International Marketing: ZARA - Case Study Example

 International Marketing: ZARA Introduction Zara is a European clothing manufacturer which provides upscale-quality fashion products to the 18-30 year old consumer demographic using an affordable pricing model. Zara’s clothing line is trendy and is designed to meet with modern youth tastes regarding exclusivity (less mass production) and modernism. Zara is able to provide its target customers, this youth demographic, with clothing that is produced in a fast-fashion business model so there is always something new, relatively unique, and different on the Zara sales floor. This rapid response system is maintained by a well-designed manufacturing environment, a supply chain controlled by the fashion retailer, and marketing. Zara has created new industry standards by which many retailers now operate because the company has developed such an efficient European distribution and purchasing system. Investors, when Zara went public, began to pressure competing organisations to adopt similar models in order to shorten lead time and improve sales results in the process. Zara is the only fashion retailer able to produce clothing with a six week lead time while others in the industry struggle with lead times extending, sometimes, six to eight months. Competitively, in terms of overall process and production, Zara is an industry leader worthy of being benchmarked. Zara currently only operates in Europe and Asia but is considering launching remote retail facilities in the United States. However, prior to new market entry, issues with specific consumer demands related to the socio-cultural environment need to be identified. This report analyses the potential US target market environment for launch of new, foreign Zara stores in this new market territory. The socio-cultural environment The 18-30 year old consumer market in the US is marked by rather abrupt changes in sentiment about areas of lifestyle and personal values. Two fashion buying experts acknowledge that “customer preferences can shift literally overnight…and the value of your product will plummet if you miss out on hitting the latest trend” (Sull & Turconi, 2008, p.4). An erratic and somewhat unpredictable consumer is what can be found in this market environment, driven by socio-cultural changes and identification with current social trends. The difficulty is that many consumers “reject products and brands based on their personal self-esteem levels” (Banister & Hogg, 2004, p.850). This would suggest a consumer audience which requires efforts on behalf of businesses to use motivational strategies are part of marketing strategy to act as an incentive to build sales volumes. Additionally, the current recessionary environment is causing disruption to consumers’ personal incomes in this new market territory, with 56 percent of US consumers changing their spending habits and 44 percent buying lower cost, private label brands to save money (just-style.com, 2009). This has created a very strong social push toward demanding value in products which is a change from the period when consumers were more focused on brand reputation. It is more socially acceptable, it seems, to choose private labels for their value than in years previous. This unpredictable consumer maintains many potential risks for entering this new market due to changing sentiments and lifestyle values. Pricing, in the real-time US consumer marketplace, seems to be of considerable concern to many different demographics. The 18-30 year old consumer is just starting out on their adult phase of lifestyle, thus most do not have high disposable incomes but still demand high quality fashions, for the price, before making a purchase. The emotional response to pricing and the level to which they will reject the merchandise appears to be driven strongly by socio-cultural factors such as peer perception or relevance to subculture fashion scenes. Pricing as a tool which can be competitively manipulated during certain social trends is an option for Zara in this new marketplace. The socio-cultural dimensions of the desired 18-30 year old target youth consumer is one where popular culture is an important part of lifestyle. For example, the music television station MTV and its European affiliate is currently launching a clothing line at Zara, which indicates how the company attempts to link consumer lifestyle with modern fashion variety. Popular culture and trend-focused lifestyle is very similar in the US consumer as it is in the UK consumer in many different buying and preference dimensions, therefore much consumer behaviour research currently in use by Zara could be utilised for this similar target group in the US. Zara strengths and weaknesses The overall consumer market for the desired 18-30 demographic is strongly influenced by external environmental conditions and trends in social interaction. Because Zara’s existing business model is built on trend-conscious fashions and has an already developed marketing infrastructure, the business is equipped for expansion into this market based on internal technologies and expertise in areas of advertising. Another strength is their competitive supply chain process and efficiency which is consistently benchmarked by other retailers. The company owns most of the supply chain and is able to pressure suppliers using their buying power to help create a more productive network of raw materials ordering (Reda, 2004; Strategic Direction, 2003). This has managed Zara to create internal production which has very short cycle times which are far below industry norms and is able to replenish their European stores twice weekly with radically different fashions. This efficiency both in supply and manufacturing of Zara products would work to serve the US consumer who is both trend-conscious and unpredictable in buying