Levi Strauss Case

Issue:

The issue is that Levi Strauss and Co. has to decide whether to accept or decline the proposal of Custom Clothing Technology Corporation (CCTC). The proposal of the joint venture would marry Levi’s core products with the emerging technologies of mass customization. Heidi Green has to evaluate the impacts of the proposal in financial and non-financial terms.

Analysis:

Levi’s was able to establish its own market image in the apparel market by agreeing with some of Hollywood stars to wear Levi’s jeans. Later on, the jeans have become a political statement and an American icon known generally as “Levi’s.” Sales of Levi’s products have been increasing approximately 10% per year so as it was in the top of market ranking in 1990 holding 31% of market share. However, Levi’s had started to loss portion of the market share for several years as the competitors had applied new strategy. Many of the competitors outsourced producing the jeans overseas which allowed them to gain competitive advantages in term of cost structure. Even that the sales had kept decreasing, Levi’s did not like to loss what it views as so important, brand loyalty. Customers loyalty has gained through Levi’s was being viewed itself as social conscience thus it kept producing the well recognized US-made jeans and paying high salary and benefits packages to its employees.

Through implementing mass customization, which emerges communication and computer technologies, the joint venture proposal suggested introducing the Personal Pair jeans customization program. It was believed that the program would eliminate the necessity of competing against the low-cost high-volume competitors and the higher-cost producers that targeted affluent. The new program balances between the flexibility provided to the customers and the required decision-making. The mass customization model could lower costs as well as provide the differentiation advantage since the re-engineered process is often more efficient once new technologies are applied. In term of the cost impact, the supply chain for Personal Pair is relatively simple comparing to the complex of current Levi’s stores. The cost of distribution would be nearly eliminated and the SG&A expenses would be reduced if 50% of all sales do not incur incremental costs.