Adidas will put on sale what it bills as the world’s first computerized “smart shoe.” But consumers will decide whether to accept the bionic running shoe’s $250 price tag—four times the average shoe price at stores such as Foot Locker. Adidas uses a sensor, a microprocessor, and a motorized cable system to automatically adjust the shoe’s cushioning. The sensor under the heel measures compression and decides whether the shoe is too soft or firm. That information is sent to the microprocessor, and while the shoe is in the air, the cable adjusts the heel cushion. The whole system weighs less than 40 grams. Adidas’s computer-driven shoe—three years in the making—is the latest innovation in the $16.4 billion U.S. sneaker industry. The top-end running shoe from New Balance lists for $199.99. With runners typically replacing shoes every 500 miles, the $250 Adidas could push costs to 50 cents per mile. Adidas is spending an estimated $20 million on the rollout. The investment required to develop a full-scale commercial rollout cost Adidas $70 million (including the $20 million ad campaign), which will be financed at an interest rate of 10%. With a price tag of $250, Adidas will have about $100 net cash profit from each sale. The product will have a five-year market life. Assuming that the annual demand for the product remains constant over the market life, how many units does Adidas have to sell each year to pay off the initial investment and interest?
Adidas will put on sale what it bills as the world’s first computerized “smart shoe.” But consumers
will decide whether to accept the bionic running shoe’s $250 price tag—four times the average shoe
price at stores such as Foot Locker. Adidas uses a sensor, a microprocessor, and a motorized cable
system to automatically adjust the shoe’s cushioning. The sensor under the heel measures compression
and decides whether the shoe is too soft or firm. That information is sent to the microprocessor, and
while the shoe is in the air, the cable adjusts the heel cushion. The whole system weighs less than 40
grams. Adidas’s computer-driven shoe—three years in the making—is the latest innovation in the $16.4
billion U.S. sneaker industry. The top-end running shoe from New Balance lists for $199.99. With
runners typically replacing shoes every 500 miles, the $250 Adidas could push costs to 50 cents per mile.
Adidas is spending an estimated $20 million on the rollout.
The investment required to develop a full-scale commercial rollout cost Adidas $70 million (including the
$20 million ad campaign), which will be financed at an interest rate of 10%. With a price tag of $250,
Adidas will have about $100 net cash profit from each sale. The product will have a five-year market life.
Assuming that the annual demand for the product remains constant over the market life, how many
units does Adidas have to sell each year to pay off the initial investment and interest?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
