Levi Strauss & Co. An Analysis EEP 142 Group Project Young Lee James Moon Michael Lin Problem •The Levi Strauss company is experiencing losses and is continuing to under-perform in the denim jean market.
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Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Competition - Strategies •Competitors successfully were able to take from Levi’s market due to heavy advertising and branding. Branding was especially effective for companies like Calvin Klein that targeted high-end consumers. •Some of the marketing strategies that competitors like Calvin Klein used to differentiate their product and brand included: –Celebrity endorsements (Calvin Klein and Brooke Shields) –Up-to-date European product designs (low-rise, tighter) Up- to(low–Advertise jeans as “designer. designer. ” •These advertisements were used as a barrier to entry, because of spurious product differentiation. Although Levi’s jeans may be physically the same as its competitor’s, consumer preferences are affected by brand name. •In addition to the idea of branding, Levi’s largest consumer market were Baby Boomers, and by the time competitors increased in the 1980s, the Levi’s brand was perceived to be “mommy jeans. ” This reinforced the more youthful perception of other brands. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Competition Premium Jeans •Levi’s failed to recognize and enter a new and booming premium jeans market, originating in 2000 and led by brands such as Seven For All Mankind, True Religion, and Rock & Republic. •Levi executives themselves admitted failing to see the premium jeans trend, and the company was forced into radical cost-cutting, closing dozens of factories and laying off thousands of workers. •The premium jeans market has over the last five years largely driven the growth of an otherwise stable jeans market, as premium jeans sales grew at a 40-45% rate for multiple years.
Levi’s failure to adequately respond to this trend was a large part of its posting declining sales in nine out of ten years prior to 2007. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Solutions - Advertising •With the rise of competitors and decrease in brand image, Levi Strauss & Co. makes use of edgy advertisements. •Brand Loyalty –Many of Levi’s ads stress brand loyalty to maintain existing customers. Levi’ The word “original” is used many times. original” –Some tv ads are set in the late 1800s, stressing the historic value of the company. Brand Image –At the same time, Levi’s ads stress the “youthfulness” of their brand Levi’ youthfulness” jeans. –The 501 product line and the Red Tab collections offer jeans that appeal that to younger consumers competing with the high-end jean competitors. high–Television advertisements are more innovative and target younger crowds. –http://www. youtube. com/watch? v=CSG807d3P-U http://www. youtube. com/watch? v=CSG807d3P–http://www. youtube. com/watch? v=skWFyop_pxU&feature=related –http://www. youtube. com/watch? v=W-SZN1VRIl4&feature=related http://www. youtube. com/watch? v=W- These marketing strategies however did not help with the worldwide decrease demand for jeans. This implies that other clothing is becoming a substitutable good for jeans. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Solutions - Alternative •Although Levi Strauss & Co. had worldwide market dominance in the 1980s after the release of 501 product line, profits continue to plummet due to: (1) decrease of demand for jean products and (2) more competition. •In 1996, revenues were reported at $7. 6 billion and a U. S. market share of 18. 7%. By 2001 revenues drop to $4. 5 billion and U. S. market share of 12. 1%. •In order to maintain revenues, the company releases the Levi’s signature jeans. –This product line appeals to the low-end consumers. –Decrease in demand for jeans causes market price to drop, so consumers want cheaper jeans. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Solutions - Alternative (cont. ) •In 2002 Levi Strauss & Co. makes an agreement with largest retailer Wal-Mart as a supply-chain strategy to massmarket consumers. –Levi’s Signature brand to be sold in Wal-Mart stores exclusively This was an excellent strategic move because Wal-Mart was making large sales while Levi’s could not keep up in sales. This had potential to benefit both parties. –By 2002, Wal-Mart was #1 in the Fortune 500 rating. –Levi Strauss & Co. was ranked #383 in 2002. •Although this partnership was a success, Levi Strauss could not offset the slowdown in the aggregate denim jean market, continuing to loss profits. –2008 Rating for Levi’s: 522 from previous 510 –Profits continue to fall. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Solutions - Alternative (cont. ) Forced to re-evaluate itself by years of declining sales, Levi’s has been able to find some degree of success with primarily the introduction of the Signature line and a largescale streamlining of costs and it’s business. Levi’s is also being helped by its international presence and is currently being benefited by impacts from the global currency exchange market, as the company benefited from the weak dollar. •The company is still trying to find a way into the lucrative premium jeans market, introducing a new premium line and hiring famous artists to liven up the brand. Competitor VF Corp. ecided to purchase Seven For All Mankind as their market entry. