by Tiffani Bova
Frost & Sullivan found 63 percent of respondents in a survey said they view customers in emerging markets as a future source of profits.
By 2020, cross-border commerce is expected to account for approximately 22 percent of the global e-commerce market.
In 2020, one out of five e-commerce dollars will be generated cross border.
China will continue to see massive gains in retail e-commerce over the next few years, with sales topping $2.416 trillion in 2020. Spending via mobile phone is also booming and this year will account for 55.5 percent of all e-commerce sales and reach 68 percent by 2020.
CLOSER AND FURTHER
Competition should not be for a share of the market—but to expand the market.
—W. EDWARDS DEMING, American statistician and author of Out of the Crisis
The greatest business successes in history—from General Electric to Facebook—have stemmed from a company’s ability to grow by expanding into new markets. These markets can generate additional sources of top-line growth as well increase a company’s customer base. The short-term appeal for most companies that choose to pursue this path is that they typically don’t need to rethink their entire product strategy.
PERSPECTIVE
TIME TAKEN TO REACH FIFTY MILLION USERS
Air Travel: 68 years
Automobile: 62 years
Telephone: 75 years
Lightbulb: 46 years
Radio: 38 years
Television: 13 years
Personal Computer: 14 years
Smartphone: 12 years
AmEx: 12 years
Uber: 8 years
Internet: 4 years
YouTube: 4 years
Facebook: 3.5 years
iPod: 3 years
Google+: 3 years
Pinterest: 2.75 years
AOL: 2.5 years
Twitter: 2 years
Angry Birds: 35 days
Pokémon Go: 19 days
Market Acceleration closely follows the efforts of the previous Customer Base Penetration path. That said, it’s still highly likely that product concessions will be needed to accommodate local, or retargeted, market needs. This carries a bit more risk than the prior path because it can be difficult to understand the context of a new market, its hidden complexities, its varying customer demands, and its geographic limitations when determining which combination and sequence is needed to support execution and implementation of this path.
However, the increased risk can be worth the reward this path can bring, especially with twenty-first-century technology. It used to be that accelerating the rate of adoption and number of users of a product would take decades, but with the changes in market context (Internet, social media, smartphones), decades has turned into days. It’s mind-boggling that it took Air Travel sixty-eight years to capture fifty million “flyers” and today companies, like Angry Birds, are able to reach fifty million users in a mere thirty-five days! If you are looking to accelerate growth, expanding into new markets might just be the answer you’ve been looking for.
Market Acceleration is the path of taking a brand’s existing product into new markets, it is not selling entirely new products into new markets. For this to work, a company will move laterally to take its existing products and find similar new customers. Those new customers may be in a new geographic area, in adjacent vertical segments that are not part of the current customer mix, or of different customer size (small business to midsize business). Or a company may even be selling to different people within a current customer base (such as switching from selling to IT [information technology] to selling to the marketing department) or geographic area. The determining factor is that the market is in fact “new” for a company, outside of “to whom” or “where” it is currently selling. If a company does decide to enter a new market, it is much easier to choose a target where customers already spend money buying more or less the same kind of product that a given company is selling. While it could be true that the product may be delivered or sold a different way, at the end of the day, getting a prospective customer to buy something familiar is much less risky than asking them to buy something that they don’t understand.
An example might be Uber. Uber started out as an alternative to traditional taxi services with which people were already familiar—reimagined with their new business model. If you do choose to pursue a market that is unfamiliar with the product or service you are selling, be prepared initially to spend more marketing dollars on product education and brand awareness than on driving leads. That is why choosing a new market—with customers similar to those you currently have, with existing products—is an ideal way to test pursuing this particular growth path.
STORY
1
UNDER ARMOUR
SWEATY T-SHIRTS
Surround your disruptive core product, the thing that got you to the dance, with a whole product that solves for the target customer’s problem end to end.
—GEOFFREY MOORE, author of Crossing the Chasm
THE GLOBAL SPORTS APPAREL MARKET is expected to garner $184.6 billion by 2020, with a compound annual growth rate (CAGR) of 4.3 percent during the forecast period 2015–20.The sports apparel market has seen strong growth over the past few years due to growing health awareness and increasing fitness activities such as yoga and spin classes. Three of the largest sports apparel companies in the world—Nike, Adidas, and Under Armour—have each taken advantage of these favorable trends in their industry, which should continue to support growth for many years and, probably, decades to come.
How each of these megabrands pursues growth is both similar and strikingly different—but one thing is for sure: there appears to be no slowdown in the heated competition among the three power brands. Each company is trying to outdo the others with large endorsement and sponsorship deals, innovative products such as 3-D printed custom shoes, and even basic T-shirts.
“I WILL”
Great entrepreneurs take one product and become great at one thing. I would say, the number one key to Under Armour marketing—to any company’s success—plain and simple, is focus.
