on Under Armour (UA) [WWW Document]. Investopedia. URL http://www.investopedia.com/articles/markets/020316/analyzing-porters-five-forces-under-armour-ua.asp (accessed 3.9.17).

Twice, 2014. Best Buy Brings on Kate Spade for Exclusive Accessories. TWICE This Week Consum. Electron. 29, 36–36.

Under Armour, 2016. Under Armour Annual report 2015 (Annual statement). Under Armour, Baltimore, Maryland.

Under Armour | Mission & Values [WWW Document], 2015. . Armour CWS. URL http://www.underarmour.jobs/why-choose-us/mission-values/ (accessed 2.23.17).

Under Armour Invests in Apps: Here’s Why, n.d. . Bloomberg.com.

Under Armour UK [WWW Document], n.d. . Armour. URL http://www.underarmour.co.uk/en-gb/about-under-armour.html (accessed 2.23.17).

Weedon, G., 2012. “I Will. Protect this House:” Sociol. Sport J. 265–282.

Appendices

Appendix 1: Company Description

Sports apparel

On the surface it seems like Under Armour is similar to for example Nike, however Under Armour is a bit more focused on the sports clothing than the casual clothes. When looking at the websites from Nike and Adidas there are small differences. Adidas focuses on athletes and different sports and recently they have started to emphasise their history, bringing back iconic Adidas products. Nike has a more design approach, the website homepage looks like an art-gallery. Nike’s focus is a bit more on casual wear, the website is set up more like any other clothing company less as a sports wear brand. Under Armour has a more technical approach to clothes. The slideshow on the homepage has clear evidence of the scientific approach that made Under Armour such a success. A new golf shoe is apparently brought ‘down to a science’ (“Under Armour UK,” n.d.). On the Under Armour website it is almost difficult to find casual clothing. Compared to other big brands UA offers their hats and backpacks for a surprisingly reasonable price, considering that UA is considered a premium brand. This premium is paid for other products like tops, shoes and bottoms.

According to the 2016 annual report Under Armour has 25 e-commerce websites and 200 physical stores worldwide this is excluding the retailers that sell on their behalf (Under Armour, 2016). Mr Plank writes in the letter that prefaces the annual statement that international sales increased from 6% to 11%. Followed directly by stating that this is not an accident, he seems to think that eventually international sales will match the North America market and grow even bigger. One of the things that set Under Armour apart from other brands is their portfolio of fitness apps. “We have positioned ourselves at the epicenter of the consumer’s active lifestyle.” (Under Armour, 2016, p. 4). Under armour seems to be aware that this gives them the opportunity to gather data and use that to their advantage. The company seems very aware that this should always be to increase sales, even if a side effect of this is that consumers may benefit from it for free. The CEO and Chairman Plank makes clear that the targets are in terms of revenue and operation income. But if we look at the mission, vision and values there is no evidence of numerical indicators, this may be a paradox that any public company finds itself in.

Connected fitness

Under Armour invested a lot in purchasing different tracking applications next to their own data gathering application. The company acquired mapmyfitness, myfitnesspal and endomondo. Together they have a price tag of $600 million, myfitnesspal is my far the most expensive at $475 million. According to mr. Plank Under Armour wants to be the social media platform in terms of health and fitness. And he said that ‘no one has made it easy yet’ (“Under Armour Invests in Apps,” n.d.). When using the myfitnesspal app there are multiple ways to be referred to UA’s online e-commerce website. To analyse UA’s strategy the venture into these tracking applications is seen as a part of the sports apparel market.

In the wearables market Under Armour does not appear in the top 10 sellers (Twice, 2014). In 2013 UA only generated $1.07 million sales from connected fitness, this rose $80.45 million in 2016 (Statista, n.d.). At the moment myfitnesspal is second in the free application charts behind Fitbit, however myfitnesspal is also second in terms top grossing applications (“App Annie,” n.d.). Under Armour’s myfitnesspal is one of the few in the area of health and fitness that actively works together with other applications.

Appendix 2: Porter’s five forces analysis

To analyse UA in the sports apparel market Michael E Porter’s five forces (Porter, 1979) is used as a framework to understand the market and how Under Armour responds to the forces at work in it. This is to understand how UA deals with the competition, supplier power, buyer power and substitutes in the market. Everyone in the market is subject to one another; therefore we look at competition first.

Competition

In the sports apparel market there are a few big players and lots of smaller companies. A very competitive market, Porter calls this ‘intense’ (Porter, 1979, p. 137), almost like commodities. Because of the large amount of competitors the big players only hold a small percentage of the market. In 2011 Nike only held 7% of the market (Roberts, 2011b). UA is one of the fastest growers in the market (Strider, 2016), this is not surprising as Under Armour is one of the youngest companies in this industry (public since 2005). The competition is a big force in the sports apparel market; this shows in battles for endorsement and huge budgets for marketing. In 2015 the expense for marketing is between $90 million and $130 million per quarter (Under Armour, 2016, p. 37), this is between 7% and 12% of the net revenue. Nike also spends about 10% of their net revenue on marketing (Nike, 2015). So 10% expense on marketing seems to be a ballpark figure to at least compete with the big players in this industry. A very expensive industry to operate in it seems.

