Crocs case final markidis 40997938

MGMT S-5033 Supply Chain Management Panagiotis Markidis Case Study Assignment # 2 07/21/2015

!!Harvard!Summer!School!Programmes!!

Assignment!Cover!Sheet!!!Submitted!by:!! ! Panagiotis!Markidis!!Date!Sent:!! ! ! 07/24/2015!!Module!Title:!! ! Supply!Chain!Management!!Instructor:!! ! !!!!!!!!!!!Zal!Phiroz!!Date/Year!of!Module:!! 2014/2015!!Submission!Deadline:!! 07/24/2015!!Word!Count:! ! 4576!!Number!of!Pages:! ! 26!!Question:!CROCS!(A):!REVOLUTIONIZING!AN!INDUSTRY’S!SUPPLY!CHAIN!MODEL!FOR!COMPETITIVE!ADVANTAGE!

1.! !a.! Crocs! have! been! discussed! by! many! industry! experts! as! a! fad! product.! ! Applying! Crocs! core!

competencies,! how! can!Crocs’! supply! chain!model! be! used! to!mitigate! the! potential! of! the! brand!becoming!a!fad?!

b.! Why!do!competitors!in!the!industry!not!have!as!flexible!a!supply!chain?!2.! What! strategy! did! Crocs! use! to! reduce! the! ordering! risk! for! smaller! businesses?! ! What! impact! did! this!

strategy!have!on!economies!of!scale,!and!on!the!supply!chain!as!a!whole?!3.! Why!did!Crocs!not!sell! to!Wal`Mart?! !What!effects!did! this!decision!have!on! the!overall!supply!chain,!and!

relationship!with!other!retailers?!4.! Crocs!is!sold!to!buyers!within!a!number!of!consumer!markets!(gardening,!boating,!medical,!etc.).!!How!does!

this!business!model! affect! the!overall! supply! chain?! !What! areas!of! concern!within! the! supply! chain!may!result?!

!“This! is! to! certify! that! the! work! I! am! submitting! is! my! own.! All! external! references! and!sources! are! clearly! acknowledged! and! identified! within! the! contents.! I! am! aware! of! the!University!of!Warwick!regulation!concerning!plagiarism!and!collusion.!No!substantial!part(s)!of! the!work!submitted!here!has!also!been!submitted!by!me! in!other!assessments!for!accredited!courses!of!study,!and!I!acknowledge!that!if!this!has!been!done!an!appropriate!reduction!in!the!mark!I!might!otherwise!have!received!will!be!made.”!!

CONTENTS Question 1: a)………………………………………..…………………………….…………...p.3-10 Question 1: b)………………………………………..…………………………….…………...p.10-13 Question 2: ... ……………………………………………………………………………….....p.14-16 Question 3:………………………..............................................................................................p.17-19 Question4:………………………...............................................................................................p.19-21 Reference List ………………………………………………………………………………... p.22-26

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Question!1:!

a.!Crocs!have!been!discussed!by!many! industry! experts! as! a! fad!product.! !Applying!

Crocs!core!competencies,!how!can!Crocs’!supply!chain!model!be!used!to!mitigate!the!

potential!of!the!brand!becoming!a!fad?!

It! is! extremely! important! for! a! company! to! achieve! a! strategic! fit,! by! having! the! ability! to!

balance! between! the! 2! defining! forces! of! the! supply! chain,! the! responsiveness! and! the!

efficiency,! while! succeeding! to! identify! and! fulfill! the! customers! needs! (Chopra! &! Meindl,!

2013).! In! this! attempt! to! balance! between! these! 2! driving! forces,!many! companies! tend! to!

underestimate! the! importance!of!adapting! their! supply!chains!and!product! lines! to!meet! the!

ever! changing! customer! needs.! As! a! result,! a! lot! of! companies! face! major! challenges!

regarding!their!products!life!circles!and!the!probability!of!becoming!a!fad!brand.!

The! product! life! circle! (PLC)! is! defined! as! the! time! a! product! remains! in! the! market! “with!

respect! to! business/commercial! costs”! (Day,! 1981).! According! to! Bass! (1969),! the! typical!

product! life! circle!can!be!described!by!a!bellRshaped!curve.!There!are!4!stages!of!a! typical!

product!life!circle:!introduction,!growth,!maturity!and!decline!(Kotler!&!Armstrong,!2008).!

