Levi's Strategic Marketing and Planning Bavarian immigrant to America, Levi-Strauss, carted a load of heavy fabric to California to make

tents during the gold rush. He found that the gold seekers needed trousers more than tents, so he used the fabric to make canvas trousers. His blue jeans are now a worldwide institution. Levi-Strauss & Co. still dominates the jeans industry. From the 1950s to the 1970s, as the baby boom caused an explosion in the number of young people, Levi-Strauss & Co. and other jeans makers experienced heady 10-15 per cent annual sales growth, with little or no strategic or marketing planning effort. Selling jeans was easy - Levi concentrated on simply trying to make enough jeans to satisfy a seemingly insatiable market. However, by the early 1980s, demo- graphics had caught up with the jeans industry. Its best customers, the baby-boomers, were ageing, and their tastes were changing with their waist- lines- they bought fewer jeans and wore them longer. Meanwhile, tine 16 to 24-year-old segment, the group traditionally most likely to buy jeans, was shrinking. Thus Levi found itself fighting for share in a lading jeans market. At first, despite the declining market, Levi-Strauss & do. stuck closely to its basic jeans business. It sought growth through mass-marketing strategies, substantially increasing its advertising and selling through mass retailers like Sears and J.C. Penney. When these tactics failed and profits continued to plummet, Levi tried diversification into faster-growing fashion and specialty apparel businesses. It hastily added more than 75 new lines, including Ralph Lauren's Polo line (high fashion); the David Hunter line (classic men's sportswear): the Perry Ellis Collection (men's, women's and children's casual sportswear); Tourage SSE (fashionable men's wear); Frank Shorter Sportswear (athletic wear); and many others. By 1984 Levi had diversified into a muddled array of businesses ranging from its true olue jeans to men's hats, skiwear and even denim maternity wear. As one analyst reported at the time in Inc. magazine: For years, Levi prospered with one strategy: chase the demand for blue jeans. Then came die designer jeans craze - and Levi became unstitched. The company diversified int o fashion. It slapped its famous name on everything from running suits to women's polyester pants. The results were disastrous: profits collapsed by 79 per cent last year, and the company slashed about 5,000 jobs. In 1985, in an effort to turn around an ailing Levi-Strauss it Co., new management implemented a bold new strategic plan, beginning with a drastic reorganization. It sold most of the ill-fated fashion and specialty apparel businesses and took the

company back to what it had always done best - making and selling jeans. For starters, Levi rejuvenated its flagship product, the classic button-fly, shrink-to-fit 501 jeans. It invested $38 million in the now-classic 501 blues' advertising campaign, a series of hip, documentarystyle reality ads. Never before had a company spent so much on a single item of clothing. At the time, many analysts questioned this strategy. As one put it: 'That's just too much to spend on one lousy pair of jeans.' However, the 501 blues campaign spoke for all of the company's products. It reminded consumers of Levi's strong tradition and refocused the company on its basic, blue jeans heritage. During the next six years, the campaign would more than double the sales of 501s. Building on this solid-blue base, Levi began to add new products. For example, it successfully added prewashed, stonewashed and brightly coloured jeans to its basic line. In late 1986, Levi introduced Dockers, casual and comfortable cotton trousers targeted at the ageing male baby-boomers. A natural extension of the jeans business, the new line had even broader appeal than anticipated. Not only did adults buy Dockers, so did their children. In the few years since its introduction, the Dockers line has become a Si billion-a-year success, Levi's has continued to develop now products for the ageing boomers. In 1992 it introduced 550 and 560 loose-fitting jeans - 'a loose interpretation of the original' - for men who have outgrown the company's slimmer-cut 501s. In addition to introducing new products, Levi-Strauss & Co. also stepped up its efforts to develop new markets. In 1991, for example, it developed jeans designed especially for women and launched an innovative five- month, S12 million 'Jeans for Women' advertising campaign, featuring renderings of the female form in blue jeans by four female artists. But Levi's most dramatic turnaround has been in its international markets. In 1985 Levi almost sold its then stumbling and unprofitable foreign operations. Since then, however, the company has turned what was a patchwork of foreign licensees into a well-coordinated team of worldwide subsidiaries. Levi is now a truly global apparel maker. Its strategy is to 'think globally, act locally'. It operates a closely coordinated worldwide marketing, manufacturing rind distribution system. Twice a year, Levi brings together managers from around the world to share product and advertising ideas, and to search for those that have global appeal. For example, the Dockers line originated in Argentina, but has now become a worldwide best seller. However, within its global strategy, Levi encourages local units to tailor products and

