MARKET ANALYSIS

A closer look at the Italian shoe market shows that it is a considerable one, both
because it comprises around 60 million potential customers and because the
Italian customer is particularly keen on shoes. Most importantly for Red Wing
Shoes, there is a relevant market for high-end shoes and the customers show a
great appreciation for quality and resilient products. Furthermore, the annual
statistical research carried out by Istat (the Italian institute of statistics) shows
that the Italian customer is more inclined to pay premium prices for clothing than
for other products (e.g. automobile and especially leisure industry). This is due to
cultural reasons and it is an aspect on which all shoe manufacturers rely.
At the same time, as data released by Ermenegildo Zegna CRM office show, it is
very difficult to win the customers loyalty. Like the japanese one, the Italian
customer for clothing is mature and sophisticated, follows the fashion trends of
the moment and keeps changing his tastes. Initially, this could be an advantage
for Red Wing Shoes, because it will be seen as a novelty and if it is able to
leverage this point it can acquire some market shares from competitors, but in a
second phase it also means that it will be very difficult to keep this market share.
Given for granted the high quality of the product, in order to retain its customers
Red Wing will have to make massive efforts in terms of after sales services,
promotions and customer relationship management.
Below a SWOT Analysis summing up all the most relevant findings:

Figure 1. SWOT Analysis for Red Wing entrance into the Italian market
Moreover, in order to analyse the market from a more comprehensive
perspective, Michael Porters five forces analysis is an useful tool.

Suppliers appear to be the least critical business counterpart for Red Wing
Shoes, whilst the other categories pose some serious challenges. Owing to its
long history and its solid reputation, Red Wing Shoes has great negotiating power
towards suppliers. Another positive aspect is given by the fact that there is no
real substitute for shoes and the product is not likely to disappear from the
market in the near future. At the same time, though, shoe is a very generic term,
and there are infinite typologies of subcategories of this product, each of them
stealing shares from the others depending on fashion, weather conditions,
demographic trends
and so on. Red Wing Shoes wide product portfolio
represents a good answer to this challenge, even though there are still many of
these subsegments which are not covered by Red Wing offer.
A major downside to this point is given by the fact that the company is perceived
as a manufacturer of only working boots, despite making other kind of shoes.
Especially for the Italian market, it will be important to market adequately these
other typologies of products.
The toughest part of the market environment comes from competitors and
customers. The Italian shoe market is already overcrowded and it is densely
populated in each segment. It is difficult to find niches with needs which are not
catered to and with the global competition it is increasingly difficult to market
your product as a unique one. The real disadvantage for Red Wing Shoes is the
lack of brand equity in Italy, and building brand awareness requires time and
massive investments. Finally, customers of expensive products are used to be
pampered by competitors, which have already raised the bar of customers
expectations in terms of customer service.

Figure 2. Recap scheme of Michael Porter's five forces analysis on the Italia

CUSTOMER ANALYSIS
In order to analyse and maximise the business opportunities existent on the
market for our Red Wings, it is imperative to perform a market research in order
to understand the following key issues:

Who are my potential customers

How many potential customers are there
What exactly our customers want/need
How much are the customers willing to spend
How can we get to know and understand our customers
Where do our customers shop

By understanding these points, we would be able to develop a marketing

campaign that could be efficiently addressed to the right customer and a
business strategy that could successfully attend our customers needs.
Moreover, this information could provide us with information to create
sustainable competitive advantages over our competitors.
However, the way in which the information of the market is gathered is key for
the success of the development of our strategy. There are different tools used in
order to provide an answer for these key issues previously identified:

Market Research Approach: It is necessary to identify the market

trends, size, and growth opportunities. It also could allow us to identify
our customers, they behaviours and needs, willingness to spend,
among others. The market research approach can be adopted by
performing:
Direct Observation: From our possible competitors shops. This
would help us to develop hypothesis in order to test our possible
customers and market.
Surveys: In person interviews and quantitative through internet
to get more specific inputs about out former hypothesis.
Focus Group: a moderator uses a scripted series of questions or
topics of interest to lead a discussion among a group of people
Field Trials: To place a prototype in a store and see the customer
behaviour.

SWOT Analysis: As shown in the Figure 1, a SWOT analysis is

necessary in order to understand at an internal level what our
strengths or weaknesses could be, and at an external level further
opportunities or threats coming from the market environment.

Porters Five Forces Analysis: As shown in the Figure 2, this

analysis is necessary to understand the market environment in which
we want to develop our business.

Price Analysis: It was necessary in order to position the company

accurately depending on the way that we wanted our customers to
perceive us, according to our strategy.

