INTRODUCTION:
Levi Strauss and Company is one of the world’s leading brand-name apparel marketers with sales across the world. There is no other company with a equivalent worldwide presence in the jeans and casual pants market. Their market-leading apparel merchandise are sold under the Levi’s, Dockers, and Levis Strauss Signature brands.
Today, the Levis trademark is one of the most globally recognized, and is registered in almost over 160 countries. Now, more than ever, constant and meaningful innovation is vital to their commercial success. The global business environment is intensely competitive.
worldwide trade, instantaneous communications and the effortlessness of market entry are among the forces putting greater pressure on merchandise and brand differentiation. To be successful, it is imperative that Levi Strauss continuously change, competing in new and different ways that are relevant to the changing times.
What position in the market does Levi occupy (using the strategy clock to characterise it’s position)
A strategy clock is based upon the work of Cliff Bowman. It is another suitable way to examine a company’s competitive position by comparing the offerings of competitors The strategy clock allows one to consider competitive advantage in relation to cost advantage or differentiation advantage. (C. Bowman and D. Faulkner ‘Competitive and Corporate Strategy – Irwin – 1996).There a six core strategic options, one of them are where Levi is positioned and this will be shown below.
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According to Bowman’s Strategy Clock Levis displays Differentiation with price premium. This means that the company has value to its product and the customers to justify high costs. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products. (Johnson, G & Scholes, K 1997)
The first indication of Levi been this position is that Levis states that they wanted to avoid price-based competition due to their history of brand recognition and brand loyalty to their customers. Therefore Levi created value to the customers by providing them with customised jeans and accustomed the price according to the Levi’s brand which carries enough clout to justify a reasonable price premium. Over the years though it seemed that the brand name lost some importance and it was critical for Levi to create valued features to the customers in order to differentiate them from their competitors.
The cost structure showed that Levi sold their products through wholesale channels which were then distributed by the retailers. Levi also maintained a chain of Original Levi Stores. These two choices allowed Levi’s to be closer to the customers and help them satisfy their needs in the search for the perfect fitted jean. The next factor that indicates the position is that Levi emerged with mass production with the use of emerging communication and computer technologies. The concept allowed Levi to find a niche market and help them create a competitive advantage over the competitors by providing customized made jeans.
Previously it was thought that highly-customized products were expensive to produce, however with information technology Levi was able to meet the customer needs for flexibility and it created a chance for Levi in becoming more economical. Levi found a way to make a mass production and have services delivered due to the technology. Levi was facing a lot of competitors that provided the low-cost and high volume producers, therefore they had an advantage over the company.
The Personal Pair Proposal project allowed a discovery of a niche market and this allowed Levi to create differentiation from its competitors and by adding price premium. Levi wanted to avoid competing against the low-cost volume producers therefore Levi did market research and revealed that only a quarter of women were truly happy with how their jeans fitted them.
This project was a jean customisation program that made it possible to approach the customers with having lower distribution costs and unsold inventory. The mass customised program allowed the costs to be lower as well as provide the differentiation advantage due to the reengineering process of new technologies. Therefore the position of differentiation is providing customers with value, medium prices and high perceived value is created for Levi jeans.
The fact that there is value added with the service. The proposal of a $15 premium and with focused groups suggested that women would consider the price fair due to them finding a superior fit, which competitors have not done yet. Suggestions have been made that a realistically price would be between $5 and $10.
The fact that there is a brand name involved it would not be considered for the premium to be $15 as customers know the quality of the jean that they will be receiving and the knowledge that the jeans are hand sewn. Manufacturing and raw materials will not be affected with the proposal both therefore eliminating unnecessary costs and allowing prices to be reasonable for the customers, which creates more value for differentiation.
How confident are you that the ‘Personal Pair’ project will change the differentiation and low cost trade-off?
Levi’s has a legacy of being very durable and high quality jeans that last at a low cost. Levi is very high quality with a low cost but they somehow are losing favour with their customers. To compete in the always changing market Levi’s might have to enter into a new market which would be high quality with a high price. Therefore with evidence below I am confident to say that the Personal Pair will change the Low cost trade off.
It is almost a must that Levi must change the differentiation and low cost trade-off. This would change Levi’s motto of high quality for a reasonable price, unless they start a new line to compete in the new market. Levi will move to incorporate a focus differentiation strategy where focus is on the higher end of the jeans market, yielding stronger profit margins due to price premium.
