Levi Strauss Porter Five Forces Analysis

Published in Companies category by MBA Skool Team

Here is the Porter’s Five Forces analysis of Levi Strauss that covers threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.

Threat of New Entrants:

The threat of new entrants in the Levi Strauss Porter Five Forces Analysis can be explained as follows:

Levi Strauss is an American company which is specialized in denim jeans. Besides, they also provide shirts, jackets, eyeglasses, shoes etc. They have annual revenue of more than $5 billion USD. The new entrants will always face trouble in the market with established players like Levi Strauss. These companies can, any day, take advantage of the economies of scale, which cannot be replicated by the new firms. There is a huge amount of capital investment involved in setting up the production units and starting the operation.

Besides, the marketing expenses allocated by established firms like Levi's will be unmatched by new firms. The companies also put a lot of research into their new products. Though its products are a bit highly-priced, they are known for the quality and longevity they offer. There is low product differentiation in the market, and hence the new players will have to come up with cutting edge innovation to make a mark in the industry, which seems highly unlikely too. Thus, the threat of new entrants is a weak force when it comes to the operations of Levi Strauss.


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Threat of Substitutes:

Below are the threats of substitute products of Porter’s Five Forces analysis of Levi Strauss:

The products sold by Levi Strauss, like clothes, are those which do not have substitutes. Thus, the threat of new substitutes can be deemed as nearly zero.

There are multiple types of clothes and accessories available in the market. It feeds the premium segment of the market while there are a lot of players who have products in the lower-income segments which provide decent quality. So, these products pose a threat to Levi's by taking way the customers who are price-sensitive and try to buy economical products. There is also a plethora of brands that are similarly priced and have almost the same kind of product portfolio. These products pose serious substitution threats to Levi Strauss because the product differentiation in the industry is quite low. If any of the companies release a low-priced product offering a similar quality or a counterfeit product at a lower price, sensitive people will flock on to them, causing the market share of the brand to deteriorate. Thus, the threat of substitutes is a strong force affecting the operations of Levi Strauss.

Bargaining Power of Customers:

In the Levi Strauss Porter Five Forces Analysis the bargaining power of the customers can be explained as:

The clothing industry is where there is a large number of suppliers as well a lot of customers too. The customers have a lot of options to choose from as clothing and accessories are inevitable to lead a life. There are clothing available at all price levels, and hence the bargaining power of customers is a bit high. Brands like Levi's cater to the premium segment of the market and is immune to customer bargains. There is brand equity associated with the brand, which loyal customers always look up to. But some price-sensitive customers might flock to the most economical product irrespective of which brand the product is from. This increases the bargaining power of the customers. The companies invest a lot in their marketing efforts which may sway the behavior of customers. Thus, bargaining power of customers can be reduced by strategic marketing techniques. Customers are generally not that able enough to backwards integrate.

Thus, the bargaining power of customers is a moderate force affecting the operations of Levi Strauss.


Bargaining Power of Suppliers:

Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Levi Strauss:

There are a lot of suppliers available in the market catering to the brands like Levi's. These suppliers generally provide the raw materials required for the production of apparel. The products are not differentiated and standardized. The fashion industry is highly volatile, and this brings down the bargaining power of the suppliers. Besides, the brands like Levi's always have goodwill associated with them, which all the suppliers will want to associate with. This decreases the bargaining power of the suppliers. The suppliers will have no say over the prices since the brands will have the upper hand in the negotiations. But there are some suppliers who provide supplies to multiple brands and hence have control over the industry. Some of the suppliers might integrate forward also to start the business by themselves. This increases the bargaining power of the suppliers. Thus, bargaining power of suppliers is a strong force affecting the operations of Levi Strauss.


Competitive Rivalry:

The impact of key competitors in the Levi Strauss Porter Five Forces Analysis is as follows:

Even though there are a lot of players in the clothing and accessories industry, there are only a few which are in direct competition with Levi's. The major competitors of Levi's are Lee, Wrangler, Tommy Hilfiger etc. All of these brands cater to the premium segments of the market. They have the same level of quality and pricing strategies. The only difference they can demonstrate will be through their marketing and research activities. But since the fashion industry is a volatile industry, any new designs are easily replicated, and any new fashion trends would not stand for long too. The market itself is a saturated one with very low growth potential. Thus, there is intense competition among the players to gain a position and market share. There are lobbying activities also happening in the industry where there are supplier-producer tie-ups which increases the heat of rivalry in the industry.

The companies thus constantly try to acquire new distribution channels and strategies to convince and retain customers.

To conclude, the above Levi Strauss Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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