Zara Business Strategy

ZARA’s Business Strategy

Introduction:

In this research paper, I will discuss how ZARA is such a successful and well-known company, and more specifically my focus will be on the marketing strategy of ZARA. First, the paper will provide general information about ZARA. Then, some sale statistics and ranking statistics of ZARA and other competing industries will be provided to highlight why ZARA is better than its competitors. After that I will define what a marketing strategy is and what are the general plans of a marketing strategy. Following that I will highlight which marketing strategy plans ZARA applies on its market and perform a marketing analysis (PESTEL and SWOT). And also I will introduce some cases where ZARA failed in its marketing plan and then how it adapted and improved its marketing strategy. Also, the challenges and weaknesses that ZARA had to face will be addressed.

There are around two million fashion brands in the world, all ranging from high-end fashion brands to low-end fashion brands. But, only a few brands are found and known worldwide. One of these few brands is Zara. Zara is a Spanish clothing and accessories store established in 1975 by Amancio Ortega and Rosalía Mera. It belongs to INDITEX. It is one of the largest international fashion companies and largest distribution groups1 and also one of the biggest retail groups in INDITEX. Zara was first only found in Galicia, Spain. In 1980, Ortega wanted to improve the store design, manufacturing, and distribution process. So, he decided to expand the store internationally. And in 1988, they opened Zara in Portugal. By 1989, it expanded to the US and France. And then little by little Zara then slowly started expanding in several other cities in Europe, Asia, Middle East, and Africa. Zara now has 2,100 stores globally across 88 countries. Ortega claimed that Zara’s mission would be “ZARA walks at the pace of society, dressing ideas, trends and tastes that society itself has matured”2. Ortega claimed that Zara’s vision would be “to give the customer an exclusive choice of fashion by providing a quicker turnover of new stock than other fashion retailers”3. So, he decided that Zara would be a store that would react to new trends in a quicker way and he preferred to call this type of technique “instant fashion”. Due to its huge success, Zara now owns other brands such as Massimo Dutti, Oysho, Pull and Bear, Stradivarius, Bershka, and Uterque, all which are found internationally. Also, Zara now not only sells women, men, and children clothes, but also home furniture and home accessories.

Zara is not the only well-known brand that is found internationally, there are other brands such as Abercrombie & Fitch, Mango, and etc. that are spread worldwide. But statistically speaking, Zara had one of the best sales in comparison to its other competing industries. According to Forbes, in Fiscal 2014 Zara came second place with sales of $19.7 billion4, which is a very profitable amount.

Entering a market is not easy. In fact, there are several ways and procedures that should be followed before entering a market. First there should be a strategy for it because there are several ways in which a product can enter a market such as franchising, licensing, exporting, joint ventures, outsourcing, business alliances, and Greenfield project. After defining which market entry is chosen, market risks like foreign exchange risks, liquidity risks, and cultural risk should also be taken into consideration. Of course not all companies want to create their own market entry plans, some prefer to subcontract their products to specialized companies that can help them in their market entry plan and at the same time help them eliminate some entry plan risks. As mentioned before, Zara has 2,100 stores internationally in a total of 88 countries. And of course it did not just use only one market entry mode due to the fact that rules and regulations vary from one country to another. So what Zara did was that it adopted three entry modes for its international expansion: franchising, joint ventures, and its own subsidiaries. Franchising is basically when one party, the franchiser, grants another party, the franchisee, the right to use its trademark or trade name as well as certain business systems and processes, to produce and market a good or service according to certain specifications5. Franchising is generally used when countries are culturally distant or high-risk countries that have small markets with low sales6. Joint venture is when two or more parties start an economic activity together; in other words, it is a combination of manufacturing facilities and know how of local company and expertise of foreign firm in market7 and it is also cooperation strategies with local corporations. Joint venture is usually applied in areas where there is a high competitive market. Creating its own subsidiary, one of the most expensive entry modes, requires direct investment and high level of control and risk. Having own subsidiaries is appropriate for places where there is low business risks and high growth potential. As franchising is used in countries that are culturally distant, it is understood that Zara chose franchising as its entry mode in countries like Saudi Arabia, Kuwait, and Qatar. Zara chose joint venture as its market entry mode in India, Germany, Japan, and Italy. In India, Zara chose joint venture as its market entry because India is a completely different market that they are not used to and also it is a competitive market where it is hard to obtain properties for retail channels or cooperation with a local company is needed because of certain obstacles. Zara chose to enter the market with its own subsidiary in Spain, the USA, Europe, and Brazil.

