Marketing Strategy for Competitive Advantage

CRUCS CASE STUDY

Revolutionizing an Industry's Supply Cbain Model for Competitive Advantage










Presented by-
Croup
Akanksha Chauuhaiy
Bhaiauwaj
Piaveen Banui
Piiyanka Shukla
Sujata uoiai



EXEC0TIvE S0NNARY

Three Iriends Lyndon Duke Hanson, Scott Seamans, and George Boedecker, Iounded Crocs Inc. in the
year 2002 in Colorado, USA. As the Iirm grew, it acquired Foam Creations in Canada to own
manuIacturing operations, under the leadership oI Ronal Snyder in 2004, and gained sole rights.

Crocs is a designer, manuIacturer and retailer oI molded, casual Iootwear Ior men, women and children.
All Crocs Iootwear Ieature a proprietary closed-cell resin called Croslite` that provides the wearer with
extreme comIort by taking the shape oI the Ieet oI the wearer due to heat. The company boasts the
Iootwear as being ideal Ior casual use as well as Ior proIessional and recreational uses viz. boating,
hiking and hospitality. The product is claimed to be lightweight, slip-resistant, and odor-Iree, and is
available in several bright colors.

Crocs shoes are sold across 129 countries and come in 250 styles. The company has also diversiIied into
apparel and accessories. One major acquisition has been oI that oI Jibbitz show charms, Ior which the
company has also acquired licensing agreements with Disney, Nickelodeon, Warner Bros. and DC
Comics.

The case discusses the phenomenal supply chain management oI the company that has been a major
reason Ior the success oI the company, besides oI course the popularity oI the shoes. The achievement oI
an extremely Ilexible supply chain was the vision oI Ronal Snyder, CEO, to meet customer`s demand
based on the exact same principle Iollowed by soItware giants. This supply chain provided Crocs with a
competitive advantage in the Iootwear industry.

Crocs had the highest proIit margin in the industry at 56.5 in 2006, considerably higher than that oI its
competitors. Crocs created a blue ocean by creating diIIerentiation and low costs and breaking out oI the
red ocean. This resulted in global expansion and quick growth. ProIits increased Irom $10.9million in
2004 to $763.3milion in 2007.

Later in the case study, we will see the Industry Analysis to understand the competitive scenario. This
reveals that Nike is the market leader, Iollowed by Adidas.

A look at Porter`s Model shows that consumer`s bargaining power is a major threat in the industry.

We also see the standard manuIacturing practices in the industry compared to Crocs` manuIacturing
techniques.

The SWOT Analysis gives an understanding oI the potential threats and rising opportunities.
Customer`s changing tastes and threat oI substitutes pose immediate threat to the Iirm, but it can
capitalize on its unique product range and supply chain in order to gain a majority market share.













INB0STRY ANALYSIS

The global Iootwear market has grown Irom $153.2 billion in 2004 to $189.3 billion in 2007. Although
the Iootwear industry is in the maturity stage, it is known that the demand Ior the product will not
decline. Hence, global sales are Iorecasted to reach $238 billion in 2013. Footwear industry is a highly
Iragmented market. The industry experiences intensive competition led by major Iirms such as Nike,
Reebok, Adidas, and Converse. Nike is the industry leader, Iollowed by Reebok and Adidas; Nike has a
market share oI 47, Reebok - 16 and Adidas - 6.


Competitors

Nike
Nike is the world`s largest designer and marketer oI athletic Iootwear and apparel. The stores are located
over 180 countries. Nike is based in Oregon. It runs its manuIacturing operations primarily in Asia.
Nike`s Iootwear accounted Ior 60 oI the company`s total net sales in 1999, aIter which the Iirm
attempted to become more diversiIied. Nike`s largest share oI sales comes Irom United States. Nike is
one company to have crossed the $5 billion mark. Nike`s target consumers were 18-44 aged people,
with six-digit income.

Adidas
Adidas is in the second position in the global market. It is based in Germany and sourced 97 oI its
Iootwear Irom Asian. Its main market is the Europe region. The Iirm had only a 3 market share in
2005, but aIter the acquisition oI Reebok in 2006, the share jumped up to 9. Footwear sales accounted
Ior 45.5 oI the total sales Ior Adidas in 2007. Adidas target slightly young aged, 18-44 and was
especially popular among Hispanics and AIrican Americans.

Other competitors include Puma (Germany), New Balance (USA largest privately held manuIacturer),
and C&J Clark (UK-based) nearing the $2.0billion mark.


