Executive Summary
After being in operation for over 140 years, Levi’s is now facing problems as a result of its poor economic performance. After failing to meet the fashion trends of the new generation, the firm has greatly lost its market share and its sales have reduced tremendously. To averse this situation, I propose that Levi’s should adopt a cost advantage strategy which will ensure that its products are of a similar quality as its competitors.
However, the firm will sell its products at a lower price. This strategy will enable Levi’s to increase its market share by manufacturing products that meet the tastes and preferences of its target market. The strategy will also increase the overall revenue earned by the firm. As a result, Levi’s will be profitable and sustainable in the long run.
Problem Statement
For an organization to be sustainable in the short run and in the long run, it needs to keep up with the changes that occur within its internal and external environments. In the contemporary world for instance, firms are experiencing stiff competition. Therefore, these institutions need to come up with effective strategies that will ensure that they stand on a competitive edge over their rivals.
Regardless of the outcome, it is the consumers who benefit the most since they get a wide range of goods and services to choose from to meet their tastes and preferences. Levi’s is one of the companies that is experiencing an economic downturn as a result of stiff competition.
After being an apparel giant for several decades in the United States of America, Levi’s has started to lose the strong market command that it had. According to the new chief executive officer (CEO) of the firm, Philip Marineau, Levi’s was reluctant to respond to the change in fashion trends especially during the mid 1990s.
In the process, it failed to meet the needs and requirements of the market whose tastes and preferences had been changing with time. Unlike other apparel companies such as JNKO and Kikwear that focused on the new generation market and used innovative platforms such as online stores to sell their products, Levi’s concentrated on its baby-boomer generation customers.
As a result, the sales of the company have been declining hence resulting in massive layoffs and shutting down of manufacturing plants. From its financial reports, it is evident that the firm barely reached the break-even point.
Thus, it is necessary for the management to come up with effective measures that will ensure that the firm’s operations are sustainable in the short run and in the long run hence enabling Levi’s to increase its sales and market share.
Situation Analysis
The aim of any organization is to realise its vision and mission and achieve its goal and objectives. In profit oriented organizations such as Levi’s, profitability is one of the main motives behind their operation.
To be profitable, Levi’s has put in place effective measures that have ensured that its operations are sustainable in the short run and in the long run. It is due to this fact that the firm has managed to be operational since it was incorporated by its founder, Levi Strauss during the mid 19th century. For an organization to be operational for over 140 years, its major strength has to lie on its leadership.
Levi’s decisions are made by a board of members. At the present moment, the head of this board is Robert D. Haas, the great grandson of Levi Strauss. Prior to being the head of the board, Haas was the CEO of Levi’s until Marineau took over.
It is evident therefore that during his era as the CEO, Haas implemented stringent measures that ensured the sustainability of the firm since he not only wanted to achieve profitability but he also wanted to ensure that the firm is sustainable in the long run due to the passion that he had developed in the family business. It is perhaps due to this fact that the Levi family has maintained the ownership of the firm over the years.
Haas has been succeeded by Philip Marineau, a former head of Pepsi North America unit. During his time in Pepsi, he managed to increase the market share of the product throughout North America especially after releasing the low-cal Pepsi into the market.
Due to its effective leadership and management strategies, Levi’s has managed to develop a strong brand name over the years. As a result of its reputable brand name, the firm has managed to maintain customers who are loyal to its product. For instance, most of the members of the baby-boomer generation regard Levi’s products as the best.
With such levels of brand loyalty, the firm has been experiencing high sales hence enabling it to be profitable. A strong brand name plays a critical role in ensuring the sustainability of a firm and its products in the long run. For instance, despite the fact that many young people do not purchase much of Levi’s products, they hold the company in high regards.
However, Levi’s has failed to develop and implement effective marketing strategies that would have otherwise ensured that it maintains its huge market share in the clothing industry. Thus, the main weakness of Levi’s is its failure to keep up with the changing fashion trends.
The advancement in technology has brought about sophisticated manufacturing techniques that have increased the quality of products and reduced the cost of production. This move has greatly increased the level of competition in almost every industry including the apparel, fashion, and design industry.
However, unlike its rivals that took advantage of the new technology, Levi’s had been reluctant in adopting and incorporating new technologies in its operations. Levi’s has only been concentrating with one target market, the baby-boomer generation. However, due to their concentration on members this generation, the firm did not realize that a new and vibrant market was coming up.
This market is comprised of individuals who are less than 25 years of age. Their taste in fashion is different as compared to the individuals of the baby-boomer generation. The new market has a strong purchasing potential. Therefore, the failure of Levi’s to identify the potential of this market has played a critical role in the declining sales and market share of the company.
