May 6, 2019 in Economics

Introduction

New Balance belongs to the brands that approved itself both on the American and world market of sports clothing and footwear. The company, a successful manufacturer of quality trainers for different purposes, has commended itself since 1906. Although New Balance’s end users are not professional athletes like those of Nike, Puma, or Adidas, the principal goal of the firm is the customer with middle paying capacity. New Balance has acquired a stable market share that fluctuates between 8 and 12 percent. The firm holds tremendous offices in Ontario, Canada, and Boston, MA, USA. 

 

Although the products that the company manufactures are of high quality, the enterprise still needs to overcome its major competitors, Nike and Adidas. The firms have chosen to purchase smaller sportswear company Converse in 2003 and Reebok in 2005, respectively. In 1998, New Balance expanded its production assortment to casual business shoes by purchasing the Dunham company. Such a strategy promoted the increase in the amount of the customers and development of their loyalty. 

 

New Balance manufactures a quarter of its shoes domestically. The rest of the production is made in other countries. The turnaround time takes several days, unlike in the firms that spend weeks to complete the production cycle. Smaller timeframes are helpful in engaging more clients. The principal market comprises Chinese and European customers although the company is one of a few firms that manufacture footwear in the USA. Although the cost of production of the items is high and the profit is less, New Balance continues its enterprise in the USA. Another challenge is the raise on taxes on imported goods. New Balance’s selling strategy should be concentrated on both domestic and international markets because it will allow the maintenance of its stable development based on improvement of the quality, insurance of safety on export and import, and better brand positioning.

Company’s Strategy

According to analytical surveys, New Balance occupies the third place among the largest manufacturers in the USA after Nike and Adidas. In the world market, it takes the sixth place. The market share of the enterprise did not increase after 2008 Olympic Games. That is why expanding the market share and functioning independently became the advantageous perspectives for the firm. The marketing policy of New Balance was analogous to that of Asics in Japan. They retained the existing marketing segments and arrange the partnership with the domestic agent. 

 

The principal goal of the New Balance company is to become the international manufacturer and increase its competitiveness in producing the footwear. Nike and Adidas produce sports clothing alongside the trainers. Their brands show value in the prices since their clothing and footwear are well-designed and fashionable. Manufacturing the clothes will require special equipment and opening new factories. Although such a strategy is uncertain for its risks, clothes are often cheaper compared to the footwear; so, the sales process will be simpler. 

 

In 2005, New Balance experienced difficulties with logistics and operational processes. The former worsened the competitiveness of the brand because the delivery of the materials and ready production took much time compared to Nike. The latter anticipated the application of simpler and convenient modern machinery to maintain short lead time. 

 

The viable operation of New Balance company is possible due to the amount of its worldwide sales reaching $2.4 billion in 2012. They invested in the machinery and reduced waste of their American plants. Customization and providing the possibilities for the clients to create their own design of shoes is the unique advantage of the brand and creates loyalty to the brand. The unchangeable design influences the pricing and makes the production more expensive. It creates the specific fashion so that retailing price reaches $275. Nevertheless, raising the paying capacity in China by 20% in 2007 caused risks for selling more expensive New Balance trainers on that market. Consequently, the manufacturers shifted their enterprises to the countries where the production process is cheaper, like Vietnam. Outsourcing strategy is also helpful for low prices. 

When solving the problem of brand development, New Balance entered in cooperation with general agents, including the Korea E-Land fashion company. In 2011, it helped redefine the brand and changed the wholesale channels and retail management. Between 2011 and 2013, New Balance sales grew by 17% each year. In 2014, its sales reached $3.3 billion. The company managed to acquire the Chinese market and become the agent of New Balance. The partners cooperate on improving the quality of old shops to meet the tastes and interests of the local clients. At the same time, Korea E-Land and New Balance explore new markets’ advantages, endeavoring to enter and control them. 

