The evolution of Crocs, Inc.: will Crocs face extinction?(Instructor's Note)

Droege, Scott ; Dong, Lily C.

CASE DESCRIPTION

The primary subject matter of this case concerns the four "Ps" of marketing--product, price, place, and promotion. Secondary issues examined include entrepreneurship and business strategy. The case has a difficulty level three, appropriate for junior level courses. The case is designed to be taught in one class hour and is expected to require one hour of outside preparation by students.

CASE SYNOPSIS

Crocs, Inc. was founded in 2002 by three avid boaters who began a small company to make shoes specifically designed for boating. The owners were surprised by their own success; Crocs rapidly moved from a boating shoe to a fashion statement. After taking the company public in 2006, Crocs has come under increasing shareholder pressure to diversify. The fear was that Crocs limited product line was a "one trick pony" and as soon as consumer fashion tastes changed, Crocs sales would quickly decline. Crocs has responded to this pressure by moving beyond shoes to increase the variety of its product line, but in doing so the firm has encountered entrenched competitors that have fought back against Crocs' market encroachment. Management is well aware that competition and shifting consumer tastes could make Crocs extinct. These threats will drive Crocs to further hone its product, place, pricing, and promotion decisions. Exactly how Crocs will manage this, however, remains to be seen.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

As with many successful new products, Crocs attracted competitors producing and selling similar footwear at lower prices. Crocs must examine the current competitive situation and adjust its marketing strategy in a way that (1) continues to define Crocs as a premium brand and justify its relatively high prices and/r (2) diversify into new markets that are less price competitive. Instructors may want to use the following questions to begin the student discussion:

1. From a marketing perspective, evaluate Crocs brand name.

Students will probably agree that Crocs brand name reminds people of the special material, croslite. Having a name similar to its materials can have both advantages and disadvantages. At the beginning when fewer competitors are producing the same product, this brand name is unique and differentiates the brand more easily. But with the growth of the market segment, more competitors using the same or similar materials will enter the market. By that time, the Crocs brand may be used as a generic term to refer to any product with a similar design. Instructors may ask students to recall such historical events, Students will likely mention that Xerox is a generic term for a photocopy, aspirin is a generic term for pain killers, Coke is a generic term of for cola drinks, and Kleenex is a generic term for tissue.

2. Does Crocs have a well-defined target market? What are the pros and cons of having a less than clear target market?

Instructors can encourage students to segment customers based on age, gender, profession, and/or usage of the products. They will find Crocs has expanded its target market from athletic youth and gardeners to a broader group of consumers who would wear Crocs on different occasions. An recent example to include here is Nike. Nike has recently begun to reorganize its marketing focus based on sport rather than on product. For example, rather than having a line of shoes, a separate line of knee pads, and a third line for headbands, Nike has organized these products by sport, basketball in this case, in an effort to capture a larger share of each customer's dollars rather than simply more customer share (as counted by the number of discrete individuals buying a Nike product).

The advantage of having a less defined target market is there is no stereotyping thus reducing the possibility that potential customers may be discouraged from trying the product unless they meet some preconceived demogaphics. The disadvantage of less defined target market is that less focused (more dispersed) marketing campaigns can be more costly.

3. Crocs has adopted a distribution model that allows retailers to order as few as 24 pairss of shoes rather than running the risk of retailers having too many shoes in inventory and subsequently offering price incentives. Instructors might ask students to evaluate the pros and cons of this distribution mode..

To begin, ask students: is a clearance sale always a bad thing? Think about those customers who are categorized as "laggers"--those who will start using certain products only after everyone else is using them. Those customers tend to be price conscious and can be attracted to the brand if there are occasional clearance sales. Although clearance sales reduce margins per product sold, overall revenue may increase as a result of increasing volume.

A firm with a history of offering discounts faces a double-edged sword. Inventory management is assisted when a quick change like a price discount can clear out excess inventory. This is particularly important as new product lines are introduced while a firm still has a large inventory of product lines that run the risk of obsolescence as the new product model is rolled out. On the other hand, firms with histories of price discounts run the risk that consumers will wait for a clearance sale rather than pay full price, thus dampening demand when prices (and margins) are at their peak.

4. How does Croc's product life cycle dictate responses in the firm's marketing strategy?

This case presents an opportunity to examine several aspects of a firm's marketing strategy and consider how this strategy is related to the product life cycle. After successful creation and introduction of a new brand and several years of rapid growth in sales with limited spending on advertising, Crocs is facing two particularly strong challenges. First, lower-priced imitators have entered the market and are capturing sales that, prior to market entry, would have likely been realized by Crocs. Second, the markets into which Crocs is currently expanding (such as athletic gear) is dominated by strong incumbents such as Nike, Reebok, and Under Armour. Crocs has responded by expanding positioning its product lines as fresh alternatives to these established products. Of course, Nike, Reebok, Under Armour, and similar competitors are not standing still--they are also finding ways to innovate and introduce fresh products thus potentially neutralizing Crocs efforts to enter such established markets.

After the class explores each marketing strategy avenue and realizes that each has its own pitfalls, the instructor can make the following point: The only truly sustainable competitive advantage is the ability to create new competitive advantages.

Scott Droege, Western Kentucky University

Lily C. Dong, University of Alaska-Fairbanks