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Under Armour – Positioning Themselves For The Next Win

Under Armour global strategyA corporate strategy article by Thunderbird students Eric Chown, Veronica Yusz, David Prestin, Sarah Olsem and Rosemary Geelan

The Under Armour brand evokes an image of elite athleticism, almost at odds with the company’s humble beginnings in the home basement of the founder’s grandmother. A simple idea ultimately developed into one of the most prominent names in the industry. As the company evolved, the relative importance of the strategic challenges they faced changed as well. One shift has already occurred – from word of mouth advertising to promotion by professional athletes – and this will likely be insufficient to expand their market in the direction that they are focusing on with their newest production lines. Their marketing strategies and ability to maintain the share they have established will be tested as they move away from their traditional customer base and into new niche markets. The challenge to Under Armour is whether to change their strategy as they expand, or to apply their initial model in new, innovative ways. Both have risks if not executed properly.

History

Under Armour founder and CEO Kevin Plank played college football at the University of Maryland, where the inspiration for Under Armour was born. He complained of heaviness and weighed-down feeling of his cotton undershirts during football games and desired a better solution. He researched and found such solution. After developing his first prototypes, his former teammates, now in the NFL, were his test subjects [8].
Under Armour was founded in 1996 with one goal: to create an athletic shirt that was superior to cotton, enhancing performance on the field. What they created was a compression fitting, sweat wicking shirt around which the early business model was structured. They did not have the financial means of the market leaders - at the time Nike and Adidas - to start large marketing campaigns, and therefore focused their marketing on direct, inexpensive measures. In its first year of operations, Under Armour generated $17,000 of revenue driven solely by word of mouth advertising. The following year Jeff George, then the quarterback for the Oakland Raiders, wore an Under Armour mock turtleneck on the front page of USA today. Once NFL players were seen wearing his gear, Plank focused on marketing Under Armour to entire football programs. The move was successful. This serendipitous product placement led to small contracts with universities. The biggest break for Under Armour, though, came when a jock strap prominently displaying the company logo was featured in “Any Given Sunday”. At this juncture, they shifted their strategy from pure word of mouth to couple the movie release with an ESPN ad. This was the company’s first step into strategic marketing, as well as the first time that they had used any marketing efforts outside of free samples to promote the brand.
Despite not previously having a clearly defined marketing strategy, Under Armour was able to build a strong market presence, excelling in part because of their underdog image. They were ignored by the well-established brands due to their size, and not deemed a threat because of their niche base. By 2007, after only 10 years in the industry, it was estimated that the company controlled 75% of the performance athletic apparel market. Throughout Under Armour’s history, the customer base target was highly concentrated on a particular set of individuals: young, high performance athletes. By creating buzz within this market in the early stages of development through deals with colleges and associations with professional athletes, they were able to dominate this niche market.
One of the more unique aspects of this rise is that Under Armour’s strategy did not include registering patents on the specialized materials or processes used to manufacture their clothing. The material that initially launched the business was not invented by Under Armour, continues to be widely manufactured, and has been in existence for an extended period of time. Subsequent to their rise in popularity, the company has expanded to cotton-based products and recycled materials. Their early market success, however, was based solely on one specific material that the company did not control.
Under Armour began doing business with an access-based positioning strategy, providing only college and pro athletes with access to their products [9]. The positive publicity created by these athletes shaped the market for consumers to want to own those same products.
The company’s 2005 Annual Report states that “our uniforms, batting gloves, socks and other items of apparel are seen on the field, giving our products exposure to various consumer audiences, through television, magazines and live atsporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see ourproducts being worn by high-performing athletes.” Even with the brand permeating into high schools and regular consumers across the nation, the same sentiment remains true today. Under Armour creates buzz and brand recognition with its college and professional athletes/teams. This was made ever apparent during a 2011 football game played by the University of Maryland Terrapins, for whom Under Armour designed a uniform based on their state flag. This uniform itself created news across the nation, and got people discussing both Maryland football and Under Armour.

Will Under Armour’s marketing strategy hinder its future growth?

