Levi Strauss Goes Local

Closing Case: Levi Strauss Goes Local Summary The closing case explores how Levi Strauss, the manufacturer of blue jeans, changed its international marketing strategy to regain its competitiveness in the mid-2000s. Levi Strauss had watched its sales fall from $7.1 billion in 1996 to just $4 billion in 2004. The company had failed to keep up with changes in the fashion market, and was out of touch with its consumer. A three part turnaround strategy was implemented, and by 2006, the company was beginning to see some improvements. Discussion of the case can begin with the following questions: QUESTION 1: What marketing strategy was Levi Strauss using until the early 2000s? Why did this strategy appear to work for decades? Why was it not working by the 2000s? ANSWER 1: Prior to implementing its turnaround strategy in 2005, Levi Strauss had been selling essentially the same product the same way around the world. The company was able to standardize its marketing mix because differences between markets were not well defined, and it was able to capitalize on its trademark name. However, during the 2000s, competition became more intense, and variations between markets more distinct. Levi Strauss, with its one-size-fitsall approach to markets saw sales drop significantly. QUESTION 2: How would you characterize Levi’s current strategy? What elements of the marketing mix are now changed from nation to nation? ANSWER 2: Most students will probably suggest that Levi Strauss is trying to pursue a transnational strategy that allows it to standardize some parts of the marketing mix, yet gives national managers the ability to tailor other parts of the marketing mix to local markets. One of the first issues Levi Strauss addressed as part of its turnaround strategy was reducing its domestic cost structure. The company closed its remaining domestic factories and shifted production to low cost locations. Levi Strauss also introduced additional products such as its Signature line that could be sold in low priced outlets like Wal-Mart. Finally, the company decentralized its marketing to local managers giving them flexibility to adapt to local market requirements. As part of the new strategy, new styles were introduced to meet differing style preferences. In addition, the company also revamped its promotion to reflect regional differences. Price and distribution were also changed. Pricing is now done on a market-by-market basis according to the competition in each market.

QUESTION 3: What are the benefits of Levi’s new marketing strategy? Is there a downside? ANSWER 3: The changes Levi Strauss made to its strategy seem to be working. Growth is expected to be especially strong in developing markets. Most students will probably note that the decision to give national managers more autonomy meant that while the company lost the benefits of economies of scale in advertising and production that it had previously had, consumers’ demands were better met. However, some students may point out that the new strategy means that differences between national markets became are now more pronounced—a change that could be an issue further down the road. QUESTION 4: What does the Levi Strauss story tell you about the “globalization of markets”? ANSWER 4: Theodore Levitt suggested that consumer tastes and preferences are becoming more global, and that standardized consumer products will become the norm. In fact, Levitt might argue that in the world of blue jeans there are strong similarities in groups such as the teen market that run across national borders. However, he might be surprised to find that strong cultural preferences also seem to exist in the market. For example, Japanese consumers prefer skinny, black jeans, while women from South Africa prefer jeans with a little more room in the backside. Many students might conclude that while there are some similarities in markets, many of the similarities are too broad to allow for a standardized marketing mix around the world. It’s been a tough few years for Levi Strauss, the iconic manufacturer of blue jeans. The company, whose 501 jeans became the global symbol of the baby boom generation and were sold in more than 100 countries, saw its sales drop from a peak of $7.1 billion in 1996 to just $4.0 billion in 2004. Fashion trends had moved on, its critics charged, and Levi Strauss, hamstrung by high costs and a stagnant product line, was looking more faded than a well-worn pair of 501s. Perhaps so, but 2005 and early 2006 bought signs that a turnaround was in progress. Sales increased for the first time in eight years, and after a string of losses the company started to register profits again in 2006. There were three parts to this turnaround. First, there were cost reductions at home. Levi’s closed its last remaining American factories and moved production offshore where jeans could be produced more cheaply. Second, the company broadened its product line, introducing the Levi’s Signature brand that could be sold through lower-priced outlets in markets that were more competitive, including the core American market where Wal-Mart had driven down prices. Third, there was a decision in the late 1990s to give more responsibility to national managers, allowing them to better tailor the product offering and marketing mix to local conditions. Prior to this, Levi’s had basically sold the same product worldwide, often using the same advertising message. The old strategy was designed to enable Levi’s to realize economies of scale in production and advertising, but it wasn’t working. Under the new strategy, variations between national markets have become more pronounced. Jeans have been tailored to different body types. In Asian, shorter leg lengths are common, whereas in South Africa, more room is needed for the backside of women’s jeans, so Levi’s has customized the product offering to account for these physical differences. Then there are sociocultural differences: In Japan, tight-fitting black jeans are popular; in Islamic countries, women are discouraged from wearing tight-fitting jeans, so Levi’s offerings in countries like Turkey are roomier. Climate also has an effect on product design. In northern Europe, standard weight jeans are sold, whereas opening case 474 Part Five

Competing in the Global Marketplace in hotter countries lighter denim in used, along with brighter colors that are not washed out by the tropical sun. Levi’s ads, which used to be global, have also been tailored to regional differences. In Europe, the ads now talk about the cool fit. In Asia, they talk about the rebirth of an original. In the United States, the ads show real people who are themselves originals: ranchers, surfers, great musicians. There are also differences in distribution channels and pricing strategy. In the fiercely competitive American market, prices are as low as $25 and Levi’s are sold through mass-market discount retailers, such as Wal-Mart. In India, strong sales growth is being driven by Levi’s low-priced Signature brand. In Spain, jeans are seen as higher fashion items and are being sold for $50 in higher-quality outlets. In the United Kingdom too, prices for 501s are much higher than in the United States, reflecting a more benign competitive environment. This variation in marketing mix seems to be reaping dividends; although demand in the United States and Europe remains sluggish, growth in many other countries is strong. Turkey, South Korea, and South Africa all recorded growth rates in excess of 20 percent in the 2004–05 period. Looking forward, Levi’s expects 60 percent of its growth to come from emerging markets.