Product Selling Worldwide

The market environment of New Balance covers not only the U.S. territory but also Europe, Middle East, South America, East and Southeast Asia, and Africa. It includes 120 countries, particularly the UK, Hong Kong, New Zealand, Singapore, Canada, Mexico, Australia, and South Africa. The company’s income reached $1.8 billion in 2010. The company imports some production materials from abroad, but 70% of the value incorporates the domestic materials. That is why they label their production “Made in the USA”. 

 

New Balance’s European consumers include such highly developed countries as the UK and Germany. In Britain, the company is the member of British Footwear Association. The firm opened the UK manufacturing facility in 1982 employing 210 people in Fimbly, Cumbria. The production rate reaches 25 000 pairs per week. New Balance UK derives 90% export revenues 40% of which comprise European market. The demand on footwear is larger among the young families preferring active rest. The trainers are sold in London, Birmingham, and Edinburg as well as in South Wales regions. “Made in UK” range is very popular in Italy and France. The handcraft on the sneakers is another competitive advantage compared to other firms. 

 

The German market is a prospect rather than actual marketplace as New Balance sells less in the country because of the absence of shops. Still, NB managed to satisfy the tastes of the known triathlet Sebastian Kienle. New Balance sponsored him for several years. Wearing New Balance at his winning competition at World Championship made good promotion for the manufacturer. He chose the older design RC760. The company supplied such trainers to Japanese running market.

 

The Asian market refers to the most prospective and biggest marketplaces of the brand. Japan has particular interest in New Balance trainers. Due to their tendency to follow American fashion they often chose more professional footwear. The competitive preference for a Japanese general consumer is the possibility to interpret the design of the footwear, which makes each sold pair unique. In the interview the product designer of New Balance Japan Tetsuya Shono claims that American manufacturer has approved itself in selling both athletic and common sneakers. The most popular model remains 1400 produced in 1994. The company representative calls it prestigious not only in Japan, but also worldwide. The consumers like casual, vintage and heritage styles of shoes. The reason of preference for New Balance brand lies in an interesting history rather than a model. 

 

The cooperation with China started in 1990 and has lasted until today. The contract with Youlian Shoes Co. Ltd enabled New Balance to authorize and stipulate the selling of New Balance’s three registered trademarks, and provided the notarization in the USA. The illegitimate use of New Balance’s brand by its Chinese partner without legal permission resulted in tremendous economic losses and the loss of reputation. Under these circumstances, New Balance had to exile the market for a short period of time. Taiwan New Balance Corporation contract with Wenchang Ke helped approve New Balance as the third leading company in the country. After that, the distributors opened more stores in the mainland China. Proper marketing campaign of “President running shoes” made New Balance a popular brand among the Chinese. The product items comprised not only footwear but also accessories and apparel. The marketing management staff divided the shops according to different market segments. Leisure culture shops were for general users. 

 

Professional sportswear shops sold sports footwear for basketball and football players. Children product shops had a lot of items available for children. Yet due to the similarity in the transliterated Chinese name “NIU BALUN” and “NIU BARLUN” by the local competitor, New Balance had difficulties in selling the production, resulting in 300,000 RMB compensation from “Hong Kong New Balance Trademark.” The transliteration “XIN BAILUN” changed the situation in spite of many similarities in design with the competitors.

 

In 2007 New Balance Trading Company Ltd (China) started its work in Shanghai. Due to investments into marketing and increasing the sports market in the region, the sales rates increased gradually. During 2007 and 2008, the years of Olympic Games, the company took the leading position in selling the running shoes. The domestic competitors, like ANTA, did not manage to reach such high sales rates by New Balance. They exceeded 30% increase in sales during the mentioned period. 2010 marked the company’s success in Korea in spite of the stagnation in Shanghai because of wrong marketing strategies.