Every firm in the world that wants to generate sales and gain profit should have a marketing strategy and then apply these strategies by creating a marketing plan. Marketing strategy is the foundation of a marketing plan and it differs according to what type of services or products that are to be sold. But there are four main marketing strategies that are frequently used that help in shaping a business. These four approaches are specialization, differentiation, segmentation, and concentration. Specialization means determining what you want your company or firm to specialize in, either it be a product, a service, or even a person. Differentiation, the fundamental part to business, is how different and better you are from your competitors; in other words, your competitive advantage and your area of superiority. Segmentation is recognizing and segmenting customers who are most likely to buy from you rapidly or your distinctive marketing scheme. Concentration is when you focus all your energy on your chosen segment, or where you concentrate your money, resources, and time on. Another marketing mix that is also preferred by a lot of businesses is the five Ps. The five Ps stand for product, price, place, promotion, and people. First, which products or services do you wish to provide. Then, determining the charge or price of your product or service. After that decide the destination or location where the products or services will be sold. Once the place is determined, you should identify the methods you are going to use to attract customers to buy your product or service; in other words, in which way you are going to promote your merchandises or facilities. And the final step would be defining the people that will aid you or influence your success. After knowing what your marketing strategy is, you should set your marketing plan. You achieve your marketing plan by knowing how you will follow your chosen marketing strategy.

Zara, like any other business, has both a marketing strategy and a marketing plan. Actually, Zara’s marketing strategy and plan is very successful that it helped Zara immensely and it happens to also be one of the reasons why Zara is very famous everywhere. When asked about Zara, one immediately thinks of its instant release of new fashion trends and also of its copies the designs of some popular high-end looks, but for affordable prices. In other words, Zara’s main marketing strategy is to provide a modern design with quality at an affordable price, to adapt quickly to fashion, and to have a perfect, just in time, distribution system. When discussing Zara using the first marketing strategy that is specialization, differentiation, segmentation, and concentration one would realize that Zara does has the four qualities that are listed. Zara’s specialization is providing the latest fashion trends in reasonable prices. Its differentiation or uniqueness is that it provides the best quality of the copies of high-end looks and its fast release of new fashion styles. Its segmentation is the fact that the customers want to immediately wear what is new and at the same time not pay too much for good cloth quality. Lastly Zara’s concentration is when it dedicates all its time, resources, and money on providing the new, good quality fashion quickly. Furthermore, Zara also approaches a marketing mix; also know as the five Ps product, price, place, promotion, and people. Its products are clothes, shoes, and accessories for men, women, and children. Its prices are very reasonable as it provides products for people with low income and also so everyone can afford buying from Zara. Zara’s shopping places are always in the best, extravagant, private locations. Its promotions are mostly based on Internet online marketing opportunities such as social media, online shops, and Ecommerce. And the people that Zara focuses on are people who are extremely interested in fashion and love to wear the latest fashion trends but at the same do not want pay a lot of money or cannot afford paying for the expensive high-end fashion looks. And it targets mainly women, men, and children between the ages of 18-40.

As a person who has lived in different countries, and going to Zara in all these different countries, I realized that the products that Zara sells in each country are different. That’s a very good marketing technique because tastes fluctuate from country to country and there are different demands of specific products. If Zara sold the same products everywhere, sales would not have been extremely profitable and Zara would not have been as popular.

