ZARA
Executive Summary:
Zara has maintained the same business model in its internationalization process as well. According to this model, Zara aims to maintain ownership of most of its stores rather than franchising them out and sustain in-house production rather than outsourcing it. The advantage of this model is that Zara can maintain its competitive edge over other competitors like H&M and also ensure quick delivery of market needs.
This paper aims to highlight the international marketing strategy and the extent to which it will be standardized and adapted into different countries. Expanding into the international market will pose serious challenges to ZARA as well which may fall in the ambit of political, social, environmental, product and legal challenges. The report will then draw attention towards internationalization process and the different entry methods used for different types of markets. Finally, the report provides a marketing plan highlighting the steps which ZARA would need to need to consider when opting for a new market.
Introduction
Zara is a renowned clothing and accessory retailing brand based in France. It has a great name in fashion industry and known for its rapid innovation and quick launches of new product range. Zara has its name in transferring fashion to low cost countries. Zara is the largest fashion distributor producing a wide range of products for men women and children.
Standardization Vs Adaption:
Zara has not only chosen a business model and standardizes it internationally but there are certain areas which require Zara to adapt the model to local market situations (Bjork, 2011). First of all they go forward with the same standardized market entry method like assessing the country whether it raises demand for ZARA products and then selecting the target market group. In understanding and developing the market, ZARA uses the elements of marketing mix.
Challenges faced in ZARA’s Internationalization process:
Despite of trying its best to adapt to local marketing conditions, ZARA has faced a number of challenges when trying to settle in any country. The first one is the political challenge. According to, no country is a complete democratic country and somewhere, the economic policies are largely influences by the presence of major political parties of that area (Bjork, 2011). ZARA is very conscious about liberal policies because at its country of origin, Europe, the policies are very illiberal specially the labor laws. Media also plays an imperative role in portraying the political situation of the country on international television hence ZARA has a keen eye out for the countries that have sound political reputation in the world. For example, ZARA is hesitant to invest in India because the international media doesn’t portray the political conditions to be smooth and sound enough despite of the fact that India has a growing GDP of 9% annually.
The second challenge is pertaining to the development of a product (Diderich & Barker, 2010). This challenge is pertinent to the issues ZARA faces when expanding into Asian countries because ZARA itself has only 3 to 4 main yet sober colors that are used by its designers. Whereas Asian countries are known for their reliance over colors in everything that they make and Asian citizens prefer a lot of embroidery, something that ZARA lacks as a brand and finds hard time dealing with this challenge (Diderich & Barker, 2010). Social issues incorporate the cultural differences that arise in countries where ZARA tries to expand and pose the third challenge to international marketers (Kenna, 2011). Expanding towards United States is never a challenge because the culture of United States is analogous to the culture of Europe. However, in the Asian and Middle Eastern countries, culture emanates values like vibrancy in life, dependence upon other which eventually translates into the choices that the inhabitants of these countries make. On the flip side of the coin, ZARA is characterized by certain trademark designs which create its position in the global fashion industry. Hence the cultural differences pose a serious threat to the sales of ZARA products in different countries but there are certain brand loyal and brand conscious customers which help to keep ZARA afloat despite of such differences because to them, owning ZARA is a matter of prestige and a demonstration of social status (Kenna, 2011).
The fourth challenge is pertaining to variation in weather imposing changes in the fashion needs. This is true particularly of the Asian states where the summers are longer compared to summers in Europe and winters are less cold and shorter compared to winters in Europe (Bjork, 2011). That is why all the ZARA outlets are filled with clothes for normal weather. Common legal problems also pose a challenge which mainly include fulfillment of legal criteria of initiating a business in the country and the fear of infringement of copyright laws. The second issue is more threatening because in Asian countries, 20 days later that ZARA will launch its new designs, the street vendors will come out with various copies of the original design impairing the sales of ZARA (Bjork, 2011).
The last challenge faced by international marketers is pertaining to the economic aspect of expanding the operations (Caro & et al, 2010). International marketers are levied with heavy taxes which pull up their prices in the international market. The second cause of concern is that population everywhere is not equal in terms of income hence ZARA cannot encompass the entire country into its target market. Thus ZARA has to indulge in strategic pricing in order to maintain its sales in the international world (Caro & et al, 2010).
Internationalization Process and different methods of entry:
ZARA has aimed to sustain its control over the operations that is why the international expansion strategy is also characterized by maintaining greater control and flexibility in the operations (Lopez & Fan, 2009). The remaining policies are determined by the political climate of the target country. Hence the choice of entry modes is also dependent upon the situation of the country.
The most preferred entry choice by ZARA is Greenfield because it gives control and flexibility over the business operations and makes adaptation easy for ZARA. The drawback of this entry method is that it requires high level of resources and commitment once the operations have begun and may incur huge losses when deciding to exit the market. ZARA has adopted this method in high profile countries that offer greater opportunities and less business risk (Lopez & Fan, 2009).
The second entry method employed by ZARA is franchising which is used in countries were foreign direct investments is not viable. For example ZARA has used this strategy in the Middle Eastern markets because these markets are small and culturally different and pose political barriers to encourage other modes of entry. The rights to own a franchise are given to financially strong players. The least preferred entry mode is joint ventures which are adopted in large and more competitive markets where entry is difficult. In these markets ZARA has to jointly invest with some already established local retailers because obtaining a retail space is difficult. Recently ZARA had gone into a joint venture with German’s biggest catalog based retailer Otto Versand. However ZARA was not able to exercise its control and flexibility in operations hence it bought back remaining shares and dissolved the venture (Tokatli, 2008).