Under Armour’s growth over the past 5 years has been substantial with its revenue exceeding $1 Billion in sales and its 5-year compound annual growth rate being upwards of 30%, but it still only holds a minority share of the athletic wear market, with Nike still in a dominant position with revenue of approximately $18 billion in 2010 [5]. In addition to being a relatively small volume player, Under Armour also maintains that its advantage lies in its strong brand image and focus on long term customer relationships. This core strength is somewhat tenuous to maintain; whereas competitors like Nike espouse expertise and competitive advantage in operations, marketing, distribution, and retailing, among others. One specific example is that Under Armour, as of year ending 2010, did not own any patents, whereas Nike holds 4000+ patents. Additionally, Nike focuses very strategically on cross functional innovation from product design, manufacturing, distribution, as well as retailing to continually drive increased revenues and keep ahead of its competitors [6]. Under Armour, on the other hand, maintains numerous trademarks and copyrights, and is more recently filing for patents on some of its more advanced functional apparel. However, it still seems to not be generating and maintaining “new and innovative” knowledge as measured in patents (read inventions) even in its core competencies like product design.. Their products are easily copied from a material and form perspectives so near duplicates are available if not direct substitute offering from Nike, Adidas or other competitors.
This places them in a tenuous long term position. In recent earnings reports they expressed concern about maintaining growth in revenue, demand, and business complexity. Under Armour is beginning to look for growth through expansion. While their brand identity remains its primary values, they are looking for new ways to serve the customers who already value the Under Armour brand. They are expanding beyond the high performance athletic wear into other arenas including footwear, women’s clothes and hunting gear. This is a major shift for a company that for its first 5 years produced a single shirt and took another 5 years adding small modifications such as sleeve length and tightness. The Under Armour brand has developed value and strength in this segment through a continued commitment to meeting the athlete’s needs and servicing of high end clients such as college athletic departments. As they push into these newer spaces though, they cannot carry all this brand value with them because it is not the value upon which they have built their image. Their iconic images of football players in the skin tight athletic shirts do not have a clear way to translate to these new spaces. Their focus on their brand image has allowed them to strengthen their core but has given them a more difficult path to expand than companies who are driven by technology. They will need to find a way to create a similar brand identity in these arenas. This is definitely possible as consumers like avid hunters can see value in a brand with a dedicated design team focused on their specific needs and prioritize high end gear, but that image will need to be cultivated and grown in order for Under Armour to show its brand is a leader in hunting gear or footwear and therefore lead toward success and growth for the company overall.
While Under Armour’s move into hunting and women’s apparel seems to indicate that the company sees its market as needing to expand, they need to have a concerted and strategically focused effort to make this move successful. The fickle tastes of the consumer market could make their existing image an outdated model, preventing them from expanding in a meaningful and profitable way. Interestingly, the brand currently retains its strength, as evidenced through market rumors of a possible tender offer by Nike to acquire the company as recently as September.
The importance of Under Armour’s original strategy of word-of-mouth advertising can’t be stressed enough. The simple idea of applying an existing sweat-wicking technology to athletic attire and marketing the product through elite athletes was a blue ocean strategy that managed to sidestep the existing brand behemoths. The strategy enabled Under Armour to grow faster and more profitably than could otherwise have been achieved, but the evolution needs to continue to ensure sustained success. Rumors of a potential acquisition by one of their biggest competitors show the strength still in the brand; it’s up to Under Armour’s management team to find that strategic move to keep catapulting themselves forward.

[1] http://www.thefreelibrary.com/Protecting+the+house+of+Under+Armour.-a020...
[2]http://abcnews.go.com/Nightline/armours-rise-athletic-ranks/story?id=109...
[3] http://files.shareholder.com/downloads/UARM/1478596026x0x452384/C8786075...
[4] http://www.businessweek.com/magazine/content/07_18/b4032069.htm
[5] 2011 Nike Annual Report. Letter to Stockholders
[6] 2010 Under Armour Annual Report
[7]http://www.lobshots.com/wp-content/uploads/2011/09/309205_28019192199810...
[8] http://sportsillustrated.cnn.com/2009/more/04/09/under.armour/index.html
[9] Porter, Michael. “What Is Strategy?”
[10] 2005 Under Armour Annual Report
[11] http://blog.vistage.com/business-innovation/the-3-stages-of-innovation/