Individual Strategy Assignment Briefing

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].

·         Issac, J., 2011. SWOT analysis on LEVI. [Online]
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].

·         scribd, 2012. Levis Strauss and Company. [Online]
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].