Introductory!stage!

A!products!life!circle!begins!with!the!development,!when!there!are!no!sales!or!profits!and!the!

introduction!which!is!the!period!when!sales!begin!slowly!and!the!product!is!introduced!to!the!

market.!In!this!stage,!Crocs!deployed!a!very!insightful!strategy!of!releasing!the!product!only!to!

small!retailers!and!tried!to!responsively!adapt!to!their!needs.!

Growth!stage!

After!establishing!their!presence!in!the!market!products!move!to!growth!stage.!For!the!case!of!

Crocs,!if!we!consider!the!product!as!typical!(or!a!fashion!with!long!life!cycle!and!slow!decline),!

and!not!as!a!disruptive!innovation!that!became!a!fashion!product,!the!growth!stage!could!be!

from!2003!to!2006.!During!this!period!the!revenue!of!the!company!skyrocketed!from!1.2million!

in!2003!to!355million!in!2006.!

Maturity!stage!

After!the!growth!stage!the!product!enters!the!maturity!stage.!For!Crocs!this!period!was!from!

2006R2007.!This!period!was!characterized!by!big!changes!to!the!supply!chain!of!the!company!

through! vertical! integration,! acquisitions! and! organic! growth.! New! lines! of! products! were!

introduced! and! changes! in! the! manufacturing! and! distribution! part! of! the! chain! were!

implemented.!

Decline!stage!

The!final!stage!of!a!products!life!circle!is!the!decline!stage.!Even!thought!not!presented!in!the!

case,!Crocs!faced!a!decline!face!of!its!products!during!2008(at!the!time!the!world!was!facing!

an!economic!crisis!that!began!with!the!recession!in!US!markets!and!eventually!influenced!the!

global!markets).!During!that!period!and!because!of!the!various!challenges!that!the!company!

faced,!many!industry!experts!characterized!Crocs!as!“fad!products”.!!!!

There!are!3!main!types!of!product:!fashions,!fads!and!styles.!

Fashion!

Α!fashion!product!is!characterized!by!the!high!correlation!it!has!with!the!various!trends(Kotler!

&!Armstrong,!2008).! In!particular,! it! is!a!product! that!can!have!a!short!or! long! life!cycle!and!

decline!either!rapidly!or!slowly.!In!some!cases,!it!can!become!an!all!time!classic!and!stay!at!a!

plateau!of!sales.!

Style!

Style! is!the!product!that! follows!the!overall!wave.!It! is!rather!periodical!and!it! fades!out!as!a!

new(improved)!version!appears!to!the!market!(Kotler!&!Armstrong,!2008).!!An!example!is!the!

touch!screen!phone!that!replaced!the!old!buttonRones.!!

A!fad!product!is!a!product!that!has!limited!utility!and!is!around!for!a!short!period!of!time!(Kotler!

&!Armstrong,!2008).!!Its!sales!rise!exponentially!and!rapidly!following!a!trend!and!immediately!

after!they!peak!the!drop!in!sales.!Typical!examples!of!fad!products!are!the!Hoola!Hoops!and!

Rubik’s!Cube.!

All! these! different! types! of! products! follow! different! patterns! in! their! life! cycles.! These!

differences!are!illustrated!in!the!following!graph.!

er! &!

ng,!2008!

It!can!be!easily!assumed!that!the!fad!products!face!the!shorter! life!cycles.!But!what!is!really!

interesting! is! that! many! industry! experts! have! considered! Crocs! to! be! a! fad! product.! This!

characterization!came!as!a!result!to!the!huge!drop!of!sales!in!2008.!This!substantial!drop!was!

a!combined!result!of!the!depression!in!the!US!economy!and!some!weaknesses!of!the!Crocs!

supply!chain!model.!These!weaknesses!can!be!partially!attributed!to!the!core!competencies!of!

this!particularly!flexible!supply!chain!model.!

Core!Competencies!

Crocs! implemented! an! extremely! innovative! supply! chain! strategy! based! on! flexibility! and!

responsiveness.! Their! replenishment! system! was! totally! different! from! the! ones! of! the!

competitors!as!it!offered!replenishment!options!within!the!same!season!and!did!not!follow!the!

industry’s!pattern!(2!times/seasons!per!year)!so!that!their!customers!could!take!advantage!of!

unexpectedly! high! demand.! As! Snyder(CEO)! stated! the!main! objective! of! the! firm! was! “to!

produce!what!the!customer!needed,!when!it!was!needed,!and!respond!rapidly!to!changes!in!

demand”.!

