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Adidas: Ignore marketing fundamentals at your peril

Adidas: Ignore marketing fundamentals at your peril

Stephen Beath
16 August 2011

So how did Adidas get it so wrong with the recent All Black Jersey debacle? Answer: By simply ignoring one of the fundamental aspects of modern marketing. Modern consumers are more interested than ever before in *corporate integrity*. Profit is seen as ‘ok’ but not greed. When Adidas embarked on a regional pricing strategy it opened itself up to charges of consumer exploitation on a scale not seen before in New Zealand. Adidas did not count on the fact that online retailers operating out of ‘regions’ such as the USA would exploit so ruthlessly the lower wholesale price Adidas charged for the famed All Black jersey, thereby undercutting New Zealand retailers who pay a significantly higher price.

So why did Adidas not level the playing field for its Retailers worldwide by agreeing one wholesale price? Because Adidas knew New Zealander's historically were ‘used to’ paying higher prices for licensed products and were also relying on the innate loyalty of All Black fans to turn a blind eye to this pricing anomaly. To rub ‘salt in the wound’ Adidas tried to argue that New Zealander's should show a bit of loyalty to local Retailers by buying locally while at the same time favouring its offshore Retailers with significantly better wholesale pricing.

So how different were the wholesale prices charged for New Zealand retailers versus offshore? At a guess, based on the retail prices advertised, it would not be unreasonable to assume local retailers were paying the equivalent of $USD120 per jersey (with full RRP at around $NZD250 inc. GST) while their online counterparts operating out of the USA were paying around $USD50 (no gst). Note the raw cost of producing each jersey (design, fabric and manufacturing) would amount to around $USD5 plus another $15 to $20 of license fees to the IRB/NZRFU. So Adidas stood to make significant profits off each jersey sold to a New Zealand retailer (roughly $USD100 per unit) while more traditional margins of $USD25 could be achieved through sales to other regions such as the USA.

Unfortunately for Adidas the globalisation of retailing via the internet coupled with the power of social media such as Facebook has caught it out. The uproar created when Adidas did not back down in the face of intense media scrutiny has undoubtedly harmed its reputation both among consumers and retailers in New Zealand. In short global corporations like Adidas will need to rethink its strategy with the face of retailing now opening up greater price transparency online. The downside will also be a rethink of the value of sponsorship deals and how much support a global brand such as the All Blacks is really worth when price exploitation is no longer possible.


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