Element 2:
Levi Strauss & Co ranks among the largest companies in the clothing industry globally. The corporation, which was founded in 1853, is the international leader in jeans, Levi’s, a product portfolio that significantly accounts for the company’s high revenue (“About Us”, n.d.). Apart from its Levi’s brand, the venture owns three other brands, namely Denizen, Signature, and Dockers, which experience considerable popularity and significant market share for operating under a well-known brand, Levis Strauss. Although Levis Strauss & Co has a strong market position in the clothing industry, it appears to face challenges associated with the macro and microenvironment, which can be addressed through an innovative marketing mix comprising targeting, positioning, and branding, to help this brand portfolio maintain a sustainable competitive advantage in the industry.
Macro Environment
Like other organizations in the clothing industry, Levi Strauss operates in a macro environment characterized by multiple factors that have a direct impact on its profitability and competitiveness. According to scholars, the macroenvironment “consists of variables that are beyond the organization’s control, but which require analysis to realign corporate and marketing strategy to shifting business environments” (Sammut-Bonnici & McGee, 2015, p.138). Among these variables include political, economic, social, technological, legal, demographical, and regulatory forces that shape Levi Strauss’ operations and profitability in the clothing sector.
Based on an analysis of Levi Strauss & Co. operations and product offerings, it is evident that social factors have the most significant impact on its product portfolio, Levi’s. Notably, Adegeest (2017) observes that several social changes have occurred in the denim industry, including a significant shift to designer jeans. Before, jeans were perceived as everyday wear for men and women. This phenomenon is evident from Levi’s website, which shows that the company’s denim jeans began as a uniform of progress for miners, cowboys, rebels, rock stars, and as everyday clothes that people worked and lived in (“About Us”, n.d.). As such, there was minimum prestige associated with the ownership of denim jeans years ago. Nonetheless, based on information provided by Adegeest, consumers are gradually demanding for pieces of designer jeans, which are considered more prestigious. The current changes in the industry have had a significant impact on the company’s initial sale and revenue generated from its denim jeans. This factor has forced Levis Strauss to venture in manufacture of a new product line of jeans, designer jeans, to meet the existing demand and maintain competitiveness in the industry.
Apart from the explosion of designer jeans, other social factors such as the influence of brand name and media on consumer purchasing habits also have a significant effect on Levis’ competitiveness and profitability in the industry. As observed by Clouse (2018), 45% of teens involved in a prior study reported that a brand was an essential factor in making a purchase. Findings from this study imply that unlike before, consumers’ preference today is shaped by the brand name; the stronger the brand name, the more sales a clothing venture is likely to experience. Also, considerable studies show that media also influences consumers’ purchasing habits. Notably, younger consumers, especially girls, rely on celebrities to find the latest denim jeans trend (Clouse, 2018). As such, firms that rely on celebrity marketing are likely to experience higher sales compared to their counterparts. With regard to this information, Levi’s faces stiff competition from other emerging and more influential brands such as Calvin Klein, which rely on celebrity advertising, which in turn translates to reduced revenue and profitability from the company’s star product Levi’s.
Furthermore, the economic and regulatory variables in the macroenvironment also have a significant impact on the venture’s profitability and competitiveness in the industry. Notably, Adegeest (2017) observes that apart from consumer preference for fashionable jeans, the appetite for affordable pieces of denim jeans prevails in the market. Notably, consumers seek not only designer jeans but also pieces that are of high quality and affordable. This economic variable has a considerable effect on Levi’s sales as the organization relies mainly on cotton in the manufacturing of its denim jeans, an organic product is relatively expensive. Due to the high costs incurred in the production of this sustainable key input, Levi Strauss charges a relatively higher price for its denim jeans compared to its industrial competitors, an aspect that makes its products less appealing to low-end consumers. Besides, the high costs of certifying the company’s genes of organic products also make its organic jeans relatively expensive and less preferred among cost-sensitive consumers. From this information, it is evident that economic and regulatory elements in Levi’s macroenvironment negatively affect its profitability and competitiveness in the clothing industry.
Microenvironment
Apart from the macroenvironment, Levi Strauss operations are also directly affected by the microenvironment. Scholars define the microenvironment as consisting of “those people who are directly involved and linked to the companies affecting their capabilities to serve the market, including suppliers, marketing intermediaries, customers, competitors and the public themselves” (Maqin & Hendri, 2017, p.72). Unlike the macroenvironment, companies can influence variables in the microenvironment to their advantage.