International Marketing Plan:
SWOT analysis:
ZARA’s image in the global fashion industry is attributed to the quality, style and availability of products (Lewington, 2011). It is also strengthened by the strong financial position which is a back hand support in its investments and provides a safety blanket in risky situations. Cost saving advantage occurs from possessing its own supply chain network. The weakness of ZARA is that their operations take a longer time because they import all the way from the country of origin which increases the cost as well (Schafer, 2001). The opportunities to the business are that ZARA incorporates advanced technology into its production which will help it add more value and quality to its products. ZARA has the potential to improvise upon its research and development department to make it more efficient and strong for producing better products. Since ZARA is heavily reliant upon its suppliers hence building good relations with its suppliers is also an opportunity to tap on low good and better quality resources (Lewington, 2011). The threats to ZARA are the entry of new competitors for a product which can only be avoided by creating brand loyal customers. The other threat is the shortage in the price and quantity of resources as the demand of the goods rises (Lewington, 2011).
Positioning and selection of Target Market:
Zara aims to create a more online target market through social media in order to reach its consumers. ZARA segments its target market directing its focus towards the female and male customers who lie in the age group of 35 to 50, have graduated from their schools and earn high incomes to translate that into VIP lifestyles (Folpe, 2000). ZARA has the advantage of replenishing its stock every 15 days and launches around 10,000 new products. The specialization in its process is attributed to the multi functionality of the shops with efficient shipping and return services. It aims to create differentiation through its cost price leadership and stronger branding compared to other competitors (Folpe, 2000).
Marketing Mix:
ZARA has utilized its designing skills in order to furnish its retail services and promote its products at the shop. A part of its promotion strategy is that it follows a theme of “fast fashion” which allows it to deliver the manifestation of recent fashion trend as soon as possible to its consumers (Berton, 2009). It’s ability to renew the stock and cater to the demands of consumer help it in maintaining brand loyalty. ZARA has also penetrated the market by spreading its promotional techniques through social media as well as attract customers to the online shop. ZARA is characterized by competitive pricing technique aiming to capture lower income consumers as well. For this purpose, ZARA needs a competitive supply chain so that the products can be delivered at a lower cost and through faster channel (Berton, 2009). ZARA doesn’t allow all its products to be available online and has necessitated that the decision making process of what needs to be created has to be taken up front. It engages in just in time delivery that is why the supply of raw material also need to be forecasted beforehand to avoid inefficiencies in the later period as part of its distribution strategy, shipping costs are made free above a certain volume of order and return guarantee should be friendly in order to attract larger traffic of customers (Caro & et al, 2010). ZARA’s product and positioning make it evident that it is not a luxury brand. Hence the products are priced low yet are different and unique. Also ZARA keeps experimenting with the styles and the designs as it produces 10,000 products every year (Caro & et al, 2010). ZARA has special product lines as signature collection reflecting important events.
Budgeting Plan:
The budget decided for the 2013 year end is EUR 60m which includes IT development, maintenance of online shop, research and development and finally social media advertisement (Crawford, 2003).
Implementation strategy:
According to (Carruthers, 2003) In order to develop its store, ZARA will first need to develop a frame work and design of the store which will also evaluate the demand of what types of products are needed. The second step would be to issue licensing and IT requirements for the shop. The third step would include hiring staff for the store and training them. Finally when the shop is in operational conditions, the final step would be incorporate marketing strategies to promote it (Carruthers, 2003).
Conclusion:
Based on the above discussion, it is easy to discern that ZARA has established a good position in the international retail market. ZARA has a unique business model which gives it an edge over its consumers because it aims to maintain control over its operations and sustain in house production. Hence it can easily attain economies of scale. However because of its growth in different countries it is posed with serious challenges which can only ne over come with successful marketing plan and the right internationalization strategy to establish its hold in the market. Finally, ZARA model works better for consumers who have a desire to stand out with the use of good quality consumers and are more fashion focused.
References:
Berton, E. (2009). Zara expands off-price format. WWD, 198(36), 12.
Bjork, C. (2011, Sep 06). Zara takes on gap, H&M with U.S. site. Wall Street Journal.
Caro, F., Gallien, J., Díaz, M., García, J., Corredoira, J. M., Montes, M., . . . Correa, J. (2010). Zara uses operations research to reengineer its global distribution process. Interfaces, 40(1), 71-84,92-94,96-97.
Carruthers, R. (2003). Rapid response retail. Marketing, 20-21.
Crawford, L. (2003, Dec 17). Reworking the Zara success formula. Financial Times.
Diderich, J., & Barker, B. (2010). H&M and Zara enter new markets. WWD, 199(115), 4-n/a.
Folpe, J. M. (2000). Zara has a made-to-order plan for success. Fortune, 142, 80.
Kenna, A. (2011, Aug 29). Zara plays catch-up with online shoppers. Business Week, , 1.
Lewington, P. (2011, Mar 20). A peek at zara's new look. Sunday Telegraph.
Lopez, C., & Fan, Y. (2009). Internationalisation of the spanish fashion brand zara. Journal of Fashion Marketing and Management, 13(2), 279-296.
Schafer, T. (2001, May 08). Zara to expand. Financial Times.
Tokatli, N. (2008). Global sourcing: Insights from the global clothing industry--the case of zara, a fast fashion retailer. Journal of Economic Geography, 8(1), 21-38.