P0RTER'S FIvE F0RCES N0BEL
O Threat Irom Existing Competition
The industry is characterized by easy entry and exit. The market is competitive, with the industry being
described as red ocean, oIten. The market has reached maturity stage, and the growth is slow-paced.
Firms are always attempting to lower costs and manage supply chain eIIectively to meet the changing
demand. There is always a potential threat oI a competitor eating into the market share.

O Threat Irom New Entrants
The Iootwear industry is an easy market to enter Ior new players. Investments required are not huge, and
raw materials are easily available. Legal policies are not strict, except in cases oI imports in some
countries. However, human rights issue is a major cause Ior concern in the Iootwear industry.
ManuIacturing/outsourcing decisions are used Ior low costs.

O Threat oI Substitutes
As entry is easy, substitutes are a major threat. Pricing becomes a key concern. Knock-oIIs also pose a
great threat to companies even though certain designs are proprietary.





O Bargaining Power oI Suppliers
Shoes are mostly made Irom similar raw materials that are easily available. So, most Iirms manage to
get materials at low costs. However, Ior Crocs, this is not a problem because it owns the manuIacturing
units and has a proprietary right over croslite.

O Bargaining Power oI Consumers
Consumers have the greatest power in the Iootwear industry due to availability oI substitutes. Price and
quality are major attributes oI the product. Changing consumer taste is a potential threat. Changing
Iashion and trends and even Iads are a problem Iaced by manuIacturers. Competitors have come up with
the concept oI Shoe Design` to give the consumer the ability to custom design shoes that are delivered
with two weeks.


SW0T ANALYSIS
O Opportunities
Market penetration in the Iootwear industry is still considerably low, especially in Asia-PaciIic region.
Developing countries like India are emerging markets with huge population Ior Iirms to capitalize on.
Purchasing power oI people in these countries is increasing, thus showing potential target consumer
groups.

O Threats
Substitutes and knock oIIs pose great threat to major players in the industry. Since pricing and quality
are major concerns, low costs are the main objectives.
Changing trends and consumer taste are also a serious threat.

O Strengths
Crocs` unique design that oIIers great comIort, odor-Iree, slip-resistant lightweight shoes at
comparatively lower prices is a distinctive competency.
Supply chain Ilexibility oIIers Crocs a competitive advantage over the other Iirms.

O Weakness
Crocs is required to distinguish its product, especially with the usage oI croslite in its Iootwear. This
makes it diIIicult Ior Crocs to develop new products in the Iormal range.


FINANCIAL ANALYSIS

While 92 oI company`s revenues came Irom Iootwear, the remaining 8 was Irom the sales oI
accessories and apparels.

Revenue has increased over the years and reached $354.7 million in 2006. There has been a tremendous
increase in cost oI the goods sold and was reported to be $154.2 million in 2006 Irom $47.8 million in
2005. Net proIit margin has also been increasing and it was Iound to be 18.2 in 2006. Revenue was
Iound to be $142 million in the year 2007 Ior Q1. Gross proIit was reported to be 84.4 in the Iirst
quarter oI 2007.

In comparison with competitors viz. Nike and Deckers, gross proIit margin oI Crocs has been
considerably higher. Debtor`s turnover ratio is the highest in the industry, indicating that Crocs is
eIIicient at handling debts. Asset management is also perIormed well at Crocs.



But looking at the inventory turnover ratio, Crocs is one oI the lowest in the industry. This shows that
Crocs is unable to turn inventory into cash as eIIectively. It is seen that in 2006, Crocs has inventory
worth $86.2million compared to $28.5million in the previous year. This shows that Crocs capital is
blocked in its stock.

%otal Net Sales YoY Change

2004 $13.5m -

2005 $108.6m 703.10

2006 $354.7m 226.70

2007 $847.4m 138.90

As seen Irom the table, sales increased by approximately 700 in 2005 compared to the previous year,
and in the Iollowing years, the growth rate declined.































AB00T CR0CS INC.

Mission
Bring proIound comIort, Iun and innovation to the world`s Ieet.


Brand Attributes
O Innovative
Crocs shoes are distinguished Irom others by the Iollowing motive oI the Iirm - Radical thinking, health-
minded research, and providing solution to the Feet.

O Fun
Colors and designs oIIered and the emotional experience served are important to Crocs to create its
brand image.

