Pair Proposal for Levi Strauss - Case Study Example

Case Study: Levi Strauss and Co., Personal Pair Program Background Levi Strauss and Co. has a long and esteemed history as a clothing company. Founded by Levi Strauss in the middle of the nineteenth century they continue to produce denim jeans, their mainstay, and have expanded into pants of other fabrics as well as shorts, skirts, jackets and other apparel. They have become eponymously associated with denim pants and many people simply refer to any and all denim jeans as Levis. This is phenomenal branding on a par with the British habit of referring to all vacuum cleaners as Hoovers. The case states, some marketing experts believe the brands recognition exceeds even “that of Coke, Marlboro, Nike, or Microsoft.” Despite this remarkable branding success, their financials have been fading recently. Various measures of sales and profitability indicate that Levis, despite their cachet, may be entering financial difficulties. Levi Strauss is in an industry in decline. According to the case the number of workers in the U.S. apparel industry is declining overall while imports of apparel are growing much more rapidly than exports. The effects on Levi Strauss specifically are also negative. In 1991 Levi Strauss saw sales grow by 15.4 per cent and net income grow by 42.0 percent. Three years later sales growth had fallen to 3.1 per cent and income had declined by 34.8 per cent. In a similar fashion net income to dales and net income to total assets are declining. If these trends persist Levi Strauss will lose its position of preeminence and become increasingly less viable as an ongoing concern. The Personal Pair Proposal In an effort to address these declines in sales growth and revenue Levi Strauss is considering a radical proposal to link mass customization to their core competency of denim pants. The Personal Pair Proposal is a joint venture between Levi Strauss and Custom Clothing Technology Corporation (CCTC). CCTC would provide technology, retailed in Personal Pair kiosks in existing Original Levis Stores (OLS) that would allow customers to order denim pants custom made to match their various measurements—waist, hips, rise and inseam. While Levis currently offers approximately 40 size combinations the Personal Pair program would increase that number to a remarkable, 4,224 custom sizes. This would increase the number of sizings 1,000 fold, an astonishing increase. Equally, importantly, market research indicated that while many customers still associated the name Levi Strauss with high quality denim apparel as many as one-quarter of all female customers were less than completely satisfied with the fit of their new Levis. Market research also indicated that customers, again predominantly females, would be willing to spend a premium to purchase Levi Strauss pants with a better fit. The new proposal, if successful, would move Levi Strauss out of competition with cheaper imported jeans by offering a specific fit for higher-end consumers and, in so doing, reinforcing Levi Strauss brand recognition and brand status. It would also address the issue of fitting, a problem that can be linked to Levi Strauss erratic but largely stagnant growth figures. Evaluation of the Personal Pair Proposal Currently, Levi Strauss holds first place in the largest denim market sector, the $2 billion womens jean market. Moreover, with manufacturing facilities in North America they cannot hope to compete on price alone. Levi denim apparel is more expensive than imports largely due to the lower wage cost of overseas operations. Therefore, price-based competition does not offer positive prospects to Levi Strauss. They must compete on a quality basis. The Personal Pair proposal addresses this issue: It allows Levi Strauss to augment this quality-based competition by offering the traditional Levi quality augmented by exceptional, personally fitted jeans. With the Personal Pair proposal would allow Levi Strauss to claim that they offer the highest quality denim jeans with, also, the best fit. On the other side of the coin there are two potential downsides to the Personal Pair proposal. First, mass customization is a relatively new technology and a significant departure from the past, increasing, as it does, size selection one thousandfold. However, mass customization has been a new development and new technology for every industry and company that has adopted. Further, it has been extremely successful for many other companies that have adopted it despite its newness and relatively unproven nature. Capital One has successfully applied mass customization to the credit card industry, Zazzle, Chocri and Chocolate World have applied to confections, and Motorola can now produce custom pagers in less than two hours from a customer placing their order. In all of these companies and industries mass customization was new technology and successful. Therefore, the argument that the Personal Pair proposal is problematic because it relies on new technology is a straw man. The second potential problem is the significant costs of introducing, implementing and maintaining the mass customization system. The initial cost of integrating CCTCs technology and Levi Strauss existing manufacturing processes would be $3 million. The kiosks will occupy space in each OLS outlet, costing approximately $7/pair. Additionally, there would be the costs of training personnel to measure customers and use the software. Finally, ongoing maintenance of the technological interface would cost approximately $10/pair. These costs must be calculated against the savings and benefits of the system. The proposal estimates that premium revenue per pair would amount to $15. At the same time there would be considerable savings from