In business, both external and internal environment affects the growth of the company. Being a global brand, ZARA have to consider both to get ahead in the business. To understand its external environment, both PESTEL analysis and Porter’s five forces analysis would help in marking out the factors. Those factors are quite crucial in evaluating company’s progress.

PESTEL analysis helps in studying the political, economic, social, technological, environmental and legal aspects of any company. In the case of ZARA these factors are very crucial to evaluate the external environment.

Being an international brand ZARA work in 88 countries around the world. Every country has its own political agenda related to foreign companies and their share in market. These diverse policies affect the sale of ZARA. The taxes and regulations on imported products also affect the brand price. So as a global brand Zara needs to focus on its political friendly policies. Many countries have rigid policies related to foreign products imported to their land and also they are not very open to foreign direct investment. It should understand how the trading system of importing and exporting of goods and products works in different countries. In such circumstances, ZARA has to change its management as well as its marketing policies.

It is not only the political factor that affects Zara, but also the changing economic scenario of the world in turn affects Zara. As it is an international clothing brand and as customers are price sensitive, it has aimed to provide better products in reasonable prices. But this may change from developed countries to underdeveloped countries. The economy of the country like the inflation situation affects the purchasing power of the costumers. In some countries ZARA is still considered as a luxury brand, and this in turn affects the selling in larger markets. So based on that Zara needs to change it economic strategies depending on the economy of the country.

Every fashion very much depends on the cultural prospect of the country. The society plays a major role in accepting and creating fashion. Based on the social impact, the demand of fashion changes. Working in various countries, ZARA has to look up for the cultural impacts on apparels. Because of that Zara focused it products based on the social factors of the country. Of course there are always some global fashion trends, but the fashion industry needs to incorporate social and cultural factors to their products. Being a Spanish brand, ZARA not only has a European impact on fashion, but it is also considered the culture of the country that it spreads to.

Any kind of business around the world is facing the changing demand of the technology. ZARA is also moving forward in integrating improved technology. Apart from its physical stores, ZARA also introduced an online boutique, which is very helpful in reaching out to those customers who do not have access to the stores. Even in the online stores, costumer’s priority is the most important for ZARA. It follows costumer’s feedback and revamps its collection depending on the changing fashion and seasons. RFID technology is helpful in stores in order to track down those products that sell out and need to be refilled in the store. Through this technology, it becomes much easier for the store manager to keep track of the products on demand or the products that are not on demand. Also by using social networking, it has amped up the place of ZARA in the global business.

As an industry for many years Zara are criticized by environmental activities for spreading pollution through fabric plants. To overcome that ZARA started eco-friendly methods in the fashion industry. It has its own detox campaign to promote non-toxic clothing for people. Costumers nowadays are very much concerned about the impact of various industries on the environment. This definitely affects ZARA as a global brand. Its impact on the environment can result in a chance of banishment. So as an outcome, ZARA has come up with incorporating organic materials and sustainable technology for its products.

Legal obligation helps in creating the face of many brands. Sticking to the legal premises of the land helps the company to protect its face value and emerge as a trusted brand among the costumers. So, that is why ZARA always has a wing to handle its legal part of the business. Being a big brand and foreign to many countries, it faces legal obligations from local brands all the time. Some of the legal obligations that Zara is exposed to are improving the labor standards in developing countries to reduce costs. The brand follows the local laws as well as the global laws while promoting its stores across the different countries.

Porter’s five forces analysis helps in understanding the external factors like industry rivalry, threats of substitute, threats of new entrance, bargaining of supplier and buyers. This factor is very influential to know the status of any production company. It will help in measuring the gravity of each issue and based on that the plan can be made.

As an international brand, ZARA faces competition in the international fashion industries. Brands like GAP, H&M, MANGO, and etc. stay as a constant rival for the company. These brands have similar brand stores all around the globe. Despite the fact that the company always has dedicated and loyal customers who always prefer ZARA to any other brand, these competitors affect the marketing of ZARA as an external factor. The company is always consistent in maintaining its product value and quality the same throughout the world, which in turn lessens the pressure of rivalry of other companies in the fashion and retail industry.

