Case Study

Deloitte Consulting GmbH

Case Study Example “Footloose”: Introduction

Duraflex is a German footwear company with Work boots, casual boots, field and hunting boots,
annual men’s footwear sales of approximately 1.0 and winter boots. Work boots is the largest sub-
billion Euro (EUR). category and is geared to blue collar workers1 who
purchase these boots primarily for on-the-job
They have always relied on the boot market for the purposes. Casual boots is the fastest growing sub-
majority of their volume. In this market they category and is geared more towards white collar
compete with three other major competitors. workers2 and students who purchase these boots
for weekend / casual wear and light work purposes.
Together, these four brands represent
approximately 72% of the 5.0 billion EUR German The four key competitors in the market are Badger,
men’s boot market. The boots category includes Duraflex, Steeler, and Trekker.
four main sub-categories:

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Competitor Profiles

Badger and Steeler are both Market Share of Work and Casual Boots by Company (2013)
well established as work boot
companies, having a long
43%
history and strong brand Badger 11%
recognition and credibility
16%
among blue collar workers. At Duraflex 40%
the other extreme is Trekker, a
19%
strong player in the casual boot Steeler 4%
market but a very weak player
5%
in work boots. Duraflex, Trekker 34%
however, is a cross between the
other competitors, having a Other 17% Work boots
11%
Casual boots
significant share in both work
boots and casual boots.

Historically, Duraflex had an even stronger position in the work boot sector. However, since 2011, when the
company began selling casual shoes and focusing on the growth opportunity in casual boots, sales of the
Duraflex work boot line have steadily declined. Also, around the same time Duraflex shifted its emphasis,
Badger became a much more assertive competitor in the work boot market, increasing its market share to
43% in just three years.

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Consultants’ Role & Data Collected

In the fall of 2013, Badger launched a new line of aggressively priced work boots. The strong success of
this line has caused Duraflex’s management to re-evaluate their position in work boots. With limited
additional resources, management must now decide if they should focus their efforts on competing with
Badger in the work boot sector, or focus their resources on further strengthening their position with
casual boots.

In January of 2014 Duraflex hired a leading consulting firm to conduct research to help management in
its decision making. To make an informed recommendation, the consultants realized they needed to
collect information that would enable them to size the market and better understand Duraflex’s
competitive position.

To begin with, the consultants developed a 20 minute

quantitative telephone survey that was conducted
among 500 randomly dialed consumers across the
country’s 6 primary regions. In addition, the consultants
completed some internal cost and pricing analysis for
Duraflex’s work and casual boot lines. The market
pricing analysis showed Duraflex competing at the
premium end of the market for both its casual and work
boot lines.

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Exhibit One: Propensity to Buy Boots by Population Segment
(Male Population 12+)

Bought Work Boots in Past Year

Bought Casual Boots in Past Year
100%

60%
55%
50%

35%

25%
20%
15%

0%

Population 11.0 MM 12.0 MM 7.0 MM

Average Price
140 EUR 130 EUR 110 EUR
Paid for Boots

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 Exhibit Two: Channel Preference by Brand

100%
16%
21% 21% Other
Other 26% Other
Other
14%
13% 6% Athletic Store Apparel Store
Department
Store 11%
Sporting Goods
16%
15% Department Store
35% 12%
Discount / Outlet
Channel Shoe Store Discount / Outlet
Share 50%
(%)
23% 22%
Athletic Store Safety / Work

54%
Shoe Store
39%
28% Safety / Work 28%
Shoe Store Shoe Store

0%
Duraflex Badger Steeler Trekker

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 Exhibit Three: Buyer Purchase Criteria by Brand

Duraflex Badger Steeler Trekker

Quality /
Styling 45% 45% Comfort 52% Comfort 45%
Durability

Quality / Quality /
37% Comfort 39% 43% Styling 41%
Durability Durability

Past
Comfort 19% 30% Styling 22% Price 35%
Experience

Brand 18% Styling 17% Features 19% Brand 21%

Past
Features 10% Brand 13% Price 15% 13%
Experience

0 20 40 60 0 20 40 60 0 20 40 60 0 20 40 60

Share (%) Share (%) Share (%) Share (%)

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 Exhibit Four: Retail Price of Selected Boots, Split by Price
Component

180
170 EUR

160
22%
Company Margin
140 EUR
140
16%
8%
120 EUR Retailer Margin
Company Margin
120
15% 10% 6% Retailer Margin
Company Margin General & Admin 11%
Retail 100 12%
13%
General & Admin
Price Retailer Margin
Design 10% Design
10%
(EUR) 80 General & Admin
9% 6% Sales & Marketing
21% Sales & Marketing
60 Design 19%
18% Labour
15% Labour
40 Sales & Marketing
12%
32%
Labour 20%
20 Materials
15% Materials
Materials
0

Duraflex - Casual Duraflex - Work Badger

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Case Study Questions

Work through these questions on your own, using the text and exhibits in the preceding slides.
An answer key is provided in the slides that follow…

How big is the work boot market (expressed in euros)?

1 Does Duraflex get more of its revenue from work boots or
casual boots?

Explain why Badger is outperforming Duraflex in the work

2 boot market.

