The objective of the analysis herein is to provide a framework for the execution of the Levi’s Personal Pairs joint venture business proposal. The opportunity as stipulated pertains to a potential business relationship between Levi Strauss, the expansive and dominant clothing manufacturer and retailer, and a company called Custom Clothing Technology Company. The proposal outlines a business arrangement wherein Levi’s would work with CCTC to create a customized purchasing ability within Levi’s retail stores. The purpose of such a niched expansion to the company’s current offerings lies in the reality of an increasingly competitive market environment for Levi’s trademark mainstay, jeans. Since the inception of the company, Levis has marketed and sold this product with tremendous success, extending their corporate influence to more than 80 countries1. The popularity of jeans naturally precipitated imitation products that either copied or expanded on the original Levi’s design. As the market for jeans developed, Levis expanded their product offering by cut and color as well as material; nevertheless the firm faced stagnating growth in face of such fierce competition that necessitated the strategic search for a market edge.
Of paramount concern when judging the viability of any new potential product line within an organization is whether or not that new line falls within the stated objectives of the company, and if it either falls within the company’s or the company’s management’s core competency. Levi Strauss’s objective is to provide quality, durable jeans and casual clothing to consumers around the world while earning a healthy profit in the process. This being the mission statement of the company, it is by these standards that the Personal Pair initiative undergoes judgment. This two primary concerns that translate into one chief question: Can Levi Strauss engage in mass customization of their signature products that adhere to their standards of quality while ensuring a healthy profit margin?
In order to properly evaluate the likelihood of success, the imperative first step lies in an internal analysis of Levi Strauss’s organization and the potential of the Personal Pair initiative within that structure. This can be approached using a VRIO analysis.
The primary challenge facing Levi Strauss is increased competition in the market place for jeans. This has attacked their sales numbers on two fronts. Firstly, Levi’s is among the oldest purveyors of clothing in the United States having begun selling jeans in the late 19th century to gold rush miners.2 Since that time however, dozens of other manufacturers and retailers have taken to selling jeans creating a market saturated with competition. The second attack front is on a price point basis. Levi’s maintains a strong commitment to US based manufacture as a feature of their socially conscientious prerogative.3 This has created a price vacuum into which competitors willing to outsource manufacture to other countries have sped, allowing them to offer similar products for cheaper. The Personal Pair initiative is ideal for combating the above-described difficulties.
Assertion of the veritability of this statement lies among multiple avenues. Firstly, as a value proposition the customization scheme offers Levi’s the ability to tackle the market saturation factor hurting their sales. By creating a customized alternative, Levi’s not only captures but creates a new market sub-segment of which they are the sole proprietors. This creates an edge against the competition. Any edge against the competition in one regard serves to create an edge against the competition on a macro scale in that Levi’s gains the ability to leverage their engagement in mass customization to claim supremacy over their competition by having the most diversified product line of any provider. This claim would be supported by the permutation of possible options for different cuts of jeans created by the new system. This permutation comes to include 4,224 unique cuts4. This characteristic makes it so that the Personal Pair proposition adds significant value as viewed from a VRIO analysis perspective.5
Rarity from the VRIO perspective is an important ingredient to success. The Personal Pair initiative meets these criteria in that it is an innovative methodology towards outfitting the general populace, simultaneously capitalizing on the desirability of one of the most popular couture items in the world while providing an extreme level of customer specific care. Such care within the world of apparel generally can be found only in the shops of custom clothing makers on an individual basis, thus the rarity of this service is extreme. According to Barney and Hesterly’s works on strategic business advantage, rarity is stipulated by the short supply of the item in question, the fulfillment of this qualification being established above, and the persistence of this rarity over time6. The case study at hands presents the circumstances of the business proposal such that CCTC’s joining with Levi’s is necessary given the need for advanced technological developments, proprietary and repeatable in nature. The technological infrastructure planned for the initiative calls for barcodes germane to each customer so as to facilitate repeat business expeditiously without the need for another round of fittings. What this also means is that as customers come back for additional jeans, the companies profit margins increase. But how to insure the trend continues, how to maintain the rarity of the service?
