Reference no: EM13851954

Under Armour Uses Pricing in the Race for Market Share

Baltimore-based Under Armour is on a mission "to make all athletes better through passion, design, and the relentless pursuit of innovation." Founded by Kevin Plank in 1995, the company made its name with a unique moisture-wicking shirt to keep athletes dry and comfortable during games and workouts. Over the years, it has introduced a wide variety of innovative clothing, accessories, and footwear for specific sports and to support athletic performance in challenging situations, such as in hot, cold, or wet weather conditions. It has raised its public profile through marketing efforts such as outfitting college football teams and U.S. Olympic teams, sponsoring the Under Armour All-American football game, and endorsement deals with outstanding athletes like Olympic medalists Michael Phelps and Lindsey Vonn.

With more than $2.2 billion in annual sales, Under Armour is growing quickly and setting its long-term sights on catching up with industry giants such as Nike and Adidas. Despite high brand awareness, Under Armour has limited financial resources that must be stretched across every product line, whereas Nike, Adidas, and other major competitors possess the financial strength to introduce and promote a multitude of products in multiple categories at one time. Therefore, Kevin Plank, who founded the firm and also serves as CEO, is focusing Under Armour's resources on the specific, high-opportunity markets.

For instance, Plank wants to increase Under Armour's share of the extremely competitive but highly lucrative market for athletic shoes. Since introducing its first athletic shoes in 2006, the company has increased shoe sales at double-digit rates year after year, taking market share from rivals in certain specialized segments. In the market for cleats, Under Armour rocketed to second place only months after launching its first line of football cleats and baseball cleats.

Plank recently set the ambitious goal of making Under Armour the third-largest brand in running shoes, trailing only market-leading Nike and the runner-up brand, Asics. Running shoes are a $7 billion market-and Plank sees product-line pricing as the key to becoming a major player here. The company initially set premium prices starting at $100 per pair, based on each athletic shoe's innovative features and benefits. But it can't significantly increase market share in running shoes without offering a range of products at a range of prices for buyers with different needs and motivations.

So although Under Armour will continue to offer higher-priced running shoes, it is also introducing new running shoes priced between $70 and $100 per pair. This will attract new customers and lay the foundation for repeat purchasing, because customers who are satisfied with their experience will be more likely to buy from Under Armour again. Just as important, these customers may decide to trade up to more expensive footwear the next time they buy from Under Armour. Thanks to this pricing strategy, Under Armour's share is already inching up, and it has become the number-three brand at some of its retailers. However, the race is far from over. The company still holds less than 5 percent of the market for running shoes, whereas market-leader Nike holds a commanding 57 percent market share.

In combination with pricing, Under Armour is relying on innovative product development for growth. Although the company's initial moisture-wicking clothing products were designed for men, it also sees considerable sales and profit opportunity in the market for women's athletic apparel. Looking ahead, it plans to build the women's line into a $1 billion business and, ultimately, generate enough momentum for sales of the company's women's clothing to surpass sales of men's clothing in the future.

To keep the innovations coming, Under Armour holds an annual "Future Show" competition offering cash prizes and contracts to encourage inventors to submit new product ideas. Two years after an inventor won the competition with a unique zipper that athletes can operate with one hand, his invention was incorporated into thousands of Under Armour jackets and outerwear. Under Armour is currently testing another winner's invention, LED lights embedded in shirts, jackets, and backpacks so athletes can see and be seen in the dark as they jog, compete, or practice. Although the technology might result in prices as high as $250 per product, Under Armour believes sports-minded customers will see the value in these cutting-edge products.

Questions for Discussion

1. Of the various pricing objectives, which one does Under Armour appear to be pursuing in its marketing of running shoes, and why?

2. When Under Armour prepares to set the price for a new shirt equipped with LED lights, how much emphasis should it place on its evaluation of competitors' prices?

3. Would you recommend that Under Armour use cost-based pricing, demand-based pricing, or competition-based pricing for a new shirt equipped with LED lights? Explain your answer.