ZARA has its own in-house designing and production facility. Apparels are manufactured from Spain and exported to different stores across the world. Because of its unique style of designing, Zara stands out immensely among other brands. So there is less opportunity for a threat of substitute. ZARA has successfully established itself as a top brand both in retail and production. Though there are many companies that have the same type of branding, costumers that understand and used apparels from ZARA never believe to switch to any other brand.

Threats of New Entrants:

As an in-house designing facility, there are always situations of doubting the authenticity of the product. The creativity of ZARA products is unique. But with continuous changing of fashion trends, there is always a new brand in the market. The fashion industry is flourishing. It is bringing more business and money. It encourages new companies to try their luck in the fashion industry. But the uniqueness of the products serves as a lesser chance of threat from the new companies. So the threats are at medium level.

Because of its in-house designing, production, distribution and selling, ZARA is not much dependent on suppliers. That results in a less power of bargaining by the suppliers. But as an international brand for some countries like China, ZARA depends on certain suppliers and manufactures. But still they have a lesser chance to pressurize ZARA as a brand. Also ZARA has less opportunity in outsourcing its production, to maintain the quality, which in turn may affect the cost of manufacturing. But the company does not have to depend on out factor for production.

As a retail brand, ZARA stores have no room for bargaining by the buyers. The company has a history of dedicated costumers despite the change in pricing and the influence of other retail brands. Buyers are always willing to pay for better clothing. Zara is able to produce the latest fashion trends available to the costumers with a faster time frame, so that the buyers will have no chance to complain. Costumers always have a say on the service and feedback and it is always taken into consideration by the Zara’s team. This privileged service is provided to them to give way to lower complain and moderately affect the trading.

Strategic issues:

Considering the external and internal factor in the analysis done above, ZARA as a global brand has many positive factors that establish it in the fashion and retail industry. But there are a few negative factors, which in the long run may affect the progress of the company. There are many strategies that are quite similar to those that are adopted by the other competitors, like spreading to e-commerce. So, ZARA needs to focus on its USP to accelerate the growth. Following are the analysis of internal factors and the strategies adopted by ZARA to establish itself. These analyses are done through SWOT analysis and VRIO study.

Zara’s strengths are: its fast delivery of trends into the market, its affordable products, its efficient distribution channels, its strong online presence, and their low cost supply management chain.

• It is a globally recognized brand and has attained the status of a fashion symbol. The name Zara reflects quality and reliability among the rich. It has more than 2000 stores all over the globe.

• Its expansion is not just limited to only manufacturing the products. All the other responsibilities of making its products reaching its customers are also done by the company itself like the supply and the distribution. This vertically integrated system of marketing accelerates the sales and also helps the company earn more popularity.

• Their social marketing is highly functional with the website and mobile app.

• Their products are designed by keeping an eye on the latest tastes, and also by giving their own proclamation to new style and starting new trends.

• They deliver trends quickly into the market and they have a strong online presence on E-commerce.

• Their products are affordable and they have efficient distribution channels.

• It also sells different product depending on the culture’s demand or style. So in other words, it adapts its product according to the country that it is in.

• Zara is not a highly advertised brand like many other famous clothes or linings brands.

• Being a brand of European origin, Spanish to be specific, its products are mostly Euro-centric. Other markets do not get the full range of products or there are no products that are modified according to the country in which they are selling. They are designed only after western clothes. The market is also not as spread out in other places as in Europe and other western regions.

• Zara sells in 88 countries to this day. But as fashion consciousness is on the rise globally, it still has many countries’ markets to explore. Due to globalization, modern western clothes are gaining more and more popularity, be it any part of the world.

