Marketing Strategies and Competitive Advantage of Zara: A Report

Desklib provides past papers and solved assignments for students. This report analyzes Zara's marketing strategies and competitive advantage.

EXTENDED BUSINESS
1

Table of Contents
INTRODUCTION............................................................................................................................. 3
COMPANY OVERVIEW....................................................................................................................3
COMPETITIVE ADVANTAGE OF ZARA.............................................................................................4
7 P’s OF MARKETING MIX ADOPTED BY ZARA...............................................................................9
RECOMMENDATIONS AND SUGGESTIONS TO BE ADOPTED BY ZARA.........................................11
CONCLUSION............................................................................................................................... 12
REFERENCES.................................................................................................................................13
2

INTRODUCTION
In all the segments of this assignment report, the detailed understanding of the marketing
concept of Zara organization is being discussed. In one of the segment, the strategies used by
Zara for gaining the competitive advantage will be presented. All the issues will be analyzed
with the help of applying Porter's five forces model, 7 Ps of marketing and other strategies. The
recommendations are to be provided which will help in improving the business operations of
Zara and identifying the position of the company in the competitive market and will help the
company to achieve its organizational goals.
COMPANY OVERVIEW
Zara is the Spanish company founded in 1975 by Amancio Ortega and Rosalia Mera. It is the
fast-fashion retailer store. The headquarter of Zara is in Spain. There are around 7,475 stores
located across the world. They are the flagship of Inditex Group. Spain is considered to be the
largest market consisting of 563 stores of Zara which also includes Zara Kids and Zara Home.
Their online sales are available in Singapore, Thailand, Malaysia and Vietnam and the sales of
the company are around 41% and the brand value is 10%. The organization renders major
products like clothing and accessories and serves across the globe (Zara, 2019).
3

COMPETITIVE ADVANTAGE OF ZARA
Zara is the most successful retail brand in the fashion industry. The main factors that have
contributed to Zara’s success are the ability of the company that it is the customer oriented and
from the beginning, they have defined the brand culture of the company. There is a large
number of fashion companies that competes Zara (Zara, 2019).
The primary challenge faced by the companies is to develop a business strategy to achieve a
sustainable competitive advantage by producing similar products in the market. Competitive
advantage means the advantage that is gained over the competitors of the same industry by
providing best quality products, rendering the customer value, and maintaining the high market
share in the industry (Namada, 2018). The competitors of Zara are John Lewis, H&M, Topshop,
New Look, Next and so on. In this segment, the analyses of Zara is made by applying Porter’s
five forces model and also the SWOT analysis of Zara is being carried out to know the actual
position of the company among the competitors (Dimitrieska, 2016).
PORTER’S FIVE FORCES MODEL:
Figure 1 Porter's Five Forces Model
(Source: Carraher, 2018)
 Threats of New Entrants:
It is very difficult for the industries to achieve the economies of scale in which Zara operates.
This gives the cost advantage to the producer of large capacities and thus makes the cost of
production higher for the new entrants (Harding, 2017). As customers nowadays also focus on
4

the differentiated products, the industry rather than focusing on standardized products focuses
on differentiated of the products and emphasis strongly on advertisement and customer
services. For operating business in this industry, there is a huge requirement of capital, so it
becomes difficult for the new entrants to enter and sustain in the market. Before starting any
operations, it is compulsory for the companies to get a license from the government by fulfilling
the required legal policies (Harding, 2017). Apart from all this, the distribution network makes
it easier for the new entrants to enter the market and set the retail outlets and get the products
into the shelves.
From the above-mentioned threats, Zara can overcome this issue by focusing on taking the
advantage of economies of scale and takes the cost advantage. It can also focus on product
differentiation so that the innovative products of Zara are more in demand than that of other
companies (Harding, 2017).
 Bargaining Power Of Suppliers:
There is a number of suppliers than that of buyers in the fashion industry. But most of the
suppliers provide standardized products than that of differentiated products which result in an
advantage to the companies like Zara. As there are no other substitutes if the products in this
industry, this makes the strong bargaining power for the suppliers. But due to a large number of
buyers sometimes, this results in weak bargaining power to the suppliers (Harding, 2017).
To overcome this situation, Zara can acquire the raw materials at a lower price from the
suppliers and can switch the suppliers as if the low costs are not available. It can also include a
number of suppliers for different locations which will increase the efficiency of the supply chain
(Harding, 2017).
 Bargaining Power Of Buyers:
As the numbers of suppliers are more than that of buyers, there are more options available for
buyers to purchase the products. But there is no control over the prices and thus it makes the
power of bargaining weak for the buyers. As there is high product differentiation, it becomes
tough for the buyers to find similar products in an industry (Harding, 2017). As the buyers find
the best quality products, so they are less sensitive in terms of prices, all this makes the
bargaining power weak for the buyers. To attract more buyers, Zara can focus on product
5

