Under Armour Case: Value Chain Analysis

The idea of value chain was first mooted by Michael Porter in the year 1980 to show how customer value is created over a chain of activities that conclude with the production of the end product/service. Porter’s value chain consists two major categories of business activities, viz. primary and secondary activities. Primary activities like inbound logistics, warehousing, marketing and sales, etc. are directly involved in the transformation of inputs into outputs. Secondary activities like procurement, technology development, human resource management, etc. support organization’s main activities.

Under Armour had focused on all the primary and secondary activities of the value chain to build its capabilities.

Primary Functions

Inbound Logistics

With regard to the primary activities, Under Armour had built close relationships with its suppliers to maintain its inbound logistics well. It evolved a system to work closely with its suppliers and supply the goods which are demanded by suppliers. In the initial days of the firm’s existence, when it was not manufacturing all kinds of sports products, it had to start producing some products when an existing customer enquired about it. Close relationship with suppliers was crucial in delivering such products on time to the suppliers.

Operations

To produce and distribute its products effectively in the market, Under Armour developed and highly competent operations and distribution network. It had developed a wide network of license partners to distribute its growing range of branded products to its customers. Though initially reliant on basic software packages for coordinating its operations activities, it started to use ERP packages like SAP to manage an increasingly diverse inventory required for its growing product range. By the year 2010, Under Armour had also started patenting the materials and designs used in producing its products which gave it lot of competitive advantage to the firm over its competitors. Effective handling of operations is a big strength for Under Armour. Given the increasing volume in its operations, Under Armour should contemplate about using advanced technologies like RFID to improve their operations.

Marketing and Sales

Industry leading marketing and sales activities are the biggest strengths of Under Armour. Sensing that no firm in the sports industry can survive in the long term without effective marketing and sales functions, the firm has focussed on these crucial activities right from the time of its inception. As marketing a product involves identifying the needs of the consumers and coming out with effective products to solve those needs, Under Armour developed a unique temperature control T-Shirts which are received well by the consumers immediately after their release in the market. With respect to promoting their products, Under Armour mastered several strategies which made it a master marketer. Its effective use of product placements in TV shows, movies, and video games made its products very well sought after by its consumers. Under Armour also believed in the effectiveness of word of mouth advertising in order to spread information about its products to the targeted customers. As 80 percent of users of sports goods are non-athletes, product placements and word of mouth advertising increased the popularity of Under Armour’s products among the young customers quickly. Once the revenues of the company have increased, Under Armour had also started to sponsor sporting teams and youth tournaments which helped greatly in increasing the awareness and brand authenticity at the ground level. Other ways in which Under Armour tried to improve its brand awareness is by developing athletic training programs and organizing clinics and camps for a large variety of sports all over the US. It had also spent 13 percent of its annual net income on marketing activities which is a significant amount for a small player in the industry. Sales and distribution of its products were mostly done through wholesale distribution and licensed distributors which gave it a wide global reach quickly. In order to provide good post-sales service to its customers, Under Armour maintained a good rapport with the university and other sports teams so that it could respond to their queries faster.

Support Activities

Under Armour had also put a significant focus on the support activities of the value chain so that they can effectively support the primary activities like marketing and logistics management.

Procurement

Being a developer and marketer of innovative sports products, Under Armour primarily depended on outside suppliers for the supply of the fabric and other materials which are needed for manufacturing its products. But as the inputs needed for its products are technologically sophisticated, it relied on just eight suppliers for supply of a major chunk of its raw materials which could pose a significant to its future supplies. Under Armour should strive to diversify its supplier in future so that the threat due to bargaining power of buyers will not rise in future.

Human Resource Management

Recruiting and training top notch human resources is crucial for the long term success of any organization. By the year 2009, when the operations of the company have grown significantly, it started adding new members to its executive team who can bring new perspectives and expertise to the firm. Recruiting more quality staff in future remains a key to its success.

Technology

Since Under Armour’s products are positioned at the premium end of the sports equipment market, they are priced a notch higher than the products of their competitors. It achieved physical differentiation of its products through a crucial component of value chain, technology. Its sophisticated technology which controls the temperature of T-Shirts was a major draw for consumers. It had also released new products basing on new and innovative technology called coldblack technology, which can better the temperature by absorbing ultraviolet rays effectively. Even though employing cutting edge technology for making its products, Under Armour needs to constantly improve upon its technology to stay ahead of competitors.

Firm Infrastructure

The infrastructure component of value chain comprises general management which can facilitate the effective maintenance of the company’s activities. In order to keep up with its growth momentum, the management team of Under Armour is comprised of people with significant experience in various fields. The company also followed a team-driven management style which can promote a more democratic decision making system in the organization.

 

Like this case analysis? Academic Mentor Online has a team of professional essay writers who specialize in case analysis. Contact our support department to get more information about our services.