MN6003
Strategy: Choices and Change
Individual Strategy Assignment Briefing
Levi Strauss & Co. is a private
clothing company which is very well known all over the world. It was launched
in the year 1853 when Levi Strauss arrived from Bavaria, Germany to San
Francisco in California. He came there to establish a branch of his brother’s
New York dry supplies business. Even though the company started to produce
denim overalls from the year 1870s, the jeans as we know now were not created
until the 1920s.
Political/Legal
factors
Promotional activities are
regulated in all countries by legislation. One of Levi Strauss's most famous
television commercials used the music of Martin Gaye as a background to 1950s
image of young man stripping to his boxer shorts and washing his 501's in a launderette.
There has been variety of adaptations were required in local markets. For example, the original commercial had to be re-shot in
Australia and Brazil because the local regulations insisted on domestic
produced commercials.
Economic
factors
The economic factor is increasingly
important in enhancing adaptation. Local markets vary enormously by their
disposable income per capita. Therefore, standardizing prices would mean that
poor countries are likely to have reduced market for jeans. Different levels of
income and changes in income levels will affect both the price that can be
charged and the product quality that is appropriate for each local market.
Prices for jeans do vary very substantially between markets and such price
discrimination may be partly for reasons of income but may also be because of
the severity of competition and the inaccessibility of the territory. For
example, standard Levi jeans in the UK sell for approximately £46 whilst in
certain US states £20 is the norm (scribd, 2012) .
Socio-cultural
factors
Socio-cultural consists of language,
religion, ethnics, values and customer perceptions. It heavily affects the
product and promotion elements of the marketing mix because they are the most
culture-bound aspects. Differences in culture attitudes lead to enormous
variations in product and advertising standards and expectations. Levi wishes
to minimize the degree to which culture prevents them from producing standardized
promotional campaigns. This is because of the benefits of economies of scale
and the higher quality that can be obtained for a single advert than for
multiplicity of local adverts.
Technological
factors
Technological considerations concern
whether the local market has sufficiently developed technologies to take full
advantage of the product. High technologies are required to make full use of
the variety of promotional methods using alternative advertising media such as
television or Web sites. Similar considerations apply to the distribution of
the product. For example consumers can utilize online home shopping facilities.
In less developed countries, for example in Africa, where such technologies are
in rather inchoate stage, adaptation is required such that a greater extent of
use is made of more traditional methods (ivythesis, 2009) .
Strategic Grouping
Levi Strauss & Co. was
threatened by competition because the barriers of entry which were relatively
low in the jeans market.Some
of Levi’s competitors include
-
Gap
Jeans
-
Diesel
-
VF
Corp (Lee, Wrangler)
-
Calvin
Klein
-
Tommy
Hilfiger
The
entrance of new competitors had many effects on Levi’s:
-
Levi’s no
longer had monopoly power
-
more
competitive prices
-
lower
profits
-
availability
of substitutes
-
increase
in elasticity of demand
-
Levi’s
consumers preferred other brands or bought from them which lowered
its market share
These newer
upstarts are able to chip away Levi’s market dominance because they are able to
capture segments. VF
Corp captures low -end jean consumers; while Calvin Klein captures high end jean consumer (WordPress, 2013) .
In the 90's
the jeans market has encountered dramatically changes and Levi's faced stronger
competition than it had before. The new incoming into the market were two
types: high - end designer jeans manufacturers and retail chains.The main
equivalent competitors in the market are Levi's, Wrangler, Diesel, and Lee.
However, in dollar sales, Levi remains number 1.
SWOT analysis
Strengths
- Strong Brand Name and popular
top-of-the-mind brand
- Expertise in Jeans Industry
- Distribution Channels and Global
Outsourcing
- Finance and access to international
capital
- Has over 470 self operated stored
globally managed by 16000+ employees
- Levi’s marketing includes retro
popular songs in its TVC ad campaigns
- Over 60 and 25 manufacturing plants
in US and abroad respectively
Weaknesses
- High Pressures of Brand Protection
- Increasing competition means limited
scope for growth
Opportunities
- Growing casual wear market
- Low manufacturing and production
costs in various international markets
- Increasing acceptability of western
wear across the world
Threats
- Fast changing consumer tastes
- Lack of protection of property
rights in some countries like China
- Increasing Competition and Product
Substitution (Issac, 2011)
Levi’s Strauss Porter Five forces
The
threat of new entrants: Strong
The potential entry of new
competitors, able to disrupt the market, is possible and can be seen as a
strong pressure on the Levi’s. Indeed, today the entry barriers seem lower and
lower. New competitors won’t need either large and expensive production facilities
or a strong distribution channel. As a matter of fact, new entrants are
designing and producing their jeans directly in cooperation with their
suppliers and they are selling them directly on the Internet.
The
threat of substitute products: Medium
Even nowadays Levi’s jeans remain
very popular and are still very present in our wardrobes; it seems however,
that the Levi’s Strauss, has met for the last two years a slight slowdown,
which hasn’t happened since the end the 90’s. Indeed, as précised by “les Echoes”,
the 455 million pairs of jeans sold in Europe in 2012 represent a decrease 7,3%
in volume but only 2,6%invalue.
The
reasons of this slowdown are various, but one of them is probably the
increasing sales of trousers and leggings, considered as substitute products.
The launch of printed Levi’s could also be seen as a substitute product as it
looks like more to trousers than blue jeans.
