Professor J.J.

Lambin – Strategic Marketing

The case of Levi Strauss (1)

Who doesn’t know Levi’s, the American blue jeans icon known all over the world?
Today, Levi’s is one of the world’s largest brand-name companies in the blue jeans and
casual pants markets. Its products are sold under the Levi’s, Dockers and Levi Strauss
Signature brands. While Levi’s conveys an image of quality and innovation, the brand is
mostly recognized for its status as the original pioneer brand among international
customers. With sales in more than 100 countries, Levi’s is a global company with three
geographic divisions: the Americas, Europe Middle East and Africa and Asia Pacific.
In 1853, during the California gold rush, Levi Strauss set up his own business in
San Francisco. He sold durable and tough pants that became a standard dress for miners,
dockworkers, railroad workers and “cow boys”. However, the first blue jeans were born in
1873. At that time, Jacob Davis, a Levi’s customer, suggested Levi Strauss to patent the
process of putting copper rivets in pants for strength. They went into business together
and founded what would become the world’s most popular clothes.
After the World War II, American products met a great success in the world and
enjoyed a strong popularity in Europe. Jeans symbolized American freedom and conveyed
many of the core values of American democracy. Therefore, people wore Levi’s jeans as a
symbol of their freedom and individuality. Hollywood also had a huge impact on the
popularity of blue jeans. By wearing blue jeans, James Dean, for example, in “The Rebel
Without a Cause” brought fame to blue jeans and other popular actors did the same. With
such images, blue jeans became synonymous with rebelliousness, danger, adventure, and
most of all, a non-conformist youth culture.

The identity of Levi’s brands of jeans

Attributes and benefits Associations
- Product-related attributes - Blue denim, shrink-to-fit cotton fabric,
button-fly, two horse patch, and small
red pocket tag.
- User imagery - Western, American, blue collar, hard
working, traditional, strong, rugged,
and masculine.
- Usage imagery - Appropriate for outdoor work and
casual social situations.
- Brand personality - Honest, classic, contemporary,
approachable, independent, and
universal.
- Experiential benefits - Feeling of self-confidence and self-
assurance
- Symbolic benefits - Comfortable fittimg and relaxing to
wear.
- Functional benefits - High quality, long lasting and durable.
Source. Quoted by Keller,(1998)

Until late 1960’s, there was no or minimal competition and the company decided to
expand distribution internationally. In the early 1970’s, the business environment quickly
changed and Levi’s faced its first real competitors. It was not prepared to compete in a
fast-paced climate and the business became unprofitable. Early 80’s, the company
recovered its initial position by focusing on its core competencies and late 80’s, Levi’s
identified a new fashion trend, the casual dress, and established a leadership position in
that segment with the introduction of the “Docker” brand.
 Professor J.J. Lambin – Strategic Marketing

Levi’s started to lose share in the 1990’s

Despite the fact that Levi’s created the market, was synonymous with the word blue
jeans and led the category for decades, Levi’s started in the 90’s to lose significant share
of the blue jeans market Levi’s felt that it was benefiting from such a high brand awareness
and brand leadership position that nothing could happen to itself.
New trends started to develop in the market, especially in the teenage market. In
the 90s, Levi’s was such a hot and great brand that it thought it would be able to sell the
same product to everyone. Though, it didn’t take into account that young people were
more fashion-oriented than before. Indeed, it neglected the teenagers’ aspirations, which
is a non-sense for a brand once synonymous with rebellious youth movement. The blue
jeans were not cool anymore and became out of fashion. It was more suitable for parents
than for fashion teens. US teens describe Levi’ jeans as “too straight”, “not baggy enough”,
“too plain” and “preppy”. Young people were looking for a product allowing them to show
their identity, to set their own style and trends. They could not show their individuality
anymore by wearing pant of their parents. Then, a new fashion style emerged at the
expense of the traditional blue jeans: the trend toward wide-leg, baggy jeans and combat
pants. This new fashion was one of the answers to teenagers’ needs. In fact, it reflected
an underground style representing what young people were looking for: authenticity,
functionality and non-conformity. It was first adopted by skateboarders and clubbers and
after by the youth market as a whole.
The type of competition also changed. Competitive threats were not only coming
from the classical competition such as Wrangler or Lee. Numerous new companies
entered the jeans market. First of all, top-end designers such as Gucci or Armani launched
their own high-fashion denim ranges. Companies such as Diesel or Miss Sixty also
developed high-fashion jeans at high price. Other brands also entered the market such as
Benetton, H&M, Zara in Europe while Tommy Hilfiger, CK Calvin Klein, Guess, Polo
Jeans, Gap, Old Navy and Guess were expanding in the denim in the US. Finally, the
discounters also began to sell private labels. "Ignoring competitive threats is the beginning
of the end. Success leads to arrogance and arrogance leads to failure."
Additionally, Levi's restricted distribution policy further eliminated market share
opportunities. The current distribution strategy focuses on seeking a more high profile
presence in the form of boutiques located within department stores and an emphasis on
the brand as the strongest element. “To preserve and enhance consumers’ impression of
the brand, the majority of our products will be sold through dedicated distribution, such as
Levi’s Only Stores and in store chops.” Explosive growth of discount mass-merchants
Wal-Mart and Target, as well as specialty retailers like The Gap, further eroded business
opportunity and future profits.
As a result, Levi’s started in 1996 a six-year sales decline. Levi’s had to close more
than half its US plants due to the erosion of its dominant market share: the teen sales.
Levi’s had 30.9% of the US blue jeans market in 1990 but had only 18.7% market share in
1997 after the Levi’s crisis. After having put new strategies in place, Levi’s stabilized the
business and the year 2002 was a turning point.

