Team No 62

Pacer Shoes (the situation analysis)

The universe is ever expanding and so do want to all the companies but sometimes the desire to expand
becomes counter-productive as it has been in the given case where Pacer Shoes expanded its line and
entered a new market but the immediate returns were not good at all. Not just growth but profitable
growth is what corporations should aim for, is what BCG growth-share matrix says.
Pacer Shoes is a $10 million shoe manufacturing company which is known for its technical excellence in
running shoes. Its core customer base is serious runners who are returning and loyal. Due to the threats
from expansion of largest players and the disheartening results of losing customer base by an industrial
research firm, the president and CEO Henry decided to expand its product line and cater to new markets
as well. As part of the strategy, they also decided to upgrade their existing core product (Pacesetter to
Pacesetter Plus) and introduce a new line of walking shoes. However, the latest returns of regional share
eroding and stagnant share in broader market suggests that the strategy didnt meet the expectations and
has resulted in problems from all functional fronts marketing, operational and financials.

Pacer is losing its pace (the problem definition, strategic errors & the objective statement)
The current situation has brought out problems at all fronts and the same are listed here:-

O
perational

M
arketing

G
litchesinproductionquality-R
acerO
ne'stichingisue
ProductionandD
esginT
eam
overburdend-eficaybeingcom
prom
ised?

B
randV
alue

Finacial

C
ustom
ersconfusedw
hatP
acernow
standsfor
SeriousrunersasC
alL
idenandO
thersdoubtfuloftechnicalexcelencew
hichP
acerstodfor

C
apitalcrunch-M
arketingbudgetburnout
Planofcom
isoniganew
trackonhold

Slugishsales
D
eclineofregionalshare-duetolsofcoreidentiy
B
urnoutofM
arketingB
udget-12%
ofrevnuespent-N
ogaininbroaderm
arketshare

What do numbers say?

Some key questions that Pacers analytics throws:
Production rose from 80 pairs/day (1970) to 1000 pairs/day (1990) Pacer grew
approximately 12X in 20 years. What was industry standard? Should Pacer have
panicked by others expanding?

1000 pairs/day * 365 days ~ 3.5 lakh shoes/year ~ Approx 2-3 lakh customer base. Now
10% were claimed to be lost by the industrial research firm ~ 25000 customer erosion

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But which segment did they belong? Serious runners? High-Margin product users? Are
they worth pressurizing Pacer to expand?
12% of revenues spent on marketing new ranges ~ 12% of 10,000,000 ~ $ 12 lakh to
reacquire those lost 10% and maybe acquire the same no of new customers the
customer holding/acquisition cost here ~ 12 lakh / 25000*2 ~ $ 24/customer
Now compare above with a crude calculation of costing/shoe ~ 10,000,000 / (1000*365)
~ $ 27/shoe Does this comparison alongwith the stress on finance, operation costs and
team, and confused company image justify Pacer expanding into broader market of
shoes?

From above discussions it can asserted that Pacer made the following strategic errors:-

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traegicE
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oudc-aP
sbf S
traegicE
o2Incom
pletaysidw
rgfh-bx tS
rageicE
o3E
xpansiow
thuedqfclrbk
So it is of imperative need that Pacer finds the right customer target-brand positioning-mix, with lowcost innovative ways of marketing, while standardizing its operational quality and developing the
capacity of its Designing and Production team for expansion, so as to boost its sluggish sales, generate
revenues, improve bottom-line and promote the clear and true brand of Pacer.

Pacing forward (the strategy models & the sequential action plan)
Henry viewed himself as an entrepreneur, not a corporate empire-builder and for that it is necessary the
cash flow is consistent and at the same time it has to grow. In concurrence to the problem definitions and
numerical analytics; the most astute strategy ahead is to rebrand itself to its core identity so as to avoid
overly sudden retreat of the serious runner segment while along using them generate profits and new
adjacent segment customers to ensure a profitable growth of Pacer. Hence a gradual and sequential
strategy as under is most appropriate:

1. Retro Branding reintroduce PaceSetter, for every shoe has a soul (sole)
Converse reintroduced the timeless All Star sneaker in 2008, nearly a century after their initial launch (the
shoe was first introduced in 1917 to capture the basketball market). These famous kicks rocked the
performance footwear scene from 1920-1970 until Adidas, Nike, and Reebok surfaced as competition,
serving as the eventual cause for the companys 2001 bankruptcy. Under Nikes ownership, new
leadership, and with a renewed focus on the brands basketball DNA, however, Chucks once again met
flying success in the athletic arena and beyond. The contemporary retro phenomenon extends to BMWs

Team No 62
relaunch of the classic 1960s MINI Cooper (2001), and Volkswagens resurgence of the bug, coined the
New Beetle (1997).
Retro branding: emphasizing craft, quality, and heritage over flashy innovation. Pacer should go for
the reintroduction of its iconic product brand, PaceSetter, emphasizing their heritage of technical
excellence to its segment of serious runners while sparking new conversations and engaging a new
generation via digital/local marketing and their unofficial brand ambassadors as Cal Liden.

2. Value Pricing & Profit Maximization keep earning today or there is no tomorrow!
In order to compensate for the customers lost to cheaper alternatives like Dunkin Donuts, Starbucks raises
prices to maximize profits from these price insensitive customers. Rather than trying to compete with
cheaper chains like Dunkin, Starbucks uses price hikes to separate itself from the pack and reinforce the
premium image of their brand and products. Since their loyal following isnt especially price sensitive,
Starbucks coffee maintains a fairly inelastic demand curve, and a small price increase can have a huge
positive impact on their margins without decreasing demand for beverages.
Similar should be the strategy by Pacer after they establish their core identity of technical excellence
again. Pacer is a company that grew 12X in 20 years and all on the reputation of manufacturing shoes of
par technical excellence. This implies that Pacer has cultivated a
highly loyal customer base that recognizes product differentiation
amongst competing companies and they value quality over pricing, so
due customer research would indicate that Pacer would correspond to
the upper curve in the given graph. And since Pacer currently runs on
a tight budget and has a high loyal customer base, it is through value
pricing and profit maximization only that Pacer can aim at profitable
growth.

3. Crossing the Chasm expanding to the right customer segment

Apples iPod, targeted to specific users (loyal Macintosh users) finally found its way into mainstream
unlike niche products like Rio MP3 player. Starbucks wasnt the first coffee brand to offer a quality $4
latte. But it was the first to make them mainstream. According to one famous marketing book Crossing

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the Chasm, the marketer should focus on one group of customers at a time, using each group as a base
for marketing to the next group. So rather than going full force into the broader market Pacer should use
its market of serious runner, being their most prominent reference-able customers, to expand to
next adjacent segment.

4. Capacity Development
The quality issue with RacerOne shoes clearly indicates that Pacer production team is under stress and
there is a need for optimum capacity development. Pacer stands for technical excellence but it has
overburdened the same two Designers and Pattern engineers with the increased target of rolling out 11
new designs against the 5 designs they have been manufacturing for the last 15 years. Also it has
outsourced its production of uppers to South Korea. If Pacer aims to expand gradually in the future then
correspondingly should be capacity expansion of its operation, be it hiring more pattern and design
engineers or be in-house production capacities.