Under Armour might be a smaller sportswear and sports equipment brand compared to Nike and Adidas but it has managed to make a mark in recent years thanks to its celebrity endorsements and sponsorship of sports events. This article explores and analyzes the industry and competitive positions of Under Armour using the Five Forces model of Michael E. Porter.
Analyzing Under Armour Using Porter’s Five Forces Model: A Look Into Its Industry and Competitive Positions
1. Industry or Competitive Rivalry
One of the five forces that affect the performance of Under Armour is the intensity of rivalry in the sportswear industry. The company has strived to gain a substantial market share and even become a market leader as seen by its aggressive marketing strategy.
However, the fact remains that Nike and Adidas are market leaders in terms of market share and revenues. There are also other established competitors in the sportswear market and the broader textile and apparel industry.
Nevertheless, competitive rivalry is a strong force for Under Armour. It prevents the company from setting higher prices and also limits its earnings potential. The following are the specific factors affecting the intensity of rivalry:
• Moderate to High Level of Firm-To-Buyer Concentration Ratio: There are several sportswear brands and other apparel brands in the market. Their concentration level relative to the size of the entire target market is moderate to high. The impact of these players on a particular company depends on the level of their aggressiveness and their capabilities to differentiate themselves from the rest.
• Low Rate of Market Growth Stemming From Market Saturation: Note that the sportswear market and the broader apparel market have become saturated due to the presence of established and smaller companies and their respective brands. The market potential is limited to untapped regional markets in the world, existing customers of other brands, and newer generations of consumers.
• Aggressive Marketing and Specific Promotional Expenditures: Companies such as Nike and Adidas are big ad spenders with solid and consistent marketing strategies. The same is true for substitute brands such as fast-fashion retailers H&M or casual clothing companies like Ralph Lauren. The aggressiveness of these companies is a critical factor that intensifies the level of competitive rivalry.
• High Level of Competitive Advantages Among Key Participants: There is also a high degree of competitive advantages among major companies or brands. For example, Nike and Adidas have marketing resources and strong supplier command. Other clothing brands have banked on an optimized production process and value chain to reduce their costs. These intensify the rivalry further.
2. Threat of Substitutes
Sportswear products have different substitutes. These include casual clothing items and formalwear. The threat of substitutes for Under Armour is a strong force. The company addresses this through the tried and tested strategies of other sportswear brands: promote the usability of sportswear products. Below are more specific details and factors:
• High Number of Substitutes and High Level of Differentiation: Brands providing substitutes to sportswear products include fast-fashion companies such as H&M and Zara, other casualwear products from Lacoste and Ralph Lauren, and luxury fashion brands such as Supreme, Gucci, and Balenciaga, among others. Each brand has its own unique selling proposition and can cater to the established preferences or clothing requirements of specified target consumers or market segments.
• Low Buyer Switching Cost and Relative Price Advantages: Under Armour is less expensive than Nike and Adidas. However, when it comes to substitutes, there are more inexpensive products in the market. These include clothing items from fast-fashion companies and products sold at thrift stores. The prevalence of counterfeits or replicas that have flooded the market can also be considered as more affordable substitutes. The switching cost is essentially low due to the price advantage of substitutes.
• High Ease of Substitution and Moderate Propensity to Substitute: The fact that there is a high number of substitute products and that some of these items are more affordable means that substitution is easier. Furthermore, the propensity to switch from one brand to a particular substitute brand is moderate because sportswear products are not as essential as casual or day-to-day apparel items, market information is highly available, and a large portion of the target market is sensitive to price.
3. Threat of New Entrants
Another force that affects the industry and competitive positions of Under Armour is the threat of new entrants. This is a moderate force because entering the sportswear market has become easier due to the availability of manufacturers that can be outsourced but remains difficult because of the resources needed in brand development and marketing. Under Armour and its larger competitors keep the barriers to entry high through aggressive marketing and strong relationships with their suppliers. Take note of the following:
• High Level of Brand Equity and Brand Loyalty: Developing a brand, making people aware of the brand, and building a pool of customers loyal to the brand is expensive. Nike and Adidas have strong brand equity and brand loyalty built over the years. Under Armour has made a small but still relevant dent in the market through its marketing efforts. New entrants need both time and a large amount of resources to develop their respective brands and make them as appealing as possible.
