News Summaries

LEVI STRAUSS LOSES MARKET SHARE (02/98)
NEW DIRECTIONS IN ADVERTISING (06/97)

Levi Strauss has announced that it will close 11 plants and lay off 34% of its workforce. What has happened to the company who dominated the jeans market practically since its founding in 1873? Increased competition and apathy.

As in all the clothing industry, increased profits required frequent changes in design -what was hip yesterday is no longer hip today. Unfortunately for Levi's, they became so preoccupied with the development of new lines (such as Docker's), that they began to take for granted their jeans market share, ignoring changes in consumer tastes. Big mistake! Levi's market share in the $10.6 billion industry has fallen from 31% in 1990 to 18% in 1997.

As rollerblades and skateboards began to gain popularity, their consumers demanded suitable clothing, pants that would fit easily over their knee pads and skates. Revatex, a small clothing company started about 12 years ago, responded by introducing its JNCO brand, so popular with teenagers that they commonly refer to all wide-leg jeans as JNCOs.

Of course, such success has encouraged other companies to introduce new lines, as well. Tommy Hilfiger, Ralph Lauren and Versace have all increased their share of the US jeans market. And even the lower priced jeans from J.C. Penney's (Arizona) and Sears (Canyon River) have increased market share among the most discriminating of customers -teenagers.

For Levi's the issue is the drop in sales among consumers aged 15-19. (Levi's retains its hold over the baby boomers, who continue to buy large quantities of Levi's each year.) Obviously, the decline in the teenage market hurts revenues today but because these are the years when brand loyalty is solidified. The decline in the teenage market has the potential to damper sales for many years to come. Further, many teenage fashion trends influence future purchases of the older shoppers. Levi's executives recently had to suffer through a half-day conference where hundreds of teenagers labeled the jeans as "has-beens" and "uncool." This has finally gotten their attention.

What to do? Levi's has acted quickly to enhance the promotion of its Silver Tab brand, which boasts a baggier fit than any other Levi's brand. Levi's will also begin sponsoring concerts for popular teenage bands, outfitting characters on Friends and Beverly Hills 90210 and coming out with more jazzier, colorful packaging. In a shakeup of management, Levi's is revamping its promotion and hiring policies to require more new blood-about 30% of all new management jobs will be filled by outsiders.

1. Do you think the jeans industry is monopolistically competitive ? Why or why not?

2. Describe what has happened to the demand curve for Levi's jeans.

3. Name some ways that Levi's can increase demand among its teenage customers, without endangering its sales to the baby boomers.

4. Which form of advertising will offer Levi's the most benefit for the least cost? What will this do to the demand curve? To average costs?

5. Are there high or low barriers to entry in this industry? How can you tell?

6. Will the change in hiring and promotion policies help or hurt the company? Why?

Keywords: consumer tastes, demand, industry, market share, advertising, revenues, profits, management, barriers to entry

Sources: Perman, Stacy. "Levi's Gets the Blues," Time, November 17, 1997, page 66;

Martinez, Barbara. "Wide Pant Legs Become a Big Business," Wall Street Journal, November 11, 1997, page B1;

Himelstein, Linda. "Levi's Is Hiking Up Its Pants," Business Week, December 1, 1997, pages 70-75.

NEW DIRECTIONS IN ADVERTISING
(06/97)

Advertising is a multi-billion dollar industry that affects many aspects of our lives. For years, the industry has been dominated by large firms that create ads for traditional media: print, radio, and television. In recent years, the industry has become much more competitive, with the average length of time that an ad agency is employed by a customer decreasing from 7 years to 5 years. Also, the nature of the ads themselves has changed with the advent of new media, such as the Internet and product placement in movies.

Many large companies have fired large Madison Avenue advertising firms for newer, fresher, smaller agencies. For example, United Airlines left Leo Burnett, the agency that created " Fly the Friendly Skies," for the virtually unknown firm, Fallon McElligott from Minneapolis. Since many airline passengers today are often beleaguered and hassled business travelers, the "Friendly Skies" slogan doesn't seem to fit anymore. The new ads are humorous looks at common problems in air travel and promise customers that United takes these problems seriously.

Product placement - featuring the product in a popular film - is another fairly new technique which has become increasingly popular in the last ten years. One of the first notable successes was the use of Reese's Pieces candy in the Steven Spielberg film E.T.

When M&M's, the studio's first choice, refused, Reese's Pieces were used as E.T.'s special treat; sales of the candy subsequently soared. Several automobiles were featured in Jurassic Park and The Lost World. Sales of Ford Explorers increased substantially after one was eaten by a dinosaur in Jurassic Park. The new Mercedes M-Class sport-utility vehicle is featured in the sequel, The Lost World, as the dinosaurs' favorite snack. The Mercedes deal with Universal Studios is unusual because the vehicle will be on the screen for 26 minutes. Although BMW's Z3 roadster appeared for less than 2 minutes in the James Bond film, Goldeneye, the movie appearance is credited with generating between 5000 and 10,000 orders for the car before it was officially on the market.

1. Does product placement advertising persuade or inform? Why?

2. Does advertising raise or lower per unit costs of production?

3. How will competition from newer, smaller firms affect the advertising industry?

Keywords: advertising, product placement, monopolistic competition

Sources: Diel, Stan. "Dinosaur Snack." The Birmingham News. May 19,1997, pp1-2.

Greenwald, John. "Madness on Madison Avenue." Time. June 16, 1997, pp.58-60.

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