Digital Business: Analysis of Zalando's Operations and Environment

This report provides a comprehensive overview of Zalando's digital business operations. It begins with an introduction to digital business, contrasting it with traditional models and highlighting its advantages. The report then delves into Zalando's business model, analyzing its strengths, weaknesses, opportunities, and threats (SWOT). It describes digital business activities, including Zalando's mode of operation as an online retailer, and examines its digital business environment using PESTLE analysis and Porter's five forces. The report also explores market growth and segmentation within the context of Zalando's operations. Finally, it reflects on the sustainability and profitability of digital business, addressing the challenges faced by companies like Zalando in the e-commerce sector. The report concludes with a discussion of key growth factors and the impact of external forces on business operations, providing a well-rounded analysis of Zalando's digital presence and strategic approach.

Digital Business

Table of Contents
INTRODUCTION...........................................................................................................................1
Overview of Business.............................................................................................................1
Traditional Business versus Digital Business.........................................................................1
Digital business model...........................................................................................................2
Digital business activities................................................................................................................3
Mode of operation..................................................................................................................3
Digital business environment.................................................................................................4
Marketplace............................................................................................................................5
Market growth........................................................................................................................6
Market segmentation..............................................................................................................6
Key growth factors of digital business...................................................................................6
External forces impact on business operation........................................................................6
CONCLUSION................................................................................................................................7
Reflection on digital business sustainability and profitability...............................................7
Challenges to digital business................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
With emergence of new technology, today it becomes much easy for organisations to
operate business in international market. Digital technology helps in bringing together human
resource, processes and data for creating value of customers. Through digital transformation,
organisations can improve profitability, customer satisfaction as well as increase speed to
market, to gain competitive advantage (Teece and Linden, 2017). Present assignment is going to
demonstrate concept of digital business, including its advantages over traditional business. For
this purpose, Zalando is taken which is an online European retailer company that offer fashion
and lifestyle products in more than 17 countries. In this report, digital business activities and
different modes of operation is described. Further reflection on digital business sustainability as
well as challenges to the same also explained.
Overview of Business
Zalando is an e-commerce company of Europe that follows a platform approach, for
offering clothes to customers of near about 17 countries. It has established in 2008 in Germany
and headquartered in Berlin. Under this company, more than 15,619 number of employees are
working (Libert, Beck and Wind, 2016). Through inspiring from Chinese technical companies, in
2013 Zalando has decided to overhaul its entire online fashion business into a digitalisation. For
this purpose, it has set off into developing or remaking the business into a digital shopping mall.
It also allows other fashion houses as well as retailers for increasing their sales performance via
Partner Program with limited input from Zalando.
Traditional Business versus Digital Business
Traditional business can be defined as a local of physical stores that mainly targets local
customers only. Here, entrepreneur set-up business either by purchasing or lending a space on
rent, where consumers visit store for buying the products. So, all these procedures intakes a large
amount of resources and cost. In place of traditional, in setting up a digital business, technologies
help in profoundly the entire ways (Yaghoubi Farani, Karimi and Motaghed, 2017). It offers new
ways to connect, collaborate as well as conduct business for offering products through online
platform. Therefore, it has evaluated that in terms of cost of infrastructure, for buying or renting
in traditional business, it is very high as compared to digital.
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Similarities of traditional and digital business:
In both kind of business, it is essential for each and every company to maintain stock of
its products in appropriate manner. This will require to put a huge amount of investment that
remains blocked in small business (Peng, 2017). Choose correct location and strategies are also
required in both traditional and digital business, for achievement of business goals and
objectives.
Difference between traditional and digital business:
Stores in traditional business runs for limited hours while in e-commerce, it can offer
products through 24 x 7 hours. Due to limited space in physical stores, companies cannot offer
large variety of products. While in digital platform, it is possible to provide the same through
which high profitability can be gained. Therefore, communicating with millions of customers,
anticipating their needs, efficiency of operations and more, are some major advantages of digital
business that take over traditional one from almost all companies now.
Digital business model
It refers to a company’s plan to generate high profitability by identifying the products or
services, it will be going to sell, targeted market as well as expenses for anticipating all
procedures (Sousa and Rocha, 2019). Therefore, in context with present company i.e. Zalando,
effectiveness of its business model can be defined through internal analysis (SWOT) in
following manner:
Strength: Zalando has become able through offering an inspirational and satisfying
shopping experience by innovative platform, to build and enhance a large customer base. This
online retailing strategy is taken as one of the best key success factors of Zalando’s business
model. Along with this, due to frequent order quantities of trendy attires, respective company
also manages to buy branded products on cheap rates and further sell the same on competitive
price rates to which end customers. Here, allowing customers for easily compare prices through
search engine and internet also aid to gain high competitive advantage.