differentiation long with qualitative products. It can build brand loyalty by putting extra
marketing efforts (Harding, 2017).
 Threat Of Substitute Products or Services:
There are fewer substitutes available in this industry of the products that Zara serves. Even the
available substitutes available are produced by the low profit earning industries and the prices
of such products are too high for the customers to buy. This makes the chances low of the
customers to switch to the substitute products (Harding, 2017). Thus this avoids the threat of
substitutes to the industry. As nowadays, customers prefer more quality products, Zara can
focus on producing the best products with unique identities at a lower price and satisfies the
customers demand.
 Rivalry Among Existing Firms:
There are few competitors of Zara in the market but are large in size and huge market share.
This will engage the competitors to be the market leaders in the industry which make the rivalry
for the existing firms strong in the market. The fixed costs of the fashion industry are high which
makes the companies push the full capacity. This also forces the companies to lower the prices
when the demand decreases. As the products are different in every firm, it becomes difficult to
capture the customers of competitive firms (Harding, 2017). The exit clause in this industry is
high as it requires huge capital investment and also due to government policies. To overcome
such rivalries issues, Zara should focus on rendering new customers rather than focusing on
other companies. It can also conduct a market survey to analyze the demand and supply
situation and control the overproduction (Harding, 2017).
With the help of Porter's five forces model, strategic planners of Zara would be able to evaluate
the different factors under every force that affect the profitability of the industry. Stronger the
force, lower the profitability of Zara and vice versa. On the basis of this, profitability and
strategic planning can be made for the organization (Harding, 2017).
SWOT ANALYSIS OF ZARA:
There are some strengths and weakness, opportunities and threats identified after studying the
five forces within the context of Zara.
Strength of Zara:
6

 There are more than 3000 stores of Zara across the world and is one of the largest
Spanish fashion retailer in the world (Mierzejewska, 2017).
 The supply chain management of Zara is extremely low in costs and along with this, the
operation process, the manufacturing process is integrated vertically (Mierzejewska,
2017).
 Zara has a strong online availability at its own website and at other platforms of e-
commerce. The innovative and fashionable designs of clothes are produced at
competitive prices (Mierzejewska, 2017).
 The new products of Zara are delivered very fast and are well designed and extremely in
trend. Not only clothes, but it also deals with the accessories, that makes the customers
to buy the related items at one place (Sammut and Galea, 2015).
 Zara executes the new projects successfully and generates high returns on capital
expenditures. It has also built expertise by entering into new markets and expanding
business operations all over the world (Mierzejewska, 2017).
Weaknesses of Zara:
 Zara has less average of profitability ratio and net contribution.
 It is the main weakness of the company that it cannot integrate with the different
organizational culture (Mierzejewska, 2017).
 There is high labour turnover in the organization and due to this, the company has to
invest more in the training and development of the new workforce.
 The demand forecasting is poor as compare to the competitors and this results in higher
closing stock(Sammut and Galea, 2015).
 Zara is not able to meet the recent challenges presented by the new entrants and this
results in loss of market share. For this, it has to build a mechanism of feedback from
the sales team to meet such challenges (Mierzejewska, 2017).
Opportunities for Zara:
 The decrease in cost of transportation due to the decrease in shipping costs will lower
the products prices of Zara which will enhance productivity and will also benefit the
customers (Mierzejewska, 2017).
7