The fact that customers expect prices to be higher due to quality the company cannot just reduce the prices even though with mass customisation will be cheaper. The idea of the perceive price has been set in the customers minds and therefore they are willing to pay a higher price for perceived added value to a particular segment, justify a price premium.
Therefore it is vital the company prices the jeans correctly because the particulare market segments is not necessarily price sensitive and is willing to pay a higher amount for a jean that they know is going to fit them perfectly and is made of good quality fabrics. The personal pair proposal approach helps the customers who find a array of choices in the market place overwhelming, and to narrow down their specific needs.
The Personal Pair Project adds extra value and therefore customers perceive the premium price to be high. These customers are approached and are helped to understand what their needs are, and with the offerings of a customized fitting jean it allowed customers to know that Levi is catering for their need which creates customer loyalty and a strong brand name. The actual manufacture products in a just-in-time fashion respond to specific customer request.
What are Levi’s unique resources and core competence?
Resource is any physical or virtual entity of limited availability that needs to be consumed to obtain a benefit from it. (Alexander Osterwalder, 2004) In most cases, commercial or even ethic factors require resource allocation through resource management. (Alexander Osterwalder, 2004) Unique resources are resources that are not easy to copy, incomparable to competitors and create value for the company.
A core competency is a specific factor that a business sees as being central to the way it, or its employees, works. (Prahalad, C.K. and Hamel, G. (1990). It provides consumer benefits, it is not easy for competitors to imitate and it can be leveraged widely too many products and markets. (Prahald, C.K. et al (1990). Core competencies are particulare strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value.
Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies. (Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation, Harvard Business Review (v.68, no.3) pp. 79-91). Levi’s core competencies were found in manufacturing, merchandising and marketing.
With regards to manufacturing, Levi has decided to do mass customization for the customers. The mass customization results in them satisfying a number of customers needs and savings cost at the same time by producing in bulk. From a strategic point, the concept is based on finding a niche market. Mass customization uses emerging communication and computer technologies to bypass the limitations of traditional mass production methods.
Therefore Levi had a core competency in meeting the customer’s needs by been more flexible and has greater choice in the market place with the help of manufacturing with the use of technology. In addition, a mass customisation model lowers the costs as well as it provides the differentiation advantage over the competitors, since the re-engineering process is often more efficient once the new technology is applied. Therefore Levi will have this competency of customer’s loyalty and brand recognition due to their needs been satisfied.
The next core competency is merchandising, Merchandising is the methods, practices, and operations used to promote and sustain certain categories of commercial activity. (Kunz, Grace (2005). In the broadest sense, merchandising is any practice which contributes to the sale of products to a retail consumer. Levi is doing this by offering the customers a chance to find the perfect fitting jean.
Levi operation equips the store with networked PC’s and personal pair kiosks. Customers will be measured and with this technology operation and practice it results in one of 4 224 possible size combinations. The computer generates a code for the number of correspondents. This practice gives Levi a competitive advantage as they would be the first company to offer these unique resources to the customers.
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Lastly you can see the core competency of Levi in their marketing. Levi is such a well known brand, and is given terms such as authentic, genuine and original. This indicates that they are widely known and considers having customer recognition. Therefore Levi is able to market to their customers that are willing to pay for the quality products. The marketing strategy allowed differentiation to be possible and to offer the customers a new product development of a perfect fitted jean.
Levi’s aspects of the VRIO framework: Valuable: Has a history of Brand Loyalty and Recognition and remains number one internationally in its markets. Rare: Has a strong branding image. Levi’s is marketed as “authentic” and “genuine” and enjoys customer support. Inimitable: Jeans are “US made” unlike competitors. Levi’s provides generous packages to employees – retention of HR. Organised: Manufacturing is key core competency and is managed to have maximum value for resources (J.F Smith, 06/22/2009).
Should Levi go ahead with the joint venture? What would you recommend and why?
Yes, Levis should go ahead with the joint venture with Custom Clothing Technology Corporation (CCTC). Levi stands to lose this opportunity to competitors if it decides to not move forward. Market research has shown that more than ¾ of women are not fully satisfied with “fit” of their jean, this is almost guaranteeing a market segment that will be willing to buy the perfect fit.