Weaknesses: Apart from various benefits of online technology, Zalando has inhere some
significant weaknesses also. For increasing customer shopping experience, respective company
has to make high investments in research and development (Martin and Tian, 2016). It is mainly
essential for developing the shopping website as well as setting up the business apart from its
competitors. Within a fast increasing e-commerce business, it is also difficult to keep business
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ideas safe from new entrants, whose online shops ideas may be provided more effective virtual
shopping experience.
Opportunities: Assortment of Zalando include more than 1,500 international brands that
are ranging from popular fashion to global, local, premium, outdoor and sport brands. These are
enough to address demand of many target groups as much as possible. Therefore, there is a great
opportunity for business expansion, customisation of brands into different market and fulfil
demand of fashion-freak customers.
Threats: Provisions of service policy through brand partners and high capital tip is the
major risks for Zalando (Schallmo, Williams and Boardman, 2017). These provisions include
free as well as fast delivery and returns, hundred days returns policy, huge support by customer
service team for 24 x 7 hours etc. Therefore, to comply business with branded partners,
respective company needs to control the consistent and high compliance of agreement, as if its
partners avoid to follow mention policy, then it may lead to increase customer dissatisfaction,
which put negative impact on Zalando’s online presence.
Digital business activities
Mode of operation
Online store of Zalando is not considered as just a place where people search for and
buying products like clothes, shoes as well as fashion accessories. Its stores are remade in 2013
on the concept of fashion themed world, which includes several features, tools and techniques
that strengthening a convenient or inspirational online shopping experience, mainly of fashion-
conscious people. It includes updated and extensive information related to new trends in fashion
world, such as a fashion blog, trendy lifestyles and products, with seasonal varieties. In the
fashion glossary, where targeted customers can access important information about its range of
products like shoes, fashionable clothes, accessories and more, are updated as per current fashion
trends in regular manner (Nielsen, 2016). Here, intensive information is usually combined with
links and authenticate websites to branded products. This would foster the emotional and
amazing shopping environment to get highly engagement of customers who concern more on
purchasing trendy clothes.
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Digital business environment
Due to emergence of new technologies, digital business environment of a business has
become much dynamic. In context with Zalando, it is considered one of the finest online retailers
that offers trendy and fashionable clothes on competitive price rates and amazing discounts. The
factors which affects its digital business can be identified through PESTLE analysis, as shown in
beneath:
Political Factors: Political stability leads to economic stability in most of the regions,
which result .to disruption of both online and physical business of retailers (PESTLE Analysis of
e-commerce industry, 2019). Political issues within the countries also have a significant impact
on growth of ecommerce industry. It can be shown by Brexit impact where, UK leaving
European Union has affected business of many companies including Zalando. Due to this factor
growth of online business has become low in Europe and other countries.
Economical Factors: It affects almost all types of businesses whether it is online or
physical, in terms of revenue and profitability. As recession period of any country where Zalando
and other e-commerce companies deal, affects business due to decrease in spending. Here,
fluctuations in economic rates like taxation, excise duty and other, assist such organisation to
develop effective strategies, in order to gain sustainability in this type of business environment.
Social Factors: It has a deep impact on growth of e-commerce industry due to several
factors. It includes growth in foreign market, changing trends in fashion, growing use of mobile
technology etc. results in changing preference of customers (Alizadeh and Sipe, 2016). They
demand more to get fashionable clothes that match their lifestyles on reasonable rates. This leads
to impact on business market of e-commerce industry, including Zalando.
Technological Factors: In the context of digital business, this factor is considered as the
most important for growth and stability of fashion industry. As every activity from sales to
customer service, is depended on technology in online business. To get ahead in technological
section, all e-commerce companies are going to create innovation in business and adding more
features to increase shopping experience of customers. This factor, therefore, assist Zalando to
modify its system on regular manner to get sustainability in such intense market of online
industry.
Legal Factors: To conduct business in global market, it is essential for Zalando to adhere
laws and legislations of those countries, where it operates business. As non-compliance results in
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heavy financial losses that leads to loss of image and reputation of business, in international
marketplace. Therefore, respective company has to be careful while applying laws and
compliance.
Environmental Factors: Due to selling commodities through digital technologies, this
factor has relatively less impact on e-commerce industry (Laudon and Traver, 2016). But it
assists such companies including Zalando to make investment on green-energy, waste reduction
by sustainable packaging and other CSR activities to protect environment from e-wastages and
heavily emission of carbon footprints of clothing industries.
Marketplace
Porter’s five force analysis is generally used to determine the industry competition in
marketplace. In context with Zalando, it can be understand in following manner:-
Bargaining power of suppliers: Due to high level of competition among suppliers
(brand partners) results in decreasing bargaining power of them. It would prove beneficial for
Zalando to purchase products on less rates and sell on profitable price as well.
