Levi Strauss & Company Industry Competitiveness - Porter’s Five Forces AnalysisThreat of New Entrants: The threat of new entrants to the market is best described as moderate-to-high, because it is growing in strength. The potential for new entrants depends upon natural and legal barriers. Monopolies, high capital intensity, high switching costs, alliances, economies of scale are some natural barriers which reduce threat of new entrants. Legal barriers are in place for industries where licenses are required. In the case of jeans industry, these barriers are significant but are gradually being reduced as time passes.
For example, setting up manufacturing facilities is highly capital intensive, but the possibility of outsourcing and having contracted supply from established factories elsewhere, thanks to globalization, reduces these costs. Therefore, this barrier is not as significant as it once was. Economies of scales are a key in this industry, meaning the key players hold large market shares making it almost an oligopolistic market. This acts as a high entry barrier but with access to new global markets in developing countries, particularly in Asian countries like China and India where growing economies increase demands for fashionable goods, there is room for more market players, so this factor also is diminishing in strength.
Globalization gives an opportunity for many competitors to enter the blue jeans market, as well as giving existing companies opportunities to reach new customers. There are no legal barriers in place to prevent a new entrant in the industry. Therefore, it can be assessed that this force is presently of moderate strength in the particular industry: the threat of new entrants was once very low, but is becoming greater as more opportunities emerge, and will probably be very high in the near future.
Rivalry among Competitors: Rivalry among the existing competition is high. The market share of Levi’s is being taken up by newer, trendier brands such as Tommy Hilfiger and Polo as well as competitively priced brands such as JC Penney, Sears, Gap, and Old Navy. Wrangler and Lee too continue to be very strong in the market. In a market where all the competitors are selling essentially the same product, price and style differences play key roles in influencing purchases within different customer segments, but these factors are of varying levels of importance to different customers.
Teenagers and young adults who make up the biggest segment of the blue jeans market are, for example, likely more influenced by style than price; thus for this segment, the competition is a race to see which company can either create or satisfy the newest fashion before all the others. In this view this industry force is high in strength. Bargaining Power of Customers: The bargaining power of customers of blue jeans is actually quite strong.
Levi’s relies on a strong brand image and an extensive distribution network to hold a large market share, and at first this would seem to limit customers’ bargaining power. Competition in the market, however, is quite strong, and is driven by customer demand for fashionable products at a reasonable price, meaning a price at which the customer perceives value for the product. The impact of the bargaining power of customers might not be felt first in prices, but in costs: customers are willing to pay a somewhat higher cost for Levi’s jeans because of the brand perception associated with them, but in order to maintain that, Levi’s must spend more to grow the brand and to produce a high-quality product to accompany it.
And eventually, since the usefulness of a pair of jeans is not much different whether they are from Levi’s or from some other manufacturer, the price to the end user does have a limit. Thus, because customers have a large number of choices in jeans, their bargaining power is very strong.