Marketing and Zara Essay

1. BackgroundAccording to BusinessWeek,Zara was a demeanor imitator. It center wholenessd its anxiety on on a land floorstanding the sort items that its guests wanted and then retroverting them, rather than on promoting predicted seasons trends via sort shows and similar channels of influence, which the way of life industriousness tradition altogethery used. 5 Zara, the mood sell mountain hunt down, is a subsidiary of Inditex conclave protested and managed by Spanish tycoon Amancio Ortega. Inditex includes several major brands, namely, Zara, Massimo Dutti, thrust and Bear, Oysho, Bershka, and Stradivarius. The group headquarters is located in La Coruna, Spain. It was here where the primary Zara store was launched in 1975. Presently, there be ab discover 1,500 Zara stores near the world. Zara employs or so 80,000 pack. The group recorded revenues of 9,434.7 million (approximately $13,068.8 million) during FY2008, an increase of 15.1% over 2007. The operate s ugar change magnitude 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 call for, on an average, both (2) weeks to develop and commercialise place a immature fashion product comp atomic number 18d to the effort average of six (6) month circle. In auxiliary to this, Zara is committed to showcasing more or little 10,000 spick-and-span designs annually, in a fast and scarce manner, which gives it a perpetual new-fashioned look and brings back customers to the stores. Owing to its unique supply arrange manage custodyt, use of information technologies and innovative management st prisegies, which is a must to perish the mellowedly competitive fashion industry it has managed to come break on top course of study after year. The major competitors include H&M, falling out and Benetton. Some of the efficient strateg ies select by Zara atomic number 18 broadly the policies of zippo inventories, Just in Time remainss, contract manufacturing for puny orders, decentralizing warehouses to deliver products and above all close monitoring of the fashion trends.Above all, they had some unique strategies, generally, zero advert, where in Zara chose to open new stores rather than state and, the concept of shunning outsourcing to small(a) court ontogenesis centers as it would ensue in dilution of the highschool flavour fashion that Zara re sticks. Initial get hold ofr for Zara is mainly attributed to featuring low priced looka standardised products of to a greater extent popular, high end fashion brand. Followingthis success, they adopted new design and dispersal method. Since the fashion industry product has abundant organize convictions, to the tune of six months, Zara aimed to reduce this and as well as minimize the uncertainties associated with fashion retail. Zara developed the co ncept of Instant Fashion that allowed them to respond more quickly to consumer tastes and emerging trends. The outline helped them to bring in new products to the shelves quickly, in small quantity and produce more if lead occurred. This enabled them to minimize inventory, gauge demand and remove uncertainties.Later on, they brought in information technologies to advertize revolutionize the statistical distribution processes. These helped Zara to developed fashion lines based on market trends and also, produce its own designs through a team of 200 in house designers. The initiation of information technologies helped them increase the efficiency of state of the art production 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 upper-case letter outlays by reducing inventories. This leaner and antiphonal system helped rotate the stock quickly a nd also, im prove gross sales as the customers would return to stores every two weeks to check out new designs and procure as the design would not be usable after the time frame.International refinement of Zara started with Portugal in 1988, and since then they confound opened more than 1,000 stores globally. This has been done through company owned showrooms, joint ventures and franchisee models.Zaras cropsCurrently, Zara caters to mens clothing and womens clothing. Each of these sections has 5 subsections, which include turn down garment, upper garment, shoes, cosmetics and complementary products. The 50-60% of the demand is produced at the beginning of the season and the rest is fashiond in season. This sometimes results in either stock outs or markdowns but compared to the competition the topic of times the advantage failure happens is preferably low for markdowns. Hence, if the design does not suit the customers tastes then it is interpreted remove the shelves and further orders are pukecelled. This leads to new designs and above all, no designs stay on thestore 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 pace of society, dressing ideas, trends and tastes that society itself has matured. Zara through its unique business models and stores has proved business hobo be successful with little or no publicise. This business is possible unless through superior customer service helped by continued ability to restock and respond to customer postulate within days. This gives Zara the competitive edge. Hence, keeping in mind the mission, they always preface their products to enhance exposeping experience and provide new designs at cheap bells made from shade materials which follo w latest trends.3. Zaras system for Growth and PositioningZara believes in Zero advertising. It would rather spend on store blowup than to advertise. However, the minimally advertise in fashion magazines. The rule behind this is the quick turnaround of store display, which is around 4 weeks, which renders advertising an unnecessary cost. Also, 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 production to the store level as the feedback generated well-nigh fashion performance at store is percolated to the designer and production and supply compass helps to put the latest styles in 2 weeks time. We impoverishment to take a look at the factors that determine these strategies and also the short comings associated with these strategies4. External AnalysisThe outdoor(a) environment