The!core!competencies!of!the!firm!that!identified!this!model!were:!

•! high!responsiveness!of!the!supply!chain!

•! overall! flexibility! of! the! replenishment! and! the! manufacturing! units! to! meet! the!

potential!needs!of!the!customer!(real!time!adaptation)!

•! innovative!!supply!chain!system!

•! Centralization!of!the!compounding!process!

•! Immediate!response!!

•! Extremely!durable!product!

Core!competencies!or!weaknesses?!

Previously!it!was!mentioned!that!the!core!competencies!of!Crocs!supply!chain!model!became!

its!weak!point!during!the!recession!period.!The!flexible!supply!chain!model!that!was!based!on!

the!flexibility!of!the!the!manufacturing!capacity!was!efficient!when!demand!was!exceeding!the!

initial!orders!but!was!“not!robust!enough!to!handle!the!opposite!scenario”!(Gonzalez,!2009).!In!

other! words! the! model! would! be! extremely! profitable! and! efficient! for! “large! upswings! in!

product!demand”!(Gonzalez,!2009),!but!was!“subRoptimized!for! large!downswings! in!product!

demand”!(Gonzalez,!2009).!!

This! particular! problem! should! be! expected! as! the! company! focused! only! in! the!

responsiveness!and!did!not!balance!the!strategy!with!the!cost!and!as!a!result!of!the!bullwhip!

effect! (Lee! et! al.! 2015)! the! supply! chain!model! backfired! (the! product! could! become! a! fad!

product).!Equally! important! is! the! fact! that! the! firm!did!not!have!a!demand! forecast!strategy!

neither!an!ERP! that!could!help! the! flow!of! information!between! the!parts!of! the!value!chain!

(they!did!not!have!a!clear!picture!of!the!inventory!of!each!customer).!!

Apart! from!the!economic!circumstances!there!were!2!additional! factors! that!could!potentially!

render!Crocs!fad!products.!The!first!one!was!related!to!the!quality!of! the!shoe.!In!particular,!

the!durability!of!the!design!was!such,!that!the!product!was!almost!indestructible.!Even!though!

this!feature!could!be!relatively!good!for!a!consumer!good,!in!the!case!of!Crocs,!that!produced!

a!similar!product!through!out!the!years!that!could!potentially!mean!a!plateau!of!sales!and!the!

risk!of!becoming!a!fad!product1.!!

The!second!factor!was!the!evolution!of!the!shoe!industry!because!of!the!flow!of! information.!

Back!in!the!80s!and!90s,!there!a!lot!of!examples!of!brands!that!produced!only!one!shoe!model!

that! would! be! the! stock! building! unit! of! the! firm.! Companies! like! Timberland! almost! based!

exclusively!their!production!in!their!signature!model.!But!due!to!the!flow!of!information!and!the!

communications! (internet,! social! media! etc),! the! trends! constantly! change! and! a! company!

cannot!maintain!its!sales!by!manufacturing!only!one!line!of!products.!

Mitigation!of!the!potential!of!becoming!fad!brand!

In!order!to!solve!the!problem!Crocs!had!to!implement!a!fusion!of!strategies!and!try!to!turn!its!

core! competencies! back! to! advantages.! In! particular,! as! the! products! were! between! the!

growth!and!decline!stages!of!their!cycles,!the!firm!had!to!maximize!its!market!share!(growth!

strategy)!while!reducing!expenditures!(decline!strategy).!

As! John!McCavel! stated! (Chief! executive),! the! firm! evaluated! the! situation! and! decided! to!

discontinue! the!Canadian! operation! (cost! reduction)! and! the!Brazilian!manufacturing! facility!

(Max,!2013).!Moreover,!they!reduced!the!headcount!by!2000!people!in!2009.!With!these!cost!

reduction!techniques!along!with!the!introduction!of!a!new!SAP!ERP!system2,!a!new!logistics!

software!(Gt!Nexus)!and!a!lifecycle!management!solution(Centric)!the!efficiency!of!the!supply!

chain!was!improved.!The!new!streamlined!supply!chain!facilitated!the!exploitation!of!the!core!

competencies! of! the! firm! (responsiveness! and! flexibility)! and! helped! introduce! over! 300!

products3! that!mitigated! the! risk! of! becoming! a! fad! brand! and! improved! the! sales4! (Zager,!

