Marketing and Zara Essay

1. BackgroundAccording to BusinessWeek,Zara was a formulate imitator. It counseled its watchfulness on understanding the means items that its clients wanted and then delivering them, rather than on promoting predicted flavours tr residues via fashion shows and similar channels of influence, which the fashion attention tradition t away ensembley utilise. 5 Zara, the fashion retail range of mountains, is a subsidiary of Inditex congregation owned and managed by Spanish tycoon Amancio Ortega. Inditex acknowledges several major brands, namely, Zara, Massimo Dutti, tress and Bear, Oysho, Bershka, and Stradivarius. The concourse headquarters is located in La Coruna, Spain. It was here where the premier(prenominal) Zara investment firm was launched in 1975. Presently, on that point are ab start 1,500 Zara stores or so the world. Zara employs more(prenominal)(prenominal) than or less 80,000 people. The group recorded r even upues of 9,434.7 million (approximately $13 ,068.8 million) during FY2008, an increase of 15.1% over 2007. The operating wtype Aum increased by 20.1% to 2,148.8 million in FY2008.The net profit, during FY2008, increased by 24.5% to over FY2007 to 1,257.8 million (approximately $1,742.2 million).7 Zaras claim to fame surfaces from the fact that it admits, on an fair, cardinal (2) weeks to develop and food groceryplace a naked as a jaybird fashion re twisting compared to the diligence average of six (6) month cycles/second. In addition to this, Zara is committed to showcasing just nearly 10,000 unfermented functions annu all toldy, in a fast and scarce manner, which gives it a immutable sweet look and brings back clients to the stores. Owing to its extraordinary tack on chain management, use of culture technologies and innovative management strategies, which is a must to get going the highly competitive fashion industry it has managed to come out on top social class after(prenominal) year. The major com petitors include H&M, whirl and Benetton. roughly of the efficient strategies adopted by Zara are generally the policies of secret code inventories, Just in Time systems, contract manufacturing for base orders, decentralize ware signboards to deliver produces and above all close monitoring of the fashion trends. preceding(prenominal) all, they had few unique strategies, mainly, zero advertisement, where in Zara chose to open stark naked stores rather than advertise and, the concept of shunning outsourcing to emit cost development c make its as it would result in dilution of the high quality fashion that Zara re sets. Initial victory for Zara is mainly attri yeted to featuring downhearted priced lookalike fruits of more popular, high end fashion brand. adjacent this success, they adopted invigorated design and distri preciselyion method. Since the fashion industry product has long lead terms, to the tune of six months, Zara aimed to shorten this and besides minimize the un receivedties associated with fashion retail. Zara developed the concept of Instant Fashion that al subalterned them to respond more quickly to consumer tastes and emerging trends. The strategy helped them to bring in new products to the shelves quickly, in small quantity and give more if demand occurred. This changed them to minimize inventory, hazard demand and remove uncertainties.Later on, they brought in information technologies to further animate the distribution processes. These helped Zara to developed fashion lines based on market place trends and in any case, produce its own designs through a team of 200 in house designers. The introduction of information technologies helped them increase the efficiency of state of the art proceeding system and warehousing mechanisms. The stores and warehouses were linked electronically, which facilitated the exchange of real time information thereby allowing them to minimize risk and capital outlays by reducing inv entories. This withered and responsive system helped rotate the melodic line quickly and also, improved gross gross revenue as the customers would return to stores every two weeks to check out new designs and purchase as the design would not be available after the time frame.International involution of Zara started with Portugal in 1988, and since then they drive loose more than 1,000 stores globally. This has been done through attach to owned showrooms, joint ventures and franchisee models.Zaras ProductsCurrently, Zara caters to mens clothing and womens clothing. Each of these sections has 5 subsections, which include lower garment, upper garment, shoes, cosmetics and complementary products. The 50-60% of the demand is produced at the beginning of the season and the catch ones breathing is manufactured in season. This sometimes results in either nervous strain outs or markdowns but compared to the competition the number of times the service disappointment happens is quit e low for markdowns. Hence, if the design does not suit the customers tastes then it is interpreted off the shelves and further orders are thronecelled. This leads to new designs and above all, no designs bear on the store floor for more than four weeks, which encourages consumers to make purchases. When compared to the competitors, average number of times a customer visits Zara is 18 times a year compared to 3-4 times for the