Based on market analysis, competitors are the primary microenvironmental variable that affects Levi’s profitability and competitiveness in the clothing industry. As is evident from the company’s financials, Levi Strauss has been experiencing significant losses over the past few years and a considerable underperformance in its star product portfolio. Notably, in November 2017, the venture made losses amounting to 22.8 million dollars from its operations (“Shaping the future”, 2018). The losses experienced by the corporation could partly be attributable to external forces from its competitors who have slowly been tapping through the industry’s consumer segment through favorable price offerings and media influence. For instance, Calvin Klein, one of Levi’s close competitors, has a significant footprint in the lucrative premium jeans market where it manufactures and sells its designer denim jeans under the brand, Calvin Klein. Furthermore, the venture has been hiring famous artists to strengthen its brand and influence purchasing habits among consumers. It is probable that the competitor’s influence, as is the scenario with Calvin Klein, is the leading cause of reduced sales by Levi’s and losses experienced in the past few years.
Apart from media influence, competitors such as Calvin Klein have also been incorporating unique features in their denim jeans, which make them more attractive compared to Levi’s jeans. Notably, compared to Levi’s, Calvin Klein denim jeans are more elasticity, which makes them more comfortable. As studied shows, two of the most important attributes to consumers when buying a pair of denim jeans are fit and comfort (Clouse, 2018). Consumers are often in search of models of jeans that are easy to wear and comfortable to walk and work in. The ability of Levi’s competitors to offer this crucial component in the product portfolio lowers the demand for the former’s denim jeans, which lack consistent models and the desired flexibility, translating to lower sales and reduced revenue generation in Levi Strauss.
Financial Analysis
Analysis of Levi Strauss’ financial statement reveals that the corporation has an unstable financial performance. Notably, based on its annual report, Levi Strauss’s profits have been fluctuating significantly over the past few years. For instance, the company’s earnings before interest and taxes (EBIT) totaled $503.7, $478.6, $479.8, $480.9 and $542.4 million in 2014, 2015, 2016, 2017 and 2018 respectively (“Shaping the future”, 2018). The pattern of the EBIT reveals that the venture’s profits have been fluctuating over the years, probably because of the underperformance of its denim jeans market amidst stiff competition from the other industrial participants such as Calvin Klein.
Furthermore, an analysis of the company’s statement of cash flow shows that the velocity of cash flow within the business has reduced significantly over the past few years. For instance, the company’s annual report shows that free cash flow in the organization totaled $118, $74.2$, $158.2, $284.5, and $95 million in 2014, 2015, 2016, 2017 and 2018 respectively (“Shaping the future”, 2018). The statistics reveal that Levi Strauss has been experiencing lower cash balances after accounting for its capital expenditures. This data implies that the organization has an unstable and relatively lower cash balance required to increase dividends allocated to its shareholders. Furthermore, the variation in annual free cash flow implies that the organization may not have the capability to settle part of its debt financing or finance expansion of its product portfolio and product line when the need arises.
Stakeholder Analysis
Levi Strauss’s stakeholders can be analyzed based on two primary criteria, interests, and power. Notably, the first category of stakeholders comprises individuals that have low interest and low power in the venture’s operations. Some of the stakeholders that fall under this category are government agencies that regulate and certify the organic standards of genes use in the manufacture of Levi’s denim jeans. The most effective way that Levi can deal with this category of stakeholders is through monitoring to ensure that it adheres to the existing standards. The second category is the low power, high-interest stakeholders who mostly comprise shareholders. Given their high interest in the organization, Levi Strauss can satisfy the need of this category of stakeholders by keeping them informed about the status of the firm, primarily through periodic reports.
Additionally, the third and fourth categories of Levis Strauss stakeholders comprise individuals with high power low interest and high power, high interest, respectively. The former constitutes of consumers, who have the highest power on the firm’s operations. As such, the organization can address the needs of this category of stakeholders by keeping them satisfied, such as manufacturing quality and affordable products. On the other hand, Levi’s employees fall under the category of high interest, high power as they have considerable influence on the performance of the organization. Notably, this category of stakeholders is responsible for completing tasks within the organization that facilitates the satisfaction of consumer demand. As such, the organization can address the needs of employees by managing them closely to ensure that they are highly engaged and equipped with the essential skills required to complete primary duties.