Levi’s also has a poor supply chain. In the process of its development, Levi’s has been manufacturing its products within its factories. However, the firm was forced to close more than half of its factories as a measure of reducing its operating costs. Currently, the firm is hiring third party factories to manufacture its designs to meet its production targets.
In the process, it incurs additional costs that act as a setback to its rejuvenation process. At the present moment, stock replenishment in its outlets is not as effective as it used to be when Levi’s manufactured its own products. Other than delays in stock replenishment, there have been instances where outlets receive different products as compared to the ones that they had ordered for.
This is a huge blow since a lot of money and time will be spent to ensure that the right merchandise is delivered to the outlets again. The delays will also turn away customers who are specific with their requirements, tastes, and preferences. Consequently, Levi’s has not been having a good relationship with its retailers.
For instance, the company has been having wrangles with one of its old retailers, J.C Penny Company. Such disagreements have negative impacts on the sales of the company’s products as well as its brand name.
Another weakness that can be seen in the supply chain of Levi’s is its failure to effectively implement IT in its sales operations. The modern world highly relies on ICT in its operations. To keep up with this advancement, Levi’s developed an online platform where people could purchase their products from. This platform would have been an effective tool especially in capturing the young population.
However, the firm closed this platform and directed the traffic on this site to other retailers. This move has not been received well by the people who were using the online platform to purchase Levi’s products especially those who are loyal to the brand.
Despite the fact that the websites that the traffic has been directed to might have Levi’s products, the presence of a different brand name such as Penny’s or Macy’s usually sends buyers away.
Levi’s has a lot of opportunities that can be instrumental in transforming its operations to be more efficient. On the economic perspective, the clothing market is growing at a tremendous rate. This growth is characterised by an increase in the young population and the changes in fashion trends. For instance, the sale of traditional VF jeans had declined from 50% to 20% in a span of four years.
This change is an indicator that the traditional market is not as viable as it used to be several years ago. Therefore, Levi’s can increase its sales by focusing on this new market. On a social perspective, Levi’s still has a reputable brand name. The people of the old and the new generations are aware of the brand and hold it in high regards.
Therefore, the new products of the firm will stand a high chance of being successful in the market given the demand from the individuals from these generations. Furthermore, the advancement in technology will give Levi’s a chance to come up with newer and better designs for its products.
Through research and development, the firm has been able to develop new designs that have been manufactured using old and new fabrics to meet the needs of their target market. With proper pricing and marketing strategies, the firm will be able to boost its sales from these products.
The major threat that Levi’s is facing is competition from firms that have a strong command in the clothing industry. Firms such as Old Navy, GAP, and Diesel are highly regarded by the members of the new generation who account for the highest percentage of sales in the clothing industry.
To overcome this competition, Levi’s has to come up with effective pricing mechanisms that will make its products affordable to its target market. Consequently, the firm can use modern marketing strategies such as online advertisements to reach out to its target market.
Alternatives
To turn around the performance of Levi’s to be sustainable, effective and efficient, Levi’s needs to stand at a competitive advantage over its rivals. To achieve this goal, the firm has two alternatives:
- The cost advantage option
- The differentiation advantage option
- Resource based option
Under the cost advantage option, Levi’s will modify its production process to ensure that it manufactures products that are of a similar quality as its rivals. However, these products have to be sold at a lower price as compared to its rivals. For this strategy to be effective, the firm must put a lot of emphasis on research and development.
At this point, it will be essential for the firm to understand the market trends and the tastes and preferences of its target market to ensure that its products conform to their needs and requirements. Through research, the firm should come up with an effective manufacturing process that minimize costs and maximize the output.
This will play a critical role in setting up the final price of its products since they will not only be cheaper as compared to its competitors but they will be of a high quality. With this option, Levi’s will be able to compete effectively with its rivals.
The fact that its products are priced at a lower rate as compared to its rivals might play a significant role in attracting customers from the new generation most of whom do not have a strong purchasing power. Given their huge numbers, however, it is possible that Levi’s will be profitable in the long run.
Once satisfied, there are high chances that these individuals will remain loyal to the brand and even market Levi’s products through the word of mouth. This will greatly widen the market base of the firm. In the process, Levi’s will have a competitive advantage over its rivals.
On the other hand however, the low selling prices might have a negative impact on the profitability of the firm especially in the short run. At the present moment, the firm is barely reaching the break-even point. Thus, if the firm fails to reach its sales target, it might run into losses hence turning the situation from bad to worse.
