Levi’s case study – swot

7 July 2016

Analysis: Strength – Levi’s holds a top position in the clothing industry. It has successfully applied differentiation strategies in its business with its history of a highly recognizable brand name and brand loyalty. It charges customers a premium on its products by providing valued features. Weakness – Levi’s has high labour costs due to its strong “social conscience,” “US-made” persistence, and generous salary and benefits packages. Also, the chain of Original Levi’s Stores (OLS) is a weakness in Levi’s operations.

Even though the OLS has a 30% higher profit per pair of jeans than the wholesale channel, it was less profitable than the wholesale channel because of the significant operation costs (largely due to the additional SG&A costs) and inventory costs. In addition, the brand name does not carry as much cachet, so Levi’s required new valued features to differentiate itself. Opportunity – Apparel imports were increasing faster than exports and the denim sales grew approximately 10% per year.

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These indicated that there was a significant demand in the market and potential growth for the company. Also, there is an emerging requirement of providing sufficient customization and maintaining reasonable costs and operational feasibility, which created a high-end niche market that allows Levi’s to avoid price-based competition and strive for differentiation. Threat – In the lower end market, jeans producers set up cheap overseas facilities. This enabled the low-cost, high-volume producers to gain cost advantages over Levi’s.

In the upper end of the market, more expensive brands targeted the affluent customers. As a result, Levi was at a disadvantaged position in both market segments. There are two main alternatives for the Levi’s effort to retain its competitive advantage and support its growth. Levi’s can outsource its production to lower its labour cost and eliminate its cost disadvantage with competitors. However, this move goes against the company’s values and the corporate culture, and it can lead to serious dilution of the brand image.

The other alternative is to accept the Personal Pair Proposal submitted by Custom Clothing Technology Corporation (CCTC) and use a focused differentiation strategy in the jeans market. The fast growth of the denim market plus the fact that 75% of women are not satisfied with the fit of their jeans suggests that there is a considerable untapped premium jeans market. Also, the mass customization would reduce the disadvantage of OLS by lowering the distribution and inventory costs.

In addition, this program would provide differentiation in the eyes of customers, and remove the disadvantage in competing with the dual set of competitors. Recommendation: Levi’s should take advantage of the Personal Pair Proposal and further differentiate itself from other market players. If Levi’s successfully carries out the program, it will reinforce the company’s image of being the “first,” and bring added value to the brand name. However, Levi’s should pay extra attention to the modification and implementation of facilities, because the usage of the new technologies is the key factor in this program.

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