After gathering further information on our market and testing our different
hypothesis regarding our possible customer, a clear segmentation of them is
necessary. The latter is fundamental for dividing into sub-groups the potential
clients by considering social and demographic aspects such as age, gender or
income level. In addition, it is possible to enhance this segmentation by selecting

a geographic and psychographic market based on lifestyles and attitudes

observed, considering consumption patterns and price sensitivity, all of which
was information gathered with the previously mentioned tools:
Target Group:
Geographically determined
Italian residents
Market research approach (Hypothesis testing ) determined through direct
observation, surveys, in person and telemarketing.
Males and females from 18 to 45 years old
Higher level of education
Stable economic situation and fixed income for him/herself or the family
More fashionable and trendy than functional
For further understanding of our customer, be strategic in catering to each
audience and relate to them as human beings, we developed a persona:
FRANCESCO, 33
Consultant at McKinsey
He lives alone in Cadorna, in Milano.
He likes to work out for his girlfriend Giulia
He owns a Suzuki GSXR750
He enjoys climbing and outdoor sports
Since he needs to wear suits for work, he
likes to dress casual
but always trendy during the weekend.
He travels a lot and enjoys different cultures
He enjoys quality goods and nice restaurants.
He consider himself independent, freedom
chaser and a
rebel, he likes to outstand.

Once we identified who our customers are, their needs and behaviours, we
proceeded to understand how many of them are there and opportunities of
market growth. First, since we are trying to enter a new market, which is Italy, we
segmented it geographically:

Italys habitants: 60.680 mio habitants Obtained from ISTAT (Istituto di

statistica Italiano)
Italys habitants from 18 to 45 years (48%): 29.100 mio habitants
Obtained from ISTAT

Our next focus to proceed with the segmentation was the income, since we
consider our product more of a fashion item than a functional one within the
premium category (300 /pair). Based on this, is necessary to split the market by

considering those potential customers who count with a fixed income either on
their own or from a provider (parent):

Italys habitants from 18 to 45 years that earn/have access to a higher

income above the average 24.7k /year (23%): 6.700 mio habitants.
Italys habitants from 18 to 45 years with higher income and would
actually buy (35%): 2.345 mio habitants Percentage obtained from our
sample of interviewed potential customers and focus groups, etc.

This number would correspond to our market size in terms of people. However,
to understand economic opportunities we continued the segmentation.

Average number of pairs our customer is willing to acquire per year: 1.5
Obtained from surveys, interviews, historical data in other markets, etc.
Market size: 2.345 mio habitants
Max number of pair of shoes that could be sold per year: 1.5 pairs * 2.345
mio habitants = 3.517 mio show pairs per year.

Since we are entering a new market and the brand has to create awareness,
work on customer love and loyalty before achieving the expected results, we
estimate that for the first year only 5% of these shoes would be sold:

Max SOM: 3.517 mio pairs/year * 5% = 175.8k pairs/year

Market size in terms of Euros: 175.8k pairs * 300 /pair = 52.740 mio
/year

COMPETITOR ANALYSIS
The footwear industry in Italy appears to be a mature market with fierce
competition. However, in order to carry out a more detailed competitor analysis
of the Italian utility boot market we need to focus on five questions:

Who are our competitors?

What are their strengths and weaknesses?
What are their strategic goals?
Which strategies do they follow?
How are they likely to respond to Red Wings entering the market?

1) Who are our competitors?

We believe that our main direct competitors in the Italian market are:

Timberland
Dr Martens
Rockport

Other more indirect competitors include:

Merrel
The North Face

Columbia
Geox

For the purpose of this analysis, we will focus on our three direct competitors, as
these will be the most important and influential in our decision as to whether to
enter the market and the strategy we adopt.
We will seek to answer questions 2-5 in relation to each of these three
competitors.

TIMBERLAND

STRENGTHS

WEAKNESSES

STRATEGIC
GOALS:
THEIR
STRATEGIES

LIKELY
RESPONSE TO
RED WINGS
ENTRY

ROCKPORT

Strong position and reach in global footwear industry

Strong position in the Italian market already well
known and they have own stores and sell in lots of
airports.
Strong brand image and reputation with long history.
Loyal customer base.
Attracts customers from a wide age-range.
Reputation as being very eco-friendly.
High quality products with very favourable warranty
conditions.
Diversified beyond shoes also provides clothing.
Low diversification into other market segments
strong focus on outdoors, rugged lifestyle.
Not viewed as very original/alternative.
Focused on high quality but also fashionable boots.
They have a type of customer and image the
customer wants to convey by wearing Timberlands.
They have a very constant, strong brand image and
marketing campaigns. They stress their differentiation
and quality: they do not compete on cost.
Of all the direct competitors, they will probably react
the most to Red Wings entry into the market. They
may increase their advertising campaigns, stress their
strengths and differentiation from Red Wings and
could introduce advertisements or promotions to build
on and increase customer loyalty. However as they
cost a lot less than the Red Wing offering they would
probably wait to react to see if Red Wings have any
success in the market and steal some of Timberlands
market share. They are unlikely to lower their prices,
as they are already significantly lower cost than Red
Wings.