• Geographical and Regional Market Considerations: Established sportswear companies have established supply chains and distribution channels that allow them to secure supplies from different parts of the world and distribute their final products to different geographical or regional markets. These two factors also require a substantial amount of resources and remain notable entry barriers.
• Low Cost for Cost Leadership but High Capital Requirement: New entrants can manufacture low costs sportswear products by outsourcing manufacturers. This fact is demonstrated by the presence of Nike and Adidas counterfeits and replicas that are 50 percent to 90 percent cheaper than the original products. However, while production costs might be low and it is possible to achieve cost leadership as far as manufacturing is concerned, the fact remains that the overall capital requirement is high.
4. Bargaining Power of Buyers
The fact that there are alternative products from other sportswear brands and substitute products from other clothing and apparel brands makes the bargaining power of buyers a strong force for Under Armour. This prevents the company from setting its prices too high without turning off its customers while also preventing them from experimenting with unconventional product and general marketing strategies.
Nevertheless, to manage this force, the company has strived to remain as cost-efficient as possible so that its prices would not be as high or higher than leading brands like Nike and Adidas while also investing in marketing to maintain brand awareness and communicate product quality. Below are the specific factors:
• High Availability of Options from Alternatives and Substitutes: Remember that there are alternative products in the sportswear market from established brands like Nike and Adidas, as well as from smaller brands like Puma and Fila. There are also substitute products from brands of different organizational sizes. The presence of these products increases the bargaining power of buyers.
• Low Buyer Switching Cost and Their High Sensitivity to Price: The cost of switching to other brands of sportswear and sports equipment is low due to the presence of more affordable alternatives. These alternative brands include Reebok, New Balance, and Puma, among others. There are segments of the market that are sensitive to price and might switch to either cheaper alternatives or better substitutes.
• High Unique Selling Points of Alternatives and Substitutes: It is also worth mentioning that there are brands that specialize in a particular sport. Examples include Oakley which banks on sports performance and sports equipment, Ralph Lauren which specializes in high-end activewear, and Lacoste which is been known for tennis. Substitutes also have unique selling points outside sportswear.
5. Bargaining Power of Suppliers
Inputs and outsourced production capabilities are critical to clothing and apparel brands. The specific bargaining power of suppliers exerts a moderate force on the competitiveness of Under Armour due to the presence of bigger brands like Nike and Adidas and other bugger substitute brands including fast-fashion retailers and casualwear brands.
The company keeps this force under control or prevents it from exerting a higher impact through its continuous efforts to expand its market share using aggressive marketing. It also has a dedicated research and development team tasked to develop proprietary raw materials. Below are the specific factors that influence its relationship with its suppliers:
• High Availability of Suppliers or High Supplier-to-Firm Concentration: There is an abundance of suppliers of inputs used in the production of apparel, specific sportswear, and sports accessories. There are also established manufacturing hubs in countries such as China, Vietnam, and India that can be outsourced. The presence of these suppliers lowers their overall bargaining power over specific brands or companies.
• Low Degree of Differentiation Across Major Inputs or Raw Materials: Under Armour uses the same production inputs or raw materials used by brands such as alternative brands Nike and Adidas, as well as substitute products. Examples of these raw materials widely used in the textile and clothing industry are cotton, different types of fabrics, rubber, plastics, dyes, and packaging materials, among others.
• Presence of Dominant Business Customers in the Market or Industry: The presence of companies such as Nike and Adidas, as well as other larger clothing and apparel brands strengthen the bargaining power of suppliers of Under Armour. Larger companies can either negotiate raw materials at lower prices due to their higher order requirement or force a particular business customer to increase its order volume.
• Low Possibility for Forward Integration and Vertical Integration: Other factors that strengthen the bargaining power of suppliers are the low possibility for forward integration and vertical integration. It is more efficient for apparel brands to outsource their production inputs to different suppliers which may include unaffiliated businesses that also supply to other companies or brands.