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Levi Case Study

This document provides a case study on Levi's strategic management. It discusses how Levi's originated over 130 years ago focusing on durable work pants, which became popular in the 1950s when worn by celebrities. This helped Levi's become an American icon and sales skyrocketed from $100M to over $1B from 1964-1975. However, increased overseas competition providing cheaper alternatives has reduced Levi's revenue growth and profitability. Levi's now faces delivering more value without harming its brand image. A joint venture to produce customized jeans could allow differentiation without compromising quality.

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204 views2 pages

Levi Case Study

This document provides a case study on Levi's strategic management. It discusses how Levi's originated over 130 years ago focusing on durable work pants, which became popular in the 1950s when worn by celebrities. This helped Levi's become an American icon and sales skyrocketed from $100M to over $1B from 1964-1975. However, increased overseas competition providing cheaper alternatives has reduced Levi's revenue growth and profitability. Levi's now faces delivering more value without harming its brand image. A joint venture to produce customized jeans could allow differentiation without compromising quality.

Uploaded by

Tyler Tidbad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Strategic Mgmt.

Levi’s Case Study II


Although, the brand originated over 130 years ago, Levi’s has always focused on delivering a
product that its consumers could rely on. Originally manufactured as durable work pants, the
product quickly gained recognition with many Hollywood celebrities in the 1950’s. When stars
such as Marylin Monroe, James Dean, and Elvis started to wear the jeans, Levi’s quickly became
an American Icon. As the brand gained recognition for its originality and high quality, the
company’s annual sales skyrocketed from $100 M to over $1 B between 1964-1975.
Through its early market entrance and commitment to quality, the company has solidified its
position as a market leader by capturing approximately 31% of the market (1990). Levi’s current
strategy (as of 1994) is centered on high volume, mid-priced, jean manufacturing. The
company’s distribution is mixed between wholesale (through competing retailers) and direct to
consumer (through its few companies owned Original Levi Stores), with the former making up
the majority of sales. As typically the case, Levi’s direct to consumer channel delivers a higher
profit margin (+30%) than its wholesale channels as the company saves on costs associated with
logistics and distribution that would otherwise be paid to a wholesaler.
A recent increase in cheap overseas garment manufacturing has caused a significant increase in
competition. By utilizing low-cost, overseas labor, new market entrants have been able to
undercut Levi’s on price, which has subsequently pulled market share away from the company.
Given the rise in less expensive alternatives, consumer preferences have started to shift, causing
consumers to focus less on brand and more on tangible value (price).
Consequentially, the increase in competition, has reduced Levi’s revenue growth (see exhibit 1)
as well as its profitability, which fell as much as -35% in the most recent fiscal year (1994).
Levi’s now faces a dilemma as it needs to find a way to provide consumers with more tangible
value without tarnishing its brand image. Choosing to utilize cheap overseas labor and/or
reducing the price of its jeans to try and gain back market share, would come with a significant
risk of compromising the quality of its brand.
The recent proposal by Custom Clothing Technology Corporation (CCTC) to release the
“Personal Pair” will enable Levi’s to provide consumers with more tangible value (through
product differentiation) which without compromising the quality of its brand.
Levi’s has always justified its premium pricing through differentiation. Historically this
differentiation has come by way of its social awareness, (treating employees well, not exploiting
cheap overseas labor etc.) and through offering a quality product. Although the proposed joint
venture will require the company to shift more toward DTC distribution (and increase initial
capex), Levi’s will be able to continue along its original strategy of providing a differentiated
product at a premium (now through mass customization) without compromising the quality of its
brand.
Exhibit 1: Income Statement

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