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Responsibility - Background •Levi Strauss & Co. is a family owned worldwide corporation with headquarters in North America, Europe, and Asia. –The company is vertically integrated, meaning it owns/has owned factories for every level of production for the jeans. –The company employs about 10,000 people worldwide. •Historically Levi Strauss & Co. is recognized as a caring and corporately responsible company. –After the 1906 San Francisco earthquake, he company continued to pay workers as it was rebuilding factories and buildings. –During the Great Depression, the company kept workers busy installing new floors in factories rather than fire them. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Responsibility - Background (cont. ) •Levi Strauss & Co. has also taken the lead on social issues. –During the 1940s, the company desegregated its factories bringing white and black workers together. –In 1980s, the company was very involved in educating people about AIDS providing $37 million to HIV/AIDS services. One of the first companies to extend healthcare to their workers’ spouses. •Levi Strauss & Company approach to business: “profits through principles. ” –"As business leaders we have the obligation, both individually and collectively, to make our enterprise not only a source for economic wealth, but also a force for positive social change in the conduct of our business. This principle of responsible commercial success is embedded in our more than 150-year experience, and continues to anchor how we operate today. " Problem Background Successes Competition Solutions Responsibility Conclusion Q&A
Responsibility - Sweatshops •With increased competition from other jean producers in the 1980s and 90s, like any profit-maximizing corporation, Levi Strauss & Company closed many factories and subcontracted production. –Subcontracted production is cost-minimizing because labor is relatively abundant and wages cheaper. –In order to compete with prices, subcontracting work makes sense. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Responsibility - Sweatshops (cont. ) •The company had 6 subsidiary factories in Saipan, capital of the U. S.
Commonwealth of the Northern Mariana Islands. –The U. S. Department of Labor cited that workers were paid sub-minimal wages, 7 day work weeks with 12-hour shifts in “slave-like” conditions. •The subcontractor, Tan Holdings Corporation, had to pay a fine of of $9 million as restitution to 1,200 employees. •Levi Strauss & Co. claimed no knowledge of the offense, cut-off cutties to Tan Holdings, and issued labor reforms. •1999, Sweatshop Watch, Global Exchange, Asian Law Caucus, Unite, and workers filed a class-action lawsuit 3 times to 27 U. S. retailers, including Levi Strauss & Co.
Levi Strauss was the only defendant to win the case. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A Responsibility - Environmental •Continuing on the approach of “profits by principles,” in 2006 Levi Strauss & Co. launches the Eco clothing line. –Jeans are certified to be made from 100% organic cotton and fully sustainable production processes. This includes cotton untreated by chemicals, pesticides, and manufactured at sustainable carbon emissions. –The jeans are also packed in 100% recyclable and reusable materials. •Economic implications Organic jeans are more expensive, due to the added costs to certify these genes to organic standards. –However, discouraging the use of chemicals for cotton is a step toward the right direction. Pesticides have externality costs to the environment and workers, because they are mostly improperly used in poor countries. A reduction in externalities improves social welfare. –In the long-run, sustainable production has the possibility to being profitable. –Corporate responsibility also has long-run profits. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A
Conclusion •Levi Strauss & Company had most of its early success because the firm was behaving monopolistically. The company patented the riveted jeans, increasing durability, and gaining popularity. •Over the years, the company maintained profits by providing a wide range of products, capturing new markets, and increasing its market shares. The company created barriers to entry by patents and trademarks, and by differentiating its product from generic jeans. •However as more firms entered the market, the company started losing customers and incurring losses.
The upstart companies captured niche market shares from Levi’s immense market domination. •Despite these reduction of sales, Levi Strauss & Co. maintained its corporate responsible image and progressive stance on social, labor, and environmental issues, which may have long-run profit opportunities. Problem Background Successes Competition Solutions Responsibility Conclusion Q&A References Frith, Maxine. “The Ethical Revolution Sweeping Through the World’s Frith, World’ Sweatshops. ” commondreams. org. 16 April 2005. 2 May 2008 Sweatshops. ” commondreams. org
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