2015)!while!maintaining!their!original!model!which!has!been!the!stock!building!unit.!

1!as!each!customer!would!purchase!only!one!product!2 The!bullwhip!effect!can!be!ameliorated!by!coordinating!information!and!planning!along!the!supply!chain!(Lee!et!al.2015)!3!Growth!by!extension:!Economies!of!scale!and!scope 4 in!2011!Crocs!passed!the!billionRdollar!mark

b.!Why!do!competitors!in!the!industry!not!have!as!flexible!a!supply!chain?!

Crocs!supply!chain! is!an!extremely! flexible!one! that!can!be!easily!adjusted! to! the!customer!

needs!and!be!configured! to!meet! the!market!needs.!According! to! the!CEO,! the! firm’s!main!

objective! was! “to! produce! what! the! customer! needed,! when! it! was! needed,! and! respond!

rapidly! to! changes! in! demand”.! This! highly! efficient! model! was! extremely! profitable! and!

allowed!the!company!to!grow!rapidly.!

In!a!very!competitive!environment!the!company!has!achieved!immense!profits!and!in!2011!it!

passed!the!billionRdollar!mark.!The!industry!competitors!are!unable!to!follow!the!flexible!supply!

chain!model!that!Crocs!has!for!various!reasons.!

The!raw!material!

The!nature!of! the!raw!material(pellets)!provides!a!huge!competitive!advantage!to! the!firm.! It!

can!be!found!in!huge!abundance!and!is!fairly!cheap.!Moreover,!it!is!the!same!for!the!totality!of!

the! products! and! it! needs! a! slight! processing! in! order! to! be! ready! for! the! manufacturing!

process.! This! simplicity! of! the! material! offers! a! great! flexibility! to! the! overall! supply! chain!

model.!After!been!compounded! it! is!distributed! to! the!various!manufacturing!plants!and! it! is!

molded!after!the!request!of!each!customer.!Also!fewer!material!meant!fewer!production!costs.!

In!contrast,!other!shoe!manufacturing!firms!need!to!purchase!a!variety!of!different!material!in!

order!to!create!a!single!product,!the!manufacturing!process!is!slower!and!there!is!a!necessity!

for!exact!demand!forecasting5.!

Supply!chain!network!

Furthermore,!Crocs!has!established!its!presence!to!the!world!markets!and!has!created!a!huge!

supply!chain!network!that!is!extremely!responsive!to!the!need!of!the!customer.!The!success!of!

this!network!is!that!it!can!manufacture!custom!product!requests!within!2!weeks!and!ship!them!

in!every!part!of!the!world!with!its!global!distribution!network.!The!competitors!do!not!have!this!

5!Crocs!does!not!do!an!exact!demand!forecasting!and!just!bases!its!model!in!the!great!flexibility!and!responsiveness!of!the!production!process!to!due!the!material.!

network!and! the! resources,! thus!cannot!be!as! flexible!and!responsive.!Neither!could! imitate!

the!replenishment!system.!!

Relation!with!retailers!

One!very!important!aspect!that!makes!the!supply!chain!of!Crocs!so!flexible!is!the!relationship!

with!the!retailers.!There!is!a!big!loyalty!to!the!firm!and!the!established!relation!with!the!smaller!

retailers! facilitated! the! negotiations!with! the! larger! retailers6! for! better! pricing.! These! strong!

relations!are!a!basic!aspect!of!the!flexible!supply!chain!of!crocs!that!can!not!be!imitated.!Also!

it!has!established!diverse!sales!channels!and!reduced!the!risks!for!the!retailers.!

Knock`off!protection!

The!firm!had!established!its!presence!and!its!brand!name!in!the!markets!around!the!world!as!

a!quality!brand.!The!decision!not!to!collaborate!with!Walmart!helped!maintain!this!high!profile!

along! with! the! fact! that! there! was! not! a! need! to! lower! the! price! as! there! was! no! excess!

inventory.! The! above! facts! protected! the! original! products! from! the! knockRoffs! and! did! not!

allow!the!competitors!to!imitate!the!flexible!manufacturing!process!that!the!original!crocs!had.!

High!Margins!and!low!turnover!

