VRIO Analysis of Adidas

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Adidas (ETR: ADS) is a leading brand of sports shoes and apparel and among the main competitors of Nike. The company enjoys strong popularity and maintains a strong global presence.

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Apart from a large product range and strong marketing and sales capabilities, the company also enjoys strong customer loyalty. 2020 remained a challenging year for Adidas when the company’s bottom line was hit by the pandemic.

Apart from supply chain disruption and reduced manufacturing capabilities, it also caused demand and sales to decline. Sales and net revenues declined heavily during the second quarter but again rose towards the fourth quarter.

However, while the pandemic hurt businesses across various industries severely, companies across various industry sectors including sports shoe industry intensified their focus on digital technology. The result was that while the overall revenues of Adidas in 2020 declined by 16%, the company still enjoyed a strong growth in sales through digital channels. 

2021 has proved to be a significantly better year for Adidas as the company is enjoying a significant improvement in sales and revenues over the first half of the year. During the first half of fiscal 2021, the company has experienced a growth in net revenues of around 33%.

Adidas has maintained a strong position in the industry and is among the industry leading brands in the sports shoes and apparel industry. However, the market is  currently dominated by Nike and Adidas is consistently investing in technology and marketing to maintain its market position. 

In any industry companies need to achieve a strong competitive advantage to gain a market leading position. We will analyze Adidas’ sources of competitive advantage in this article and how its resources and capabilities have helped the company gain a strong competitive edge over its rivals.

In this VRIO analysis, we will study which core competencies of Adidas have helped it achieve a sustainable competitive advantage.

What is a VRIO analysis?

VRIO is an acronym, which stands for Valuable, rare, inimitable, and organized. These four terms represent the four properties of core competencies that can help companies gain a secure and sustainable competitive advantage.

Core competencies arise from the resources and capabilities a company owns. Nearly everything that a company owns can be classified as a resource or capability.

However, these resources and capabilities do not give rise to core competencies all by themselves. They have to be uniquely bundled to achieve a competitive advantage.

Apart from that, when they meet all the four criteria defined above, they generate a sustainable competitive advantage. 

VRIO Analysis of Adidas:

Core CompetenciesValuableRareImitableOrganizedCompetitive advantage
Product qualityYesYesYesYesCompetitive Advantage
Product rangeYesYesNoYesTemporary advantage
MarketingYesYesNoYesTemporary advantage
ManufacturingYesyesNoYesTemporary advantage
Customer experienceYesYesYesYesCompetitive advantage
Digital technologyYesYesNoYesTemporary advantage
InnovationYesYesYesYesCompetitive advantage
HRM & cultureYesYesYesYesCompetitive advantage
Brand imageYesYesYesYesCompetitive advantage

Product quality :-

Product quality is a significant driver of competitive advantage for businesses. It helps companies build and sustain a competitive advantage. Brands that continuously focus on product quality are able to generate higher popularity and brand loyalty.

Adidas has also invested in product quality to maintain its market position and competitive strength. Apart from top quality raw materials, the company has also invested in building top quality manufacturing processes.

While it has enabled the company to find faster growth, it has also enabled it to achieve a dominant position in the market and sustain its competitive advantage.

Product range:

Companies serve the needs of diverse customer segments. However, while a large product range drives higher sales and profits for customers, it also helps companies serve diverse customer segments. 

Adidas sells a large range of products in diverse price segments. The company mainly targets the young generation but also sells products for customers in the 45 to 65 age group.

A large and diverse product range is a key source of competitive advantage for the brand. However, there are several rivals in the market that also sell matching products.

So, while its vast product range is a key source of competitive advantage, it only offers a temporary advantage and the company needs to continuously invest in updating its product range and product innovation to maintain its competitive edge.

Marketing:-

Marketing is also a key source of competitive advantage for brands across various industries. Across nearly every industry from fast food to fashion and technology, marketing has played a key role in helping companies build enormous growth and drive superior sales and a strong competitive edge. 

In the case of Adidas too, marketing has played a key role in helping it develop its competitive edge.  Its branding and marketing strategies have played a leading role in helping it cement its position in the sports shoes and lifestyle industry globally.

