In a crowded, competitive world where time is an ever-scarcer resource, people desire filters that can help them quickly identify high-value collaborators. By creating belief networks that connect their brands to certain characteristics, luxury goods companies provide consumers with valuable filtering tools. Adidas has created one of the most robust luxury goods belief networks ever. Through savvy marketing, impressive design, and a storied heritage, Adidas has cultivated a brand that many consumers believe stands for the epitome of athleticism, power, fitness, wealth, and coolness. The strength of this brand is evidenced by both its size and scope. The Adidas brand is globally recognized and, in fact, is almost akin to a global luxury language. The brand is so strong that the company has successfully attached it to a variety of product areas, everything from sneakers to athletic apparel to fashion and fashion accessories, each of which is a large and rapidly growing revenue generator for the company. Moreover, the company has spent billions to create a storied heritage that connects their brand to legendary athletes, teams, celebrities, and centers of culture and competition going back to its founding in Germany in 1949. This heritage aspect is particularly important since new brands can’t go back in time and create a heritage, putting them at a huge disadvantage versus incumbents such as Adidas. As a result of its strength as a people filter, we believe Adidas is likely to grow both its volume and pricing over time, particularly as billions more people are added to the global middle class and the value of their belief network likely grows even stronger. In fact, we believe its pricing outlook is among the most favorable in our whole portfolio. Even if competitors create virtually identical products, for the aforementioned reasons, we believe Adidas will be able to continue to sell its products at a premium. Furthermore, because the Adidas brand serves as a signal of athleticism, power, fitness, wealth, and coolness, and this signal is only reliable if it is costly to send, Adidas has to raise its prices as wealth increases in order to maintain the brand’s value proposition.
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