Strategic Analysis of Zara: Porter's Five Model, PESTLE, SWOT, McKinsey 7-S Model

This report provides a strategic analysis of Zara using Porter's Five Model, PESTLE analysis, SWOT analysis, and McKinsey 7-S Model. It examines the competition, external factors, internal factors, and organizational changes for Zara.

STRATEGIC ANALYSIS

TABLE OF CONTENT
INTRODUCTION.......................................................................................................................................3
1. Porter’s five model..............................................................................................................................3
2. PESTLE...............................................................................................................................................4
3. SWOT..................................................................................................................................................6
4. McKinsey 7-S Model...........................................................................................................................7
CONCLUSION...........................................................................................................................................9
REFERENCES..........................................................................................................................................10

INTRODUCTION
There is a requirement of strategic analysis of the tools in the market so that there is a
better function of the business in the market. There are a lot of tools which have to be considered
by the organization so that they can get a competitive advantage. Headquarters of Zara is in
Spain and the products of this company are clothing. The report is going to consist of analysis
through models which are going to be suitable for the organization so that they can plan for the
future and improve in the market.
1. Porter’s five model
This is a model which can help the organization to understand the competition in the
market for them and understand the strengths and weaknesses of the organization as well which
is going to help with the future decisions. This model is given by Michael E. Porter so that the
organizations in the market could have a better functioning for themselves.
 Degree of existing rivalry (High)
Zara is having a lot of competition in the market which the organization has to overcome so
that they can get a better customer base and higher profit margins. Zara has H&M, Gap, etc
competitors in the market which has taken the market share from the business (Kreutzer, 2019).
The organization will have to get new trends and fashion change every month or week if the
organization needs to get a competitive advantage and not share their customers.
 Threat of potential entrants (Medium)
There are a lot of competitors which have come up in this industry over the years which is
why there is a threat for Zara in this factor. Zara has captured the market for themselves which is
why the organization is not having such a great threat for them. The entry of new competitors in
Spain is low because of the customer base the company has made for themselves but globally it a
threat for the organization.
 Bargaining power of suppliers (Low)

Zara has experience in dealing with the suppliers in the market so that they can have a
control on their suppliers and they can have a cost friendly production and the pricing of the
products can be set according to the customers want then. The quality of the products is never
compromised upon which is why the organization is being able to have better supplier so that the
customers are satisfied with the services and the products of the company.
 Bargaining power of buyers (Medium)
The customers can ask for the products that they need which is the only power in the hands
of the customers otherwise all the products are made by the company and the changes are
according to the trend in the market (Yang and Zhang, 2019). The prices are set a little higher
because there are standards which are being maintained by the organization and also because the
company will have to find ways through which they can have a better functioning for
themselves.
 Threat to substitutes (High)
Being a necessity for the customers there are a lot of substitutes for the products of the
company which can take away the customers from Zara. Zara will have to find different
strategies and measures so that they can make the stability in the economic factor which is a very
essential factor for any business in market.
2. PESTLE
To understand and analyse the external environment of the organization it is important to use
specific tools and the tool which is appropriate for Zara is PESTLE which can help the
organization to have a better understanding for them which is a very essential factor. There are a
lot of factors which can affect the functioning of the organization and those need to be analysed
effectively so that there is a better functioning.
 Political Factors
Due to the European trade agreement there is a great benefit for Zara because now they will
be able to import and export raw materials and finished goods at low cost and this will make the

organization to merchandise across the world which is a great factor for the company (Xuejie,
Chang and GuangHao, 2019). This has made the company have a strong reputation in the market
and on the portfolio of the company and can expand in other countries easily.
 Economic Factors
There is low cost labour which is provided to the organization for the operations because the
company is operating in Spain. This is a great profit for the organization because the
unemployment rate is high in Spain and the organization is pricing the products on a higher rate.
Zara is relatively affordable in the high streets of Europe and though the prices are high but still
have good brand recognition in the market.
 Social Factors
There is a strong base for the company in the society because they are being able to
understand the traditions and needs of the customers so that they can have a better functioning
for themselves which is a very essential factor for them (Phillips and Moutinho, 2018). The
society wants online which the company has adapted to so that they can get easier access to the
organization.
 Technological Factors
There is a lot of investment which the organization has made in the market to expand their
technological aspect so that they can have a better functioning for themselves which is a very
essential factor. The organization has gotten online so that they can globalize themselves and get
more customers in the company.
 Legal Factors
There are copyrights issues which the organization is having because the brand is copying the
designs from Adidas and Balenciaga which is a great disadvantage for the organization (Tonelli
and Cristoni, N., 2018). This can spoil the reputation of the organization and the organization can
lose on a lot of customers in the market.
 Environmental Factors