programmes to their home markets. For example, in Brazil, it developed the Feminina line of curvaceously cut jeans that provide the ultra light fit that Brazilian women favour. Levi's European Docker division now plans to conquer Europe from its Swedish base. In doing so it has created the world's biggest advertisement, a 480 square metre banner hung on Stockholm's up-market NK department store, In most markets abroad, Levi-Strauss & Co. boldly plays up its deep American roots. For example, James Dean is a central figure in almost all Levi advertising in Japan. Indonesian ads show Levi-clad teenagers driving around Dubuque, Iowa, in 1960s convertibles. And almost all foreign ads feature English-language dialogue. However, whereas Americans usually think of their Levis as basic knock around wear, most European and Asian consumers view them as up-market fashion statements. The prices match the snob appeal - a pair of Levi 501 jeans selling for S30 in the United States costs $63 in Tokyo and $88 in Paris, creating lush profit margins. Levi's aggressive and innovative global marketing efforts have produced stunning results. As the domestic market continues to shrink, foreign sales have accounted for most of Levi's growth. Overseas markets now yield 39 per cent of the company's total revenues and 60 per cent of it s profits. Perhaps more impressive, its foreign business is growing at 32 per cent per year, five times the growth rate of its domestic business. Levi continues to look for new international market opportunities. For example, the first Romanian shop officially to sell Levi's jeans recently opened to large crowds, and Levi is now racing competitors to reach jeans-starved consumers in eastern Europe and th e former Soviet republics. Dramatic strategic and marketing planning actions have transformed Levi-Strauss into a vigorous and profitable company, one better matched to its changing market opportunities. Since its 1985 turnaround, Levi's sales have grown more than 31 per cent and its profits have increased fivefold. Thus, by building a strong base in its core jeans business, coupled with well-planned product and market development, Levi has found ways to grow profitably despite the decline in the domestic jeans market. As one company observer suggests, Levi has learned that 'with the right mix of persistence and smarts, [planning new products and] cracking new markets can seem as effortless as breaking in a new pair of Levi's stonewashed jeans. QUESTIONS 1. What stimulated Levi to diversify away from its homeland in the American blue jeans market?

2. With its focus on the global blue jeans market, is Levi likely to face the same pressure for diversification again? 3. Conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis of Levi and comment upon its implications for the company. 4. Use the 'product/market expansion grid' to plot the moves made by Levi during the case. In which quadrants was Levi least successful and why? In which was it most successful and why? 5. Suggest a 'mission statement' for Levi that would help the company focus on its strengths. 6. Considering Levi's international subsidiaries as 'strategic business units', what do you imagine Levi's 'BCG growth-share matrix' to look like? What global strategies does the matrix suggest?

Principles of Business Management

Assignment # 01

Levi Strauss Case Study

Submitted By:

Sana Ehsan (12579)

Submitted To:

Sir Salahuddin
Date: 19th February 2012

1. What stimulated Levi to diversify away from its homeland in the American blue jeans market? Boom that jeans industry experienced 1980s was the function of massive population of Baby Boomers (who born in USA after World War II, 1946-1964) and jeans industry grown up with little or no marketing strategy. But in early 1980s when baby-boomers, who were the best customer of Jeans, were ageing, their tastes were changing and they started buying fewer jeans and group of teen agers was also shrinking.

This declining growth rate of its jeans industry made Levi to apply mass-marketing strategies, advertizing and selling through renowned retailers. None of its tactics worked, thus, Levi moved towards diversification into faster growing fashion and specialty apparel business.

2. With its focus on the global blue jeans market, is Levi likely to face the same pressure for diversification again? Previously extreme pressure for diversification was due to the declining market of blue jeans in USA as discussed in question 1.

At that time Levi was focusing on meeting huge demands of blue jeans domestically only, but now as it has developed new foreign markets where growth rate is 32% per annum, although it has again focused on its blue jeans product but advantage of speedily growing foreign market is accompanying its highest market share in domestic less growing market. As a combined effect there are least chances of having the same pressure again.

