Strategic Analysis of Zara’s Online Marketing Strategy

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Strategic Analysis Report
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Executive Summary
In this Strategic Analysis Report, there has been a discussion about the online strategy taken by
Zara to improve its market share and to make a profit. To get a clear view of the internal factors,
SWOT analysis has been done. Apart from that PESTLE Analysis will give a clear
understanding of what external factors are the most influential and should be taken into
consideration while making marketing strategies. Moreover, Porter’s Five Forces Analysis and
the Value Chain Competency Model will help in analyzing the key competencies of the
organization. The online marketing strategy of Zara is the main theme of the report, which is
defined with the help of all abovementioned analyses.
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Table of Contents
Introduction......................................................................................................................................4
SWOT Analysis...............................................................................................................................4
Strengths......................................................................................................................................4
Weaknesses..................................................................................................................................5
Opportunities...............................................................................................................................5
Threats.........................................................................................................................................6
PESTLE Analysis............................................................................................................................7
Political Factors...........................................................................................................................7
Economic Factors........................................................................................................................7
Social Factors...............................................................................................................................8
Technological Factors..................................................................................................................8
Legal............................................................................................................................................9
Environmental Factors.................................................................................................................9
Porter’s Five Forces Analysis........................................................................................................10
Competitive Rivalry...................................................................................................................10
Threat of New Entry..................................................................................................................11
Supplier Power...........................................................................................................................11
Threat of Substitute....................................................................................................................11
Buyer Power..............................................................................................................................12
Value Chain Competency Model...................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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Introduction
This is the digital age, where everything is available at the tip of the fingers. Technology had
become so advanced that, people can have whatever they want, at any point in time at any place.
It had made the life of human easier. One of the blessings of this technology is the invention of
smartphones and the computers along with the internet, which has brought the world at our
home. People are able to order foods, dresses, and any other items with the help of smartphones
through different online services. Moreover, the social media websites had made the choices
easily available (Viardot and Nylund, 2017). Zara, which is a clothing and accessories retail
company and is one of the most well known in the world. The marketing department of the
company is very active and helps the company understand the trends faster than others. That is
why it is one of the earliest fashion retail company to start using technology to improve their
business and understand the needs of the customers better. It had quickly adapted itself to the
need of the generation and upgraded itself from a fashion retail company to an online fashion
store, which provides its services in many countries all over the world.
SWOT Analysis
In order to strategically analyze the position of Zara online retailing, and understand the areas
where its need to improve itself, there is a need to do a SWOT analysis of Zara. It will give a
detail view of the Strengths, weaknesses, opportunities, and threats of Zara.
Strengths
Zara is internationally present, and in this digital era, it has become necessary for Zara to adapt
to the online market. Zara had adopted this online strategy which helps it to compete well with
its competitors in the market. Apart from that online marketing had assisted Zara to capture new
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markets and moreover retain the old one too. It has helped Zara to increase its market share and
also increase the overall profit. Digital marketing had made the customers more informative, and
it is growing by leaps and bounds (Amarkhil, 2018). If seen minutely it can be understood that it
is the cheapest way to do marketing and reach innumerable numbers of customers. Zara has an
excellent brand image in the fashion retail market, which it has acquired based on the quality of
products it offers and the variation in its style. The products are easily available too and it offers
fashion clothes and accessories not just for women but for men and children too. Zara’s financial
position is too strong which gives it the courage to calculated risks, and at the same time get
financial aid whenever in need. A full catalog of the products is always available online, which
makes choosing products easier by sitting at home.
Weaknesses
The price of the products of Zara is comparatively high and the reason is its high quality and
easy availability. This is why not all people can afford the products of Zara, which is to say, Zara
fails to reach to a huge number of people who are financially not that able. The main aim of Zara
is to provide high fashion of best quality at an affordable price which may not be that affordable
to all people. In the present, Zara had not taken any new marketing strategy, which is why it is
not able to get as much traffic on its websites as it should have (Hammoudeh, 2016). They show
almost no planning to increase its market share. It has brought down its market share in reality.
The technology is fast evolving and coping with it needs time. In order to do it fast, there is a
need to appoint more employees who can handle this and make the upgradation process faster
and there is overall proper management of all its operations.
