Comparative Analysis of Zara and H&M Pricing Strategies

This report delves into the pricing strategies of Zara and H&M, two prominent brands in the fast fashion industry. It begins by examining Zara's value-based and market-based pricing approaches, highlighting its focus on affordability and trend-right products. The report then compares Zara's strategy with that of H&M, analyzing their respective market positioning, competitive tactics, and online presence. It explores Zara's high product turnover and lower discounting approach versus H&M's more aggressive discounting. The report further discusses the application of pricing strategies, including value-based pricing and pricing for promotion. Additionally, the report analyzes the impact of cost, demand, and supply on pricing decisions, using examples of chocolate flavors to illustrate the relationship between these factors and profit margins. Finally, the report calculates the price elasticity of demand for chocolates and roses, offering insights into pricing strategies for unrelated goods. References from various academic journals and industry sources support the analysis, providing a comprehensive understanding of the subject.

Pricing Strategy
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Pricing Strategy 1
Zara, one of the well-renounced name in terms of clothing, accessories and more. In the
current scenario, the new generation is more inclined towards this brand because it keeps up
with its latest fashion with higher quality and yet it is affordable. At the initial stage, it
opened as a small store in Spain but later it expands its empire from a small town to many
countries (Du, Zhang and Hua 160-166).
Zara adopts the low pricing strategy under which the products are high on fashion and low on
prices. The prices of Zara products are affordable in comparison to international competitive
brands. The company adopts the low pricing strategy because of the low-cost budget of Zara
because they do not spend enough money on the promotions and raw material. The pricing of
the products of Zara is country specific. It adopts the market-based pricing strategy and tags
the product based on the purchasing power of the customers (Liu, Zhai and Chen 1-17).
The pricing strategy adopted by Zara delivers value to the customer at affordable prices.
Hence, all luxury brands have admitted that Zara has a strong position in the global market.
The current scenarios of the market states that Zara’s success in comparison to the other
brands is high because they majorly focus on pulling people in and not pushing products out
in which, Zara follows various marketing strategy, likewise, experience replace products,
exchange in new price, Evangelism is new promotion and in terms of place they put
customers at centre (Steenkamp).
In latest times, Zara has mastered the concept of exchange as it not the cheapest in the fast
fashion arena, but it consistently delivers the branded value of the trend- right product at very
appealing and affordable prices.
In terms of comparison with the other brand, H&M is also one of the well- known brands in
the clothing of the fashion industry which over time have generated millions of profits on an
annual basis. This brand is also famous in terms of building customers trust because they
offer fabulous fashion without the exorbitant prices tags (Zhou 144-156).
In terms of positioning Zara and H&M brand both come in a bit different category. If we talk
about Zara’s positioning it is very effective and also competes and maintain its strategic
advantage, the focus is more on quality than its price. Even in current time, Zara enjoys a
high level of appeal. Moreover, they also start investing in building a strong brand
positioning in an entire market as compared to the other brands (Chang and Tun-Min Jai
853-867).

Pricing Strategy 2
If we consider the H&M brand and its positioning aspect, it is also known for its sustainable
fashion and quality at low costs. Hence, in its current times, it is stated that H&M is high in
quality and low in prices in comparison to the other well-known brands such as Zara, Mango,
and forever21. Hence, the current market position of the brand it is clear that H&M has
developed its brand to own a functional benefit among the audience and it is viewed as being
constant in providing the promised values throughout its various products ranges (Mo, 217).
Zara and H&M pricing tactics highlight that H&M having a bigger online offering which
currently provides two thousand more options than Zara. On the other hand, Zara takes an
elegant route in which they have high product turnover and lower discounting which hence
reflects that brand communication with its customers is higher. Other than this, H&M is more
bullish in their discounting but having sophisticated replenishment strategies. Hence, their
positioning in the market with generation Y customers is normal who are driven by hype and
a lower price (Chuwiruch, Jhundra-Indra and Boonlua).
The pricing span of Zara lies between $5 -$322 and the pricing span of H&M lies between
$1-$291. The average pricing point of Zara is $48 and H&M is $21.40. It is analysed that
H&M provides equal weight to its product while Zara has a totally unbalanced spread of the
product line. H&M applies bullish discounting strategy and have provided 24.4% discounting