Bargaining power of buyers: There is a large pool of fashion-freak customers who are
willing to get trendy clothes on reasonable price rates (Remane and et. al., 2017). In such
condition, customers do not tend to have bargaining leverage, which help in Zalando in
leveraging their demand more easily.
Threat of new entrants: In online business, strong brand image is important to influence
customers for shopping. Therefore, if strong brands are critical then new entrants have to come
up with more effective brand image, to compete with existing one. So, threat of new entrants is
relatively much low for Zalando.
Threat of substitutes: In online business, substitute products are inferior and available
on low quality. Therefore, customers are willing less to purchase such low performance products
from online retailers. In this regard, threat of substitute is also less for Zalando because it offers
high quality of branded products.
Intensity of existing rivalry: Fast industry growth rates in e-commerce industry give
opportunity to online retailers to expand their business market more easily. With this assistance,
companies like e-bay, Amazon, Otto and more, give a tough competition to Zalando. This would
affect majorly on sales of Zalando negatively.
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Market growth
Willingness of customers to get trendy clothes that match their life styles give opportunity
to online retailers, to influence them more easily. This leads to grow business of such companies
more rapidly in e-commerce industry (Alizadeh and Sipe, 2016). In this regard, there is a heavy
competition among online retailers, where ASOS, e-bay, Amazon, House of Fraser are main
competitors of Zalando that affects its sales performance negatively.
Market segmentation
Zalando mainly focuses on simplifying customer experience to the max. by offering a wide
range of fashionable clothes, footwear and more, of branded companies (Zalando focused on
simplifying customer experience to the max, 2019). It mainly targeted to fashion-freak customers,
especially women belong to age of 17 to over 70 but core demographic is of 25 to 40 years aged.
Key growth factors of digital business
Zalando is a fashion Berlin-based fashion retailer that sells around 150,000 styles of 1500
brand partners. Its USP doesn’t focus to offer products on high rates as compared to marketplace.
It knows that online customers seek to get trendy clothes from digital business on comparatively
less rates. Therefore, to keep delivering the products of latest trends and personalised offerings,
currently it has given employment to more than 400 employees as buyers and products
managers. Its app that carries no Zalando branding and pop up with slogan “Shop the Look”
pulls all social feeds of brand partners together into one place. This would allow customers to
follow fashion trends of their favouritism. This app of Zalando also offers a plenty of inspiration
that feeds back much plenty of data including likes, dislikes and personal preferences of
customers.
External forces impact on business operation
Through USP of Zalando, it has analysed that there is a high scope of Zalando to retail its
targeted customers for longer period, by enhancing their shopping experience (Nielsen, 2016).
But some external factors like socio-economic, political issues like Brexit and more, put a large
impact on online presence of respective company in negative manner.
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CONCLUSION
Reflection on digital business sustainability and profitability
Through entire investigative, it has been concluded that today due to emergence of new
technologies, it becomes easy for companies to operate business more smoothly. In context with
Zalando, digital business give advantage to invest less on infrastructure and maintaining stocks.
It has given various opportunities like expansion business market on global level, customisation
of assortment of different markets, addressing new target group and offering products on 24x7
hours facility.
Challenges to digital business
Apart from numerous benefits, the major challenges that companies dealing in e-commerce
business can face are- limited budget, lack of expertise for leading digitization initiatives, no
overarching strategy for the same. Here, handling employee pushback while digital
transformation is considered as the major challenge for Zalando. As being transparent and
consistent is a main key success factor of respective company. Therefore, keeping employees
informed and updated about whole procedure consider as a most difficult task for authorities. In
this regard, its management requires to build a compelling strategy for bringing the same.
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REFERENCES
Books and Journals
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Martin, B. and Tian, X., 2016. Books, bytes and business: the promise of digital publishing.
Routledge.
Nielsen, R. K., 2016. The business of news (pp. 51-67). Los Angeles, CA: Sage.
Peng, Y., 2017. Affective networks: How WeChat enhances Tencent’s digital business
governance. Chinese Journal of Communication. 10(3). pp.264-278.
Remane, G. and et. al., 2017. Discovering digital business models in traditional
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enterprise. Journal of Organization Design. 6(1). p.8.
Yaghoubi Farani, A., Karimi, S. and Motaghed, M., 2017. The role of entrepreneurial knowledge
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Online
PESTLE Analysis of e-commerce industry. 2019. [Online] Available Through:<
https://notesmatic.com/2017/11/pestel-analysis-e-commerce-industry/>.
Zalando focused on simplifying customer experience to the max. 2019. [Online] Available
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