maintenance of a smaller inventory. Distribution costs would also be reduced as all personal pairs shipped would be already sold. Also the cost per pair would decline for reorders as the system would store customers custom measurements and they would not need to remeasured every time they reordered. Further, the proposal posits that, over time, as many as 50 Per cent of all Personal Pair orders would be reorders. In terms of a VRIO analysis the Personal Pair proposal has many benefits. A better fit would offer more comfort an better aesthetics to customers. It would reinforce Levi Strauss phenomenally successful branding as the best name in denim jeans. It would also be virtually impossible for other firms to replicate as their low-wage offshore production facilities would be difficult to integrate into a mass customization framework. Also, Levi Strauss would be augmenting its already sterling reputation for quality, a reputation that no other manufacturer can lay claim to. Unfortunately, the final category of VRIO analysis, its suitability for the organization cannot be answered precipitously as the answer will only be revealed by the actual experience with implementation. That said, there is no reason to assume that Levi Strauss is unable to implement the proposal: No known factors mitigate against its successful implementation. The Personal Pair Proposal and Porters Five Forces Porters Five Forces model identifies five forces that may enhance competition and reduce the likelihood of success in a given industry and environment. Analysis of these forces does not produce significant insights that mitigate against the Personal Pair proposal. In fact, they direct one towards a much different conclusion, that implementing the Personal Pair proposal has the prospect of considerable success and a positive impact on Levi Strauss bottom line. The threat of new competitors, of other manufacturers adopting mass customization, is limited. Other denim manufacturers compete with Levi Strauss on price not quality or reputation (or branding). Moreover, as noted above, their ability to employ mass customization is limited as they manufacture offshore with a less skilled workforce and distribution networks that are geographically long and not oriented to the rapid responses that mass customization requires. Arguably, there are no competitive rivals in terms of quality of product in the denim market. Levi Strauss is further differentiating itself by increasing personal choice, and in a manner that competitive rivals cannot easily respond to. For these same reasons the idea of competitors introducing substitute products and services—their own style of mass customization is so limited as to be virtually nonexistent. Similarly, the bargaining power of customers is limited as they cannot switch to another denim manufacturer as there are no other manufactures with the history, reputation for quality and brand recognition power of Levi Strauss. The bargaining power of suppliers is also extremely limited as Levi Strauss is vertically integrated from manufacturing process through the retail outlet and does not have to deal with competitive or potentially antagonistic suppliers. Frankly, following analysis of Porters Five Forces it would seem that the Personal Pair proposal is developing on Levi Strauss reputation for quality and, in so doing, is magnifying the competitive advantage of their reputation as the finest manufacturer of denim pants in the world. Recommendations It is recommended that Levi Strauss adopt the Personal Pair proposal and implement it as soon as practical. Implementation Implementation will be the key to the success of the proposal. Integration of the CCTC technology with Levi Strauss manufacturing technology should be relatively straightforward and would be largely, or primarily the responsibility of CCTC. However, Levi Strauss will have to pay very close attention to the marketing of the proposal. First, the Personal Pair kiosks must be distinctively branded as a boutique approach to denim. Over the past fifteen years the hospitality industry has had great success with the introduction of small, distinctive hotels known as boutique hotels. This marketing effort provides a model that Levi Strauss must pay close attention to. Distinctive marketing of the Personal Pair proposal as a boutique approach to purchasing jeans is essential. It is also an approach that should resonate well with better educated, better traveled and more affluent denim consumers, particularly women who pay more attention to style and fit than many of their male counterparts. Another approach that might enhance this exclusive aspect of the Personal Pair proposal would be its implementation in stages beginning in cachet locations such as New York and Los Angeles and then expanding to other markets. An equally important aspect of implementation will relate to human resources. The staff that work as Personal Pair Consultants will have to be well trained and appear comfortable with the software and competent fitting customers. Their training would be of great importance to the success of the proposal. Managerial personnel in the retail outlets would also have to be sold on the proposal. Specifically, they would have to be assured that the space occupied by the kiosks would offer returns in increased sales and that the need to carry less inventory would not be reflected in lower sales. The key to the success of the proposal would be its marketing, a theme that would be reinforced by well-trained, competent and confident personnel working in the kiosks (which should be marketed as boutiques, not kiosks). Overall, the key to the success of the proposal will be its marketing and its implementation by well-trained retail staff. Read More