Questions
1. What went wrong with Levi Strauss strategic marketing?
2. Use the Porter’s matrix to analyse the competitive structure of the Levi Strauss’
reference market?
3. Use the competitors identification matrix to assess the competitive threats
confronted by Levi Strauss .
 Professor J.J. Lambin – Strategic Marketing

The case of Levi Strauss (2)

Levi’s had been slow to react but it found different ways to overcome the problems
encountered. First, it decided to reorganise and change its strategy. Levi’s overall strategy
was now to sell “relevant products at the right price in the places where people shop”.
Levi’s expanded its distribution channels and product ranges in order to reach more
consumer segments. Indeed, it added new retail shops in the United States, launched new
products at a lower price in Europe and expanded its market penetration in China and
Pakistan.
In the fall 1996, Levi Strauss announced that it will launch a new line of men’ dress
slacks under the brand Slates. The pant will be marketed to men in their forties who grown
tired of the traditional look of dress pants. “We found there was a void between Khakis and
suits”, says Westfall, the President of Slates. Levi’s is launching a 22 million marketing
campaign for Slates. It is building in-store displays at 240 department stores across the US
and launching an advertising campaign in the fall of 96. Levi’s hopes the new slacks will
capitalize on the growing trend to corporate down-dressing. Westfall said,… the slacks
could be for dress-up occasions at super-casual companies, or for dress-down days at
more formal firms. Competitors say Levi’s has no place in the dress pants world.
Second, it decided to revitalize Levi’s image and brands by keeping constantly
innovating. Indeed, innovation was considered as the key way to differentiate the brand. In
2002, the company decided to launch new products more often to appeal to teenagers and
young adults. In fact, new designs would appear every six weeks. This was essential in
some markets where consumers expect new styles more frequently (i.e. the juniors’
market).
Third, Levi’s decided to launch a new brand, marketing a new value-priced blue
jean called Levi' s Signature. The new Levi' s Signature would be introduced in Wal-Mart
and would be available at other discount retailers within the first quarter of 2003. The goal
of the value priced Signature line was to use the equity of the Levi' s brand to compete with
national brands and private label pricing. The new brand was available in Wal-Mart stores
in 2003 and in Europe in 2004. Experts wondered if Levi’s would not dilute its brand image
by implementing a mass market channel strategy. The Levi’s answer was that the Levi
Strauss Signature would be run as a separate brand. Indeed, jeans would be distinctive
from the traditional line by having no red tab or leather patch.
Fourth, it re-segmented the market by delivering a specific product for every
consumer segments1. The segments identified were trend initiators, trend influencers,
early-adopters, traditional and value-driven. Levi’s teams were also looking at the different
segments within the youth market to find out their expectations from the brand. For
example, Levi’s decided to pump up the Silver Tab line because it considered it had more
stylish among young consumers and to expand the line with more tops, new khaki pants
and more fashion styles.
Fifth, Levi’s also decided to focus more significantly on the women market. It
realized that its products were too masculine. In fact, Levi’s created women’s denim
models from men’s patterns. Consequently, pants did not quite fit the women’s curves.
Levi’s had to overcome its bad habits by launching models with better fits and hipper
fashion. Men also got more attention by getting sexier styles for jeans.
Sixth, Levi’s also considered that it had to be more cost competitive. Therefore, it
decided to close eight plants in 2002 and it moved also out of domestic manufacturing.

Preppy is a chiefly American adjective traditionally used to describe the characteristics of White, Anglo-Saxon,
Ppatrician Protestants (usually with some personal or familial connection to New England, even if only historic) who
attend or attended major private, secondary university-preparatory schools
 Professor J.J. Lambin – Strategic Marketing

Seventh, Levi’s revitalized its retail relationships. Indeed, the company turned its
retail customers’ relationships into strong and mutually beneficial ones. Actually, Levi’s and
the retail accounts have worked together in order to provide a better shopping experience
for consumers.
Finally, it decided to change its advertising campaign by focusing more on the Levi’s
brand than on the different products. It designed a new high-fashion advertising campaign
especially aimed at teenagers. The company wanted to reinforce its image and stress its
brand values (rebellious mind, tough cow-boy, ..)
After the different actions, the business started to stabilize but Levi’s management
realized it had to take additional actions to make the implemented strategies of 2002 work
harder.