behaviour. Having a new stock of fashion-forward and modern clothing available is an operational strength needed for this erratic new market. A further strength is that the business manages to sell off 85 percent of all of its fashion inventories at the regular selling price, unlike competitors who are often left with 50 percent surplus requiring mark-down (Hardman, Harper & Notaney, 2007). This is a quality issue which represents that the clothing being produced and replenished is meeting with the 18-30 demographics’ views on lifestyle and trend modernism. This would suggest that the business has internal staff competencies in areas of aesthetics and design that are providing superior clothing which is meeting with consumer satisfaction. This ability to relate to trend-conscious consumers is a superior strength in a marketplace where trend values and rapid response is required and demanded by consumer attitudes. The company has over 200 designers at their disposal (Hines, 2004). Unlike its competitors, Zara does not rely on heavy print and concentrated promotion in Europe but allows its in-store window displays and other in-store promotion draw consumer interest (Brand Strategy, 2006). In Europe, this is a competitive strength and has built a solid consumer brand image with the 18-30 demographic. In the United States, such window displays might be considered traditional and old-fashioned, thus not appealing to the demographics’ views on fashion-forward, modern thinking. In most instances, window dressing advertisement has been phased out with a more media-focused market culture. Further, the level of consumer-based retail competition in most US regions is intense, therefore in-store promotional materials will likely not gain the same attention as it commands in European environments. Lack of experience with concentrated on-air and print advertisement is a fundamental weakness at Zara but would likely be necessary part of marketing in order to achieve success in this new territory. Advertising would be a necessary competitive tool in this environment. Focused competitive strengths Zara has managed to outperform major competitors like Benetton and The Gap in areas of process efficiency. This includes supplier relationships as part of relationship marketing, distribution, and the ability to work in a rapid replenishment environment yet maintaining a lean inventory system. The company has worked with influential mathematicians at the MIT School of Management to create inventory optimisation models to improve operations in many different divisions at Zara (Robbins-Gentry, 2007). This new market opportunity requires fast fashion at affordable prices. In order to meet these demands, which are similar to their UK counterparts, a well-developed, efficient supply chain structure is required. The new inventory optimisation model has improved sales by 3 to 4 percent while imposing no additional cost to the business other than labour-related for development and outsourcing expertise (Robbins-Gentry). These are not only strengths required to replenish stores in a similar timeframe over a longer distance (from Europe to North America), but also to satisfy a diverse demographic of 18-30 clients demanding top-notch quality fashions in rapid response to social needs. Technological developments and improvements in process are at the disposal of Zara and consistently contribute to meeting the socio-cultural needs of consumers by shortening lead times and improving process. Fast fashion requires being able to deliver on promises of replenishment and catalogue purchasing, therefore in terms of meeting with positive consumer sentiment, technology improves the socio-cultural relationship between Zara and consumer demographics. Recommendations for Zara Before entering this difficult new market environment, Zara must consider their current research knowledge of the US buyer aged 18-30. Even though there are noticeable similarities to their European customers, there are certain trends and attitudes which are unique to this US customer group. Preliminary research, in the form of focus groups or interviews, can provide both quantitative and qualitative research information about how US customers currently feel about various aspects of Zara. If certain marketing items were used as research instruments, such as catalogues, photos of in-store promotions, and clothing variety, focused research could uncover aspects which the US customer finds distasteful or irrelevant to their social needs. What this process could uncover is a new strategic marketing promotion for use during launch which immediately gains brand support for Zara and creates lifestyle connection. These focus groups and interview sessions would seem to be of critical importance before entering a market where consumer attitudes and spending behaviours change rather quickly. The high volume of retail competition from major US retailers is a competitive risk to the business and will likely create the need for higher financial investment into marketing strategy and promotion. However, Zara will need to create a unique, differentiated consumer sentiment about their business which outperforms other competitive actions. For example, some retailers in this market environment might focus on quality in promotion while another competitor appeals to the unique consumer attributes such as status or authority. Zara currently provides clothing to the European consumer which is dedicated to keeping up with current trends, thus a more consumer-focused marketing approach. In the United States, especially with consumers being driven to change their buying habits based on economic conditions, consumers are more willing to defect from one brand in favour of another with similar quality and a lower price. It is vital that Zara maintain a people-focused marketing strategy