Zara Marketing Strategy - Case Study Example

Marketing: Zara Case Study Introduction Zara, one of the largest retail stores in the world, is a Spanish chain store in the Inditex Group. The global fashion sensation Zara headquarter is located Spain where it was founded in 1975 by Amancio Ortego. The firm deals in design, manufacturing and distribution of clothes while keeping up to the new trends in the market. In May 2001, the company listed 25% of its shares in the stock during the initial public offer for 2.3 billion Euros thus making the founder the richest man in Spain, having retained 61.2% of the company shares. The valuation of the company in 2001 was 12 billion Euros. The products of Zara ranges from stylish men’s clothing, underwear’s, cosmetics, women’s wear, the young population clothing’s, sportswear, casual wear and accessories. Zara accounts for 76% of the Inditex retail stores total sales as it majors in development of fashion at an affordable price. Most of the stores are located in Spain and the others are distributed in other countries. Current Situation The company responds quickly and more efficiently to customers demand in the market and in so doing, Zara has remained in the forefront in delivering the latest fashion to customers at a fair price in locations like Paris and New York. Zara operates in more than 77 countries since 1990’s, a business that has grown from 6 stores in the year 1979 (Torun 9). Later, several retail operations stores sprout up in major Spanish cities before going global as from 1988. The expansion of its market shows the growth in size, production and customer demand. To ensure sustainability in the market and satisfaction of customers, the company invests in innovation and creativity to enhance the introduction of new brands which targets different segments of customers in the market such as the “Pull & Bear”, “Massimo Dutti”, and the “Bershka”. The ability to identify the consumers in need of the latest fashion and international brands has been the drive towards international growth. This presents Zara to other large competitors in the market such as Victoria’s Secret and GAP as well as from new entrants. The highly targeted market is women as they account for 60% of the company sales. In display, management saw to it that products were mixed from skirts, shirts, to pants; a move that enabled customers to get and buy, unique-well combined outfits. The firm has experienced exponential growth while employing its flexible and high-speed business model as this has enabled the sales to increase from $8.15 billion in 2006 to $17.2 billion in 2011. This is facilitated by the continual global expansion of its market as this has the company to open branches in 77 countries with over 4000 overall stores globally (Hansen 12). Analysis of issues The major issues facing Zara includes maintaining a strong and effective customer care, optimization of the high development and training cost as well as maintenance of the company’s ability of effectively responding to market needs. The production system of Zara is more flexible; hence, this calls for an efficient distribution system, fast supply chain and commitment of employees. Moreover, the new breed of shoppers calls for a new variety, freshness and loyalty. The brand should be able to serve the increased demand from a more educated and savvy consumers who demand more choices (Lynn et al 3). The major market comprises of full bodied women who are full size. Clothes are produced that will fit them properly so as to enhance their beauty. This market segment is more conscious on their looks and they enjoy shopping as they are hectic of socializing lifestyles. In essence, attention is laid on the plus size ladies aged 18-40 who work in big cities with mid range level of income or those in pursuit of higher levels of education. Customer service is an important tool in marketing and promotion. The company focused heavily on training of its sales team so as they may serve customers more effectively. Staff should be equipped with sufficient knowledge of products and on how to deliver effective customer service as this will enhance the way staff handles consumers. A well pleased customer will feel satisfied and thus they will come again to shop, share the experience with friends and in the long run more sales will be made. Sales force were paid in respect to basic salary and bonus from the overall sales thus making the sales force to be concerned with enhancing the image of the company through delivering of the best customer care and service. Given that price control, some of product ordering and merchandizing, and transfer costs were controlled from the headquarters; store managers performance were measured on sales precision forecasts and growth in sales. SWOT Analysis Closer analysis of the factors that constitutes the company success will help in analyzing the SWOT of Zara. Zara has strategically positioned its market which is in contrast with the strategies of the competitors. Further, the company employs a unique business model of vertical integration which makes it to be the most successful in the world. Unlike H&M, Benetton or GAP which engages in outsourced complete production in order to cut costs, Zara on purpose produces more than