In 2003, Levi Jean’s were suffering from a continual downturn of business fortunes, with sales dropping from a high of $7. 1 billion to $4. 5 billion (Kim Girard 2003). As part of a recovery program, it decided to look to the mass-chain seller Wal-mart to increase sales. Historically Levi’s products are at the high end of the price scale, from $85 upwards, whereas Wal-Mart sell jeans at around $25 (Sally Beatty 2002). Therefore, the question is, will this tactic work? Can the company compete in two distinctly different market segments in this manner?
This paper addresses that question and concludes that the answer is affirmative. As Anderson and Kerr (2002) point out in the introduction to their book, business is about customers, therefore one needs to seek them out, understand their needs and react to those needs by providing what they want, at a quality and price they want. In other words, a business needs to target its market. Levi’s had already done this at the high end of the market. However, to survive as a business, the company needed to expand into new markets. When looking at entering the mass chain market, Levi had to consider a number of questions.
Firstly, was there a customer base that it could sell to and was there a sufficient demand for its products within that segment of this new marketplace? Secondly, it needed to consider whether such a diversification would adversely affect its existing quality market share. In other words, by the seeking or new customers would it lose any of its existing customer base? It also needed to be aware that it could produce within the price band of this new market. To answer these concerns the company considered a wide range of research.
One element of that research was the consumer within marketplace. This provided details of the consumer in terms of age demographics, buying patterns and economic reasons behind buying decisions. The research relied upon by Levi, revealed that Wal-Mart had a customer base of over 160 million. The research also revealed that less ten percent of these customers also shopped at “high-end” quality stores (Sally Beatty 2003). Most are attracted to the store because of its low-price policy. As a result, it was apparent that there was a separately identifiable consumer segment (Marco Vriens 2001).
Next, the company needed to look at the business ethos of the partner it would be working with, in this case Wal-Mart. Research showed that the sale of jeans produced $3 billion in revenue for Wal-mart. It also revealed that the clothing range that Levi has specialized in retails at Wal-Mart for around $25. From all this research, the company ascertained that there was the market segment, it would not significantly affect Levi’s traditional market and it offered the potential of a major increase in revenue. The only disadvantage at that stage was that Levi’s did not have the products to be able to sell at Wal-Mart. (Charles Fishman 2003).
Levi decided that it would enter into a supply contract with Wal-Mart and instigated a tactical strategy to do this. This strategy was to develop a new range of products, which were distinctly different from its high-end market range, specifically it terms of price. Obviously, this meant that quality would not be as superior. However, the intention was to capture the fashion and brand conscious consumers that frequented Wal-Mart because of price. Many of these consumers, whilst not wishing or able to spend $85 plus on jeans, were still driven by peer pressure in terms of the brand name, and this is an area that Levi was strong in.
Therefore, it introduced the “Signature” range specifically retailing through the Wal-Mart stores at around $23. Result Levi Jeans needed to do something to halt the deterioration of its business. As Hamel and Prahalad (1994) observe, “Any company that succeeds at restructuring and reengineering, but fails to create the markets of the future, will find itself on a treadmill, trying to keep one step ahead of a the steadily declining margins and profits of yesterday’s businesses. ”
Nationally research has shown that over the past few decades, consumers have increasingly moved towards mass-chain stores for a wide range of goods, which includes clothing and fashion. However, in this area they still have the desire for designer clothing, although at affordable prices. Nevertheless, a demographic of consumers remains loyal to high-quality stores. By creating a range of products that compete on brand recognition and price, whilst at the same time retaining quality products for non-mass outlets, it is our opinion that the tactics employed by Levi will work.
It will have the effect of creating a new market share for the company in a different consumer segment. Furthermore, the segmentation element of their tactic will enable the company to maintain the majority of the existing customer base in other segments of the consumer range. This is supported by the fact that an increasing number of brand name manufacturers are choosing to use this sales route. References Beatty, Sally (2002). Wal-Mart to Neiman Marcus Is Jeans Maker`s New Goal, The Wall Street Journal, October 31
Anderson, Kristin & Kerr, Carol (2002). Customer Relationship Management. McGraw-Hill Education. Hamel, G. , and Prahalad, C. K. (1994). Competing for the future. Harvard Business School. USA, p. 5. Vriens, Marco (2001). Market Segmentation: Analytical Developments and Application Guidelines. Millward Brown Intelliquest. Fishman, Charles (2003). The Wal-Mart you don’t know. Fast Company. Issue 77. Dec 2003, p. 68. Girard, Kim (4003) How Levi’s got its jeans into Wal-Mart. CIO Magazine. 15 July 2003.