The Strategic Management Process of a Major Apparel and Denim Brand, Levi Strauss - Case Study Example

Levis Strauss Case Contents Contents 1 Introduction 2 Main body 2 Synthesis and key insights 2 Porter’s Generic Strategies 2 Porter’s five forces model 3 Bowman’s strategy clock 5 Ansoff Matrix 6 SWOT analysis 6 Recommendations 8 References 9 Introduction This case study analysis report aims at evaluating and analyzing the strategic management process of a major apparel and denim brand, Levi Strauss. For this purpose, the strategic decisions and processes employed in the company by the newly appointed Chief Executive Officer of the company, Chip Bergh. The case of “Levi Strauss- The Boss and the Yogi” as published in the Economist in the year 2014 is analyzed through the application of relevant business and corporate strategy models with the aim of identifying the current strategic position of the brand, understanding the core and contemporary strategies taken up by the company in the recent years, identifying the success of the employment of the new strategies and finally for recommending a suitable future strategic direction for the company. Main body Synthesis and key insights Porter’s Generic Strategies Levi Strauss uses the generic strategies of cost leadership and cost focus in which the company is trying to reduce the overall expense of the business by developing more efficient logistics and procurement systems in their global operations, trying to increase the profit levels by decreasing the operating costs while at the same time maintaining the product prices as per the industry standard (Porter, 2008). The company is also using the cost focus strategy to ensure that it can leverage on the customer sentiments associated with the brand and maintain the high prices of the products while at the same time remaining sufficiently competitive in the markets of operation (Olsen, 2012). Porter’s five forces model Intensity of competitive rivalry: The intensity of competitive rivalry is extremely high for Levi Strauss. Over the last few years, both the revenues and profits of the company have dropped by considerable extents due to the high degree of competiveness in the industry and the internal weaknesses of the company itself. Currently, the company is experiencing a declining market share in the American as well as global denim markets. The shares of the company have decreased from 7.2% to 5.3% in the period from 2004 to 2013. Threat of new entrants: The threat of new entrants is medium for Levi Strauss. This is because, there are many established big and small players in the denim market which create high entry barriers for a new player in the market. Also, this market is so intensely concentrated that there is hardly any market gap left for a new company to enter into and position itself (De Wit and Meyer, 2008). Threat of substitute products: The threat of substitute products is high for Levi Strauss and is increasing constantly. For example, the trend of wearing the “athleisure” types of clothes like gym kits, track pants and Lycra tops has become a main threat for the company. Additionally, the emergence of the trend of wearing formal and semi formal clothes in the offices has increased the popularity of substitute products for the blue denim like formal and semi formal trousers and chinos. Bargaining power of buyers: The bargaining power of buyers is very high in the case of Levi Strauss because there are a number of options available in the market of denim apparel products. Levi Strauss has been experiencing the problem of brand image and perception dissolution due to which the sentimental association of the customers with the company and its products has faded. Also, the brand switching costs for the denim industry are very low. These factors have resulted in lower brand loyalty towards the company and have further increased the bargaining power of the customer groups (Kiechel, 2010). Bargaining power of suppliers: The bargaining power of suppliers is medium for Levi Strauss. This is because, in spite of the declining market shares and dissolving leadership position, the company still remains a major procurer of raw materials in this industry. As such, this allows Levi Strauss to have some degree of control over the barging power of the supplier groups functioning in the industry (Mckeown, 2012). Bowman’s strategy clock Figure 1: Bowman's Strategy Clock (Source: Nag, Hambrick and Chen, 2007). Levi Strauss lies in the seventh position of the Bowman’s Strategy Clock which refers to the segment of high price and low value. The company started with the introduction of the blue jeans concept which had no competition in the market at the time of the inception of Levi Strauss. This enabled Levi Strauss to successfully employ the use of monopoly pricing strategies which was feasible at that time because there were no competitors in the market and thus, the target consumer groups were forced to pay high prices for getting the products. However, with time, the company has lost its monopolist position due to the decreasing popularity of the brand specific products and also due to the entry of new competitive players in the market like Lee, True Religion, Wrangler, 7 for All Mankind, and some other low priced denim brands as well (Faiurchild, 2014). Therefore, currently the company is trying to shift to the fifth position of the strategy clock in which the strategy of focused differentiation is taken up. This strategy would allow Levi Strauss to ask for high prices by creating higher perceived value for the products of the company (Nag, Hambrick and Chen, 2007). Thus, the CEO of Levi Strauss is focusing in reviving the dying image of the company through innovation and customer association with the ultimate aim of enhancing the perceived value of the denim products of the company. Ansoff Matrix As per the Ansoff matrix strategy model, Levi Strauss is focusing on employing the market penetration strategy. Using this strategy, the company is trying to revive its brand image and grow the business in the existing markets with the marketing and sale of the existing product portfolio. Since, the blue denim concept is considered to be unique to Levi Strauss; therefore, the denim brand is concentrating on increasing its market share by aggressive distribution and promotion support system development. The company is seeking to increase the sale of the existing apparel products by extending the customer base. For this purpose, Levi Strauss is employing newly formulated distributional and promotional strategies to attract the young generation of customers who are not well aware of the brand as well as the customer groups for whom the brand value has been diminished over time. SWOT analysis Strengths: There are many inherent strengths of Levi Strauss which it can leverage upon to regain the market leadership position. The traditional legacy image associated with the brand can act as the primary success factor for the company if it is revived in an efficient manner. The availability of sufficient financial and physical resources and the control over the supplier groups are also two main strengths of the company. The image of Levi Strauss as the inventor of the once highly popular “blue jeans” and the “trucker jacket” is an inherent strength. The philanthropic and responsible brand image and the American classic heritage of the company are other main strengths. Weaknesses: The weaknesses of Levi Strauss brand include the lack of foresightedness of the company in identifying the emerging requirements of the target customer groups and the inability to tap in the emerging fashion trends such as stretchable denims for women. The high levels of arrogance and complacency among the market executives of Levi Strauss and the highly inflated expense structures of the company remain other major concerns for the business. Opportunities: The fact that the fashion trends are constantly changing can be a significant opportunity for Levi Strauss. Also, the comeback of old generation fashion trends as a part of the cyclical fashion trend system can also act as an opportunity for the denim company. The intensely concentrated nature of the denim market can actually pose new opportunities for Levi Strauss to innovate on the existing product portfolios to revamp the products and launch them along with the classic heritage image associated with the denim brand (Cameron, 2014). Threats: The declining and deteriorating state of the apparels retail market is already acting as a big threat for Levi Strauss. The continuously dissolving brand perception and brand recognition among the customer groups and the lack of awareness about the brand among the young customer groups are also major constraints for the company (Hill and Jones, 2012). Recommendations The future strategic direction of Levi Strauss can be decided and defined on the basis of insights derived from the strategic analysis of the brand management. Responding adequately and quickly to the emerging fashion trends can act as a key strategy for Levi Strauss (Besanko, Dranove, Schaefer and Shanley, 2012). Levi Strauss should continue with its market penetration strategy as identified from the Ansoff matrix analysis, by focusing on modifying the products and revamping the product portfolio while remaining rooted to the heritage brand image of the company. Brand recognition and brand awareness are two areas in which the management of Levi Strauss should aggressively strategize upon (Johnson, Whittington, Scholes, Angwin and Regner, 2013). Additionally, the company should focus on using the strengths of the business like the heritage and classic American image and the inventor position of the brand in the denim apparels market to tap in the opportunities created by the cyclical patterns of fashion trend movements in the apparel industry. References Besanko, D., Dranove, D., Schaefer, S. & Shanley, M., 2012.  Economics of Strategy. New Jersey: John Wiley & Sons. Cameron, B. T., 2014. Using responsive evaluation in Strategic Management. Strategic Leadership Review, 4, 2, pp. 22-27. De Wit, B. & Meyer, R.G. H., 2008. Strategy Process, Content and Context. London: Thomson Learning. Faiurchild, C., 2014. Does Levi Strauss still fit America? [Online]. Available at http://fortune.com/2014/09/18/levi-strauss-chip-bergh/. [Accessed on 20 May 2015]. Hill, C., & Jones, G. R., 2012.  Strategic Management Theory: An Integrated Approach, 10th Ed. Stamford: Cengage Learning. Johnson, G., Whittington, R., Scholes, K., Angwin, D. & Regner, P., 2013. Exploring Strategy Text & Cases, 10th Ed. New Jersey: Pearson. Kiechel, W., 2010. The Lords of Strategy. Harvard: Harvard Business Press. Mckeown, M., 2012. The Strategy Book. London: FT Prentice Hall. Nag, R., Hambrick, D. C. & Chen, M. J., 2007. What is strategic management, really? Inductive derivation of a consensus definition of the field, Strategic Management Journal,  28 , 9, pp. 935–955. Olsen, E., 2012. Strategic Planning Kit for Dummies, 2nd Edition. New York: John Wiley & Sons Inc. Porter, M. E., 2008. The Five Competitive Forces That Shape Strategy, Harvard business Review, 14, 1, pp.100-102. Read More