 

In 2010 Chinese partners applied “3+1” product strategy that extended both to Europe and Asia. New Balance sold jogging series shoes and leisure jogging shoes in China. British and the U.S. markets sold series shoes and children’s shoes. Due to the effortless promotion campaign, the actors of popular soap operas started wearing New Balance shoes. Such hidden advertisement increased the demand and popularity of the brand and made it the height of fashion. New Balance became popular among the Chinese authorities as well. In 2012, the sales improved by 12.5% and raised the margin to 14.6% by 2014. Still, the company had to compensate 98 million RMB to New Balance Trading Co. Ltd (China) because of violation of the trademark rights. It reduced the potential resources of the company necessary for the marketing development. 

New Balance US Market

American marketing strategies are different from the Chinese. The network numbers five factories in the USA. The paying capacity and living standards of the residents are different. Therefore, their customer needs and interests are not equal. Supporting the domestic production of shoes is necessary in building the product value. In this aspect, the market segment does not comprise the right clients but middle-class consumers aged 18-24. The convenience and simpler design compared to Nike or Adidas influence the price and make New Balance products more affordable compared to the competitors. Still, manufacturing of the footwear in America involves risks due to the intention to eliminate the tariffs and reduce them. The reduction of the tariffs on the footwear would induce higher prices for the trainers outside the country. In most cases, tariffs add from $3 to $5 to the price of the footwear. Reducing the tariffs will influence the customer’s behavior and can reduce the sales of the sports shoes. At the same time, such policies create favorable conditions for the foreign competitors as most American footwear refers to the imported items. 

 

 In spite of high costs on production, New Balance remains the domestic manufacturer of the trainers for the middle class and holds the firm at Boston, giving employment possibilities to Americans. Although the company’s turnaround in America is less compared to its foreign competitors as they need more time to deliver the end products, its competitive advantage remains customization. This explains high annual costs on sales in 2010-2012. In those years the company acquired $1.08 billion, $1.09 billion and $1.18 for selling trainers respectively.

 

New Balance managed to approve itself among the domestic customers. Unlike Nike and Adidas, which could retain high indices of sales, New Balance rarely managed to acquire professional sportsmen as the potential customers. Yet, it entered the global football market in February 2015. In the same year, it acquired the Rockport company, which was the part of Adidas Group. The brand became recognizable among the political leaders. New Balance’s nickname was “Presidential shoes” after its admittance by the U.S. President George Bush and George W. Bush. As most New Balance shoes were mostly for running purposes, the brand got the name “President of Running Shoes”.

 

When discussing the challenges that New Balance faces, J. Biggar, K. Kendra, and other investigators distinguish raising the competitiveness by changing the design. Manufacturing trendier footwear like that of Nike or Adidas raised the demand among more sportsmen and the abundance of youth. The domestic production requires the increase of customer loyalty and development of the marketing campaign. Imported footwear purchases comprise 99% of all the production. In this situation of high domination of the import, New Balance continues its activity on the domestic market, whereas Adidas and Nike export all of their footwear. For New Balance, it is 25-35% more expensive to produce the footwear domestically rather than import it. Due to the high tariffs on imported production, New Balance can remain competitive alongside foreign manufacturers. 

Selling Improvement

The lesser degree of competitiveness of New Balance brand is the consequence of misusing the online marketing. This channel of publicity allows learning about the product as much as possible. The survey held among the Chinese shows that 57% consumers of the market segment know the brand quite well, whereas 17% of the respondents know the brand perfectly, and 28% of people do not know about the brand. The insufficiency of the online shops is the reason for doubts and the new lawsuits or possible frauds connected with the brand. Certainly, the expenses will be necessary to hire the personnel for creating the web store. Another perspective is to enroll the outsourced IT staff to develop an e-commerce shop and learn to manage it by the leadership team and the salespeople. 