!The!extremely!high!margins!56,6%,!one!of!the!highest!in!the!industry!and!the!extremely!low!

turnover!rates!3,5%!give!the!chance!to!the!firm!to!keep!excess!of!inventory!with!a!low!turnover!

6 They!did!not impose stock out penalties etc

rate!and!without!compromising! the!profits.!No!other!competitor!can!afford! to!keep! the!same!

amount!of!inventories!as!they!do!not!have!these!high!margins.!

Question!2:!

What!strategy!did!Crocs!use!to!reduce!the!ordering!risk!for!smaller!businesses?!!What!

impact! did! this! strategy! have! on! economies! of! scale,! and! on! the! supply! chain! as! a!

whole?!

Early!phases!

Crocs!has!created!a!unique!and!exclusive!network!of!retail!channels!of!distribution.!Initially!the!

firm! tried! to!establish! its!presence! to! the!markets!by!selling!primarily! to!small! retailers.!This!

strategy! initially! aimed! to! establish! Crocs! position! to! the! market.! The! firm! identified! the!

potential!of!such!a!collaboration!since!working!exclusively!with!small!retailers!offered!2!major!

advantages.!They!were!willing! to! take! risks!with! the! firm!and! they!were!willing! to!work!with!

Crocs!despite! the!potential!problems!(stock!out,!delay!of!shipment)! that!could!occur!without!

enforcing! penalties! in! such! cases.! The! collaboration! was! a! stepping! stone! for! the! brand!

presence!establishment!of!Crocs!and!even!after!the!75%!of!sales!went!to!large!retailers,!the!

small!retailers!retained!their!significance!for!the!brand!name.!

But!also!Crocs!provided!special!services!that!supported!the!small!retailers.!By!creating!a!very!

flexible!and!responsive!supply!chain!and!by!providing!the!opportunity!to!order!items!within!the!

season,! the! company! eliminated! the! risk! for! the! retailers! because! they! had! no! more! to!

estimate! the!exact!amounts!as! they!could!easily!make!complementary!orders.!Furthermore,!

the! finished! products! were! transferred! in! boxes! of! 24pairs! and! in! spite! of! the! industry’s!

standard!practice,!crocs!offered!total!customizability!to!the!order.!This!option!further!reduced!

the!risks!for!small!retailers.!!!!!

Later!phases!

With!this!strategy,!Crocs!achieved!to!become!an!established!brand!name!and!to!reach!to!an!

agreement! with! major! retailers! and! with! preferential! terms,! with! no! penalty! clauses! in! the!

contracts!and!with!personal!retail!space!within!the!retailer’s!facility.!It!has!become!evident!that!

without! this! approach! Crocs! would! not! have! been! able! to! establish! this! innovative! and!

extremely! flexible! supply! chain! that! has! skyrocketed! its! profit! margins! and! established! the!

company! to! the! world!markets.! So! initially! the! strategy! of! working! with! small! retailers! was!

effective!and!contributed!to!the!economies!of!scale!and!the!overall!supply!chain.!

As!the!company!evolved,!the!small!retailers!continued!to!account!25%!of!the!sales.!They!were!

still! important! for! the! brand! image! and! some! of! them! (medical! stores! etc)! were! selling! in!

higher!prices!as!a!result!of!the!price!differentiation!strategies!that!Crocs!have!implemented.!

However,!in!my!personal!opinion,!even!though!the!small!retailers!still!accounted!for!the!the!¼!

of! the! total! sales,! they! posed! serious! difficulties! for! the! supply! chain! and! for! the! full!

exploitation!of!economies!of!scale.!In!particular,!the!custom!configurations!of!small!24Rpacks!

orders!do!not!help!the!company!benefit!from!the!economies!of!scale!and!keep!the!production!

cost! to! a! high! level.! Moreover,! these! small! orders! create! a! logistical! complexity! that! the!

company!has!to!solve.!Someone!could!advocate!that!with!the!new!ERP!and!the!new!logistical!

software!the!distribution!process!would!be!optimized.!!