What changes would you recommend to Duraflex’s work boot

2 strategy? Why? Would you recommend them to introduce a
sub-branded boot line?

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Answer Q1: How big is the work boot market (expressed in
euros)? Does Duraflex get more of its revenue from work boots or
casual boots?

Answer Q1

 To find the size of the market, we can use the following equation:

(Average Boots Price) * (% of male population that bought work boots in past year)
* (total population for the segment) * (number of pairs bought in a year)

 Exhibit One gives us the populations for each segment and the percentages that bought
boots. We therefore need to find the number of boots sold and the average price of each pair.
For this question, the candidate will need to make some assumptions.

1 Average number of boots purchased per user

 For work boots, we know that blue collar workers purchase an average of 2 pairs per year (from
Introduction, Footnote 1)

 White collar workers and students who buy work boots probably use them less rigorously and less
frequently, therefore probably only purchase 1 pair per year

 For casual boots, we can make a reasonable assumption, knowing that casual boots are purchased
primarily for weekends and light wear (from text), so the average number of pairs should be no more
than work boots from Exhibit 1 (i.e. 1 pair per year)

2 Average price per pair of boots

 Work boots cost more (compare Blue Collar vs. Student) so the average price should be higher than 140
EUR for all (150 EUR is reasonable); casual should be lower than student (100-110 EUR is reasonable).
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 Answer Q1: How big is the work boot market (expressed in
euros)? Does Duraflex get more of its revenue from work boots or
casual boots?

Answer Q1

The total market value will then be the sum, for each segment, of the following equation:

(Average Boots Price) * (% of male population that bought work boots in past year)
* (total population for the segment) * (number of pairs bought in a year)

(€150 * 60%* 11 MM * 2) + (€150 * 25% * 12 MM * 1) + (€150 * 15% * 7 MM * 1)

= EUR 2,588 MM

The following table shows another way to see it:

# Pairs Work
% Buying Price per Pair Segment Size
Population Boots
Work Boots (EUR) (EUR)
Bought / Year

Blue Collar 11.0 MM 60% 2 150 ~2,000 MM

White Collar 12.0 MM 25% 1 150 ~450 MM

Student 7.0 MM 15% 1 150 ~150 MM

Total: ~2,600 MN
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 Answer Q1: How big is the work boot market (expressed in
euros)? Does Duraflex get more of its revenue from work boots or
casual boots?

Answer Q1

Following the same procedure the casual boot market is then:

(Average Boots Price) * (% of male population that bought work boots in past year)
* (total population for the segment) * (number of pairs bought in a year)

(€100 * 20%* 11 MM * 1) + (€100 * 35% * 12 MM * 1) + (€100 * 55% * 7 MM * 1)

= EUR 1,025 MM

Or:

# Pairs Work
% Buying Price per Pair Segment Size
Population Boots
Work Boots (EUR) (EUR)
Bought / Year

Blue Collar 11.0 MM 20% 1 100 ~220 MM

White Collar 12.0 MM 35% 1 100 ~420 MM

Student 7.0 MM 55% 1 100 ~390 MM

Total: ~1,030 MM
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Answer Q1: How big is the work boot market (expressed in
euros)? Does Duraflex get more of its revenue from work boots
or casual boots?

Answer Q1

Summary:

 We know from the table on slide 2 that Duraflex has a 16% share of the work boot market and 40% of
the casual boot market, therefore:

– Duraflex’s revenue from the work boot market = 16% * 2,588 MM = 414 MM

– Duraflex’s revenue from the casual boot market = 40% * 1,025 MM = 410 MM

 So Duraflex gets most of its revenue from work boots, even though the revenues are almost evenly split

Our Answer:
The size of the work boot market is ~€2.6 billion. The casual boot market is ~€1.0 billion large. Duraflex
generates €414 million from work boots and €410 million from casual boots. Depending on the assumptions
taken, work may be slightly larger but the two should be relatively close.

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Answer Q2: Explain why Badger is outperforming Duraflex in the
work boot market.

Ways to Approach Question 2

According to the data we have and what we know as industry dynamics, the analysis can be split in 4 main
areas that would demand further study:

 Distribution

 Buyer Purchase Criteria by Brand (BPC)

 Pricing

 Cost Analysis

Even if you have many good ideas to answer this question, you won’t be impressive without
STRUCTURE. You don’t need a formal framework, just be methodical and organised in your
approach – and summarise at the end!

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Answer Q2: Explain why Badger is outperforming Duraflex in the
work boot market.

Distribution Buyer Purchase Criteria by Brand (BPCs)

• Duraflex is not sold where work boots are being • Exhibit 3 shows us that Badger’s top two
purchased. Exhibit 2 shows that Badger’s and associated criteria are: “Quality / Durability”
Steeler’s boots are often purchased in safety / (45%) and “Comfort” (39%). The same holds
work channels, whereas Duraflex does not have true for Steeler. Thus, these seem to be
a significant presence in them critical criteria for work boot market

 Therefore, Duraflex will need to broaden • However, Duraflex’s top criteria are “Styling”
distribution if it is to increase its share; it needs (45%) and “Quality / Durability” (37%), with
to get shelf space in the relevant channels “Comfort” being a distant 3rd at 19%, far
from its competitor’s figures

 Duraflex is not meeting the key needs of blue

collar workers and will need to strengthen its
“Comfort” perception

• Additionally, we should note that Badger has

built up a loyal customer base: “past
experience” as a criteria represents 30% and
is 3rd on its list of associated criteria

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Answer Q2: Explain why Badger is outperforming Duraflex in the
work boot market.