competition.2. Mission, Vision, Values and GoalsZaras Mission Statement is as follows, ZARA walks at the rate of society, dressing ideas, trends and tastes that society itself has riped. Zara through its unique argumentation models and stores has proved business can be successful with little or no advertising. This business is possible lonesome(prenominal) through superior customer service helped by continued top executive to restock and respond to customer requirements at bottom days. This gives Zara the competitive edge. Hence, keeping in mi nd the mission, they ceaselessly innovate their products to raise shopping experience and provide new designs at affordable cost made from quality clobbers which follow up-to-the-minute trends.3. Zaras dodging for maturation and PositioningZara believes in Zero advertising. It would rather fell on store expansion than to advertise. However, the minimally advertise in fashion magazines. The rationale behind this is the quick turnaround of store present, which is around 4 weeks, which renders advertising an unnecessary cost. excessively, Zara concentrates on efficient design to market cycle and focus on showcasing large number of designs annually. The workforce in Zara is essential to its success right from the product to the store level as the feedback generated active fashion performance at store is percolated to the designer and production and provide chain helps to put the latest styles in 2 weeks time. We need to final payment a look at the factors that determine the se strategies and also the short approachings associated with these strategies4. External analysisThe external environment characteristics can be stated as infra1. Demographic separate Zara is tooshieing young consumers with disposable income. This will be principally in developing countries and developed countries. This presents them with a sizeable universe. As shown by market seek, the customers in these countries are willing to try new brands but at the same time are price and quality conscious. The ability to replicate the model and achieve the desired results can significantly enhance Zaras brand in these market.2. Economic segment callable to nerveless currencies, low labor cost and opportunity to be closer to customers, Zara need to think about strategies to choose benefits from otherwise jam. Since the competition has already entered the newer market and is constantly trying to leverage the benefits associated with these markets. This has a big impact on t he profits of the organization.3. Legal segmentOwing to increasing labor costs and stringent labor laws, the production processes in the present countries do not seem favorable as they will increase the production costs. In addition to that, concentration of designers in Spain/Europe can be handled as the labor laws permit that. In case, Zara does not want to decentralize these functions, there are no laws governing their decisions as fashion industry is not under regulations.4. Technological SegmentZara presently uses IT efficiently in managing their release chain which leads to lower operating costs. However, the use of IT can be spacious to diffuse their procural and manufacturing activities outside Spain.5. Global SegmentOwing to globalisation and rapid advancement in technologies, several low cost production centers have come up. In order to reduce the costs even further and keep on quality, Zara can have offshore production facilities to low cost location in order to low er the costs. This will alter them to localize Zara and cater to local preference. The critical market for Zara in the coming future would be the Asian nations of India, China, Malaysia, Indonesia and Taiwan. The relaxation of trade norms would help reduce transaction costs, if, Zara plans to expand their activities outside Spain.The environmental characteristics changes very fast in fashion, especially in terms of demographic and global segments. Zara cosmos in core fashion industry with fast cycles have a unique strategy where in it caters only on the leading edge of the product cycle which enables it to deliver the promise of Instant Fashion.5. SWOT strategic ChoiceWe will discuss apiece of the external and internal variables in details which will give us a better contrive as to why Zara postulate to act in a certain manner.Strengths* Strong product diversityAs a group Inditex is a leading fashion distributor and has ore than 100 associate companies crosswise the world . In addition to this, the stores are located in more than 400 cities across the world. In case of Zara, the external fashion retailing segment, this presents a new opportunity to foray into foreign markets. The group brands can be displayed as well when considering international expansion. This is what Inditex can look forward to offering the wide assortment of goods, replenished quickly to carve a niche for itself.