O ComIort
Crocs claims to oIIer proIound comIort, ergonomic design, massaging Ioot bed, and lightweight.

O Simple
Crocs believes in keeping its products simple with a versatile Iunction.


Crocs Shoes


Clogs with Croslite

Target Consumer Segment:
Men, women and children oI all ages
Diabetic patients and other ailments

Crocs shoes are liIestyle products that exhibit personalities like trendy, Iun, and high Iashion, dressy,
casual and active.

Various models oIIered include mammoth, clogs, sandals, Ilats, heels, boots, slip-ons, Ilip Ilops, sport,
work, Ocean Minded among others.
Crocs started oII as a company with about 25 models in 2004, and reached a point in 2007 when it
oIIered 250 models. Original design was the clogs that kids could personalize with Jibbitz. Over time,
Crocs extended its line by using usual raw materials like leather and suede with croslite soles.





S0PPLY CBAIN NANAuENENT

For consumer, Crocs designed an extensive distribution system so its shoes were available in a variety
oI retail outlets Irom specialty stores to department stores and large shoe store chains.

Footwear companies have two alternatives to choose Irom in the manuIacturing oI their products; they
can both own and operate the Iactories that produce their products, or outsource operations. Factories
may be located internationally or locally. Most Iirm practice outsourcing oI operations to enable reduced
costs.

Crocs believed in meeting customer demands in the current season. Supply Chain was Crocs main
Iocus. Crocs had adopted the global logistics strategy. The Iirm was vertically integrated and by 2007,
had acquired various units all across the world Ior its operations to cater to diIIerent consumers. Hence
it was Iaced with large capital expenditure requirements and the management oI the Iactories
themselves. Yet Crocs did a tremendous job at supply management. Where its competitors Iollowed the
seasonal order placements, Crocs had a delivery time oI two to Iour weeks Ior newly placed orders,
indicating how Crocs understood the demand Ior the product. Crocs owned the manuIacturing,
warehousing and retails units in almost all countries. With its eIIective management, Crocs was able to
maintain low costs. Any other company in the Iootwear industry did not achieve such a Ilexible supply
chain.

The Iirm maintained good proIessional relations with the retailers, and deployed its own personnel in
stores and provided a store-in-store experience to customers.


C0RE C0NPETENCIES

O &nique Product
Crocs is the only company that oIIers shoes made oI croslite. This material ensures extreme comIort to
the wearer. Crocs owns proprietary rights over the material, and this becomes the Iirm`s distinctive
competency.
Since Crocs is the only Iirm with the sole right oI manuIacturing such Iootwear, it should ensure no
knock-oIIs are sold in the market in its name.

O lexible supply chain
Crocs understood the dynamic Iootwear industry and built a revolutionary supply chain to meet the
demands oI it consumers. Crocs is able to replenish stocks within weeks at short notice. This gives the
Iirm a competitive advantage over the rivals.






Other than the core business activities, Crocs has initiated a program called Crocs Cares to provide the
inhabitants of disaster affected areas with shoes in over forty countries.




8

C0NCL0SI0N

Crocs has managed to develop an extremely Ilexible supply chain in order to meet customer and retailer
demands, similar to none other in the Iootwear industry. The Iirm is extensively vertically integrated and
has Iollowed a pattern oI a series oI acquisitions Ior growth.

Another advantage Ior the Iirm is the sole proprietary rights over the croslite material. However, Crocs
has learnt the need to extend its product line and incorporating materials like leather and suede in its
products.

Crocs has also managed to lure its customers by acquiring the charm business, and also by diversiIying
into accessories and apparels.

Although the Iirm is showing year-on-year proIits, it is seen that by Iollowing the model oI semi-
Iinished products to achieve quick delivery, it is Iaced by the problem oI low inventory turnover. The
important thing to understand is that the industry is dynamic, and the demand is quite unpredictable due
to varying trends. Thus, Crocs will continue doing better by Iocusing on the end-user product.

































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REFERENCES

www.packageufacts.com
ulobal Footweai Naiket Repoit

http:aiticles.moneycential.msn.com
Bow Ciocs Is 0utpacing The Pack

http:logisticsviewpoints.com
Ciocs Revolutionaiy Supply Chain

http:www.blueoceanstiategy.com
Ciocs Review

http:ezineaiticles.com
Bistoiy of Ciocs

http:www.hooveis.com
Factsheet of Ciocs

http:company.ciocs.com
About Ciocs - Company Piofile