Pricing Strategy 3
on online platforms while Zara applies a more subtle approach and offers only 3.2 % online
discounted products (The 5 things making Zara and H&M successful).
Zara uses a value-based pricing strategy and sets the price according to the perception of the
customers. It does not consider the cost of the company and regularly counts the broken code
and unsalable product to provide them at the lower prices. It understands the perceptions of
the customers and then decides the pricing of the products. The low pricing strategy has
helped to target the large customer base and make the business successful (Chuwiruch,
Jhundra-Indra and Boonlua).
Zara must increase the prices of the product because of the changing situation in the external
environment affects the cost of the company. The company hires low-cost Asian designers to
design the product but the increase in the labour and the material creates the emerging need
for the company to increase its price. It must adopt pricing for promotion strategy under
which more discount, offers, vouchers, gifts must be offered to attract potential customers
and increase the customer base (Chuwiruch, Jhundra-Indra and Boonlua).
In contrary to the above H&M offers a high-quality product at the lower prices. It focuses on
sustaining the business by providing a low-cost quality product. The tactics applied by the
company to deliver a low-cost product is through outsourcing. The company manufactures
the product from the low-cost labours and applies strict cost control model to provide low-
cost products to the customers (Thompson, Strickland and Strickland).
The company’s low-cost product can also hamper the brand image of the company in
accordance to the perceptions of the customer's low-cost product is considered as a low
quality which in turn affects the brand image and affects the profitability of the company.
However, the company must adopt a premium at pricing strategy to develop a strong brand
image of the company and targeting the customers of all income groups (Thompson,
Strickland and Strickland).
I will define the price based upon the cost of the product. To manufacture three different
flavours: White and peanuts, milk chocolate and rice crispies, Dark chocolate and almond.
The price for all three flavours will be different. It is analysed that the cost of the product
directly impacts the price. Cost refers to the expense incurred in the manufacturing of the
product. It is referred to as the cost of goods sold which include direct cost i.e. purchase of
raw material, labour and also includes the operating expenses. The price of all the three

Pricing Strategy 4
flavours will be determined by the cost involved in manufacturing of the three different
flavours. I will also focus on the demand and the supply of all three flavours. The pricing of
the product will be determined through the demand and supply of the product in the market.
If the demand and the supply for white and peanut flavour are high then the pricing will be
highest for white and peanut considering the cost of the company. The price will be set based
upon the cost involved and the demand for a particular flavour. I have chosen this criterion
because it becomes easier to analyse the cost and the demand for the product. These factors
directly affect the pricing of the product and the difference between cost and selling price is
the profit derived from the product. It will make easier for the firm to analyse profit and make
the alterations in the current pricing strategies according to the changing demand and supply
of a particular flavour (Uggla).
Price of Y(rose) The demand for
Y(rose)
Demand for
X(chocolates)
Original 4 € 60 100
New 2€ 80 70
Price elasticity of demand: % change in quantity demanded of good X
% change in the price of good Y
: Change in Quantity demanded of X x 100
The original quantity of X x 100
Change in price of Y x 100
Original price of y
100-70 x 100 = 30%
100 x 100
2 x 100= 50%
4

Pricing Strategy 5
60% or 0.6
Therefore from the above calculation, it is analysed that the price is elastic in case of the
unrelated goods i.e. chocolate and rose. In the above calculation, roses are considered as good
Y and chocolate is considered as X.

Pricing Strategy 6
References
Du, Jie, Juliang Zhang, and Guowei Hua. "Pricing and inventory management in the presence
of strategic customers with risk preference and decreasing value." International
Journal of Production Economics 164 (2015): 160-166.
Liu, Jingchen, Xin Zhai, and Lihua Chen. "Optimal pricing strategy under trade-in program
in the presence of strategic consumers." Omega 84 (2019): 1-17.
Steenkamp, Jan-Benedict. Global brand strategy: World-wise marketing in the age of
branding. Springer, 2017.
Zhou, Erfeng, et al. "A two-period pricing model for new fashion style launching
strategy." International Journal of Production Economics 160 (2015): 144-156.
Chang, Hyo Jung, and Tun-Min Jai. "Is fast fashion sustainable? The effect of positioning
strategies on consumers’ attitudes and purchase intentions." Social Responsibility
Journal 11.4 (2015): 853-867.
Mo, Ziying. "Internationalization process of fast fashion retailers: evidence of H&M and
Zara." International Journal of Business and Management 10.3 (2015): 217.
Chuwiruch, Nasi, Prathanporn Jhundra-Indra, and Sutana Boonlua. "Marketing innovation
strategy and marketing performance: a conceptual framework." Allied Academies
International Conference. Academy of Marketing Studies. Proceedings. Vol. 20. No.
2. Jordan Whitney Enterprises, Inc, 2015.
The 5 things making Zara and H&M successful. Edited. 2016. Web. 15 May. 2019, <
https://edited.com/blog/2015/03/5-things-making-zara-and-hm-successful/>
Thompson, Arthur, Alonzo J. Strickland, and John Gamble. Crafting and executing strategy:
Concepts and readings. McGraw-Hill Education, 2015.
Uggla, Henrik. "The Price of Luxury." IUP Journal
of Brand Management 14.2 (2017).