Relevant diversification is another strategy that is helping Levi to keep focused on its core product i.e. blue jeans preventing Levi form previously experienced diversification pressure. Levis has now a good range of relevant products like prewashed, stonewashed, brightly colored jeans, Dockers and loose fitting jeans.

3. Conduct a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of Levi and comment upon its implications for the company. Strengths: Founder of blue jeans Globally recognized brand Product innovation abilities Proven management Market leader in casual and jeans wear Trend setting aptitude

Weaknesses: In domestic market Levi has been labeled as a casual wear choice and its margins in selling price are low compared to foreign markets. Although it has been customers first choice but at the same time it is limited to only casual wear. Also image shaped in customers mind about Levi is of casual wear only that is a kind of barrier to get into formal and party wear in America. In Europe and Asia it has been viewed as up-market fashion statement and is earning huge margins but still it is lacking in formal wear.

Opportunities: In Europe and Asia Levi product are being sold at high prices and are considered as fashion statement. Customers who remain in search of expensive and renowned products they can also be willing to welcome formal wear by Levi. Hence this can be a big opportunity for Levi. At the same time Levi seems to target class of customers who can manage to pay for pricey jeans and fashionable casual wear. In addition to this there is huge market of consumers who are willing to purchase good quality product with less or no fashionable features and stylish trimmings but having fundamental features and good quality that relates to Levi at comparatively lower price.

Threats: Rapidly growing jeans brands like Gap Changing tastes of customers Slow growth rate in domestic market

4. Use the 'product/market expansion grid' to plot the moves made by Levi during the case. In which quadrants was Levi least successful and why? In which was it most successful and why?

PRODUCT/MARKET EXPANSION GRID

Existing Products
Market Penetration:

New Products
Product Development:

2. 1950 1950: Concentrated to produce 1. Introduced Canvas Trousers to Gold seekers enough jeans to meet high demands 6. 1986: Added new lines prewashed, 3. Early 1980s: Applied marketing strategies stonewashed and brightly colored jeans to to increase revenues, when growth rate basic jeans market. New line of comfortable reduced due to ageing baby boomers cotton trouser Dockers was also introduced for ageing boomers 5. 1985: Invested $38 million on revitalizing core product shrink-to-fit 501 jeans, during 7. 1992: Introduced 550 & 560 loose fitting next 6 years sales of 501s doubled. jeans for men

New Markets

Existing Markets

Market Development: 8. 1991: Introduced jeans for women 9. 1985: Established worldwide subsidiaries

Diversification: 4. 1984: Added 75 new lines of fashion and specialty apparel

Most Successful: Levi remained most successful in Market Penetration as its basic product blue jeans is the main strength and Levi is known for this. Image that has been pigmented in customer mind about Levi reflects blue jeans kind of casual wear that is why little effort in right direction turned out with huge positive response. Levi seems to be unsuccessful in the same quadrant when it failed in increasing sales despite of all marketing strategies in early 1980s but at that time Levi was unaware of its main strength and true potential of its core product i.e. blue jeans Least successful: Levi was least successful in Diversification, as it had abruptly jumped into faster growing fashion industry and lost trust of its core customers group who were willing to wear something that can meet their needs with growing age as Levi blue jeans did during their teenage. In addition to this, Levi had diversified into jumbled assortment of products ranging from blue jeans to mans hat, ski-wear and even denim maternity wear. It had not considered about relevance in between different diversified businesses and thus end up with 79% less profits.

5. Suggest a 'mission statement' for Levi that would help the company focus on its strengths. Suggest a 'mission statement' for Levi that would help the company focus on its strengths. We pledge to exceed our customers expectations about our heritage blue jeans while being the worlds leading provider of favorite fit, stylish and comfortable jeans and casual wear

6. Considering Levi's international subsidiaries as 'strategic business units', what do you imagine Levi's 'BCG growth-share matrix' to look like? What global strategies does the matrix suggest?

BCG GROWTH-SHARE MATRIX

Suggestions for Star (Overseas Market): Integration (Forward, Backward and Horizontal) Market Penetration Market Development Product Development Joint Ventures

Suggestions for Cash Cow (Domestic Market): Product Development Concentric Diversification Retrenchment (If position weakens as a result of loss of market share or market contraction then this option would include).