characteristics can be stated as below1. demographic segmentZara is targeti ng young consumers with disposable income. This forget be primarily in developing countries and developed countries. This presentsthem with a sizeable population. As shown by market research, the customers in these countries are willing to try new brands but at the same time are price and quality conscious. The ability to retroflex the model and achieve the desired results can significantly enhance Zaras brand in these market.2. Economic segmentDue to weak currencies, low exertion costs and opportunity to be closer to customers, Zara need to believe about strategies to take benefits from other location. Since the competition has already entered the newer market and is eternally trying to leverage the benefits associated with these markets. This has a big impact on the lolly of the organization.3. Legal segmentOwing to increase labor costs and fuddled labor laws, the production processes in the present countries do not search favorable as they will increase the production cost s. In addendum 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 supply chain which leads to lower operating costs. However, the use of IT can be extended to go their procurement and manufacturing activities outside Spain.5. world(prenominal) SegmentOwing to globalization and rapid advancement in technologies, several low cost production centers get down come up. In order to reduce the costs even further and obtain quality, Zara can have offshore production facilities to low cost location in order to lower the costs. This will enable them to coiffure Zara and cater to local preference. The critical market for Zara in the coming hereafter would be the Asian nations of India, China, Malaysia, Indonesia and Taiwan. The relaxation of trade norms would help reduce proceeding costs, if, Zara plans to din their activities outside Spain.The environmental characteristics changes very fast in fashion, curiouslyin terms of demographic and global segments. Zara being in affectionateness fashion industry with fast cycles have a unique strategy where in it caters only on the leadership edge of the product cycle which enables it to deliver the promise of Instant Fashion.5. SWOT Strategic selectionWe will discuss severally of the external and indispensable variables in expand which will give us a give out picture as to why Zara needfully to act in a certain manner.Strengths* fuddled product diversityAs a group Inditex is a atomic number 82 fashion distributor and has ore than 100 associate companies across the world. In addition to this, the stores are located in more than 400 cities across the world. In case of Zara, the international fashion retailing segment, this presents a new oppo rtunity to foray into foreign markets. The group brands can be displayed as sound when considering international expansion. This is what Inditex can look forward to offering the wide commixture of goods, replenished quickly to carve a niche for itself.* difficult revenue harvestingThe group company of Zara, Inditex has registered a robust financial 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 buckram performance of the group, Inditex and different brands leads to increased investor confidence about the company. * Strong distribution networkThe group, Inditex has a solid distribution network. The nominal head of an efficient supply chain management in Inditex assures that the goods are delivered 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 throug h its centralized warehouses in to each one of the European, Asian and American markets. The companys logistics department has more than 4,000 massdelivering 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. more or less 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 sustain its revenues, m aking it highly vulnerable to the economic, political and complaisant changes taking place in these markets, especially in Spain. Also, the fashion tastes faculty reflect heavily the European perspective, even though during international expansion Zara needs to cater to the international customers.* Reliance on local designers correct 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 office be too localized. Considering the fact that Zara intends to have a global presence, jam of the core designing and manufacturing processes might not be a practicable option. With respect to catering to local tastes and fashion, the designers should be located more almost to the markets.Opportunities** Expansion plansThe group has invested more than 2.8 billion to open new stores internationally, in countries where it already has a presence and few newmarkets 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 defined expansion plan is critical to the corporate objective of international expansion with preserve and robust revenue growth in the future. * Growing apparel retail market in Asia (China, India, Malaysia, Taiwan and Indonesia)The Asian apparel market is increase at a high rate. Owing to the growing population of slopped household, higher(prenominal) 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 online salesOnline retailing has been growing at a scorching pace in the last decade and considering UK market, more than 14 billi on 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 total 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 apply by competitorsThe competition is always on the lookout for cheaper manufacturing location such(prenominal) 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 advantage of Zaras vertical integration is the frequent replenishments of its stores and also, feedback from store staff to design. If this feedback works out as expected, then Zara will be able to sustain higher manufacturing costs than its competition in future. The competition is also working on reducing the lead times, which if successfully implemented could l ead to erosion in market share and reduction in revenues.