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Opportunities
With the help of online marketing, Zara will be able to explore its marketing business. It will
help Zara will be able to reach millions of customers using a very little amount of money to
make and manage the retail websites. Unlike offline stores where a limited amount of people has
access, those websites will help the company to take a global approach. With proper planning
and upgradation of the technologies, the company will be able to reach a more specified group of
customers of the targeted market. At first, Zara needs to attract more people to its websites,
which can only make its customer base wider (Gremme, 2015). Social networking websites are
the place where they can put advertisement and links which the user will visit and get to know
about the company and the products it offers, in short, it is a good place to do promotional
activities. That is why all its products showcased in the website should be visually appealing,
with fresh innovative photos and contents. New technologies will help them in reducing the costs
of the products and help in making the services better to satisfy its customers.
Threats
Like Zara, other fashion retail companies are also getting used to the technologies and are
offering their products in their own websites, which is one of the big threats Zara has to face in
the present. Other companies are making use of paid searching technologies and are growing in
the market and also increasing its market share and profit. Some of the websites of other
companies have also adopted a marketing strategy where they are putting sponsored links on the
top search engines with the help of social networking sites (Wang, 2018). Apart from the
innovative marketing strategies of its customers, Zara is unable to provide products to the
available customers due to its high price and also the low buying power of the customers. To
cope with the situation, Zara needs to manage and enter new markets and expand itself. Zara also
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needs to implement the “Pay per Click” option, with the help of its marketing staff responsible
for developing new marketing strategies.
PESTLE Analysis
Zara is one of the leading fashion brands that operates its business in many countries. In order to
monitor and analyze the external marketing environment factors that can affect Zara, a PESTLE
analysis is required. PESTLE analysis is the study of external factors like Political, Economic,
Social, Technological, Legal and Environmental. These factors may have major impacts on a
large fashion company like Zara.
Political Factors
Political factor is one of the main external factors that can affect a multinational business in
expanding its market to new countries. This factor can also be called as a government
interference. There are many countries that do not allow Foreign Direct Investment (FDI). Some
of these countries have strict laws that can create difficulties for the company while establishing
its business. Government can impose high taxes which will result in high pricing of the product.
In that case, the company will lose a large number of customers.
For a fashion brand such as Zara, it is important to keep track of the political aspects and notice
the changing laws of a particular country that the company is planning to enter. It is crucial to be
aware about the country’s regulatory body which handles the import and export of goods. These
factors are important in order to sustain their business within a country.
Economic Factors
While expanding their business to a new country, it is important for the responsible management
should always analyze the country’s economic condition along with their taxation rates and
exchange rates for transporting goods (Viardot and Nylund, 2017). They also should have an
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idea regarding the country’s inflation rate so that they can judge whether the product will be sold
or not.
As companies like Zara do not manufacture products for lower-class people, it is important for
them to analyze the above-mentioned factors before launching their business in a new country so
that they can understand whether their products are affordable for the common people or not
(Amarkhil, 2018). It has previously seen that economic condition has decreased the sale of Zara
in a particular country. But as Zara is large brand with presence in multiple countries, they
managed to retain their business despite of facing loss in a financial year.
Social Factors
While expanding its business to a new country, a multinational company must analyze the choice
of products of the target customer base. In case of clothing companies, they should recognize
which types of fashion statement and spending pattern the people follow in that country. By
reviewing these aspects, a large company like Zara will be able to plan the innovation and judge
the trend (Viardot and Nylund, 2017). Zara is a multinational company with thousands of outlets
all over the world. They serve a diverse range of customer and that is the main reason they
should analyze the market and customer’s choice.
Technological Factors
Technological factors play an important role for an organization during execution of business
operation. As a retail brand, Zara should also incorporate advanced technologies and tools,
otherwise, it may create a problem for the retail brand in terms of maintaining the quality
standard of their products (Amarkhil, 2018). However, adaption of advanced technologies also
requires higher investment. In this case, it can be stated that Zara does not have any threats
regarding its technological aspects as the financial capital structure of a brand is very healthy.
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Legal
Similarly, legal factors I also one of the key external aspects, which can influence the
performance of an organization in both ways. In order to underline the legal associated
challenges of a multination organization; it can be stated that governmental policies and
regulations. Government policies and regulations regarding trade, traffic and international duties
can impose challenges for a multinational organization to enter certain nations. In this case, as a
retail brand, Zara always has remained as one of the successful global, retail, multinational brand
which has expanded its business all around the globe. Thus, based on these assumptions, it can
be argued that, Zara has weakness let legal associated challenges from its external environment
(Viardot and Nylund, 2017). However, in the recent eta, legal associated challenges have become
more complicated. Thus, in order to ensure the long term sustainability of the firm; the retail
brand should pay attention towards establishment of Memorandum of Understanding (MOU)
which can help the firm maintain its competitive advantages within the global retail industry.