Low-cost and high value competition makes it necessary to create value features that would differentiate it in the eyes of the consumer. Therefore by joining CCTC, Levi will be able to get the technology expertise on how to create and capture different possible size jeans for different shaped people. Offering this to the customers will allow them to feel that they are been catered for and therefore willing to pay the price in order to feel good. This creates customer loyalty at the end of the day due to customer intimacy, Levi should ensure that the intimacy is marketed and to show the benefits.
Levi should at first enter into the proposal cautiously by choosing to enter a test phase before proceeding in joining the full scale project. The result of doing this will ensure that Levi will be making a good decision and know more about what they are getting involved with. Levi will benefit this joint venture in many ways. Firstly with mass customisation and offering the customers a perfect fit can result in Levi to better adapt to the individual needs and wishes. This means that it will result in the customers to less likely switch brands.
Levi should also consider the fact that by going into a joint Venture with CCTC and offering mass customisation it will help Levi learn directly from the customers and it will help them identify the new trends and the taste that improves the New Product Development. This is because Levi will be dealing with a variety of customers of different shapes and sizes and needs to understand that they require and look for different styles. Therefore Levi will get a hand full of people to represent the possible sizes and this creates the customer value.
This venture can allow more customers’ needs responded to and therefore by allowing the customers to participate in the New Product Development allows the product to be accepted by the market much faster. Levi will be catering for them and they will respond due to Levi identifying that there is a need for a perfectly fitted jean. Levi must understand that by doing this venture they are responding to the individual needs of the customers.
The response of one person will lead to them telling their friends, the word of mouth is a very powerful and very cheap form of communication. Levi’s Strauss can only benefit from joining the CCTC’s approach. At the end of the day it will add value to Levi’s value chain due to them catering for their customers’ needs and wants. The fundamental idea in this approach is to gain customers satisfaction and if Levi does not take this opportunity another company will.
Creating this system which is driven by the customers’ demands and specific to the exact needs of their customers CCTC can help Levi ultimately make their business be more aware and learn more about their customers and how to fully achieve customer satisfaction. Without a joint venture with CCTC and outside value chain analysis, Levi might not be able to grasp the actual scope of the opportunities that they were missing out on. This joint venture will help the company adapt to the fast growing industry and competition, it can also help the company differentiation.
Due to the fact that the competition is offering lower prices it is vital that Levi offers something unique to the customers. Levi wants to avoid price based competition because they had a history of brand recognition and brand loyalty. Therefore it would be wiser to join this venture with CCTC and create customer value and customer satisfaction. Personal pair was a jeans customisation program which will make the joint venture with Custom Clothing Technology Corporation. Together these companies can enter the mass customisation with the help of technology.
CONCLUSION:
A valuable lesson that can be taken from this case is how necessary it is to keep up with your brand image and customer loyalty. Being content with one niche in a market such as clothing is never acceptable and is therefore necessary that Levi makes the joint venture successful. Styles, times, and preferences are changing so rapidly, that a clothing line must be able to meet the needs and wants of their customers.
While Levi’s still had a market in the older generations, they were missing out on a huge market that likes to shop and that are looking for the perfectly fitted jean no matter what their size was. The second implication that can be applied to other companies would be their option for strategic alliance. Levi’s really needs some help in the area of brand image and by collaborating with Customer Clothing Technology Corporation, they will have a whole new consumer market.
Levi’s has learned that they cannot be comfortable in one market for too long because that alienates another market such as the younger generations. Collaborating with CCTC, the company can obtain certain advantages that can only help Levi with the competitive environment. Therefore Levi can improve its customer value chain and achieve maximum customer’s satisfaction with mass customization.
Harvard References:
Alexander Osterwalder, 2004
Barney, J.B. and Hesterly, W.S. (2008). Strategic management and Competitive Advantage: Concepts and Cases. 2nd edition. Upper Saddle River, NJ: Pearson Prentice Hall
C. Bowman and D. Faulkner ‘Competitive and Corporate Strategy – Irwin – 1996).
Dr Brian Squire, Supply Chain Management Research Group, Manchester Business School, Executive Briefing 2006-04
J.F Smith, 06/22/2009
Johnson, G., & Scholes, K, 1997).
Phil Dourado, Bart de Boever, Dirk De Vos the annual, organised by ICBI and held in Paris.
Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation, Harvard Business Review (v. 68, no. 3) pp. 79-91. )
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