Another!important!fact! is!that!while!big!retailers!have!their!own!Information!Systems!that!are!

integrated!with! the!new!ERP!and! the!ordering!process! is!optimized,! this! is!not! the!case! for!

small!retailers!who!still!use!fax,!phone!calls!and!emails!to!order!new!products.!Moreover,!big!

retailers!have!their!own!distribution!facilities!through!which!they!distribute!the!products!to!their!

retail!shops.!In!this!particular!case!most!distribution!and!warehousing!facilities!in!Crocs!supply!

chain!become! redundant.! In!a! cost! reduction!strategy! to! improve!efficiency!and!elevate! the!

profit! margin! these! facilities! would! be! terminated7! and! the! orders! would! be! send! from! the!

manufacturing! facility8! to! the! warehouse! of! the! customers! (Nordstrom,! Dillard’s,! or! Dick’s!

Sporting!Goods)! that!would! then! distribute! the! products! via! their! own! distribution! networks.!

But! in! order! to! facilitate! the! small! retailers,! they! had! to!maintain! the!warehousing! facility! in!

Denver.!!

The!outcome!

To!sum!up,!Crocs!has!created!almost! two!overlapping!supply! chains!one! for! the!small! and!

one!for!the!large!retailers.!The!2!supply!chains!are!almost!identical!but!the!only!difference!is!

that!the!contracted!or!company!owned!warehousing/distribution!facilities,!in!the!case!of!the!big!

retailers! are! replaced!with! their! own! facilities.! So! for! the! small! retailers! there! is! an! entirely!

different!fulfilment!model.!

Now!regarding!the!impact!of!the!strategy!to!the!supply!chain!and!the!economies!of!scale,! in!

the! initial! stages! this! strategy! was! essential! for! the! establishment! in! new! markets! and!

beneficial!for!both!the!supply!chain!and!the!economies!of!scale.!But!as!the!production!levels!

increased,!the!small!custom!made!orders!for!the!small!retailers!posed!did!not!allow!the!firm!to!

rip!the!advantages!of!the!economies!of!scale!and!the!added!up!an!extra!cost!of!maintaining!

distribution! facilities! just! for! them.! An! interesting! observation! that! would! strengthen! my!

argument! by! pointing! out! the! logistical! complexity! that! these! small! orders! add! is! that! even!

though!they!account!for!only!¼!of!the!company’s!revenue!they!are!more!in!number!than!the!

orders!made!from!big!retailers.!

7!this!actually!was!the!case!for!example!for!the!Canadian!warehousing!facility.!8!For!this!reason,!the!manufacturing!facilities!were!upgraded!in!order!to!facilitate!warehousing!and!labeling!possibilities

Question!3:!

Why!did!Crocs!not!sell!to!Wal`Mart?!!What!effects!did!this!decision!have!on!the!overall!

supply!chain,!and!relationship!with!other!retailers?!

Before!explaining!the!main!reasons!for!which!Crocs!did!not!sell!to!WalRMart,!it!is!essential!to!

present!some!main! facts! for! this!chain!of!superstores.!WalRMart! is! the! largest! retailer!of! the!

world!and!it!is!believed!to!have!one!of!the!most!efficient!supply!chains!in!the!retail!world.!The!

success!of!this!huge!and!complex!supply!chain!model!is!based!on!the!fact!that!WalRMart!has!

a!huge!effect!on!its!suppliers,!to!the!extend!of!defining!the!pricing!of!the!products.!The!every!

day!low!prices!model!is!not!always!preferential!for!the!suppliers.!

Crocs!denied!to!sell!products!through!the!Walmart!retail!network!for!3!main!reasons:!

Brand!image!

!The!brand!image!and!the!brand!perception!were!extremely!important!for!the!supply!chain!and!

the! overall! business! strategy! of! Crocs.! The! supply! chain! strategy! was! based! on! the!

assumption! that!by!working!with!small! retailers,!Crocs!would!establish! its!position! in! the!US!

and! in! the! world! markets.! The! goal! was! to! establish! the! brand! in! the! market! as! a! quality!

product! and! a! sustainable! brand! with! a! funky! looking! product! and! a! very! flexible! and!

responsive! supply! chain! that!would!eliminate!excess! inventory.!Retailers!would!not!need! to!

mark!down!the!average!price!of!30$!as!there!would!not!be!a!need!for!clearance!sales.!

By! allowing!Crocs! to! be! sold! in!WalRMart! this! sense! of! quality! and! the! brand! image!would!

immediately! be! devaluated.! That! is! because! Walmart! usually! sell! either! FMCG! or! lower!

quality,! cheap! products.! This! “cheapness”! would! be! a! serious! blow! to! the! Crocs! brand!

perception.!