 After the years of recession, it is an opportunity for Zara to render new customers and
increase the market share in the economy.
 Another platform for increasing the customer base is the online platform, which has
become the new channel of sales for the company (Mierzejewska, 2017).
 Due to the decrease in the inflation rate, there is more stability in the marker and it also
enables credit to the customers of Zara at the lower rate.
Threats faced by Zara:
 The laws of liability are different in every country and this lead Zara to follow the
changes in policies of various liabilities in the economy of that country (Mierzejewska,
2017).
 The shortage of skilled staff in the worldwide market affects the growth of profit of the
company in the market (Sammut and Galea, 2015).
 The new technologies introduced by the competitors become the threat for Zara to
sustain in the medium and long run (Mierzejewska, 2017).
 As the number of players in the same industry has increased over the years, it has
pressurized the profitability and sales of Zara (Mierzejewska, 2017).
8

7 P’s OF MARKETING MIX ADOPTED BY ZARA
Zara has become the largest retail store in the world in the fashion industry. Not only it is
known for latest and trendy styles but also known for the affordable prices. Zara has filled the
gap between the customers and the high prices by lowering the prices of the products. Higher
the sales, higher will be the market share of Zara (JAIN, 2017). The strategy of Zara
differentiates it from its competitors and enables the company with brand popularity and
loyalty. For marketing the products and catering the needs of the customer Zara has adopted
the concept of marketing mix which has described that how Zara manages several factors to
fulfil the objectives of the company (JAIN, 2017).
Product:
Zara introduces the latest fashion trends in the stores at affordable prices. It also focuses on
product differentiation and does the market survey before introducing the products. Zara sells
products that satisfy the taste of the customers with the latest designs (Bhasin, 2019).
Place:
Apart from having more than 7000 stores it also has its online presence which satisfies the need
of the customers by providing the latest designs at official websites (Bhasin, 2019).
Price:
The products of Zara are available at affordable prices with the latest fashionable designs. This
strategy has catered the needs of a large number of customers. this has helped the company to
build a strong brand image and has increased its market share in the global economy (Bhasin,
2019).
Promotion:
Zara does not believe in aggressive marketing and still is the largest fast fashion store in the
global market. As there are many choices available at affordable prices, Zara has the highest
brand loyalty. The most important part of the promotion strategy is the pricing and distribution
process of Zara (Bhasin, 2019).
9

Physical Evidence:
Zara provides a friendly culture at the stores and generates an enjoyable environment of
shopping which renders the customers to have the shopping experience to be comfortable
(Bhasin, 2019).
Process:
The speed and process of services help Zara to make easier the purchase of the products. It also
has the facility of staff assistance to the clients while purchasing the clothing apparels (Bhasin,
2019).
People:
To render the best services to the customers and ensuring the level of satisfaction to be high,
Zara emphasizes on the training and development of staff so that they are able to cater the
needs of the customers while shopping (Bhasin, 2019).
10

RECOMMENDATIONS AND SUGGESTIONS TO BE ADOPTED BY ZARA
After analyzing every key factor of Zara, it is to be recommended to the company to take
advantage of the technology advancement in the process of production, design and
distribution. As it is the part of the fast-fashion system, the supply chain of the company should
focus on continuous communication so that everyone can stay updated to the business
activities (Lia et al., 2016). The channel of communication should include the exchange of
information from customers to store managers, from storekeepers to market designers and
specialists, from specialists to production manager, and so on. Along with this, the company
should also revise the procedure of its operations, again and again, to ensure that the
employees and customers are stress-free and transfer of information is secure. Thus, with this,
the information management team of Zara will become strong and will sustain the company as
the fast fashion system (Lia et al., 2016).
11

CONCLUSION
Thus it is to be summarized in brief that Zara uses the concepts and theories of marketing to
build the customer relationship and enhance the brand value. It also focuses on the strengths
and weakness and took advantage of opportunities and threats to gain a competitive
advantage. Not only this, for sustaining in the market along with the new entrants, it has
analyzed Porter's five forces of a model which has identified the string forces and weak forces
that are affecting the brand of Zara. At last, the recommendations are provided, which will help
Zara to meet future challenges by overcoming the threats and weaknesses and fulfil the
business objectives.
12