* Strong revenue growthThe group company of Zara, Inditex has registered a robust pecuniary performance Y-o-Y. The revenues increased at a CAGR of 18% annually. The operating profit represents a CAGR of 21%. In the meantime, the profits also increase at CAGR of 25% annually. The strong performance of the group, Inditex and various brands leads to increased investor confidence about the company. * Strong distribution networkThe group, Inditex has a strong distribution network. The front end of an efficient supply chain management in Inditex assures that the goods are d elivered within 24 hours of the receipt of the order in Europe and about 40 hours at its overseas outlets. The majority of the supply is handled through its centralized warehouses in each of the European, Asian and American markets. The companys logistics department has more than 4,000 people delivering 627 million garments in financial year 2008.* Zero advertisingZara follows the policy of zero advertising to decrease expenses. Hence, in newer markets, it can focus its capital on expansion. The strong brand name, store ambience and product quality will compensate for the lack of advertising.Weaknesses* Overdependence on the European marketZara has a significant market presence in Spain and other European countries. Around 50% of the stores are located in Spain and surrounding countries. However, the revenues contributed by Spain accounts to only 40% of the group revenues whereas 60% of the revenues comes from its international operations with 43% coming from European operations and the rest 17% from outside Europe. The group as a whole is highly dependent on the Spanish and European market to bear its revenues, making it highly vulnerable to the economic, policy-making and social changes taking place in these markets, especially in Spain. Also, the fashion tastes might reflect heavily the European perspective, even though during international expansion Zara needs to cater to the international customers.* Reliance on local designersEven though local designers are preferred for designing new range of garments for Zara, almost all the designers are from Spain. This leads to a situation where the design might be too localized. Considering the fact that Zara intends to have a global presence, localization of the core designing and manufacturing processes might not be a feasible option. With respect to catering to local tastes and fashion, the designers should be located more closely to the markets.Opportunities** Expansion plansThe group has invested more t han 2.8 billion to open new stores internationally, in countries where it already has a presence and few new markets as well. The rate of growth of stores has been as high as 640 stores per year. Zara fashion will be made available in Korea, Ukraine, Egypt and Montenegro. A well define expansion plan is critical to the corporate objective of international expansion with sustained and robust revenue growth in the future. * evolution attire retail market in Asia (China, India, Malaysia, Taiwan and Indonesia)The Asian apparel market is growing at a high rate. Owing to the growing population of affluent household, higher disposable incomes, consumers knowledge of international brands, it presents an opportunity for Zara to enter and expand its operations in Asian market. Accelerated development in these markets will help shift the burden of growth and diversification from mature and intensively competitive European and American markets to the building Asian markets. * Growing on line salesOnline retailing has been growing at a scorching pace in the last decade and considering UK market, more than 14 billion has been spent on online shopping. Zara should try to open online retail shops to cater to the audience who need to shop for standardized version of Zaras products. This also presents an opportunity to display the entire product lines from Zara and can be easily searched. It will enable strong growth in online and well as, offline retail sales.Threats* New avenues being utilized by competitorsThe competition is always on the lookout for cheaper manufacturing location such as China, India and Eastern Europe. The benefit of lower costs of procurement can be passed on to the customers through low prices. The main service of Zaras tumid integration is the frequent replenishments of its stores and also, feedback from store staff to design. If this feedback whole shebang out as expected, then Zara will be able to sustain higher manufacturing costs than i ts competition in future. The competition is also works on reducing the lead times, which if successfully implemented could lead to corroding in market region and reduction in revenues.* Counterfeit goodsThe imitative goods in the new markets and existing ones adversely affect sales of mark accessories. Widespread counterfeiting reduces the brand value and exclusivity, especially in cases of high end fashion products, through customer dissatisfaction.* Rising Labor cost in European regionSince Inditex focuses most of Zaras designing and manufacturing activities in the European region, the increasing labor costs drive down the profits as it increases the operating expenses. This results in adverse impact on the groups margin.6. Internal AnalysisWe undertake the resource based view and moot the internal analysis. Zaras main assets are the designers, the logistics process, in store sales people and the store ambience. The designers are in charge of churning out new designs in a sh ort span of time. After receiving the feedback, they have approximately 2 weeks to deliver the garment to the store. Each of the designers is a priceless and costly resource and this quick turnaround time is not imitable and and then exploited by Zara to the fullest. The