Adidas markets its brand and products using both traditional and modern channels. The physical stores of the company are a key channel the company uses to market its brand and products. However, with the pandemic, the focus on digital channels for marketing and sales has grown.

It has also helped the company generate higher sales and strengthen its competitive edge. Overall, marketing and branding offer a distinct advantage to any brand and help it differentiate itself from the rivals. 

However, while marketing can help brands achieve a leadership position, it is not an easy task. Nike excels at this art and its marketing strategy is cited worldwide as one of the best.

Adidas has not been unable to generate the same advantages from its marketing strategy. It is why its competitive position compared to Nike is weaker. In the case of Adidas, marketing is a source of temporary advantage.

Manufacturing:-

Manufacturing and supply chain management are also key sources of competitive advantage for brands which can help them cement their competitive position in the industry. In order to keep its production costs competitive, the company has outsourced nearly all of its manufacturing to external manufacturers.

However, that does not mean the company  has compromised in terms of quality and innovation to reduce costs. It has instead carefully selected its manufacturing partners to make production simple.

It offers its manufacturing partners detailed specifications for production and delivery. These manufacturers possess excellent expertise in manufacturing footwear, apparel, and accessories.

In 2020, Adidas worked with 132 independent manufacturing partners. By outsourcing its manufacturing, the company is able to focus on other aspects of its business like product design and marketing.

The company has outsourced manufacturing but still employs excellent manufacturing processes and technologies that are a key source of competitive advantage for the brand.

Customer experience:-

Customer experience is a key focus area for businesses in the twenty-first century. Companies have grown their focus on customer experience since it drives higher customer loyalty and sales.

Adidas is also investing in innovation, marketing and product quality to maintain customer loyalty. Apart from that, it ensures that the company offers its customers the best experience at all the touchpoints.

From marketing to sales and customer relationships, the company has maintained excellent focus on all these areas that are customer facing.

Superior customer experience has led to higher sales and superior revenues as well as a superior competitive position for the brand in the global market.

Digital technology:-

The pandemic has highlighted the importance of digital technology for businesses across all industries. It is a key driver of performance and competitive advantage for businesses worldwide.

Adidas is a leading sports shoes and apparel brand. In the sports shoes industry also businesses are investing heavily in technological innovation for faster growth.

Digital technology has helped firms acquire after growth and reach a larger number of customers worldwide even during the pandemic. Adidas successfully retained a large part of its annual sales using digital sales channels which accounted for a very large part of its sales in the last fiscal.

Overall, while digital technology is a significant source of advantage for the brand, it is not an inimitable source and therefore offers only a temporary advantage.

It is why the company has to continuously invest in digital technology and innovation to gain a sustainable advantage. Its rival firms also have  access to the digital resources and Nike, which is the leading rival of Adidas, is way ahead of the other companies in terms of digital marketing and sales.

For Adidas there is still a long way to go to build distinct technological capabilities that offer a significant and unmatched advantage.

Brand Image:-

Any firm’s brand image is among the most critical sources of competitive advantage for the brand. It differentiates the company from the rivals in the market and the stronger the brand image of a firm, the stronger its market position.

Adidas has maintained a strong brand image in the global market. Its image is that of a customer friendly and innovative brand which has enabled after growth and higher popularity for its business.

The company also invests in CSR and sustainability to maintain a strong social image. Its brand image is a critical source of advantage for the brand and offers a sustainable competitive advantage.

Human resources and organizational culture:

An organization’s culture is one of its most valuable assets. The company’s growth and popularity are linked to its culture. A firm’s human resources are also among its core sources of competitive advantage.

They are among the company’s most important assets. The companies that focus on grooming their employees’ performance and nurturing a culture that fosters innovation and drives higher productivity, find higher success in the long run.

Adidas has also established a unique and excellent work culture that drives higher performance and productivity. Compared to most of its rivals in the market, Adidas has done a fine job in terms of work culture and employee management.

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Even Nike has been unable to beat Adidas at it. Nike’s work culture on the other hand has often been criticized for being toxic. In this way, Adidas has earned a sustainable competitive advantage through its consistent focus and investment in culture.