Zaras Business Model - Case Study Example

Zara Group Zara is a Spanish clothing retail company that statistics show as the most profitable brand under Inditex SA. The company opened the doors for its clients for the first time in nineteen seventy-five. The expansion of the company concentrates on the philosophy of fashion at the core of its business. The business model for Zara contains three primary components that are capabilities, concept, and value drivers. The basic principle of the company is keeping production, design, and enhancing distribution channels. This aims at enabling the group to respond to changes in tastes and demands of consumers. The management at the company understands that the industry is dynamic and many factors continue to drive the change including customer needs and supply. However, supply is second to customer demands. The top management holds that the company must provide what the market demands and not vice versa (Bower, 2002). Zara has various opportunities and resources that would help the group meet its goals in the process of satisfying clients. The company maintains close management of with tight running of the process of production. To achieve this, Zara maintains both manufacturing and design processes in-house. The only exception is having strategic partnerships situated next to the head offices. Across Europe, the company keeps more than eighty percent of its production in-house with Spain having the least at fifty because of being close to the headquarters. Furthermore, the company enters into agreements with local manufacturers to strategically chase the clients appearing elusive. The agreements help in timely delivery of products as well as services. The company maintains flexibility by designing and producing more than twelve thousand new products to the market every year (Casadesus-Masanell, 2006). This is in addition to the benefits emanating from proximity. Application of these strategies makes the work of chasing to achieve their targets besides satisfying consumer needs. Value chasers are intangible and tangible in terms of benefits received by stakeholders. From the tangible perspectives Inditex that owns Zara operates a net margin of slightly more than eleven percentile both in the market capitalization and operational activities. The working capital in terms of its net is healthy running more than one hundred and thirty-three thousand Euros. The exemplary performance in the financial sector demonstrates the prowess of Zara to run business in the industry. Within four years up to the turn of the century, the company witnessed the company tripling the profits from the corporate sector. Two thousand and one was the year that marked economic downturn in the industry but Zara defied the odds to record a thirty-one percent profit margin (Casadesus-Masanell, 2006). Recognition of the company brand and loyalty of customers takes care of intangible aspects. The ability to remain at par with customer tastes makes the company able to continue attracting new clients. The brand remains synonymous with the upcoming generation. The capacity to execute the business model successfully offers great value to all stakeholders and sets the business apart compared to competitors in the industry. The success of the group hinges on the core mission of the company to commit itself to responding rapidly to the changes and needs of clients. They are in tandem with trends in fashion as well as offering the public clothes with short lifespan. The company derives strategies to achieve this and this provides them with a competitive edge over their rivals in the market. Zara has a unique method of developing their products that remains at the centre of their success. Departmental and warehouse managers have autonomy when it comes to making decisions regarding the type of products to showcase in various outlets and those to put on sale (Brandenburg, 2006). They also enjoy autonomy on information about research apart from trends in the store. Professionals are at the head office and take information concerning design and use the same to plan effectively while producing all products. Gap Inc. An apparel retailer, Gap Inc. has five brands that constitute banana republic, Gap Piperlime, Old Navy, and Athleta. Since its establishment in the mid seventies, the company enjoyed success through to the eighties making them penetrate the international market. The company reached peak in its business in the last decade of the twentieth century hitting twenty four thousand increases since early eighties when they entered the global business. With a booming global empire, Gap turned the twenty first century as leading apparel company as well as having important brand recognition for all companies (Christiansen, 2000).The retirement of Mickey Drexler in two thousand and two as the Chief Executive plummeted the profits for much of the first ten years of the twenty first century. Youthful figures that bought company products outgrew the company resulting in the decline in revenue. The economic depression of two thousand and eight caused further misery to the company. Gap has great potential of having a healthy running margin as well opportunities that blossom especially in global expansion and e-commerce. The capacity for Gap to grow is immense (Casadesus-Masanell, 200). To succeed and handle the risk, Gap revitalizes its brand in the process of improving the design. The empire developed by Gap Inc. based on aiming at clients in its first thirty years of existence. The company appreciates that change cannot occur in one day. In this case, the management takes time to comprehend customers fully as well as the client base. Improving the brand comes along with gauging fashion patterns besides offering fun products that appear exiting to customers in their outlets. The company attempts to avoid producing products similar to other companies. Re-branding helps the company to keep pace with changing times. An important strategy is getting the exact differences between essential brands in addition to pushing old customers away from their product while failing to bring on board new customers (Casadesus-Masanell, 2007). The other strategy is enhancing promotional activities and shifting the focus based on various groups of customers. The step to reduce marketing in order to maximize operating efficiency appears to cost the company in terms of sales (Brandenburg, 2006). This was evident in the fourth quarter of two thousand and eleven. It is necessary for the company to increase advertising campaign because it stood out as