• Another way to expand its market is online marketing. Zara, like a few other high-end brands, have tried to keep the tradition of big showrooms and showroom shopping alive. Even if they have online portals, they are hardly active about it, while most of the firms are flourishing only through online marketing. Zara can do the same without having to stop being a store as well.

• Fashion accessories are a little less focused in Zara in comparison to clothing. They are as equally important as clothes these days, sometimes more because matching accessories are trending more each day. Handbags, shoes, scarfs and other accessories that make a complete outfit, are highly necessary for a fashion statement.

• The fashion industry is a super fast changing one. The trend of today will not last even a month in the same place. Though trends get revived, they take decades to do that. And there are quite a few highly potential competitors for Zara in the market like GAP, H&M, Marks and Spencer’s, Mango, etc. All of them have huge market shares and very popular clothing lines as well as accessory collections. Some of them even manufacture skin care products. Zara has to innovate and expand every now and then to retain its popularity and attract more customers.

• High-end brands always face the risk of duplication. Duplicates are cheaper, lower qualities, and fake versions of the real things. They are sold using the name of the brand to attract people who cannot afford the originals. These duplicates are one of the biggest threats because they steal the market of the originals. There are ways to curb these activities by introducing brand marks to prove originality and spreading awareness about the measures taken.

• If the brand works towards crossing these hurdles and working on the positives consistently, Zara can be the number one brand in the world.

The VRIO analysis helps in understanding the value, rarity, imitability of the products manufactured by ZARA. It also helps in understanding the organization too.

Zara has its own designing, production, distribution and selling facility. This adds up to the value of the brand and the authenticity of the products. As a result of that, it is distinguished from other competitors. These internal factors save up the manufacturing time and money spent in outsourcing. Because of that, the company has a better balance between suppliers and buyers. Adding to that, the company is extremely concerned about following the changing fashion trends. It launches new collections and season sales that create enthusiasm among the costumers. The environmental friendly factor helps in increasing popularity of the brand. And using modern technology like e-commerce and social networking also add value to the company.

ZARA always focuses on time production. At the times when other companies engage in outsourcing the production and emphasize more on retailing, ZARA believes in capital intensive. That helps the brand to make the latest fashion available to the costumers prior to other companies. As result of its in-house production, the new products are delivered much faster than other stores and luxury brands.

Nowadays there are found to be many first copies and duplicate products of branded items. People can easily be fooled to buy the duplicates in cheaper rates. To avoid that, ZARA sells its authentic products only in its store. It is rarely found for Zara’s products to be sold under any other store or company. That ensures the legitimacy and the costumer scan be saved from imitability. Before any other brand copies the strategies and designs of ZARA, the company will upscale it products. That also reduces the probabilities of copying the designing.

As a company ZARA deals with both the production and retailing of the products. Because of that, the products have a global perspective. But ZARA always considers the social point of views of the countries. Bringing the best fashion in the market, ZARA focus on producing clothes according to global fashion trends, so that consumers can access the best fashion in reasonable prices. Also it has a better human management as a company. The employees of ZARA cover the younger population, who understand the changing fashion trends and needs. They can add up creativity and innovativeness to the products. Because of its global approach, customers can enjoy international fashion in any country in the world. ZARA always focuses on brand building, which helps the company get recognized among others. It never compromises on devaluing the branding to increase selling or for any other marketing glitz.

In order for a company to better and more favorable than others it needs to have a special attribute or provide a unique service. This attribute or service that makes a company or firm superior to other competing industries is called competitive advantage. The reason why Zara is better and more favorable to customers than other companies is because of its competitive advantage.

One of Zara’s competitive advantages is its ability to quickly introduce new products to the market. Zara releases new designs almost every week, which is a huge deal because this means that it is always up to date with fashion trends and it also means that their customer can really rely on them when it comes to satisfying their own fashion needs. Zara basically can quickly transform an ordinary sketch to a product in the store in the matter of two weeks.