half of its merchandise in-house and this facilitates its initiative of manufacturing and distribution of its products in small patches. The business model is focused on design, distribution and logistics of its operation internally which forms the strength of the company due to its uniqueness and efficiency. Strengths The company enjoys a competitive advantage over the traditional retailing strategies employed by its competitors including H&M. Zara and H&M are European based companies and are the leading fashion retailers in the mid-low price segment as well as having strong international expansion strategies (Lynn et al 22). H&M spend more money on advertising and outsourcing its production since its price oriented which contrasts the strategy employed by Zara. Irrespective of the disadvantages perceived in Zara strategy, the sales in Zara was $8.15 billion while that of H&M was $7.87 for the 2006 financial reports thus making the strategy employed by Zara to be effective. The company employ’s the most powerful business model of vertical integration. In all aspects of operation including fashion design, manufacturing, distribution, sourcing and logistics; a high level of vertical integration is employed. In integration, the company follows a closely controlled structure and this fosters close proximity of its operation. The other strengths include; strong distribution channels, latest fashion trends, fast fashion design, efficient customer service and many stores across the globe. Weaknesses include; most of the clothes are plain, centralized production thus increasing operation costs, less distribution networks making customers to travel for long to Zara products and low inventory in the stores leading to stock outs. The level of inventory is very low and as a result new products were designed to ensure rapid replenishment. Opportunities: The Company enjoys a number of opportunities in the market that will enhance its success and continual sustainability. The internet offers the best opportunity for growth in sales. Most consumers prefer doing online shopping in order to get the latest brands, fashion, discounted rate and greater range of products all of which can be found in Zara as it has increased its creativity. The company produces nearly 12000 new brands per year. Furthermore, going online will enable the company to interact effectively with customers especially through social sites such as facebook (Hansen 10). The USA presents a viable market. Since 1989 to 2001, the company has opened few stores in the USA. New approaches should be developed to enable the company to maximize on this opportunity which will lead to increased revenue. Great potential is presented in the USA market for growth as the company can look for more joint ventures that will serve the large market demand present in the country. Threats, despite the success of the firm, Zara faces a number of threats that threatens its sustainability in the market in days to come unless remedies are employed. Zara has no advertising campaign but instead relies on its brand and the word of mouth. This mode is not effective in today’s competitive edge where customer is the king. Additionally, the company is oversaturated in the European market and this aspect means that there is dire urgency of opening up new markets beyond the international borders. Increase in sales is related to the market share and for continual sustenance; Zara is called upon to open new markets. The company faces competition from other companies like H&M which offer products at a cheaper price than Zara. The issue of value currency is an issue given that the euro currency hurts the global competitiveness (Torun 2). The stiff competition, lower prices, high cost of raw materials, logistics and labor makes manufacturing of clothes in Spain to be expensive. Solutions Zara is a unique-fashion-designed company that has growing at an amazing rate. As the company ventures into international market, the marketing research team should look for efficient partners with good reputation in the foreign market. Measures should be developed to see to it that the international joint ventures and franchises are effective in enhancing market expansion, reduction in risks, increased sales and low demand in close attention on the daily operations of far-flung stores thus leading to efficiency. In contrast to Zara, Benetton, which is a competitor of Zara, is the leading pioneer in managing the fashion retail supply chain innovatively and this has enabled it to operate about 6500 franchised stores in over 120 countries. This is a challenge to Zara since it is not ready to give out control of its stores to foreigners. The approach of the firm in owning and operating the franchises is the best as it enabled the firm to increase in its reputation and revenue (Badia 3). Brand loyalty is the key strength of Zara. The company has ensured that it operates and own the entire of its branches and retailers either directly, franchised or through international joint venture. The refurbishment of stores, display, pricing, marketing and logistics are done from the headquarters. Further, the firm through that initiative has made the brand to have a solid presence and penetration in the market. Information technology is