The differentiation advantage option highly relies on research and development. Under this option, Levi’s will manufacture products that are of a superior quality as compared to its rivals. For this option to be sustainable, Levi’s will require to adopt and implement new production techniques that utilise a variety of resources such as fabrics and production technology to ensure that its products are of a superior quality.
Consequently, the firm needs to effectively market these products to ensure that they register higher sales. It is a common practice for customers to pay more for high quality products as a means of satisfying their needs. The main complaint that people of the new generation had with regards to Levi’s products is that they did not fit their description since they were either too tight or too big.
The firm also avoided using stretchy fabrics in designing its products. Thus, this option will allow Levi’s to manufacture its products using the latest fabrics and techniques. With such products, it is possible that the firm will capture the attention of the individuals of the new generation and still maintain its baby-boomer clientele. However, this option is capital intensive.
Consequently, Levi’s will incur additional costs in contracting firms to manufacture these products given the fact that most of its plants were closed. This will ultimately increase its selling price. Therefore, despite its high quality, buyers will regard Levi’s as an expensive brand that should be avoided.
The final alternative that Levi’s can apply is the resource based option. For this option to be successful, the firm needs to combine the resources that it has together with its capabilities to ensure that it manufactures products that are of a higher quality and value as compared to its rivals. From the information gathered from its operation history, it is evident that Levi’s has superior resources as compared to its rivals.
Despite the challenges that it is facing, Levi’s has various manufacturing plants and equipments that can be influential in its manufacturing process. The firm also has a reliable supply chain system whose efficiency can be improved by a few modifications. Consequently, the firm already has a reputable brand name and loyal customers who are willing to purchase its products once they meet their tastes and preferences.
With its highly qualified personnel team, Levi’s can put all its resources and capabilities into play to stand at a competitive advantage. Therefore, the firm needs to reopen and modernize its manufacturing plants, improve its supply chain, enhance the quality of its workforce and market its products in an effective and efficient manner. In so doing, the firm will attract more customers hence command a huge market share.
In the long run, the firm will be profitable and sustainable. However, this option is capital intensive. Consequently, it contains a lot of risks since Levi’s rivals might adopt these strategies and produce products that are of an even better quality.
Conclusion
Given these two alternatives, I believe that cost advantage option is the best alternative that Levi’s can take given its current situation. With this option, the firm will be able to maximize on its strengths, improve on its weaknesses, overcome its threats, and take advantage of the prevailing opportunities.
This option will ensure that Levi’s increase its sales and market share, improves the quality of its products, and most importantly, it will enable the firm to keep up with the trends in the fashion industry. These are the main problems that the firm is facing at the moment. Therefore, addressing them will ensure that its operations are sustainable in the short run and in the long run.
The differentiation advantage alternative is not the best option for Levi’s given its current situation since it does not fully address the problem that Levi’s is facing with regards to meeting the needs and requirements of the new generation. Despite the fact that its products will be of a high quality, it is not guaranteed that they will conform to the tastes and preferences of the target market.
Consequently, this alternative is capital intensive and might lead the firm into financial problems. Therefore, this option is associated with high risks that might threaten the overall sustainability of the firm.
To ensure that the cost advantage alternative is implemented effectively, I recommend that:
- The firm should invest more on research and development to ensure that it understands the market. This will enable it to manufacture products that meet the tastes and preferences of its target market.
- Levi’s needs to have effective price mechanisms that ensure that its products are sold above the unit production costs but below the market price.
- Levi’s needs to enhance its marketing strategies and utilize platforms such as the internet (social media), television, radio, print media, and word of mouth.
- Levi’s needs to develop an organization culture that ensures its staff are highly skilled and competent and work to achieve the set goals and objectives.
Implementation
To ensure that the selected option is implemented effectively, the firm will need to conduct thorough market research. In the process, Levi’s will be able to understand market trends and consumer tastes and preferences.
This information will enable the firm to know the types of products to produce, their quantities, and their qualities. Levi’s will also need to re-open its closed factories and equip them with up to date equipments to ensure that the production process is smooth, effective, and efficient.
Through its pricing and marketing strategies, the firm will determine the best price of its products after putting into consideration the costs that it has incurred, the market price of substitutes, the prevailing economic situation, the purchasing power of its target market, and their profit margin.
Finally using a platform such as social media will not only ensure that Levi’s reaches out to most of its customers but it will also act as a feedback mechanism where the firm will get reviews and suggestions on how to improve its products. This plan will modify Levi’s into a modern company that understands its target market.