While impossible to ensure that no other jeans manufacturer will develop mass customization, Levi’s has the added advantage of a large organization will tremendous capital potential at hand. This allows for the company to develop a process that is extremely proprietary. In addition, the high cost of mass customization means that an economy of scale is required to see return on the infrastructural investment. Thus, if Levi’s is the first entrant in the mass customization market for jeans, they automatically create a significant barrier to entry for other companies which will have to invest in the infrastructure, expand marketing, sacrifice retail space which they may or may not have, and secure a large customer base interested in such a product. This customer base would likely already be loyal to Levi’s however, because firstly, because Levi’s expansive brand recognition and prodigious marketing capabilities would surely have been able to capture a significant portion of the interested consumer base, and secondly by repeating business with Levi’s, the customer can receive custom jeans repeatedly without having to now go for additional fittings so as to facilitate customization from another provider.
These same factors apply to the imitability aspects of the VRIO analysis. Levi’s early entry into this market segment gives them a distinct advantage concerning capture of target consumers and establishment of effective infrastructure. This creates barriers to entry significant enough so as to deter a large proportion of the competition. In addition to this, the model necessitates significant enough retail space dedicated to jeans sales to allow for such enterprise, space not available to all competitors. A chief concern with regard to imitability is production costs. Companies like JCPenny that have embraced outsourcing of labor have a distinct advantage in terms of labor costs; however, Levi’s does have recourse. By creating a price point commensurate with a significantly higher standard of quality than what can be offered by discount retailers, Levi’s has the ability to preclude many competitors from this market sub-segment. This is so because the burden on the consumer to get fitted for customized jeans is significant when concerning the individual time investment. In that light, consumers will insists on high quality goods for the simple reason that purchase of custom goods that must be quickly retired will draw ire and preclude a retailer from securing repeat business. This reality would force discount retailers to step out of their core competency, a dangerous proposition given the financial investment required to execute such initiatives and the lack of experience in managing them.
Based on this VRIO analysis, the Personal Pair proposition is intrinsically strong and offers an avenue to capitalize on an interesting opportunity set. Internally, the initiative proves very promising.
In order to guarantee success, Levi’s must ensure that they are able to maintain their advantage of their competition. Given that the barriers to entry in this field within the context of a competitive advantage for Levi’s have already been discussed in the sections above, let us focus on another key component of retail operations: customer loyalty. Customer loyalty is a consideration when analyzing the threat to a company’s market foothold from competitors. This feature of threat can be paired for analysis with another piece pertaining to Porter’s Five Forces analysis, that being the bargaining power or customers. Customer bargaining power is most easily defined as the position of the customer with regard to his/her/their ability to manipulate the seller into giving more favorable terms of sale. This reality is contingent on the need of the seller to increase sales numbers. The greater the need, the greater force can be exerted on the seller to make sale for prices more beneficial to the borrower and near invariably at a smaller profit margin for the seller.
Brand loyalty is an important force when considering the development of new business. The preference of buyers towards one brand over another generally indicates a level of trust in the quality and performance of the product being sold. This being true, as a consumers needs expand or change, they will turn to the same brand to fill their needs. Taking this as granted, a buyer who gives over loyalty to a particular brand is in general terms not particularly savvy as they have precluded within their own minds the notion of bidding their needs to different providers. This effectually reduces the power of buyers to exert pressure on a given seller in a sense because they buyer no longer considers their purchase a matter of choice; they default to company that is the object of their loyalty. Thus, brand loyalty and power of the buyer are inversely proportional to each other, in a strictly qualitative sense. Thusly can Levi’s ensure their grasp over their market share in mass customization of jeans. By creating programs that reward customer loyalty, Levi’s removed the threat of the competition, undercuts price-based competition that stems from discount manufacturers, and eliminates the deliberation in the mindset of the consumer as to which vendor to patronize. This effort would expand on the foundation of consumer loyalty Levi Strauss has spent decades developing. Results from the 2007 Consumer Loyalty Engagement Index supported by Brand Keys showed that in a survey of twenty brands of jeans, people remained most loyal to Levis.7 Levi’s expansive brand recognition and strong customer loyalty base puts them in good position to grow this base of loyalty in anticipation of the opposition.