—KEVIN PLANK, CEO of Under Armour
In a row house in Georgetown in 1995, Kevin Plank started a company with about $15,000, some locally purchased fabric, and an ambitious plan to shake up the athletic apparel industry. Similar to Nike founder Phil Knight, who ran track, Plank was a special teams captain of the University of Maryland football team. Plank was looking for an edge against the faster, bigger guys he was competing against. That simple goal was what sparked a $1 billion business twenty years later. His idea was to make a better alternative for a short-sleeve cotton T-shirt in the summer and a long-sleeve cotton T-shirt in the winter to help with sweat. After some of his University of Maryland teammates wore his shirts while playing lacrosse and baseball (not football), he realized he was onto something. As was the case with Red Bull, which was originally developed as a “non-carbonated” refreshment for factory workers and truck drivers to keep them awake through long shifts, Plank’s idea saw a much broader appeal.
While Plank didn’t invent “performance apparel,” he was the first to see its potential, not just for athletes but also for the mass market. It was an entirely new concept to innovate a T-shirt, since it more than likely was never seen under a uniform and lacked the performance-enhancer label that other categories, such as shoes, enjoyed. Much of the innovation in sports was happening in equipment and shoes; apparel appeared to be an afterthought, which meant the category was ripe for the taking.
Why would anyone choose to compete in a category where brands such as Adidas and Nike were dominating? As with any successful “Blue Ocean” strategy, don’t go after the core business of the larger incumbents. Go after a smaller niche; win the
re. Learn the market. Develop a beachhead. Pull people into your product, your brand’s orbit—and then, and only then, begin to expand your market and product offerings. Like Red Bull, Under Armour was able to develop the right product with the right brand cachet and endorsements, and market it in a unique way that captured the hearts and minds of aspiring athletes everywhere. Every one of its moves was carefully aimed at its “target market,” a younger demographic, the millennials and Gen Z, who idolized professional and college athletes alike and wanted to dress and be just like them.
GO WHERE THE ENEMY ISN’T
For the first five years we only had one product. Stretchy tee shirts.
—KEVIN PLANK, CEO of Under Armour
For Under Armour, its early growth was the effect of a focused strategy around one product (T-shirts) to one market (football) to one target customer (athletes). Once it started to gain momentum, it took the former University of Maryland football player five years (to the year 2000) to turn it into a $5 million company. By 2004 it was over $200 million, and by 2017 it was over $5 billion in sales, all from a simple idea of a “tight, polyester-blend shirt that wicks away moisture while keeping muscles cool.” How did Under Armour gain such incredible traction so quickly against much larger brands?
Under Armour made its first sale to Georgia Tech for about $17,000. Two dozen National Football League (NFL) teams soon followed suit. At the end of its second year, it had sold $100,000 in product. Like the Red Bull story, Under Armour caught the megabrands in the athletic apparel market off guard. It didn’t start by attacking them head-on but rather at the edges of the category, with an innovative and new product proving you can think big, act big, start small, and still win big in the long run.
Once it knew it had a desired product (innovative T-shirt), knew who its ideal customers were (professional football players and aspiring athletes), and created customer buzz in the sportswear market, the next step was to accelerate that formula laterally into additional (new) markets with its existing product(s). The distinction here for Under Armour was the fact that taking its product into new markets didn’t mean it had to reinvent what it was already doing; it just needed to determine the best way to sell more of its existing product to more customers like those it already had. In order to further pursue Market Acceleration beyond what it was doing on its own, it needed to combine its current efforts with third-party local retailers (Partnerships), which ultimately owned the (transaction) relationship with its ideal target customer base.
This decision was a perfect example of Customer Base Penetration and Market Acceleration in the right sequence. Had Under Armour decided to develop its T-shirt and immediately approach major retailers to create a partnership arrangement, more likely than not it would have been turned down for lack of brand awareness or consumer demand. It waited until it had enough buzz in the performance apparel market that large retailers would be very interested in striking a deal so that potential customers outside Under Armour’s current sales channels could purchase its products easily.
Its first big-box coup came in 2000, when Galyan’s Trading Company, a large retail chain eventually bought out by Dick’s Sporting Goods, signed on, followed by thousands of others around the globe. Most recently it has begun to sell its shoes and apparel at Kohl’s, the U.S. department store chain, as well as its shoes at DSW and Famous Footwear. It even opened its own “Brand House” stores (six so far in the United States, with international expansion expected next) to compete more effectively with Adidas and Nike, complement existing distribution channels, while at the same time upping its focus on the athlete and the (customer) experience.