 

Developing an e-commerce platform presupposes the proper logistics. As the year 2005 marked logistics as the problematic issue, New Balance developed the cooperation with the company providing supply chain solutions. Manhattan Solutions deals with warehouse management, supporting material handling equipment integration. The main directions of their activity are provision of chargeback for the retailers in the conditions of increased aggression as well as customer service improvement. Customer-oriented tactics of Manhattan Solutions became the principal factor due to which New Balance chose the company as a partner. The service combines several logistics software applications integrated into one another. Such a system enables simultaneous update due to which the company does not sell the product which is not in stock at the warehouse. In order to exercise the updates, the host system does pre-allocation. In case of absence of a certain item, the system does not create an order until all the facilities are available. Decreasing the human factor improves the accuracy of the product delivery process and better satisfies the customers’ needs. The company saves “half a person” by implementing the software. The processing is automated enough to control all the processes weekly. The possibility to prioritize the orders enables to establish the rank of the order. Additionally, the management or the salespeople can get the necessary information quickly and process it, which makes the online marketing and the software the vital instruments of effective sales.  

 

Product development and its promotion is the other side of better learning about the brand. It is the background that approves the information in the web stores and on TV. Creating the positive characteristics of New Balance footwear will demonstrate the product value. For this purpose, it is essential to learn the customers’ preferences. Classic vintage and evergreen shoes remain the leaders among the most frequently purchased footwear items. Therefore, increased promotion is not necessary for these kinds of production. The survey results show that 48% of clients prefer New Balance for its style, which shows the necessity to concentrate on characteristics. 25% of the clients do not like New Balance design. Therefore, it is vital both to maintain the existing design and create new kinds of products different in modeling and style. Although some companies, like Asics, retain the same design to show the brand uniqueness, Nike produces large assortment of the same product’s types and seasons. Abundant assortment will give the possibility to meet all the clients’ needs, regardless of their taste and preferences. 

 

Pricing policies belong to the vulnerable issue of New Balance. The market requires optimal price between 300 and 800 RMB. As the company’s costs for professional sports footwear are higher and reach 1000 RMB, it is required to use less expensive materials during the production. About 25% of the respondents refused to be constant clients of New Balance because of low paying capacity compared to the high footwear price. As the tariff fluctuations make a negative impact on the customers’ response to the pricing policy, it is necessary to control the prices. Product value and price are indivisible components guaranteeing the reliability of the footwear. Although an equal amount was for and against buying New Balance because of quality, the company should devise more quality products to compete with Nike or Adidas. It is important not only to maintain the existing brand characteristics but also improve them to become more popular. Extending the design kinds of the trainers will meet all the client’s needs regarding style, convenience, color, and size. The possibility to create personally tailored shoes for the customer and design the footwear on his or her own is a prospective competitive advantage. Personal design services should also depend on the paying possibilities of the customers. The affordability of creating uniquely designed shoes is the necessary condition for extending the market share and approving the stable position of New Balance brand. 

 

The after-sale service improvement is vital for approving the trusted brand. It is impossible to oversee the way how the designed footwear will look like in reality sine the customer may not like the trainers that he or she created. Therefore, the customer has the right to refuse and receive the refund. In this situation, the company staff is to replace the pair or make a new offer in order not to lose the client. 

Preserving the brand reputation is another aspect of proper marketing policy for the company. Creating special signs on the shoes or anti-fake labels will prevent frauds and trademark infringements resulting in economic losses. The clients’ ignorance of the brand can cause the purchasing of the fake items. That is why New Balance is to apply the tactics systematically. 

Conclusion

New Balance belongs to the most developed footwear manufacturers both in the USA and abroad. Its direction toward the Chinese market, especially Asian Tigers, allows the application of higher prices due to higher social level of the consumers. Lawsuits and legal difficulties regarding the violation of the trademark’s rights obstruct the capital growth of the firm. The efficient way out is to use the anti-fraud labels to differentiate the fake items from the genuine ones. It will prove the brand quality and show its reputation as that of valuable firm and powerful manufacturer. The online marketing is a new trend in proving New Balance market position. The systematical application of after-sale service, design improvement, and accurate pricing will allow New Balance to become the leading international footwear maker.

 

papermasters.org 

Related essays