Questions
1. How would you segment the jeans market?
2. Do you think that the introduction of a Levi’s brand in the mass retail distribution is a
good idea?
3. What do you think about Levi’s redeployment marketing strategy?

This case was written by the Professor Isabelle Schuiling and by Julie Lardinois, assistant in the
Marketing unit at the IAG Louvain School of Management. This case was compiled from published
sources.

U.S Segmentation Model jeanswear

Levi’s Red
Levi’s Vintage $ 145 - $ 220
Levi’s Brand

Trend initiators

Premium Special Edition

Trend influencers
$48 - $110

Levi’s Type 1
Early adopters Pure Blue
Engineered Jeans
Silver Tab $35 - $48

Traditional
Levi Strauss

Red Tab
Signature

$27 - $30
Brand

Value-driven Levi Strauss Signature Under $30

Adapted from 2002 Annual Report Levi Strauss & Co.

 Professor J.J. Lambin – Strategic Marketing

Table 1
Levi Strauss net sales in dollars per region and per brand in 2002-03
Brands Years North America Europe Asia-Pacific TOTAL
Levi’s brand 2002 1 596 575 954 553 401 445 2 952 573
(71.2% )
2003 1 381 377 891 008 480 631 2 753 016
(67.3 %)
Dockers 2002 908 887 94 664 20 689 1 024 240
(24.7 %)
2003 820 531 101 132 21 947 943 610
(23.0 %)
Signature 2002 169 053 - - 169 053
(4.0 %)
2003 388 460 - 5 644 394 104
(9.6 %)
TOTAL 2002 2 674 515 1 049 217 422 134 $ 4 145 866

2003 2 590 368 992 140 508 222 $ 4 090 730

Source: Levi Strauss Annual Report, 2003

* Due to the elimination of Slates dress pants business which contributed to $24.2 million to the decline.

*
Table 2
Levi Strauss Consolidated Operations in 2003
In 000 dollars 2003 2002 Changes
Net Sales 4 090 730 4 145 866 - 1.3 %
(-5.7 % at constant currency)

Cost of goods sold 2 516 521 2 456 191 + 2.5 %

Gross profit 1 574 209 1 689 675 - 6.8 %

(38.5 %) (40.7%)

Selling and adm. 1 353 314 1 285 855 + 5.2 %

expenses
Other income or (92 454)
charges
Operating Income 313 349 254 145 + 23.3 %

Interest & other 344 641 227 558

expenses
Income before taxes (31 292) 26 587 - 217.7%

Income tax expense 318 025* 19 248

Net Income (loss) (349 317) 7 339

Source: Levi Strauss Annual Report, 2004

*due to a substantial increase in valuation of assets
 Professor J.J. Lambin – Strategic Marketing

Table 3
Levi Strauss Consolidated Operations in 2004
In 000 dollars 2004 2003 Changes
Net Sales 4 072 455 4 090 730 Flat
(-4% in constant
currency)
Cost of goods sold 2 288 406 2 516 521 - 9.96 %

Gross profit 1 784 049 1 574 209 + 13.3 %

(43.8%) (38.5 %)
Selling and adm. 1 299 766 1 353 314 - 4.0 %
expenses (+ 5.3 percent points)
Other income or charges 123 184 (92 454)
Operating Income 361 099 313 349 + 15.2%

Interest & other 265 574 344 641

expenses
Income before taxes 95 125 (31 292)

Income tax expense 65 135 318 025* - 79.5 %

Net Income (loss) 30 390 (349 317)

Source: Levi Strauss Annual Report, 2004

*due to a substantial increase in valuation of assets.
Table 4
Levi Strauss net sales per region and per brand in 2002-04
Brands Years North America Europe Asia-Pacific TOTAL
Levi’s brand 2002 1 596 575 954 553 401 445 2 952 573
(71.2% )
2003 1 381 377 891 008 480 631 2 753 016
(67.3 %)
2004 1 254 546 920 699 568 414 2 743 659
(67. 4 %)
Dockers 2002 908 887 94 664 20 689 1 024 240
(24.7 %)
2003 820 531 101 132 21 947 943 610
(23.0 %)
2004 649 356* 92 801 21 974 764 131
(18.8 %)
Signature 2002 169 053 - - 169 053
(4.0 %)
2003 388 460 - 5 644 394 104
(9.6 %)
2004 522 553 28 625 13 487 564 665
(13.9 %)
TOTAL 2002 2 674 515 1 049 217 422 134 $ 4 145 866

2003 2 590 368 992 140 508 222 $ 4 090 730

2004 2 426 455 1 042 125 603 875 $ 4 072 455

Source: Levi Strauss Annual Report, 2004

* Due to the elimination of Slates dress pants business which contributed to $24.2 million to the decline.
Professor J.J. Lambin – Strategic Marketing