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Sample Coursework Paper on Strategic Management: DIADORA

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Sample Coursework Paper on Strategic Management: DIADORA
  1. Executive summary

Diadora is one of the iconic sportswear companies, a company that was famous for the quality and durability of its products – a factor that led to its rapid growth in the 1960s.  However, the company saw its presence in the market plummet amid intense competition, leading to decline in sales and near bankruptcy in the early 2000s. However, the company was acquired in 2009, and a change in management has led to improvement of the company’s financials, leading to profitability and growth in the revenue base. The company has overcome some poor performances in the recent past and is poised to take off and grow its presence in the sportswear market. The company has a base of loyal customers, who can act as a springboard for growth by providing the foothold that the company needs to secure its presence in the market.

The company established and still maintains a reputation of making quality and durable footwear, a reputation that gives it an advantage in the market because people trust its products in addition to helping the company maintain the loyalty of those customers that have bought any of its products. Although there is an opportunity for growth, the company faces serious challenges in trying to grow its market share. This is because the sportswear market is characterized by strong brand loyalty and little differentiation in product offering. Only vertical differentiation in quality is possible while keeping pricing reasonable. Despite the difficulty in growing its market share in the traditional markets, opportunities abound for Diadora to rapidly grow its sales in the emerging markets within the traditional markets, as well as abroad. If these growth opportunities are seized, Diadora can reclaim its position in the sportswear industry as one of the leading players and not merely a peripheral player in the highly profitable and lucrative market.

  1. Introduction

The sports footwear and apparel manufacturing industry is one of the most competitive, with manufacturers competing fiercely to carve, maintain, and grow their niches in a crowded market with very little differentiation potential. Diadora sports shoes and clothing company is one of the companies competing in the sportswear market with a collection of products targeted at different market segments. Diadora is an Italian company founded in 1948 in Caerano di San Marco as an artisan’s laboratory majoring in the manufacture of mountain climbing and working boots that were renowned for their high quality and durability – a factor that led to the rapid growth of the brand (Diadora 2015). Although the company was initially targeting the niche market of mountain hikers and also producing ordinary working boots, it soon diversified its offering to include footwear for diverse sports like skiing, cycling, tennis, and soccer, as well as continuing in the tradition of making high quality walking boots (Martin 2008). Diadora began as a small specialized boot maker in Italy but has grown and diversified its product range and target market, and is now present in over sixty countries, either as a direct retailer or indirectly through distributors and licensees (Allison & Martinez 2008).

Diadora has products aimed at a broad spectrum of customers, although it has a strong presence in the lifestyle and sports niche markets in Europe (Spearman 2015). The company is also targeting the young, fashion-conscious market as well as fitness conscious clients with a range of retro footwear that brings exclusivity and tradition to its offering in a bid to solidify and grow its presence in a market that is in a continuous state of flux (Byrne 2009). After a period of exponential growth in the 1960’s and 70’s driven by an increase in professional sport with the attendant interest from the masses, the company’s profitability reduced in the 1990’s due to intense competition. Eventually, Diadora was acquired in 2009 by LIR, which turned the formerly loss making company into a profitable venture after a change in management (Reuters 2010).

  1. Strategic review
    • SWOT – Internal analysis
      • Capabilities and competencies

Customer loyalty is one of the primary factors that contribute to the establishment, development, and growth of a brand because loyalty is positively correlated with a consumer’s engagement with a brand and likelihood of purchase (Lin 2010, 7). Brands that engender loyalty from customers can maintain the existing customers while attracting new consumers through word of mouth marketing from the loyal customers, who speak well of the company and its products to their circle of friends. Diadora has strong loyalty from its customers who are attracted to the company’s quality and durable products that have an aura of exclusivity considering that the company is a relatively small player in the footwear and sports apparel industry. The uniqueness of the Diadora brand is an important selling point with its classic retro designs being a significant selling point for the purists (Walter et al. 2013, 134). In addition, the Diadora brand name has become renowned as a byword for excellent and durable footwear products and sports apparel which appeals to the discerning consumer. The brand has been built over the years through investment in innovation and cutting edge design as well as use of unique, durable and tough materials.

The Diadora products have been marked by vertical differentiation over the course of the company’s development, with the company relying on the production of quality products to penetrate and grow its market share (Amighini & Rabelloti, 2003, 29). The company has a capacity to invest in innovation and established a research and development department to drive the company’s growth through the production of fashionable and durable products. The company has an installed manufacturing capacity that can enable it to cater to customers’ demands in addition to having active collaborations with other manufacturers that can help it to produce its products at a considerably lower cost.