Zara’s second competitive advantage is the fact that it manufactures and designs the majority of the attires that it sells in its stores. It is extremely rare to find fashion companies that manufacture as well as design their products. Most fashion industries avoid doing both because it is considered as a hard task and also because it takes a lot of time to be able to finish the product. This competitive advantage raise Zara automatically up because the customers realize how much effort Zara puts in order to please them and also to guarantee the best quality of products that they sell to them.

The third competitive advantage would be that as Zara produces new items almost every week, and as the customers do not buy all of their products that they sell, it does not produce a lot of the same product and tends to produce and distribute their goods in small heaps. This helps in not polluting the environment with the chemicals used in their products as well as decreases the amount of waste that is thrown out and that could harm the environment.

Zara’s high product variation is a fourth competitive advantage. Zara produces around 11,000 distinct items per year8, 8000 to 9000 more items are produced than its competitors, of course disregarding what new and desired trends are designed and produced during each season. Statistically speaking, only 15-25% of the products are produced before the seasons start. And then 50% of the rest of the products are produced during the season and they are designed according to what is popular and what is on demand. Zara’s quick and immediate response to new fashion is what makes it more valued by customers than the other shopping brands.

Like Toyota, Zara tends to keep excess capacity in its manufacturing operations9 in case of unexpected demand. These manufacturing operations of excess capacity are a fifth competitive advantage. Not only does this help when there are unexpected demands, but it also assures the customers that whatever they need, it can be immediately produced for them. Zara also has the ability to respond rapidly to fashion as it changes and develops because of the extra capacity that it owns. This also reassures the customers that they will be able to wear and own the latest trends just on time. Following such a system of having available resources in case of unexpected demand is much different and new to the fashion industry. And it is a system and an operation that its competitors do not follow, this alone provides superiority to Zara that the others do not have.

Core competency is a concept that was created by two professors, Gary Hamel and C. K. Prahald. The concept a management theory and it is says that a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace10. According to core competency a firm should involve three criteria: products and services that are difficult to imitate, have access to a wide variety of markets, and should be able to do a huge contribution to the end product.

For the first criteria, products and services that are difficult to imitate, Zara’s has a quick response to fashion trends. It quickly realizes the new trend and right away designs items according the new fashion. The reason why it is not so easy mimic is because it is costly and it is also hard to achieve such systems in firms. The second criteria, access to a wide variety of market, which means that, Zara can expand easily in different countries worldwide.

References:

Pratap, A., ZARA PESTEL Analysis, published on March 11, 2017. http://www.cheshnotes.com/2017/03/zara-pestel-analysis/

https://fashionvore.files.wordpress.com/2013/10/zara-report.pdf

https://www.scribd.com/doc/262268514/ZARA-VRIO-FRAMEWORK-pdf

The future of fast fashion, The Economis. [Online], (2005), Available from: http://www.economist.com/node/4086117

Fashion for the masses, Global stretch: When will Zara hit its limits? The Economist. [Online], (2011), Available from: http://www.economist.com/node/18333093

https://writepass.com/journal/2016/10/strategic-analysis-of-zara/

Zara SWOT Analysis | USP & Competitors | BrandGuide | MBA Skool-Study.Learn.Share. (2017) MBA Skool-Study.Learn.Share., Available from: http://www.mbaskool.com/brandguide/lifestyle-and-retail/3814-zara.html (accessed 9 June 2017).

Even though it is an imitation it is very good quality and its not exactly the same.

Up to date, affordable clothes (they design clothes based on what the trend is).

Quick to time, just in time delivery of new clothes to the market.

Had to face lawsuits because of copying other fashion desginers design (because zara has to follow the up to date trend new clothes)

High end looks for affordable prices

porter’s 5 forces.

Like any other firm, Zara performed some mistakes and failed in some of its marketing strategy. One of these cases was is ------ when Zara ---------

Zara has sells different product depending on the demand = different products in different countries.

Zara faced some lawsuits because of the imitation of some brands