STRENGTHS

WEAKNESSES

STRATEGIC
GOALS
THEIR
STRATEGIES

LIKELY
RESPONSE TO
RED WINGS
ENTRY

Strong position and reach in global footwear industry.

Historic and established brand.
High quality products with reputation for durability
and lasting a long time.
Diversified beyond shoes also provides clothing.
Older market image: brand more popular among
older customers
Low market share and brand image in the younger
customer segments.
Not viewed as very original/fashionable.
They focus on quality and reliability/durability. Less
fashion focused through their marketing strategies.
Aimed more at older customers. They have tried to
increase their brand image in recent years to appeal
to younger more fashion conscious customers but
remain focused on quality and traditional brand
image.
They may not see Red Wings as an immediate threat
as Red Wings are targeting a younger, more fashion
conscious customer group, and at an exclusive price.
However, given that Rockport would like to expand
into a younger market segment they may view Red
Wings entry as a threat to this and may accelerate
and up-scale their marketing efforts to move into the
younger, fashion conscious segments.

DR MARTENS

STRENGTHS

WEAKNESSES

Strong position and reach in global footwear industry.

Popular in Italy and sold in many shops.
Strong, iconic and historic brand and reputation with
long history.
Very loyal customers created a cult like,
underground image.
Viewed as very trendy and alternative.
Strong, recognisable marketing campaigns.
Viewed more as a fashion item than as a utility boot.
Strong brand image may actually exclude some
customers eg older customers.
Low diversification focus on shoes/boots all of a very
similar style/image.
Limited adaptation/response to changing markets
revenues have declined in recent years but reluctant
to change brand image/positioning to avoid alienating
existing customers.
Moved production from UK to China could affect
brand image and expose company to uncertainty due


STRATEGIC
GOALS
THEIR
STRATEGIES

LIKELY
RESPONSE TO
RED WINGS
ENTRY

to rules and regulation.

They want their product to define in some way the
person who is wearing it. They aim to be viewed as an
iconic and timeless brand. Create a type of cult around
the brand and those who wear the shoes. They focus
on internet marketing through their website to create
a connection with their customers focusing more on
the customers than the products themselves. Recent
focus on cutting costs due to declining sales (moving
production from UK to China).
They will not want to lose market share but it is not
clear that they are on a big campaign to increase their
market share in Italy. They will probably not respond a
great deal to Red Wings entry as they concentrate on
a slightly younger, alternative, trendy customer
segment. They also cost a lot less than Red Wings and
may not view Red Wings a real threat. They are likely
to continue to rely on its cult brand image and its
customer base that is very loyal.

Overall, Red Wings is entering an already very competitive market and at first
analysis, there does not appear to be a niche for Red Wings that is not already
covered by existing competitors.
The three direct competitors discussed above seem to position themselves
slightly differently in terms of the types of boots they offer and the market
segments they cover. For example, Dr Martens are very cult and underground
type of image and targeting young and alternative customers. Timberland
targets a wide age-range of well off customers and fashion conscious but not
overly alternative or cult. Rockport has older customer base focused on
reliability and quality.
As such, the whole market seems to be covered and it will not be easy for Red
Wings to enter. In addition all three of these competitors offer products of
roughly the same sort of price (from 70-300), with the majority of their products
costing around 100. This is a third of the cost of Red Wings (normally sold for
around 300). Without the brand equity that the competitors have it will be very
hard for Red Wings to enter the market with these price levels.
In order to succeed they will have to convince customers to move away from
other brands by stressing their quality and try to leverage on their real
American image, as this is a differentiating factor from the existing
competitors products. They need to differentiate themselves to convince
customers to pay such a higher price and this would involve huge advertising
and marketing campaigns. Another way Red Wings could compete would be to
position itself as a cheaper option cost-based strategy. However, this would
largely go against their upmarket, high quality image, and would not fit with its
global positioning/strategy.