competitors have not been able to turn around designs as quickly as Zara. Hence, they give Zara a competitive advantage. Since Zara follows zero advertising policy, the word of mouth medium is heavily dependent on how much a customer is satisfied.New designs which satisfy customers go a long way in making Zara an important brand. The logistics process is also a source of competitive advantage. It is because of logistical capabilities that Zara can display 12,000 new designs annually. Assisted by IT and workforce, it forms a competitive advantage but this can be imitated by competition and hence does not present a sustainable competitive advantage. However, along with new designs it plays significant roles in preve nting stock outs and piling inventories to help reduce unwanted costs. The sales people, staff and store ambience, although valuable but are easily imitable and hence are at comparative parityCapabilitiesSourcing Materials Inbound logistics waxy manufacturing / Outsourcing outbound logistics in-store sales. foodstuff research Product designProcurement Outsourcing DistributionCentralized planning incorporate vision and mission Brand Image7. Competitor AnalysisThe main competitors are H&M, a Swedish brand and GAP Inc., an American brands. Now, GAP Inc. boasts of large network of stores and has a strong financial leverage as it aims to tap into growing online retail segment and into franchising to expand into new market. GAP Inc. is also cigareting growing global footwear market. Some of its shortcomings are geographic concentration and weak performance of comparable stores. It also suffers from low customer loyalty and rising labor wages. On the other hand, H&M are matching Z ara in terms of designing and also have strong procurement practices. Unlike Zara, they cooperate with designers and have much wider presence as compared to Zara. They are at present looking to target new niche.However, they are also plagued by issues of customer loyalty and product recall. Currently, all of them are focusing the same segment and added to it the high gate barriers and high profit potential makes it an attractive industry. From the above graphs and the financial data available (refer to Appendix), we can see that although sales revenues of H&M are better than Inditex, operating expenses as a percentage of sales are lower for Inditex mostly due to their operating(a) and marketing strategies which lowers the inventory and due to instant fashion generates more sales.8. corporeal Level StrategiesThe Corporate level strategies of Zara can be said to be similar to that of its parent, Inditex sort out. Its strategies can be classified based on common chord frameworks Ansoff Matrix, BCG Matrix and GE-Directional Policy Matrix. Based on the Ansoff Matrix, Zara follows the followers Strategic Directions * Market Consolidation and Product Development by bringing in the latest fashionable designs from the design stage to distribution within 2-3 weeks, much shorter than the industry average. * Market Development by introducing products to new markets by opening up stores in new locations and countries.It had around 1500 stores in 78 countries, in celestial latitude 2008,around the globe and is expanding. Zara is operating in an Industry of high growth of about 40% while having a high market share in most of the countries. This puts Zara as a Star for Inditex Group in the Growth-Share BCG Matrix. Also the strength of its business is high, thus putting it in the Investment and Growth direction of theDirectional Policy Matrix. therefrom Zara is one of the main Business lines for Inditex Group garnering about 67% of the revenue for the parent orga nization. 9. Business Level StrategiesZara defines its target markets as Young, educated one that likes fashion and is sensitive to fashion. This target market is very broad because it is not segmented by ages and lifestyles. Thus the scope of Zaras business is broad. Zara also follows both the Cost lead and Differentiation strategies. Thus Integrated Cost Leadership/ Differentiation strategy are followed by Zara by the following approaches* Cost Leadership1. It achieves low cost by lowering lead times which in turn leads to lesser inventories, thus reducing the cost of the supply chain.* Differentiation2. It differentiates itself from its competitors by providing lead times which are far lower than the industry standards. 3. Zara produces about 11000 designs every year as compared to about 4000 by competitors. 4. Replenishes stores twice a week as compared to once by major competitors. 5. Produces in small batches and takes advantage of shortages in stores by replacing them with new designs. Thus customers who beget that a particular design is out of stock may secure a new design in fear of losing the opportunity to but it. Thus it guarantees that customers visit Zaras stores around 17 times per year on an average as opposed to 3 times for competitors. 6. The designs remain in the stores for only about 4 months when they are taken out. lonesome(prenominal) about 10% of designs are taken off stores by Zara as compared to 17% of competitors.7. Takes the feedback of customers in determining the needs of the customers. 