  • Resources, Skills, Management

The financial performance of Diadora in the early and mid 2000’s was poor and the company experienced a period of loss-making that threatened the existence of the iconic brand. However, the company was acquired by LIR in 2009, and the investment provided by LIR helped to return the company’s balance sheet into black within one year. Diadora’s numbers have improved and the company now has the financial resources to invest in the improvement and diversification of the product range. Diadora’s parent company, LIR, has provided it with a stable financial base from which Diadora can rebuild its success because LIR has the capacity to absorb any losses that Diadora makes in addition to providing it the necessary capital injection. The company also has a stable supply chain that provides it with the requisite materials for manufacture of its products in addition to its own capacity to produce some of the required materials. Owing to its long history in the footwear and sports apparel industry, the company has a rich reservoir of talented people working for it who have experience in the industry as well as the requisite skills. The company also has collaborations with active sportspersons who give it feedback on its products helping it to hone its skills in the manufacture of new products.

After acquiring Diadora, LIR changed the top management of the company in a bid to infuse a new strategic direction to the business and revamp a flagging operation. The new management team was able to turn around the company’s fortunes and return it to profitability, saving it from insolvency. Diadora’s management is an asset to the company because it provides the aggressive can-do approach that has helped to move the company from the doldrums. The LIR led management provides a platform that can help Diadora to keep growing in the mid and long-term due to the stability that the large capital base of LIR provides. Although the company’s internal environment is conducive for the continued growth of the company, there are a number of internal factors that may be detrimental to the future of Diadora. Diadora remains a relatively small player in the footwear and sports apparel industry, implying that the company does not enjoy the economies associated with large scale production. Therefore, its unit production cost is relatively high compared to competitors within the industry, making its products unattractive to the price-conscious market due to their relatively high cost. To enhance the probability of long-term competitiveness, the company must explore ways of increasing production volumes while at the same time ensuring that product quality is not compromised.

The world has become extremely interconnected and the availability of handheld devices with relatively fast internet connectivity means that many people are connected to the internet and are likely to conduct their business virtually. Diadora’s online presence is relatively weak putting it a disadvantage because it cannot fully exploit the young connected market which is not averse to purchasing items over the net. The company must revamp its online presence to ensure that prospective customers can easily interact with its websites and obtain all the information that they need at the click of a button.

 

  • SWOT – External analysis
    • PEST analysis

The prospects of Diadora are affected by a number of external factors, which either singly or in concert can have an impact on the long term suatainability of the brand. Diadora has grown from its humble beginnings in Italy and is now a multinational with a presence in a number of countries where it runs a mix of wholly owned stores as well as collaborations with local entities. The international market presents a political risk to Diadora because local governments can pass laws banning wholly-owned foreign stores, thus endangering Diadora’s investment. In unstable countries, the company’s investment is always at the risk of nationalization, in addition to facing risks due to currency exposure and the fluctuations in earnings as the company adjusts forex. The recent global recession is an economic threat to the growth of Diadora because sale of the company’s products depends on the discretionary income of consumers. Although the economic crisis reduced the amount of disposable income available to consumers and increased the cost of capital due to high interest rates, the recent recovery provides an opportunity for the company to recoup and expand. Like most companies, Diadora has outsourced most of its production to Asia and is now faced with the prospect of rising production costs as labor costs in China increase, coupled with dear shipping costs for raw materials and products.

The sales of Diadora products are affected by the prevailing social-cultural climate, with the recent increase in participation of women in sport offering Diadora an opportunity to tap an underserved market. There is widespread concern about the rise of non-communicable ‘lifestyle’ diseases like obesity, diabetes and cardiovascular disease caused by a sedentary lifestyle. Aggressive campaigns have helped people to realize the need for exercise and there are an increasing number of physically active senior citizens, a previously underserved market. However, the rising tide of ‘lifestyle’ diseases is a testament that people are disinclined to leading a physically active life, threatening the company’s available market. The internet has pervaded modern life and now it is possible to access the net from virtually anywhere in addition to an exponential increase in the number of commercial transactions done online. The virtual market is potential unlimited and provides Diadora the opportunity to conduct its business virtually obviating the need to maintain expensive physical stores. Technology has enabled the production of tougher materials that are cheap and energy efficient, reducing the energy footprint of the company.