Threat of entry

In the sports apparel market the threat of entry is not very high. At first it seems to be relatively easy to enter this market, however when we consider the factors (Porter, 1979, pp. 138–140) that Porter suggests in his paper we see that it is not easy at all. The factor ‘economies of scale’ is enormous in this market, as the big brands make thousands of products they have a big advantage over smaller enterprises. In the sports apparel market people choose brands they know, therefor it takes decades to build a big brand in this industry (Strider, 2016). Smaller companies with very specific products may enter this market quite easily, to compete with the bigger brands a diverse portfolio is needed and that is a lot harder. Overcoming the brand loyalty that consumers have in this industry is not easy because it is a very mature market. The capital required to enter this market significantly is enormous. To get to the competitive level of production and marketing the investment is significant. The cost advantage in the market seems not to be a big factor as low cost production is available to everyone and anyone. The same goes for the access to distribution channels, however getting big chains to put produce on the shelves does take some time and effort. That might be a glass roof for brands entering the market. The government does not play a big role in this industry, as the legislation is minimal in the clothing industry. Overall the threat of entry is medium in this market. It is easy to enter, but to get to a competitive level with the established brands a lot of capital investment is required.

Supplier/buyer power

In the sports clothing industry the suppliers do not hold a lot of power. It is possible to relocate production reasonably easily. Especially now a lot of this type of production moves to low cost countries. The sports clothing brands hold power over the suppliers in this industry. The buyers have a similar level of power, maybe a little bit more than the suppliers. The buyers in the form of department stores have the ability to choose different brands to display as they wish; the buyers have to get on board with the new styling of products. So a low supplier power in the industry and a medium buyer power in this industry.

Threat of substitutes

As a costumer there is not a lot of substitutes available. If you want to buy a comfortable shoe there is not a lot of choice other than sneakers for example. The same goes for sports apparel, however the casual departments of sports clothing companies do have the threat of substitutes from casual clothing companies. In general there is not a realistic substitute to sports clothing. On top of this the switching costs are minimal to none.

Appendix 3: Ansoff’s diversification matrix analysis

Before the diversification matrix can be used we have to look at the market. Is the market likely to mature, grow or decline in the coming years? (Ansoff, 1958, p. 396) In the sports clothing industry we can assume that the growth follows population growth and maybe more. As UA seems to think the demand for high-end sports apparel will grow stronger. Let’s call that ‘the apple effect’ where people are looking for more advanced products and are prepared to pay the premium for it. So we can say that it is likely that this market will grow over the coming years. The risk of this market shrinking is minimal, as more and more people get interested in a healthy and active lifestyle.

It seems clear that the first effects of technological advancement are getting less. The innovations that the heatgear, coldgear and allseasongear were are starting to wear off, as competitors are able to make similar products. Early on in the company’s life the expansion into connected fitness was found. UA build their own platforms and acquired some other applications. They also were one of the first to introduce advanced technology to the wider public. Their E34 system and UA band were part of this endeavour. So UA has always penetrated new markets (or even created them) to get that advantage over competitors. However, they are not big in the fitness wearables anymore as fitbit and Samsung have made competitive products.

It is questionable whether they can stay market leaders in terms of innovation. Personal electronics companies seem to be good at innovating in this market. Historically UA does not work together with the bigger brands around them, for their E34 system they worked with a smaller technology company to gain expertise. Nike for example is working with Apple to develop version of the Apple watch with Nike branding on there. In terms of market penetration UA has diversified into the wearables and connected fitness market.

If we look at new geographic areas we can take the diversification matrix and extend it with new and existing geographic areas. We can take Asia as an example, specifically Japan and Korea. It seems that UA has identified a specific way of penetrating this new area, in an existing market with slightly new products. They identified that these new areas have different needs to Americans, because they have different sizes and different sports interests (Under Armour, 2016, p. 5). UA use a licensing strategy to exploit this area further. In other areas Under Armour uses current independent distributors to sell their products. So from the looks of current activities there is no clear strategy towards penetrating new geographic areas. UA uses the current products and marketing strategy and copies it to (most) new geographic areas. Under Armour does not seem to pursue any new markets, however they are expanding the range of sports they offer clothing footwear and accessories for.

 

Paul has experience in education, is becoming a qualified coach and has a strong interest in making activities fit for purpose. The challenge ahead is to make processes and procedures work in or advantage.

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