8. Takes advantage of IT in vertical integration of the supply chain by maintaining a smooth eat of information through the chain. According to Miles and Snows Adaptive Strategies, Zara can be classified as a Prospector because of the following characteristics * Zara has built its entire business on innovation in the supply of fashion apparels to customers. * Zara continually modifies its existing designs to match the latest fashion trend s and needs of the customers. * The competitors have not been able to copy their supply chain strategy.10. in operation(p) Level StrategiesThe designs at Zara change every week and this result in manufacturing systems that have to be flexible to cope up with these changes. Thus Zara uses Flexible Manufacturing Technology or Lean Production which reduces setup time for equipments, increases recitation of machines through better scheduling and improves quality control at all stages of manufacturing. The various functional strategies for Zara have been laid down below. * marketing schema* Only one item of each size in each color option was placed on the stock floor requiring stores to maintain a considerable restocking policy. * Customer feedback was taken by all the sales personnel at the stores to gauge the needs of the customers. * New product introductions were be after twice a week to maintain fashion freshness. * Zara stores were located in prime retail locations, thus avoid ing the need for advertising to attract customers. Marketing expenses were0.3% on sales as compared to 3.5% of competitors.* Materials Management Strategy* The raw material was stocked in advance tally to forecasts. They were sourced from countries like Spain, the far east, India and Morocco. * Due to low lead times, very less inventory needed to be maintained. * Inventory turnover is high leading to lesser capital needs. * Zara outsources its stitching activities to contractors, thus lowering cost.* R&D Strategy* innovation team consisting of young individuals in their 20s who are more conversant with latest fashion. * Around 40000 designs were done throughout the year out of which around 11000 were selected for manufacture. ** Human Resource Strategy* Zara emphasized learning from mistakes and judge criticism.* Everyone was encouraged to express their opinion.* No performance appraisal system in place but a system of immediate feedback from colleagues at all levels.* Person al empathy given more importance than formal qualifications in recruitment.* A significant portion of salaries varied according to performance.* Information Systems Strategy* IT was used to integrate the chain vertically and horizontally, for smooth flow of information up the chain and across the various functions, respectively.* Infrastructure* Zara had a relatively flavourless structure in comparison to other firms in the same industry. Cross-Functional consolidation existed between the various functions to ensure that* New designs are developed according to customer needs.* Information flow is quick.* Time to manufacture the new designs and their founding to the customers reduces.* The costs of development are low.11. Global Level StrategyZara had unfastened up around 1500 stores in around 78 countries in declination 2008, and it is still expanding by looking for opportunities. The main factors that helped Zara achieve Global scrap are* Fast growth in the Spanish market* r acy demand for exports from Spain* Rivalry with other firms like H&M and Gap.The main reasons for Zara to expand globally were* Expansion of its market by taking advantage of its instant fashion concept, so that it could increase its market share and bring in more revenue. * Since Zara believed in providing the customers with the latest fashion at lowest cost, it supplied the stores with low quantities. So to lower the costs it expanded globally so that it could take advantage of some sort of Economies of Scale.Global StrategyZara did not follow any localization in the countries where it was present and provided only standardized products. Also it believed in providing the latest fashion at the low costs. Thus from the Global Strategy Grid it can be seen that Zara Followed a Global Standardization Strategy. By doing so it hoped to increase its profitability by reducing costs and achieving economies of scale. Zara chose to enter the different markets using various entry strategies . The strategies are outlined below. * Exporting Zara exported its products to a few markets where opening up a manufacturing facility would not have been profitable like Monaco, Oman, and so on* Franchising Zara also opens up stores in various locations through franchised deals avoiding development costs and risks of opening up a foreign market on its own. Examples of such locations are Cyprus, Venezuela, etc. * Joint Ventures Over a period of time Zara entered various markets by forming Joint Ventures to take advantage of the partners knowledge of the foreign country. It entered the Italian Market in 1996 by forming a JV with Benetton. Then in 1998 it entered the German market by forming a JV with Otto Versand, the countrys largest catalogue retailer. It also entered the Japanese market by forming a JV with Japans BIGI Group, forming Zara Japan. * Wholly have Subsidiaries Zara entered most of the markets by opening up wholly owned subsidiaries, to take advantage of the controls that it could exercise in those countries. Examples of such locations are US, UK