Pricing Cost Analysis

• We know that Badger is launching an • Comparing Badger to Duraflex work boots,

“aggressively priced” work boot line. Duraflex from Exhibit 4, there is one key area where
can alter its pricing strategy, e.g. lower its own Badger proportionately and absolutely spends
boot price more than Duraflex: “Materials”. This supports
their perception of “Quality / Durability” and
• However, looking at Exhibit 3, among the “Comfort” among their consumers. Also, they
stronger work boot market competitors, we see spend more on “labour”
that only Steeler shows price as a top BPC (and
then it is the lowest one) – potentially because • Retailer margin is lower for Badger – due to
they are the lower cost option in this market significant presence in safety / work channel

 Given that price does not appear to be an • Sales & Marketing spend is lower for Badger –
important criteria for work boot consumers, potentially driven by lower marketing
Duraflex will likely not realise great benefits requirements in safety / work channel as well
from this strategy, and will also lower its profits as established brand name among blue collar
in doing so workers. Also, Badger has built a loyal
customer base, and it is less costly to
 We know from the case that Duraflex has a maintain existing customers than attract new
premium price positioning, hence, lowering its ones
price may lead to the perception of lowering
quality  Badger has lower margins (both absolute and
relative); given already higher market price,
Duraflex has limited flexibility to raise its boot
prices; Duraflex may lower its margin
somewhat and shift emphasis to labour and
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Answer Q2: Explain why Badger is outperforming Duraflex in the
work boot market.

Answer Q2

Summary:

 Duraflex is not sold where work boots are being purchased

 Duraflex is not meeting the key needs of blue collar workers, as it is weaker than competitors on the
critical “Comfort” dimension

 Badger prices its boots more competitively, which is likely to be particularly appealing to the large work
boot market; this has helped develop a large and loyal consumer base

 Badger has lower retailer margins (both absolute and relative) and spends less on Sales & Marketing

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Answer Q3: What changes would you recommend to Duraflex’s
work boot strategy? Why? Would you recommend them to
introduce a sub-branded boot line?

Ways to Approach Question 3

There are two reasonable answers to this question. The company can either:

– Focus on increasing its work boots activities, or

– Emphasize casual boots

Each option has its own justifications and implications.

The important thing with a subjective question is not what you answer
to the question, but how you answer the question – pick a point of view
and support it with critical reasoning!

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Answer Q3: What changes would you recommend to Duraflex’s
work boot strategy? Why? Would you recommend them to
introduce a sub-branded boot line?

Increased Work Boot Market Focus

Justification: Implications:
 Represents approximately 40% of Duraflex’s  Enter safety / work channel – we may be
business (from question 1), making it very faced with pressure from Badger exerting
difficult to profitably ignore this market influence on retailers in this channel
 While Duraflex does have greater market  Build “Comfort” and “Quality / Durability”
share in the casual boot market, we know perception among blue collar workers
from information given in the case that the  Increase proportion of costs allocated to
casual boot market is smaller in size than materials and labour – potentially reducing
the work boot market, which may indicate company margin
less opportunity for share growth; also, we
derive lower margins (15% vs. 21%) from  There may be unique / niche positionings for
casual boots (from Exhibit 4) Duraflex (suggestions should be well thought
through)
 Given that Badger is introducing a new work
line, they may see new growth potential in  Introduce sub-brand or increase promotion of
the market which Duraflex may also want to brand with a focus on blue collar workers:
capitalise on may include on-site promotions, advertising
in industry publications, or advertising in
 Building a stronger image among blue collar magazines / on television during programmes
workers may entice them to try other with a higher blue collar readership /
Duraflex footwear products viewership

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Answer Q3: What changes would you recommend to Duraflex’s
work boot strategy? Why? Would you recommend them to
introduce a sub-branded boot line?

Emphasise Casual Boots

Justification: Implications:
 Stronghold for Duraflex right now (40%  Unlikely to be a strong competitor reaction,
market share) since Duraflex is already dominant player
 Fastest growing market  Duraflex will not need to enter new
distribution channels
 Represents approximately 40% of Duraflex’s
business (from question 1), making it very  Candidate should discuss a strategy for work
difficult to profitably ignore this market boot market – either winding down,
maintenance etc. and implications of this
 Focusing additional resources on the work
boot market would risk alienating casual
boot buyers (white collar workers and
students)
 “Style” is the top BPC for Duraflex (from
Exhibit 3). From the statistics on Badger and
Steeler, we know this is likely not an
important criteria for the work boot market.
By focusing on the casual boot market
Duraflex can devote additional resources to
keeping up with styles to better appeal to
this target

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