Strategic Recommendations
Targeting
Targeting in Levi Strauss involves selecting small segments of the consumer population that the organization can focus on within the clothing market. Based on an analysis of Levi’s macroenvironment, it would be essential for the brand to focus on jeans designed for a new generation of youngsters who wish to dress in simple and comfortable modern denim jeans. This recommendation is based on the prior analysis, which shows that the demand in the denim jeans market has been shifting to fashionable designer jeans. To remain competitive and generate maximum revenue from the clothing industry, Levi’s should primarily target youngsters who are the largest consumers of trendy denim jeans.
Positioning
Marketing positioning in Levi Strauss involves instilling a specific perception about the brand among consumers. As is evident from the analysis, the company’s denim jean market has been underperforming, probably because the firm’s market positioning does not align with the market trends for the product. Notably, the market for denim jeans has been shifting to fashionable and affordable products for low-end consumers. For this reason, Levi’s market positioning should align with this trend and create the perception of stylish, comfortable, and affordable apparel brand among consumers. The suggested market positioning would not only enable the firm to create the perception of value and prestige among consumers but also help it to remain competitive by attracting a large pool of value-driven consumers.
Branding
Branding as a marketing strategy in Levi Strauss involves creating a symbol or name that consumers and other members of the public can identify as belonging to the venture. To date, Levi’s has a logo that is easily identifiable as belonging to Levi Strauss. Nonetheless, with the growing competition from companies such as Calvin Klein, Levi’s should enhance its brand through strategies such as celebrity advertising. Celebrity advertising can help the venture create a memorable impression among consumers, distinguish itself from other market participants, and remain competitive in the industry.
Operationalization of Recommendations through an Innovative Marketing Mix
The suggested recommendations could easily be operationalized through an innovative marketing mix that involves incorporating market research in designing unique positioning, targeting, and branding of a product. Notably, through rigorous market research, it is identified that the customers’ needs in the clothing industry are shifting to fashionable denim jeans. This information could be used to design a unique marketing position that matches the needs of the consumers, such a “fashionable, comfortable and affordable apparel brand among consumers” in the case of Levi’s.
Also, the strategic recommendation for targeting could also be operationalized through an innovative marketing mix. Notably, through market research, consumer’s behavior and trends are identified and utilized to create a market segment for Levi Strauss that generates maximum revenue. Mainly, this data could be used to develop a unique targeting strategy such as “jeans designed for a new generation of youngsters who wish to be simple and comfortable in their modern denim jeans”, as is the case of Levi’s.
Furthermore, branding could also be operationalized through an innovative marketing mix to foster Levi Strauss’s competitive advantage. Notably, market research could be used to identify purchasing trends among consumers and use this information to create a unique way of promoting products. As is in the Levi Stratus case scenario, market research shows that celebrity advertising drives consumer purchasing behavior; thus, the promotional strategy could be used to promote Levi’s.
Challenges and ethical issues
While the suggested recommendations may help Levi Strauss achieve a sustainable competitive advantage, they may be subject to ethical issues such as failure of actual operations to align with the proposed value in the company’s marketing proposition. However, some of these ethical issues can be minimized by ensuring that the organization’s goals are reviewed and realigned with the innovative marketing mix to deliver value, affordability, and comfort as promised.
References
Clouse, M. (2018). Predicting U.S. adolescents’ purchasing of denim jeans using quality attributes, behavioral characteristics, and sociodemographic. All Graduate Theses and Dissertations, 7411. Retrieved from https://digitalcommons.usu.edu/etd/7411?utm_source=digitalcommons.usu.edu%2Fetd%2F7411&utm_medium=PDF&utm_campaign=PDFCoverPages
Sammut-Bonnici, T., & McGee, J. (2015). Wiley encyclopedia of management: Strategic management volume 12 (3rd edition). Hoboken, New Jersey: Wiley Publisher.
“About us- Levi Strauss & Co. history” (n.d.). Levis. Retrieved from https://www.levi.com/US/en_US/features/about-us
“Shaping the future” (2018). Levi Strauss & Co. Annual Report. Retrieved from https://s23.q4cdn.com/172692177/files/doc_financials/2018/LSCO_AR_2018_Download_v04.pdf
Maqin, R.A., & Hendri, N. (2017). Comparative analysis: the effect of macro and micro environment on marketing strategy and marketing performance of small and medium enterprises (survey on group of small medium enterprises of food and non-food products in Cianjur Regency, West Java, Indonesia. International Review of Management and Marketing, 7(5), 70-76.
Adegeest, D. (2017, March 21). The changing face of the denim industry. Fashion United. Retrieved from https://fashionunited.uk/news/fashion/the-changing-face-of-the-denim-industry/2017032123945
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