When Under Armour went public in 2005, only 2 percent of its revenue came from outside North America. Since then, it has been investing heavily in (organic) Market Acceleration via international markets. In the fourth quarter of 2017, the international segment grew 47 percent, representing 23 percent of total sales, and it expects its international growth to be more than 25 percent, while its North American sales to be in mid-digit decline. It continues to grow its Brand House and Factory House stores internationally, and there is plenty of room to grow that footprint even further. Of course, the current efforts have a much broader product lineup than just a T-shirt, because of Product Expansion and Customer and Product Diversification—but Under Armour’s desire to look for top-line growth via Market Acceleration continues today, twenty-two years after it was founded.
Retail partnerships were key to its growth early on, and even in light of the challenges retailers have been facing lately, it is still a major part of its growth strategy going forward, and the number of outlets carrying its products is about thirteen thousand. The only real difference now is that Under Armour is pursuing a much more refined retail strategy, one in which it takes a bit more control than in the past with its own branded storefronts. Don’t be surprised if you start to see “pop-up” stores similar to Sephora in JCPenney and Apple in Best Buy with Under Armour taking over space in retailers such as Foot Locker.
“WHAT’S THAT ON THEIR SHIRTS?”
When hundreds of college football players descended on Lucas Oil Stadium in Indianapolis for the NFL Combine in 2011, quarterback Cam Newton and wide receiver Julio Jones were two of the hottest players to watch.
At some point during the week, people were asking the same question: What is that on their shirts? Newton and Jones were decked out in skintight red tank tops with a yellow . . . “thing” on it. It looked like a big round button you could push with an Under Armour logo in the middle and arrows flying out the sides.
It was actually the E39, a workout shirt with a removable biometric sensor measuring just about everything they did on the field. When Jones ran, his shirt tracked his heart rate, acceleration, and power. When Newton jumped, it measured the g-forces and power in his vertical.
Under Armour believed players could use the data to train better, and scouts could use it to make smarter decisions. This was the beginning of the next chapter for Under Armour and a full-circle moment for the company. This idea of a “smart shirt” started with a conversation a few years earlier, when Plank grabbed a 0039, the compression shirt he’d created in his grandmother’s basement sixteen years earlier, the one that launched the Under Armour empire, handed it to his head product guy, Kip Fulks, and said, “Make it electric.”
The NFL Scouting Combine is a weeklong showcase occurring every February where college football players perform physical and mental tests in front of NFL coaches, general managers, and scouts.
While that project didn’t work out—it didn’t matter, it was the beginning of Under Armour’s passion for combining technology + apparel + fitness. The T-shirt is just as much a part of its future growth strategy as it was back in 1995—the only difference now is that the T-shirt can tell you when it’s time to replace itself.
UNDER ARMOUR
KEY TAKEAWAYS
Over the years, Under Armour has remained true to its roots while simultaneously attacking a broader market with each new product category it enters. Early in its history Under Armour was right to stay very focused on what it did and did well. Instead of getting too far ahead of itself by pursuing an aggressive Product Expansion or Customer and Product Diversification strategy, it took what it learned from a single product—its T-shirt—and instead expanded the innovative fabric it had developed into other apparel categories adjacent to its core T-shirt. It wasn’t until 2003 that it launched its first women’s line of clothing, and it waited until 2006 to launch its “cleated footwear” line. In 2009, it went into a head-to-head fight with both Nike and Adidas with its first line of running shoes.
Under Armour clearly understood early on the value of Partnerships, including high-profile endorsements. The decision not to open its own retail stores, especially in its first decade of hyper-growth, allowed it to reach more of its customers with less (financial) risk and a much lar
ger sales footprint than it could have developed on its own. You must remember the market context when it first launched. In 1995 e-commerce wasn’t even part of the equation. It was brick-and-mortar retail, mail-order catalogs, and other offline sales channels.
Build a beachhead, attack larger competitors from the edges, and build customer demand and loyalty without financially overextending yourself. Under Armour first created buzz in the athletic apparel market with a single product, then they approached major retailers to create a partnership. This decision was a perfect example of Partnerships and Market Acceleration in the right sequence.
STORY
2
THE HONEST COMPANY
BETTER LIVING THROUGH CHEMISTRY
Forty-two percent of global respondents say they’re willing to pay a premium for products made with organic or all-natural ingredients.
—“DEEPER THAN DOLLARS” (2016 Nielsen report)
NOW, IN A FRESH TAKE on the pre–World War II slogan, “Better Living Through Chemistry,” start-ups and large companies are embracing “green chemistry.” Yale University chemistry professor Paul Anastas, known as the father of green chemistry, said the movement is “not simply choosing the next, less-bad thing off the shelf. It’s about designing something that is genuinely good.”
Once viewed as part of a fringe lifestyle, rooted in the hippie movement, natural and organic are going mainstream. Driven by regulations, consumer demand, and eco-friendly business philosophy, large corporations, retailers, and manufacturers are eliminating some chemicals, pulling products off shelves, and redesigning others, especially in the baby care market.