which is ready at the time of launch to build instant consumer awareness and positive sentiment with Zara. An initial quality or value-based reputation will give Zara some future flexibility when making changes to pricing models or other business activities which cause negative consumer reaction. Appealing to consumers’ needs for exclusivity was identified as a competitive strength at Zara by providing smaller batches of fashion products to avoid gaining the brand perception of being a mass-production clothing retailer. Much to the advantage of Zara, the US consumer demographic, especially in more urban areas, is a much larger target population than in most European cities. This will allow Zara to produce more of the same style and variety of clothing without the concern of mass produced garments appearing on youths in their social environment. This can avoid having to shut down production periodically to change batch style and process between fashion manufacture and save labour and costs in the process. Youths in this country are very concerned about the impact of fashion on their social and personal lives, with fashion identity being a very active part of today’s subcultures both in school and in their young adult social environments. Appealing to exclusivity is yet another marketing strategy for differentiation which identifies the consumer as being choosy or nitpicky, therefore Zara understands these needs and can provide for them. This does not appear to be a common competitive tool in place in other US retailers, thus Zara could gain a competitive edge early after market entry by appealing to social affluence. If responses to this marketing concept are positive, moderate pricing increases can be considered if quality and reputation can successfully be linked to Zara fashion merchandise. Finally, it is recommended that Zara examine whether or not it will maintain the future ability to coordinate demand increases in North America. The existing supply chain infrastructure is developed to service European retail stores and is efficient by this design. Shipments to North America will require extended transportation by air or seaway, which can impact logistics costs considerably in the ordering system does not allow for consolidation of clothing and materials. Additionally, since Zara owns the majority of its manufacturing plants in Europe, if this same self-production model is to be kept, the business will need to establish new factories in North America as a short-term business expense. However, the socio-cultural values in this country rely on lower-cost clothing and fast response, therefore analysis of whether extended transportation or US-based manufacturing will impose the most costs must be explored in-depth. Failures to meet replenishment expectations could create negative socio-cultural responses in the consumer group, therefore logistics and distribution must be a top priority in marketing strategy. Conclusion If Zara continues with the recommendation to explore this new US marketplace, the company must be ready to abandon some of its European marketing principles in order to satisfy the socio-cultural demands of a diverse demographic of customers. This will represent having leadership and teamwork flexibility to conduct preliminary consumer research, build a strong brand reputation at the time of launch, and continue to work with a logistics system which provides exclusive fashions at reasonable pricing. The trend toward value at the fundamental social level is very much apparent in today’s US marketplaces and is a strong predictor of buying behaviour in this target audience. If Zara adopts the recommended marketing concepts, the business will be equipped to compete in a dynamic and highly competitive environment. However, Zara’s experience in the European marketplace suggests that the company and its leadership understands how to be adaptable when changing macro- and micro-economic conditions demand a new way of performing retail business. The strengths at Zara seem to outweigh any weaknesses and the business seems well-positioned for marketing and sales success in the new US market territory. After assessing the operational costs of logistics and distribution, which look to be the highest costs, the business can find a low cost method of satisfying the socio-cultural needs of this diverse youth group. References Bannister, E. and Hogg, M. 2004. Negative symbolic consumption and consumers' dive for self-esteem: The case of the fashion industry. European Journal of Marketing, Bradford. 38(7), p.850. Brand Strategy. 2006. Brand Therapy – H&M; Fast fashion, slow sales. London, May 8, p.12. Clarke, Christine. 2009. I want my MTV...again. Boards, Ontario. August, p.20. Viewed 8 Oct 2009 at ABI/INFORM Global database. Hardman, D., Harper, S. And Notaney, A. 2007. Keeping inventory-and profits-off the discount rack: merchandise strategies to improve apparel margins. Viewed 9 Oct 2009 at http://www.boozallen.com/media/file/off_the_discount_rack.pdf. Hines, Tony. 2004. Supply Chain Strategies: Customer Driven and Customer Focused. Oxford: Elsevier Publications. Just-style.com. 2009. The Global Economic Crisis: The Impact On Consumer Attitudes & Behaviors in the United States. Viewed 9 Oct 2009 at http://www.just-style.com/store/product.aspx?id=79397&lk=wpud64 Robbins-Gentry, Connie. 2007. European fashion stores edge past US counterparts. Chain Store Age, 83(12), p.100. Sull, D. and Turconi, S. 2008. Fast fashion lessons. Business Strategy Review, Oxford. 19(2), p.4. Reda, Susan. 2004. Retail’s great race. Stores, New York. 86(3), p.36. Viewed 8 Oct 2009 at ABI/INFORM Global Database. www.ebscohost.com. Strategic Direction. 2003. Zara creates a ready to wear business: Leading fashion label designs its whole operation to fit the customer. Bradford, 19(11), pp.24-27. Read More