The
bargaining power of consumers: Strong
A popular well-know adage says, “The
customer is king”. So it is the responsibility of the companies to adapt to the
customers’ demand and not to the customers to adapt to the companies’ offers.
The example of Levis’ is extremely accurate to illustrate this point: strongly
desired in the 1980’s and the beginning of 1990’s, Levi’s saw its sales
decrease sharply namely because the products didn’t fit the customers’
expectations anymore.
Hence,
with very low swapping costs, extremely standardized products, and a large
usage of the Internet to get information and to compare prices, the bargaining
power of customers is reinforced.
The
bargaining power of suppliers: Medium
The monopoly of Chinese suppliers is
coming to end, and more and more denim companies are relying on “emerging”
suppliers from Bangladesh, Vietnam, Pakistan, or Turkey. In the clothing
industry, H&M has even decided to open its supply channel to Ethiopian suppliers,
as it seems that the cost of production in Ethiopia is half the one in China.
Thus, Levi’s Strauss could follow this new orientation in the next few years.
Degree
of rivalry - High
There is high chance for
consumers to switch to alternative brands like CK Jeans, Guess Jeans, DNKY
Jeans and Diesel. However mid class earners prefer low priced jeans like Lee
and Wrangler. Since there is no brand identification low level product differentiation
will increase rivalry. As strategic stakes are high because of Levi’s losing
market position the degree of rivalry is high.
Value chain of Levi’s
Inbound logistic
Levi’s
Strauss has strong commitments to the reputational effects of supplier relations. Levi’s Strauss recognizes the inter
relationship and uses it to shape company.
Operations
Levi’s
Strauss has been using hi-tech sewing system and has invested 10 of millions of
dollars since 1992 to convert assembly line plants into team manufacturing
process. Levi’s has followed new age
machines to garment industry which servers improve productivity.
Outbound logistics
Levi’s
strategy in achieving an outstanding reputation in outbound logistics is its
close co-ordination with retailers. LeviLink, an electronic data interchange
system which directly connects specific retailers to overall Levis Strauss
distribution systems. Through which point of sale information from Levis major
accounts provides the ability to generate instantaneous data relevant to
reorders, invoice and shipments.
Marketing and sales
Levi’s
has differentiated itself from competitors through progressive and original
advertising campaigns. (50 yrs relationship with Foot, Cone and Belding, Cannes
Film festival honored the company with the advertiser of the yr). The company has recently been able to exceed
the combined sales of Lee and Wrangler in market share.
Levis
has traditionally built its market shares through relationship b/w independent
department stores. Recycled jeans are the growing segment of retail channels
distribution.
Sales services
Levi’s
has paper of unique product made from scraps of Denims reduces shipping and
disposal of Denim scraps to landfills. Numerous other environmentally sensitive
initiatives are also part of company’s activities including:
·
Recycled paper tags
·
Copper rivets
·
Buttons from natural copper (avoiding
chemical processing in copper plating)
·
Fostering the production of naturally
coloured cotton which generates what has been described as Eco-friendly’ clothing (Chauhan,
2012) .
Conclusion
Levi's has a big market share and it has
a strong financial background. It is still the number one company in its
industry. However, Levi's is facing several imitation problems which became
more severe in recent years. This is will no doubt affect its profit.
Nevertheless, Levi's is working with Mode Labs and launched a new product which
is a mobile phone. This shows Levi's still has a lot more to offer in other
industries. Even though Levi's jeans are original and good in quality but the
designs remained unchanged and it seems boring to the young generations. Its
competitors like Tough, Pull & Bear and Espirit will capitalize on this
weakness and gain an advantage on Levi's.
Reference list
·
Chauhan, N., 2012. Levis
Strauss and Company. [Online]
Available at: http://www.scribd.com/doc/118094178/Levis-Strauss-Company#scribd
[Accessed 19 January 2016].
Available at: http://www.scribd.com/doc/118094178/Levis-Strauss-Company#scribd
[Accessed 19 January 2016].
·
Issac, J., 2011. SWOT analysis on LEVI. [Online]
Available at: http://www.slideshare.net/JeayIssac/swot-analysis-of-levi
[Accessed 18 January 2016].
Available at: http://www.slideshare.net/JeayIssac/swot-analysis-of-levi
[Accessed 18 January 2016].
·
ivythesis, 2009. Levi Strauss: PEST factors. [Online]
Available at: http://ivythesis.typepad.com/term_paper_topics/2009/09/levi-strauss-pest-factors.html
[Accessed 18 January 2016].
Available at: http://ivythesis.typepad.com/term_paper_topics/2009/09/levi-strauss-pest-factors.html
[Accessed 18 January 2016].
·
scribd, 2012. Levis Strauss and Company. [Online]
Available at: http://www.scribd.com/doc/118094178/Levis-Strauss-Company
[Accessed 18 January 2016].
Available at: http://www.scribd.com/doc/118094178/Levis-Strauss-Company
[Accessed 18 January 2016].
·
WordPress, 2013. Levi's vs Diesel. [Online]
Available at: https://levisvsdiesel.wordpress.com/2013/12/06/focus-on-some-of-levis-diesel-main-competitors/
[Accessed 19 January 2016].
Available at: https://levisvsdiesel.wordpress.com/2013/12/06/focus-on-some-of-levis-diesel-main-competitors/
[Accessed 19 January 2016].
