ANALYSIS: The high price of Levi's victory - Levi's may have won the battle to protect distribution of its products, but the war for brand defence is going badly. Mark Kleinman reports

The European Court of Justice (ECJ) decided Tesco had been wrong to sell

Levi's products sourced from outside the European Economic Area (EEA)

without the brand manufacturer's consent. But no sooner had the court

handed down its ruling, than the UK's biggest supermarket was bemoaning

a terrible day for consumers and pledging to continue its policy of

importing branded goods cheaply from within the EEA.



The ruling has implications beyond the Tesco-Levi's spat. Last week,

Asda announced it was selling its largest-ever range of grey-market

products including French Connection (much to fcuk's chagrin), Nike and

Calvin Klein. While the ruling will not affect grey-market goods

imported from Europe, Asda has vowed to battle on in its campaign to

change European legislation on parallel trading. Tesco, too, has

recovered from its initial shock at the verdict, which must now be

considered by the UK High Court for a final decision.



"Levi's has lost too," says a Tesco spokesman. "We wanted to take the

parallel trading principle of Europe and apply it to the rest of the

world, but in denying us that opportunity, the court is allowing Levi's

to continue exploiting its customers."



In reality, the ECJ ruling may have little short-term impact, because

the difference between the cost of Levi's jeans sourced by Tesco from

inside and outside the EEA is only about £3. However, Levi's is

now aiming to tighten agreements with its suppliers to ensure that fewer

of its products end up on the grey market. In the longer term, the

impact is likely to be far greater.



Provocotive message



Tesco is launching an ad campaign to promote its sale of Levi's jeans -

a brief was issued to Lowe Lintas & Partners the day after the court

verdict, and the retailer is likely to communicate a suitably

provocative message when the ads break.



"We cannot see why Levi's should be around £20 more expensive in

the UK than they are in the US. You cannot market a brand as a premium

product in one country but as a mainstream product in another," adds the

Tesco spokesman.



"We live in one world where consumers should have the choice of where

they buy products. Brand-owners should position their brand not on

exclusivity and high prices but on quality."



Levi's response to these instructions for marketing its products is, not

surprisingly, an angry one. The firm's vice-president of corporate

affairs Alan Christie argues that it charges a premium price precisely

because it has spent so heavily on investment in developing and

innovating the brand.



"Our jeans are sold at a variety of prices, set by retailers, not by us.

The reason for pricing disparities between different countries, which

are much smaller than they used to be, is due to factors over which we

have no control," says Christie.



"For example, there is eight times more retail space per capita in the

US than the UK, which means US retailers benefit from economies of

scale.



Tesco's attitude is hypocritical: when do you ever see their own-brand

products sold anywhere other than Tesco supermarkets?"



Levi's claims another factor in the higher price of its jeans is its

investment in the retail environments in which Levi's are sold. It is

another claim that continues to be rubbished by Tesco.



"It is absolute hypocrisy for Levi's to suggest that the retail

experience is integral to the creation of its premium brand," says a

Tesco spokesman. "We now have changing rooms and customer advisers in

our stores, in which we, too, have invested millions of pounds."



Tesco refuses to accept that brand owners have a valid excuse for not

wanting their products to be sold in supermarkets, an argument which

looks likely to hold ever-greater sway over the masses. Which is part of

the reason that Christie admits to losing the PR war in the wake of the

ECJ decision.



The equation put forward by Tesco, and swallowed hungrily by much of the

national media, is that self-protection by brand owners equals a rip-off

for consumers . This, clearly, places premium brands in a dangerous

position. If defending one's brand means exposing it to the kind of

adverse publicity encountered by Levi's last week, then is it worth

defending in the first place?



Christie has no doubt that it is. "Our brand is both a statement about

who we are and a promise to consumers that is imbued with all sorts of

guarantees about quality. Brands are a guarantee of choice which is

vital to competition and a healthy economy."



Admittedly, his cause is not aided by an inability to provide details of

prices for Levi's products across the EEA, but he acknowledges that the

cost of a pair of 501's should not be £20 more in the UK than in

the US.



"There is a variance of about 5% in the price of a pair of our jeans

across Europe, which is not a significant difference," he says. "But I

repeat that those differences are down to factors beyond our

control."



Consumer backlash



There remains the risk of a backlash against the Levi's brand, fuelled

by inflammatory comments from bodies such as the Consumers' Association,

which is adamant that Levi's is ripping off its customers, pure and

simple.



John Noble, director of the British Brands Group, which represents many

of the UK's biggest brand owners, believes that media coverage of the

ECJ ruling reflects a growing cynicism about major firms driven by the

'Rip-Off Britain' campaigns of recent years.



"People's attitudes, which are often coloured by damaging headlines, are

further distorted by the disgraceful criticism that Levi's is receiving

for making the investment that is what makes its products so desirable

in the first place," he says, admitting that the risk of a consumer

backlash against the Levi's brand is "a possibility".



And he says that Tesco's well-oiled PR machine allows it to attack

Levi's over price while getting away with posturing over price-cuts on

both its own-brand products and grey-market goods.



With that in mind, does Levi's itself hold the view that the ECJ ruling

may turn into something of a Pyrrhic victory for the jeans-maker? "It is

too early to tell whether we will become victims of a consumer back -

lash - there has not been any appreciable drop in sales during previous

stages of the case," says Christie.



And Levi's goes on the offensive when it accuses Tesco of treating

customers cynically by benefiting illegitimately from the jeans

manufacturer's investment in its brand. "Tesco positions itself as a

champion of the consumer, but that is just a PR stunt. All we want to do

is concentrate on making and marketing the world's best jeans," he

adds.



That process will no doubt continue, but at what cost, and to whom?



Levi's has achieved what it set out to do by winning the battle of the

ECJ, but victory in the broader war will be settled in the far more

precarious environs of the court of public opinion.



LEVI'S ENGINEERED JEANS:

Levi's pricing in different countries (taken from European Brands

Association study, International Price Comparisons, May 2001)

Germany £38.06 (cheapest in EU)

US £39.39

Sweden £44.42

UK £50.00



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