the only company that lost income during YOY in the fourth quarter (Casadesus-Masanell, 2006).Having better frameworks within the marketing plan will influence the customer base. Better opportunities are available in the international market compared to the domestic market in the United States therefore; Gap should consider downsizing in the US and expanding internationally. Important in this aspect is taking advantage of expanded franchise to penetrate new business zones. The management can undertake this activity while increasing the current business across Europe and Asia. The other strategy of tackling risks is expanding the e-market. Both in the US and the world, e-business remains the fastest growing transactional mode of doing business. Being a specialty in retail business, Gap offers accessories, apparel, as well as individual care goods for women, men, babies, and children (Drucker, 2004). The company undertakes all its products and that is why it is necessary to for the company to apply the strategy indicated while handling the risks. The franchised segment of the company sells its products under the brand name. On the other hand, affiliated franchises have agreements with company to run both Banana and Gap designed products. Comparative Analysis Zara outperforms Gap in the market. One company appears taking the success curve while the other puts strategies to enable it regain its glorious days. The difference comes in the clarity of the vision that helps it wrestle clients from rivals. Gap should consider downsizing in the US and expanding internationally. Important in this aspect is taking advantage of expanded franchise to penetrate new business zones. The management can undertake this activity while increasing the current business across Europe and Asia. Currently, Zara has operations in more than sixty-two countries. This covers more than two thousand five hundred stores in the world. The company is a fashion imitator. The company business framework is diverse and unique from the rivals in the industry. This aspect sets them apart in the competition. Such a status was once enjoyed by Gap climaxing in the last ten years of the twentieth century. However, change in leadership appears to play a big role in the turn of events at Gap. The company now remains chasing the shadows while rivals such as Zara enjoy success because of remaining dynamic in the market (Baum, 2004). The economic depression of two thousand and eight caused further misery to the company. Gap has great potential of having a healthy running margin as well opportunities that blossom especially in global expansion and e-commerce. The capacity for Gap to grow is immense. To succeed and handle the risk, Gap revitalizes its brand in the process of improving the design (Andrews, 2011). The empire developed by Gap Inc. based on aiming at clients in its first thirty years of existence (Evans, 1997). The company appreciates that change cannot occur in one day. In this case, the management takes time to comprehend customers fully as well as the client base. While Gap stuck in traditional methods, Zara responds quickly to changes in the market working round the clock to satisfy customer demands. Zara has various opportunities and resources that would help the group meet its goals in the process of satisfying clients. The company maintains close management of with tight running of the process of production. To achieve this, Zara maintains both manufacturing and design processes in-house (Amit, and Zott, 2001). The only exception is having strategic partnerships situated next to the head offices. Across Europe, the company keeps more than eighty percent of its production in-house with Spain having the least at fifty because of being close to the headquarters. Zara controls both production processes and distribution channels through in-house means. This helps the company design ways of producing quality products at reduced costs compared to competitors. This means that Zara group is able to offer products and services on the market at lower process compared to opponents. References Amit, R. and C. Zott (2001).Value Creation in e-Business, Strategic Management Journal, 22, pp. 493-520. http://www.uazuay.edu.ec/bibliotecas/e-business/Value_Creation_in_E-Business.pdf Andrews, Kenneth (2011). The Concept of Corporate Strategy, Dow-Jones Irwin. http://onlinelibrary.wiley.com/doi/10.1002/smj.187/abstract Baum, JAC. (2004). Organization-Environment Coevolution in Evolutionary Dynamics of Organizations. Oxford University Press, N.Y. http://onlinelibrary.wiley.com/doi/10.1002/smj.v22:6/7/issuetoc Bower, J. (2002).Crown Cork & Seal and the Metal Container Industry, HBS case 9-373-077. http://www.jtaer.com/dec2006/johansson_mollstedt_p2.pdf Brandenburg, A. (2006). Co-opetition, Currency-Doubleday (8th Ed.).New York: McGraw-Hill. http://books.google.com.au/books/about/Value_Creation_in_E_business.html?id=g184HAAACAAJ Brandenburg, A. (2006). Value-based Business Strategy, Journal of Economics & Management Strategy, 5, pp. 5-24. Casadesus-Masanell, R. (2006). Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows, Management Science,52, No. 7, pp. 1072-1084. http://escueladeadministracion.uc.cl/images/publicaciones/platforms%2010.pdf Casadesus-Masanell, R. (2007). Competing Complements, HBS Working Paper. http://books.google.co.ke/books?id=GFm-5WuYfYAC&pg=PA483&lpg=PA483&dq=Casadesus-Masanell,+R.+%282006%29.+Dynamic+Mixed+Duopoly:+A+Model+Motivated+by+Linux+vs.+Windows,+Management+Science,52,+No.+7,+pp.+1072-1084&source=bl&ots=MwcvGKIxJD&sig=B9odcmPDv1Bafe3vmd45qnhCd0Y&hl=en&sa=X&ei=a6ZmU9SAIqmI7Abn94DYDg&redir_esc=y#v=onepage&q=Casadesus-Masanell%2C%20R.%20%282006%29.%20Dynamic%20Mixed%20Duopoly%3A%20A%20Model%20Motivated%20by%20Linux%20vs.%20Windows%2C%20Management%20Science%2C52%2C%20No.%207%2C%20pp.%201072-1084&f=false Casadesus-Masanell, R. (2006). Irizar in 2005,HBS case 706-424 and Teaching Note 706-446. http://scholar.google.com/citations?user=-sfOVN0AAAAJ&hl=en Casadesus-Masanell, R. (2007). Wintel: Cooperation and Conflict, Management Science http://www.hbs.edu/faculty/Pages/profile.aspx?facId=24279 Christiansen, E. (2000). Honda (A), HBS case 384-049. http://archivia.unict.it/handle/10761/1358?mode=full Drucker, P. (2004). The Practice of Management (5th Ed). New York: Harper and Row http://dl.acm.org/citation.cfm?id=1246157Publishers. Evans, W. (1997).Strategy and the New Economics of Information, Harvard Business Review. http://www.cengagebrain.com.au/content/dewit32236_1408032236_01.01_toc.pdf Appendix Diagram of Zara’s business model Table 1 Read More