There is a commitment which the organization has given for the water, energy, climate
change and sustainable materials, etc that there is going to be no harm from the organization and
the organization will take measures so that they can help in improving them.
3. SWOT
Planning for the future according to the capabilities of the business is very important there it
is very important for the organization to understand the internal factor of the organization so that
they can take measures accordingly (Khattab, Fonn and Ali, 2017). Identifying the strengths,
weaknesses, opportunities and threats is a very essential factor so that the organization can have
a better functioning.
 Strengths
The organization is having a strong presence of the organization in the market which is why
the organization is having a high customer base. The value of the organization in the market is
also strong and the designs of the organization are unique in its nature which is getting the
loyalty of the customers in the market. The company is being able to fulfil the demands and
needs of the customers from time to time which are a very essential factor for the company.
 Weaknesses
The organizations weaknesses is that they are not having a strong advertisement for
themselves which is why the organization is not being able to get more customers in the
organization which is a very essential factor for the company. The targeting of the customers is
also not there which the competitors in the market are having which is why they are having more
customers in the stores than Zara.
 Opportunities
The organization has become e-commerce so that they can get in more customers in the
organization which is a very essential factor for the company so that they can have a better sale.
This way they will be able to get high profit margins and free cash flow in the market which can
be used for expansion for the future (Bui, and Muñoz Martinez, 2019). The quality is so good of

the products which the company never compromises upon can get more customers because of the
satisfaction level of the customers in the organization which is a great opportunity for the
company.
 Threats
Even after having unique designs and so many changes in the design in the organization the
company will not be able to have a better functioning because they do not have advertisement
which the competitors in the market are doing. The competitors in this industry are increasing
which is a great loss for the organization because they will not be able to function effectively.
The reach of Zara is excellent but they do not have a shop in a shop king of stores in Asia which
can make the organization have limitations in getting in more customers.
4. McKinsey 7-S Model
This model is used by organizations to understand the changes and monitoring those changes
in the organization so that the organization can have an effective functioning for them. The
decisions of the organization and problems in the organization can be solved so that there are
smooth operations taking place in establishment.
 Strategy
Zara has to adapt to long term strategic plan so that they can find a better functioning for
themselves which is a very essential factor for the organization. There has to be a clear objective
and the objectives must have a clear communication so that the changes can come in Zara
effectively.
 Structure
The structure of the organization comes from the hierarchy and there is an interconnection
through that factor. The management and the employees of the organization are dependent on
one another which are making the functioning of the organization more effective (Caro, Babio
and Peña, 2019). The management has to assign roles and responsibilities to the workers of the
organization so that there is a better functioning.

 System
There has to be a daily work allotment and monitoring of the employees of the organization
to check if the decisions of the management are being followed and the standards are being
matched (Coles and et.al., 2017). Standards have to be matched by the workers and the
management which is why it is very important for the management to keep changing and only
then the objectives of Zara will be met.
 Shared Values
There has to be a share in the behaviour of the employees and standards so that the
organization can have a better understanding and functioning in the market. There have to be
detailing of the guidelines in Zara so that the workers of the organization can follow them.
 Skills
There has to be training and development in the workers so that the quality of the products
and the standards of Zara and maintained in the market. This will help the organization to
achieve their objectives and aims faster which makes the organization have high profit margins.
 Style
There is an influence of the leaders and managers on the employees of the organization
which will impact on the productivity and performance which is a very essential factor for the
organization (Pearlson, Saunders and Galletta, 2019). There has to be a positive environment
which has to be maintained in Zara so that there are new ideas and innovations which can take
place in the company which is a very essential factor.
 Staff
The employees of Zara has to be motivated so that they can have a better functioning for
themselves which is a very important factor for the organization. There has to be proper training
and measures which have to be taken according to the employees of the organization so that
there is a better functioning.

CONCLUSION
From the above report it can be concluded that it is very important for the organizations
to get unique products and innovation in the organization according to the capabilities of the
organization so that they can have a strong market base for themselves. It is very important to
have a strong market base for them so that they can have better profit margins and be able to
create a better portfolio for them globally. It is very important for the organization to meet the
demands and expectations of the customers so that the organization can have a better
functioning.

REFERENCES
Books and Journals
Bui, A.Q. and Muñoz Martinez, V., 2019. The impact of product promotion on customer loyalty:
A quantitative study on Zara.
Caro, F., Babio, F. and Peña, F., 2019. Coordination of Inventory Distribution and Price
Markdowns for Clearance Sales at Zara. In Operations in an Omnichannel World (pp.
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Coles, D and et.al., 2017. Beyond ‘flood hotspots’: modelling emergency service accessibility
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Khattab, U., Fonn, S.B. and Ali, S., 2017. Strategic Communication Management of Corporate
Crises: Case Analysis. e-Journal of Social & Behavioural Research in Business. 8(1).
p.15.
Kreutzer, R.T., 2019. Tools for the Strategic Analysis. In Toolbox for Marketing and
Management (pp. 89-142). Springer, Cham.
Pearlson, K.E., Saunders, C.S. and Galletta, D.F., 2019. Managing and using information
systems: A strategic approach. John Wiley & Sons.
Phillips, P. and Moutinho, L., 2018. Strategic analysis. In Contemporary Issues in Strategic
Management (pp. 46-79). Routledge.
Tonelli, M. and Cristoni, N., 2018. Strategic management and the circular economy. Routledge.
Xuejie, C., Chang, Q. and GuangHao, Z., 2019, August. Research on Innovation supply chain
Management in Fast Fashion Industry——A comparative analysis of ZARA and H&M.
In 2019 3rd International Conference on Education, Culture and Social Development
(ICECSD 2019). Atlantis Press.
Yang, D. and Zhang, H., 2019, September. Quick Response in a Dual-channel Supply Chain
with Strategic Consumers. In 2019 International Conference on Industrial Engineering
and Systems Management (IESM) (pp. 1-6). IEEE.