Daily thoughts, observations, and speculations
Cost Leadership at Under Armour
When a company is a cost leader, they reduce their cost below that of all their competitors. UA does not do this; rather they sell a premium product and charge a considerably more expensive price for what they consider a quality product.
UA’s justification for the lofty price is that the sports apparel’s superior technology will outlast its competing, regularly priced clothing. Because UA was one of the first to market with this technology, they enjoyed large profits. However their niche market was quickly flooded with similar products. UA uses a product differentiation strategy, backed by an aggressive marketing campaign, to compete in this environment.
There are few ideas from cost leadership that can be “stretched” to fit to UA’s strategy. This week’s blog will take a very brief (brief because CL is not UA’s primary strategy) look at a couple of these concepts and try to fit them to UA’s business model.
Cost leadership derivatives that can be seen at UA include economies of scales (by means of buying in bulk), cumulative experience (for product design), and scope. This helps the firm obtain the lowest cost of operation.
The global value chain posted in last week’s blog demonstrates the attainment of supplies for the sports apparel industry. UA seeks out quality suppliers and sources in bulk from Asia, Central and South America and Mexico. According UAbiz.com/products.cfm they “actively seek out vendors that can perform multiple manufacturing stages, such as procuring fabric and providing finished products, helping (UA) to reduce the cost of goods sold.”
Further, UA has an aggressive talent acquisition program that recruits the best designers and engineers to continually refresh their line of clothing. UA relies heavily on its product design to offer a better product to its competitors.
Finally, UA maintains their scope of operations by selling in a niche market, the sports performance apparel market. Lately they have been criticized for their operating philosophies in this market. In a controversial move, UA has entered the shoe industry. Accordingly, UA considers it a simple differentiation of their product line, while others argue they are extending outside of their scope of operations into an entirely new industry. This demonstrates how companies need to define their scope to either categorically operate within a market, or serve the broad needs of the entire customer base within said market.
It is hard to definitively apply the concepts of cost leadership to UA. Their strategy centers on differentiation, wherein they offer a high quality product and charge a premium. They rely heavily on marketing and promotion to persuade potential customers. Apparently UA is feeling the pressure to offer new products to their customers, as they have entered the competitive shoe industry. While UA feels they are remaining within their scope of operations (the sports performance apparel industry), critics feel they are entering an entirely new industry (the shoe industry).