Loss!of!price!control!

!Crocs!implemented!this!particular!business!and!supply!chain!strategy,!that!focuses!on!small!

retailers,!in!order!to!define!its!own!prices!to!the!markets.!With!the!general!price!of!30$!per!pair!

but!also!with!some!variations!due!to!the!price!differentiation!strategies9,!Crocs!maintained!the!

total!control!of!the!pricing.!The!firm!avoided!working!with!larger!retailers!as!they!try!to!control!

prices!and!in!case!of!stockRouts!and!shipment!delays!they!imposed!financial!penalties!to!the!

supplier.!Only!after!the!firm!was!well!established!in!the!markets!through!the!network!of!small!

retailers,!it!accepted!to!work!with!bigger!retailers,!with!favorable!terms.!!

But! the! option! to! work! with!Walmart! would! never! be! possible! because! the! two! companies!

have!huge!cultural!differences.!

Impact!on!the!supply!chain!and!market!price!

Walmart! is! a! huge! retailer!with! hundreds! of! shops! all! over! the!world.!As!mentioned! before!

Walmart! imposes! specific! policies! in! order! to! put! pressure! on! its! suppliers! and! eventually!

control!the!pricing.!If!a!retailer!of!this!size!would!achieve!a!different!price(lower),!it!would!affect!

the!whole!market!and!the!supply!chain.!In!particular,!it!could!draw!the!price!down!affecting!the!

sales!of!all! the!others!big!retailers!and!influencing!their!relationship!with!the!firm.!Also!some!

could! ask! for! better! prices! too! so! that! will! eventually! lower! the! profit! margin! of! the! Crocs!

supply!chain.!Also!for!the!small!small!retailers!it!could!be!similar!to!a!price!war.!In!particular,!

Walmart!will!bring!the!market!price!down,!so!it!will!become!unprofitable!for!the!small!retailers!

9 the same product would have a different price if it was in a shop destined to health practitioners than in a shop for gardening.

to!keep!on!selling!Crocs!and!will!lead!them!to!exit!the!market!of!Crocs.!!

In!conclusion,!it!has!become!that!if!Walmart!started!to!sell!the!Crocs!would!lower!the!market!

price! and! reduce! profit! margins! for! Crocs,! other! big! and! small! retailers.! Potentially! could!

destroy! the! relationship!with! some! larger! retailers! and!would! be! surely! destroy! the! relation!

with! the! small! retailers! that! would! discontinue! selling! Crocs.! So! the! possibility! of! Walmart!

entering!the!market!would!lower!the!profit!margin!of!all! the!value!chain!and!could!potentially!

stop!a!basic!part!of!the!supply!chain!that!was!working!to!provide!products!for!small!retailers10.!

Parts!of!the!existing!value!chain!would!become!redundant!and!discontinued!and!there!could!

be!a!possibility!that!in!order!to!reduce!cost!Crocs!would!either!lower!the!quality!of!the!product,!

with!a!big!impact!to!the!brand!image!and!sales,!or!move!the!production!to!China,!which!would!

affect!the!responsiveness!of!the!supply!chain.!

Question!4:!

Crocs! is! sold! to! buyers! within! a! number! of! consumer! markets! (gardening,! boating,!

medical,!etc.).! !How!does! this!business!model!affect! the!overall!supply!chain?! !What!

areas!of!concern!within!the!supply!chain!may!result?!

Croc’s! has! an! extremely! flexible! supply! chain!model,! which! is! based! on! having! an! excess!

capacity!in!the!manufacturing!process!that!offers!a!high!level!of!responsiveness!and!reduces!

the! risks! for! the! retailers!as! they!can!place!new!orders!within! the!season! in!contrast! to! the!

industry’s! standard! practise! of! providing! orders! only! before! the! seasons! of! the! year.! The!

replenishment!system!is!unparalleled!to!the!industry!standards.!!

With! its!unique!market!penetration!strategy,!Crocs!has!achieved! to!establish! its!presence! in!

various! markets.! That! was! achieved! by! establishing! the! firm’s! presence! in! the! markets,!

