New Balance'S High-End Marketing Mistakes

China's sports shoes account for 46% of the world's total output.

Boston New Balance (new balance) sells 70% of the world's sports shoes in China, that is to say, the company has 35 million pairs of sports shoes produced in China every year.

But now there is a contradiction between New balance and its main supplier: Mr. Chang of China. Mr. Chang is a manufacturing businessman in Taiwan, Yangjiang, southern China.

But in 2000, New Balance intended to terminate its partnership with Mr. Chang.

In 1995, New balance hopes not only to produce more sports shoes exported to the world, but also to sell New balance sports shoes in the Chinese market.

So in 1995, New balance authorized Mr. Chang to become China's official sales agent.

From the beginning in Taiwan to later in mainland China, Mr. Chang has become the main supplier of New balance for many years.

However, in 1998, Mr. Chang was in contradiction with New balance.

The reason for the conflict is that New balance's brand strategy begins to conflict with its procurement and distribution strategy.

New balance hopes to sell more high-end products in China, so as to enhance its brand image and replace Adidas and Reebok to win second market share.

Headquarters believes that excessive sales of low-end products will reduce brand image.

I hope Mr. Chang will reduce the sale of ordinary sports shoes in China.

But Mr. Chang said: "I want to be rewarded for attending the sales conference in Boston, but now I am being blamed."

Mr. Chang sold 58000 pairs of sneakers in China in 1998.

In 1999, when he attended New balance's mid year meeting in Boston, he announced that he could sell 250000 pairs.

Most of the shoes he sells in China are low-end products, while New balance wants to sell more high-end products to enhance brand image and replace Adidas and Reebok to win second market share.

Therefore, Mr. Chang's sales enthusiasm is not popular. Headquarters believes that too many low-end products will reduce the brand image.

New balance hopes Mr. Chang will reduce the sale of ordinary sports shoes in China.

But Mr. Chang said: "I want to be rewarded for attending the sales conference in Boston, but now I am being blamed."

In fact, Mr. Chang has increased the output of regular sports shoes in China and expanded retail channels to prepare for the sales he announced at the conference.

When New balance began to cut down the action of the global ordinary sports shoes, Mr. Chang had to face the problem of how to solve the excessive sports shoes.

So, the regular New Balance sneakers, priced at $20, began to appear in retail stores in China and other parts of the world.

This threatens the $60 price of Boston headquarters.

Mr. Chang refused to explain this and insisted that he had not exported any sports shoes to areas outside China.

New balance launched an investigation with the Chinese authorities at the same time, but the results were not convincing.

John Larsen, chairman of New balance, told the Wall Street journal that he had spent millions of dollars in attorney fees and several years to terminate his cooperation with Mr. Chang.

And announced that they lost millions of dollars in sales revenue and brand image was damaged.

But according to the law of the State Economic and Trade Commission of China, the contract between Mr. Chang and New balance will not be terminated until 2003.

So the dispute lasted until now.

Where did the mistake come from? After all these years of cooperation, what is the problem? The reason is that New Balance itself is New Balance, who has made a mess of the problem.

They made a lot of management mistakes in Boston instead of Mr. Chang in Yangjiang.

In the market, each product has three sources of value - manufacturing value, brand value and distribution value.

If a company manufactures its own products, creates brand value and distributes these products through its own retail channels, it gains these three values.

Many consumer goods production companies outsource most of their production and distribution work to other companies.

Nike, for example, outsourced all its sports shoes.

Only a few companies have retained their brand marketing channels.

Most of the distribution work is done by independent shops and large retailers which are not controlled by the company.

Consumer company is either a brand builder, or a OEM manufacturer, or a retailer.

From the point of view of value chain, New Balance is just a brand builder.

To enhance brand value, Brand Company always "oppresses" producers to produce at lower cost, while trying to sell products to retailers at higher prices, even though consumers resist price increases.

But smart manufacturers can reduce costs by means of scale production, and retailers compensate for price losses by getting more discounts.

The profit of brand building comes from increasing brand value and expanding market share.

In a word, brand value is the difference between the price of a brand product and a common product.

Brand value comes mainly from two factors: lower manufacturing cost and higher factory price.

In order to enhance brand value, Brand Company always "oppressed" producers to produce at a lower cost, while trying to sell products to retailers at higher prices, even though consumers boycotted price increases.

But smart manufacturers can reduce costs by means of scale production, and retailers compensate for price losses by getting more discounts.

As a result, both sides have forced the Brand Company to spend a lot of marketing expenses to focus on expanding market share.

If New Balance company solves the problem of Mr. Chang by prohibiting the sale of ordinary sports shoes, it will obviously damage the interests of New Balance brand and New Balance company.

At the same time, if the main sale of high-end sports shoes will greatly affect the retailers to achieve sales targets, it will cause retailers boycott, thereby jeopardize the interests of New Balance brand and company.

Obviously, if each side considers their own interests only when formulating strategies, then it is likely that everyone is a loser.