  • Porter’s 5–forces analysis

The competition between footwear and sports apparel manufacturers is intense with companies expending huge amounts of money to increase their visibility in a crowded market. Compared to the big multinationals, Diadora is a small company with a tiny share of the market implying that it is difficult for the company to mount a successful campaign against more established and entrenched brands. However, despite its relatively small size, Diadora is profitable showing that the industry is highly profitable, even for small niche players. Owing to the sector’s profitability, there is concern that entrants may join to profit from the apparent opportunities. However, the market is characterized by high levels of brand loyalty and it will be difficult for a new entrant to break into the market and pose a serious threat to the established order. The sports footwear and apparel is a unique product and the threat of substitution by other products is relatively low. Therefore, the threat of substitution is relatively low as it is a specialty product. Buyers have considerable bargaining power owing to the variety of choice that they are offered as well as the little differentiation there is in the products. Therefore, there is a tendency for producers to use vertical differentiation, forcing the manufacturers to compete on producing quality products at affordable prices. Suppliers provide similar materials to the different manufacturers and do not have much room for maneuver because of the intense competition.

  • Competitor analysis

Nike and Adidas are the big players in the industry and between them have over 60% of the market shares. The companies have locked down some markets and due to the high levels of customer loyalty in the sector, have a near unassailable strength within the market. There are also a number of smaller players within the market like Puma which is at near similar levels to Diadora. The limited differentiation between the products makes it difficult for smaller players to stand out, and customer loyalty to brands provides limited opportunity for expansion

  1. Porter’s generic strategies
    • Basis of competition

To compete, Diadora needs a hybrid approach to make its products desirable for the consumers and carve a niche market for itself. First, the company needs to differentiate its products in terms of quality, making its products to be the best within any given category. Being a relatively small player, it can use the concept of exclusivity and market its products as appropriate for the fashion conscious people who want unique products that are not in common circulation. Therefore, the company can pursue a pricing strategy that puts its products on the high-end market due to their rarity value and unmatched quality.

 

 

  1. Ansoff’s growth strategies
    • Diadora’s growth strategy

The company should focus on producing new product but should look into its past to come up with modern designs for its products. This is because the company has a number of loyal customers who recall some of the past products that made it famous. The looking back to look forward strategy is also important in ensuring that the company produces classic no frills designs that are appealing to certain segments of the sportswear market. The existing markets are mature and saturated, making it difficult for Diadora to penetrate them and expand its presence. Therefore, the company should aggressively pursue emerging markets like women, senior citizens, countries offering new markets, like China, as well as the virtual market that is due to the growth in the usage of internet.

  1. Conclusion and strategic options
    • Conclusion

Diadora was once one of the major players in the sportswear market, commanding a considerable share of the market. However, the company’s fortunes declined precipitously as it fell into debt and nearly became insolvent due to falling sales before being acquired in 2009. The company’s fortunes have changed for the better and it has become profitable with the ability to expand production quickly, thanks to the strong capital base offered by the parent company, LIR. The company has reentered some markets that it had been forced to withdraw from, like America, as well as ventured into new ones aggressively, like China. Its unique retro designs have become a hit with traditional sportswear lovers and the quality and durability of its products provide it with the opportunity to expand its market share considerably.

  • Strategic options

First, the company should focus on retro designs for its products because there is a huge market that is interested in old school, no frills products with good quality. Secondly, there should be a focused effort to target emerging markets and position the firm as the sportswear brand of choice, because existing markets are saturated and offer little opportunity for growth.

 

 

 

References

Allison, M. & Martinez, A., 2008. Diadora Going after Fashion-Conscious Teens with Retro-Style Sneaker. [Online] (updated 29 Aug, 2008) Available at: < 

Amighini, A. & Rabelloti, R., 2003. The effects of globalisation on industrial districts in Italy: Evidence from the footwear sector. [Online] (updated 30 Aug, 2013) 

Byrne, B., 2009. Questions with Diadora’s Director of Marketing. [Online] (updated 9 Apr, 2009) 

Diadora, 2015. 65 Years of Great Legends. [Online] (updated Feb, 2010) 

Lin, L. Y., 2010. The relationship of consumer personality trait, brand personality and brand loyalty: An empirical study of toys and video games buyers. Journal of Product & Brand Management, 19(1), pp. 4-17.

Martin, S., 2008. Diadora. [Online] (updated 2008) 

Reuters, 2010. Italian Sportswear Maker Diadora Turns to Profit. [Onlline] (updated 5 Aug, 2010) Available at: 

Spearman, K., 2015. Refresh and Reboot: Diadora Aims to Revive its U.S. Business. [Online] (updated 23 Jan, 2015) Available at: 

Walter, N., Cleff, T., & Chu, G., 2013. Brand experience’s influence on customer satisfaction and loyalty: A mirage in marketing research? International Journal of Management Research and Business Strategy, 2(1), pp. 130-144.

 

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