10!That!was!the!same!part!of!the!supply!chain!which!established!the!brand!in!the!world!markets!in!the!first!place!and!created!the!unique!brand!perception.!

working!with!small!retailers!in!the!beginning!and!while!building!a!stronger!brand!name!moving!

progressively! to! the! larger! retailers! and! achieving! preferential! contracts!with! them.! Another!

really!interesting!marketing!technique!used!to!promote!the!Crocs!product!was!to!promote!the!

use!of!a!products!in!a!different!context!and!situation.!For!example,!in!Health!Care!seminars!to!

promote!the!use!of!Crocs!by!doctors!and!nurses!that!remain!standing!all!day!long.!In!this!very!

insightful!way,!Crocs!achieved!to!penetrate!different!specialized!markets!and!become!relevant!

for! various! demographics.! As! a! result! of! entering! the! different! markets,! the! supply! chain!

expanded!from!general!retailers!to!specific!oriented!shops(gardening,!boating,!medical!etc).!

Price!differentiation!

What! is! even!more! interesting! is! the! fact! that! through! this! variation! of! specific! uses! of! the!

product,! the! company! achieved! to! implement! a! price! differentiation! strategy11! (Chopra! &!

Meindl,!2013)!and!sell! the!same!product! in!different!markets!and! in!different!prices.!And!by!

saying!the!same!product!we!don’t!include!the!customized!prints!that!just!incorporated!Disney!

characters!as!a!part!of! the!agreement!with!Disney!or! the!17!collegiate!models! that!had! the!

logo!of!schools.!These!examples!could!justify!a!price!differentiation!because!of!the!marketing!

and! collaboration!with! different! brands.! But! what! is!more! astonishing! is! that! by! following! a!

similar!strategy!to!the!air!carriers,!Crocs!marketed!the!exact!same!product!to!different!markets!

with!different!prices.!In!particular,!the!company!could!and!did!sell!the!Crocs!shoes!!in!shops!

for!Health!care!practitioners!at! the!price!of!70$!and! in!blue,!white!and!green! to!match! their!

uniforms!and!the!exact!same!shoe!in!a!gardening!store!for!30$!dollars,!in!colours!like!brown,!

orange! etc.!With! this! price! differentiation! strategy,! the! firm! could! improve! even! further! the!

profit! margin! of! its! value! chain.! Apart! from! the! profit! margin! this! strategy! didn’t! have! any!

11 A price differentiation strategy is placing different prices in identical or similar products in different markets. (Krugman & Obstfelt, 2003) (Phillips, 2005)

substantial! impact! to! the!supply!chain!model.! ! It!has!also!expanded! the!network!of! retailers!

from!the!general!retailers!to!specific!market!oriented!retailers!and!potentially!if!some!of!them!

were!large!retailers!the!supply!chain!could!benefit!from!the!economies!of!scale!as!they!would!

purchase!large!amount!of!the!same!colours.!

Concerns!

The!differentiation!pricing!strategy! is!based!on! the!“variation!of! the!customers!willingness! to!

pay”(Philips,!2005)!(Belobaba!et!al,!2009).!The!balance!of!this!system!relies!on!the!fact!that!

“no!one!from!the!higher!price!segments!would!decide!to!shift!to!the!lower!price!segment!after!

the!prices!are!announced”!(Chopra!&!Meindl,!2013).!A!big!danger!for!this!strategy!that!could!

create!implications!is!that!some!of!the!markets!are!overlapping.!For!example!the!doctor,!that!

purchased!one!pair!for!70$!in!the!health!care!store,!could!also!be!a!recreational!gardener!and!

purchase!a!pair!for!30$!in!the!gardening!shop.!The!information!of!price!differentiation!can!be!

easily!spread!in!the!era!of!online!shopping!and!internet.!!This!eventually!would!end!up!having!

similar! results! to! the!Walmart! example.! It! could! potentially! be!a! devastating!hit! to! the! firms!

brand! image!and! lead!many!customers! to!purchase!knockRoffs! that!are!even!cheaper.!Also!

the!relation!between!the!firm!and!its!retailers!network!could!be!affected,!something!that!would!

influence!the!overall!supply!chain.!Finally,! there!will!be!one!price! in!all! the!markets! lowering!

the!profit!margin!of!every!retailer!and!with! the!domino!effect!would! influence!the!Crocs(firm)!

and! their! suppliers! profit! margin.! Finally,! it! further! reshape! the! supply! chain! and! affect! the!

quality!of!the!product!(for!more!details!see!above!Q.3).!!!

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