employed during the creativity and innovation part to come up new products and new fashion. The low pricing of high quality fashion makes it possible to enhance market competitiveness. The company also enjoys efficient distribution channels (Tungate 42). Contrarily, the vertical integration and continual training of employees on the new trends in the market makes the cost of operations to be higher. The company is new in the application of shorter lead time from design, production, and logistics to sale of 15 days. The company has been delivering products that capture all the classes, sex, age and cultures of the market population. The firm operates and own nearly the entire of its store network, however, some legal requirements in foreign countries are restrictive thus making the company to enter into franchises, or joint venture but even in such instances, the company employs most of its expertise and experience in operating these firms. The strategy of the marketing research is allocation of prestigious locations with the most up market and high traffic of customers thus enhancing financial viability and sufficient market for its products. The marketing strategy was to develop and promote the image of the company and to attain this, all locations were furnished, decorated, arranged and displayed in the same manner thus giving the firm a unique identity and attractive to customers (Badia 23). The success of the company is attributed to the ideal of the company in merging manufacturing and retailing given that it’s the relationship between manufacturing, distribution and customer focus that the company pride in The Best Solution The company can implement a new strategy in marketing where different styles are offered in different stores. This will ensure that the company does not run out of stock and that the brand of the company is maintained in the long run. Threats from local competition in the foreign markets hinder the success of the company. The challenges encountered in design of new products poses a challenge to the firm. Lastly, there is the issue of market entry barriers and fluctuating exchange rates. In essence, the strengths of the company are more than its weaknesses. Measures should be taken to combat the threats as well as mitigate weaknesses; however, caution should be taken so that profits should not decrease. The lead time enables Zara to identify the products design that captures the attention of customer’s making it to be ahead of its competitors (Torun 11). For the process to be successful Zara reduces the quantity of manufactured brands thus reducing risks while creating artificial scarcity and in so doing the new brand becomes more desirable while attracting high demand. The company should work on expanding the international markets especially in emerging markets since the market in Europe faces the oversaturation potential. Furthermore, Zara should employ the online marketing in its marketing strategy. This follows the huge number of online shoppers as the world goes digital. In so doing, the firm will expand its market coverage leading to increased sales. The online marketing and sale is cheaper compared to other mode of advertising. The company is focused on delivering fashion to its customers, this makes the firm to deliver a great variety of products in a year and this makes products from Zara to be satisfactory to customers. The CSR initiative should be involving and global. The internet should be company’s major channel of communication especially in reaching to the young, tech and savvy women. To attain this, Zara need to incorporate different body shapes and product cuts as this will increase its market size (Tungate 22). Conclusion In conclusion, Zara has been successful in fostering internationalization of its clothing sector. The new sense of fashion and population trends offers the firm with an amazing opportunity of growth and success. The E-commerce and Tele-shopping presents the best opportunity to Zara with the upsurge of competition in local and global market. The company delights in affordability, experience, differentiation and exclusivity. The company enjoys excellent reputation of its quality and prices as well as its fast growing fashion clothing company in the world. The company in its communication strategies aims at informing the public of the new products, generation of consumer interest to make them purchase the product and the creation of positive emotions in line with new products and this is facilitated by efficient public relations, media cooperation, internet, events and communication of brands to consumers. The company should invest more on corporate social responsibility as this will help Zara to gain more awareness in the market (Lynn et al 9). Works Cited Torun, Fatma. Zara – A European Fashion Brand. USA: GRIN Verlag. 2007. Badia, Enrique. Zara and her Sisters: The Story of the World’s Largest Clothing Retailer. UK: Palgrave Macmillan. 2009. Tungate, Mark. Fashion Brands: Branding Style from Armani to Zara. USA: Kogan Page Publishers. Hansen, Suzy. How Zara Grew Into the World’s Largest Fashion retailer. New York Times, 9th November, 2012. Lynn, Heather, Bennett, Shannon and Joines, Harriet. H&M vs. Zara: Comparing Marketing Strategies. 2009. Web. Read More