Brief Macro Outlook
Looking briefly at the macro opportunity set within the context of the greater environment, one can see the multiple avenues by which the Personal Pairs initiative can function successfully. Using the PEST format above, the political environment in which Levi Strauss operates has a certain character of diversity given the great number of countries where the company has a retail reach; however, the majority of company revenue comes from developed western countries which are politically stable with trade regulating bodies and policing bodies which both protect and ensure the continuance of trade. Thus Levi’s faces a supportive political environment. Economically, the western countries which dominant the company’s balance sheet are ones with stable economies that regardless of periods of expanding or contracting rates of growth have control over interest rates and inflation and are by and large wealthy. This can be said in the sense that these economies support a middle class with disposable income and thus the economic environment is fertile for a niched expansion which focuses consumer desires more narrowly. This feeds directly into the social component of the analysis. These societies support disposable income which has also led to an expectation of outwardly wealth. People seek out consumer products of a more expensive nature as status symbols. The social systems support of strong education has led to strong earnings per capita on a relative global basis and thus the population with the ability to patronize Levi’s customized program is very significant. Finally, the technological advancements facilitating mass customization are in place. Obsoleteness is a possibility for this technology eventually as well as for jeans themselves; however, figures show high sales numbers of jeans with no signs of slowing at any time soon. Thus the technological framework, although it may be able to, will not generally need to change beyond adjustments provided that demand still exists from the product.
A challenge facing the success this proposal is the retail space commitment. Kiosks with the necessary equipment for the initial stages of customization would occupy roughly 33% of the average Levi’s retail store.8 While this retail space loss can be factored into the price of the item, this cuts into the bottom line of the company. The item’s value, increased over that of the over-the-counter jeans variation, warrants the price increase over standard in store labels; however, surrendering such a substantial amount of retail space to this effort costs approximately $7 per pair of jeans. Certainly in-store kiosks are a necessity when implementing this plan of action; however, if one considers the possibility of a retail location without the luxury of sufficient space to install the necessary facilities, a limiting factor of the initiative is quickly uncovered. Added to this is a further profit depleting expense in the necessity of training employees in the necessary skills to effectively measure their customers for custom clothing, not to mention the necessity of additional staff to man kiosks full time. In answer to these concerns, Levi’s might consider the option of partnering with local tailoring and dry cleaning businesses. The company could provide each such business with the necessary parameters and pay a fee for each fitting. Given that the entire process is like to require up to three fittings, visiting a local dry cleaners would add no further inconvenience to a shopper’s experience of Personal Pair and Levi’s could save on the retail space as well as on training costs for employees. Also, turn around time for production would likely increase as experienced tailors would be more likely to execute the most accurate measurements and would have much more practiced hands at that skill. It would also ensure continuity of service providers to customers as employee turn around in the retail sector is among the highest of any industry at around 35% over between 2004 and 2007.9 In addition, a venture of this sort would allow Levi’s to further promote their long-time support of American industry and business. As a feature of the company’s marketing campaign, this datum could serve to boost domestic sales numbers, an incredibly important demographic for the company as more than half of total corporate revenue is generated in the United States.10
Additionally, to combat exogenous threats to encroachments on market share, Levi’s should put in place a brand loyalty initiative to anticipate the reproduction of mass customization technology and product offerings certain to be developed subsequent to the launch of the Personal Pair program. The intelligence of such a maneuver lies in simplicity. The overall capital investment could be incorporated into the marketing budget and the increased level of customer retention that could be expected would precipitate increased consistency of sales. According Colloquy’s study by Jim Sullivan and Kelly Hlavinka, 17% of American and 29% of Chinese, Indian, and Brazilian consumers say that loyalty programs significantly influence their spending patterns.11 These figures in aggregate represent billions of potential consumers. Early entry into the customized market place coupled with brand loyalty initiatives could cement Levi’s as the leader in the field and effectively mitigate the risk of encroachment on their market share in the future.