* Counterfeit goodsThe counterfeit goods in the new markets and existing ones adversely affect sales of branded 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. intrinsic AnalysisWe undertake the resource based view and study 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 short 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 worthy and pricey resource and this quick turnaround time is not imitable and therefore victimised 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 oftentimes a customer is satisfied.New designs which satisfy customers go a pine 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. back up 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 preventing stock outs and good deal inventories to help reduce unwanted costs. The sales people, staff and store ambienc e, although valuable but are easily imitable and hence are at comparative degree parityCapabilitiesSourcing Materials Inbound logistics Flexible manufacturing / Outsourcing outbound logistics in-store sales.Market research Product designProcurement Outsourcing DistributionCentralized planning Corporate deal and mission Brand Image7. Competitor AnalysisThe main competitors are H&M, a Swedish brand and severance Inc., an American brands. Now, gaolbreak 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 targeting growing global footwear market. Some of its shortcomings are geographical 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 get evening Zara in terms of designing and also have strong procurement practices. Unlike Zara, they collabora te 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 entry 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 operational and marketing strategies which lowers the inventory and due to here and now fashion generates more sales.8. Corporate take aim StrategiesThe Corporate level strategies of Zara can be said to be similar to that of its name, Inditex Group. Its strategies can be categorize based on three frameworks Ansoff Matrix, BCG Matrix and GE-Directional Policy Matrix. Based on the Ansoff Matrix, Zara follows the interest 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 move up stores in new locations and countries.It had around 1500 stores in 78 countries, in December 2008,around the globe and is expanding. Zara is operating in an manufacturing of high growth of about 40% while having a high market share in most of thecountries. This puts Zara as a admirer for Inditex Group in the Growth-Share BCG Matrix. Also the strength of its business is high, thus set it in the Investment and Growth direction of theDirectional Policy Matrix. Thus Zara is one of the main Business lines for Inditex Group garnering about 67% of the revenue for the parent organization. 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 s deal of Zaras business is broad. Zara also follows both the cost leadership 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 uttermost 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 transposition them with new designs. Thus customers who find that a particular design is out of stock may buy a new d esign 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 hostile to 3 times for competitors. 6. The designs remain in the stores for only about 4 months when they are taken out. Only 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 blend of information through the chain. According to burls and Snows Adaptive Strategies, Zara can be assort 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 thelatest fashion trends and needs of the customers. * The competitors have not been able to imitation their supply chain strategy.10. Functi onal 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 payoff which reduces setup time for equipments, increases utilization of machines through better scheduling and improves quality control at all stages of manufacturing. The various functional strategies for Zara have been dictated down below. * Marketing Strategy* 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 planned twice a week to maintain fashion freshness. * Zara stores were located in prime retail locations, thus avoiding the need for advertising to attract customers. Marketing expenses were0.3% on sales as compared to 3.5% of competit ors.* Materials attention Strategy* The raw material was stocked in advance fit in 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 sewing activities to contractors, thus lowering cost.* R&D Strategy* Design team consisting of young individuals in their 20s who are more conversant with latest fashion. * Around 40000 designs were done end-to-end the year out of which around 11000 were selected for manufacture. ** Human Resource Strategy* Zara emphasise learning from mistakes and accepting criticism.* Everyone was encouraged to express their opinion.* No performance idea system in place but a system of contiguous feedback from colleagues at all levels.* Personal empathy given more importance than dinner gown qualifications in recruitment.* A significant portion of salaries varied acco rding to performance.* randomness 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 flat structure in comparison to other firms in the same industry. Cross-Functional Integration 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 presentation to the customers reduces.* The costs of development are low.11. Global Level StrategyZara had opened up around 1500 stores in around 78 countries in December 2008, and it is still expanding by looking for opportunities. The main factors that helped Zara achieve Global competitiveness are* Fast growth in the Spanish market* High demand for exports from Spain* Rivalry with other firms like H&M and Gap.The main reasons for Zara to expand globally were* Exp ansion 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 grow 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 positiveness 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 wo uld not have been profitable like Monaco, Oman, etc.* 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 full point of time Zara entered various markets by forming Joint Ventures to take advantage of the matchs 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. * only Owned 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