Environmental Factors
Simultaneously, environmental factor also plays a crucial role for a retail organization in the
recent era. In the early 21st century, a large number of consumers have become highly sensitive
about their health, safety and society. In this context, failure of delivery quality products of
services towards the community may lead greater challenges for a fashion retail brand. As a
retail brand, Zara has always paid greater emphasize towards delivering eco-friendly garment
and their accessory products. Thus, it can be regarded that environmentally associated threats of
Zara can be also defined as very less (Amarkhil, 2018). In this regard, the government of several
nations has come up with environmental safety measures which are related to manufacturing,
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storage and distribution of products and violation of these norms may lead greater challenges for
a brand in terms of ban or extraction from the market.
In order to analyze the competitive position of the firm within the operating industry, in it
essential to incorporate Porter’s Five Forces Model.
Porter’s Five Forces Analysis
For understanding the competitive condition and advantages, the company Zara has observed
certain issues that were recognized during the analysis of Porter's five forces. This analysis is
done for understanding the impact of the competitive scenario on Zara. It has been noticed that
Zara experiences all the five forces while continuing with its process of analysis.
Competitive Rivalry
The first and foremost issue that can be noticed is rivalry among the companies. With the
advancement of technology, different companies are able to grow on the surface of the retailing
market. It can be noticed that other retailing companies are trying their level best to compete
with Zara in this competitive market (Mathooko and Ogutu, 2015). Due to this reason, the
company is also thinking of using certain ways by which, they will be able to tackle the rivalry.
Zara is such a company, which is famous for delivering products through online. This company
also uses different advertising ways for these purposes. They are using online advertising
medium for increasing their brand image. This will also be helpful for the company as they will
be able to improve their online strategy.
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Threat of New Entry
The threat of new competitive companies can be observed in the structure of Zara. It has been
noticed that technology is providing better scopes and opportunities to the different companies
that are rising in the retail market. Zara is seen getting affected because of its brand
identification. In some market, it has been noticed that Zara is impacted by the production scale
economy (Zhao et al., 2016). In the threat of new entry, differentiation in production has
delivered a negative impact on the company’s structure. Therefore, the threat of new entry can be
an affecting factor for the company, Zara. Thus, Zara uses its online strategy for controlling its
new competitive scenario. In this manner, it is trying to implement new and innovative ways of
online advertising for overcoming the barriers.
Supplier Power
Certain affecting factors can be noticed in the retail market that is causing a huge impact on the
supply chain and production of Zara. It can be noticed that the company is having fewer
suppliers. In addition to this, it has also been noticed that the company is having a low switching
cost. The bargaining power is also high and due to this, the company has to experience a tough
situation (Arline, 2015). Along with this, it can be noticed that the company binds the suppliers
with some licensing contracts, which lessens their possibility of adding designs according to the
variation. However, the quality product that the suppliers are delivering is not capable enough to
reach the customers’ expectation. Online strategy is needed to be implemented in the structure of
the organization, as it will be beneficial enough for controlling the power of the suppliers.
Threat of Substitute
In this area, it has been observed that Zara is facing difficulty as the retail or the fashion industry
is acting in an unpredictable manner. The competitors are always having certain wants depending
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on the trending issues. Each and every company is trying to create a good brand image (Zhao et
al., 2016). For this reason, they usually focused on the customers’ requirements and the trending
issues that are helpful for attracting customers. Zara uses new and innovative designs and
pattern, which will be effective enough for the company to increase its customers’ loyalty. They
can use the online strategy for showing up these products in front of the customers through social
media. The customers will be able to understand about the different products that Zara supplies.
Buyer Power
Zara is experiencing good buying power. It basically lies under the hands of the customers. It can
be noticed that the brand can gain its loyalty by delivering effective products to its customers. On
the other hand, it can be observed that the negotiation power of the customer is quite weak and
these customers are sensitive to price. In addition, they are also having an insignificant switching
cost (Carraher, 2018). However, it can be noticed that Zara face problems in understanding the
target customers and their needs. Fashion consumerism is difficult to predict. They also use
advertising medium as an online strategy. Nowadays, customers are having a huge demand for
clothes that are of good quality. They understand their requirements in various ways. In this way,
the online strategy can also be useful for the company like Zara to expand in brand image and
loyalty.
Value Chain Competency Model
Zara is having an efficient value chain competency model. It has been noticed that it is gathering
various products from different places in the form of raw material. The raw materials are then
sent for manufacturing purposes. The products are delivered with the help of the ultimate
supplier. In this process, R&D, inbound logistics, procurement and operations are also involved
(Ambulkar, Blackhurst and Cantor, 2016). The suppliers are responsible for delivering efficient
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