A Marketing Analysis Case Study

10 October 2016

Zara has been described by Louis Vuitton fashion director as “possibly the most innovative and devastating retailer in the world”, (Wikipedia, 2013). WHY ZARA? I have used 4 suggested “superior performance” indicators to motivate my choice of Zara: 1. Competitive position: Zara has a competitive edge against its rivals such as H&M, Gap, Benetton and Mango by producing fast fashion. Its extremely quick to know what is selling, and with this information they put the right products on shelf for customer purchases. (Pearson, A) 2. Financial Performance

Zara has defied the economic recession and reported growth through tough financial times. In 2011 sales grew by 10% and EBIT was 1. 7 billion Euros. (Inditex 2011 Annual Report). By comparison, Gap was forced to close 200 stores in the US in 2011, and saw a slump in profit by 19% in one quarter (Chang, A. 2011) 3. Brand Strength: Zara is ranked 37th in the world by Interbrand (“the world’s largest brand consultancy”), with a brand value in excess of nine million dollars, (Ranking the Brands – Best Global Brands). This exceptional ranking is testament to Zara’s strong brand. 4. Speed of international expansion:

The concept suggests that organisations should then improve efficiency of distribution and production (Kotler et al. 2013p. 10), Zara creates cutting edge and stylish affordable fashion purchased by the cost conscious (Business Thoughts, 2011). Zara products being affordable, it focuses on distribution efficiency and production, through an controlled distribution and integrated supply system. It takes an average of 24 hours (Europe) and 48 hours (America/Asia) for goods to arrive in store from the time the distribution centre receives an order.

Production is efficient considering it take as little as two weeks to have a new product on the shelf. Production and distribution efficiency enable Zara to introduce around 30,000 items a year, competitors average of less than 10,000 (Kotler et al, 2013. Zara: Fast Fashions – Really Fast). 2. The Product Concept The product concept maintains that “consumers will favour products that offer the most in quality, performance and innovative features” (Kotler et al. 2013, p. 10). An organization following a product concept should focus on continuous product improvement (Kotler et al. 013). Zara follows this philosophy by constantly evolving. Store managers watch their target market identifying what is selling and ensuring they have the latest fashions in store (Kotler, et al, 2013). Zara demonstrates it values innovation and performance of its products by offering a vast variety of designs that are fashion forward to keep attracting customers (Business Thoughts, 2011 and Kotler et al, 2013). 3. The Marketing Concept Knowledge of customer needs and wants of the identified market is fundamental to reaching organization goals.

By delivering more satisfaction than a competitor and ensuring customer focus and value, sales and profitability will then follow, (Kotler et al, 2013). Zara’s strategy favours this concept the most – Zara starts the whole process by finding out what the customer wants. It utilizes trend spotters and managers and staff constantly watch and talk to customers (Kotler et al. 2013). Zara state that knowing what their customers want is an integral part of their success: “Zara’s approach to design is clearly linked to our customers”. “A non-stop flow of information from stores conveys shoppers’ desires and demands”. Zara is in tune with its customers” (Inditex Website, Zara 2013). For Zara it all starts and end with what customers want.  To understand and analyze Zara’s marketing environment we need to look at both the micro-environment and macro-environment. Macro-environment Zara’s macro-environment can be analysed by looking at the 6 main factors that provide the opportunities and threats to the organization. 1. Demographic: Zara’s strategy appeals and caters to an extensive range of tastes in the demographics.

They cater for men (25%), women (60%) and children (15%), the majority of which want to be within the latest fashion trends (Evans, B. 2010 and Business Thoughts, 2011). They have focused on international expansion and growth and have setup stores in the strongest growth markets and where the largest concentrations of the world population are: China, where they set up 30 stores in 2011 alone (Inditex, 2011 and Kotler et al. 2013. ) Zara’s focus of stylish, fashionable clothing appeals to consumers across the generational groups.

Baby boomers, who “think young” are buying Zara as it’s fashionable and a brand synonymous with youth and fashion”(Kotler et al 2013 p. 80). Zara is providing items on their shelves that the older consumers want to wear (Kaobns, 2012) Zara’s largest demographical target market is the Millenials. Zara strongly appeals to this market consisting of young adults starting their careers with lower salaries, and those that earn very little or don’t even earn an income (eg. Teenagers) can all afford (Kotler et al. 2013 & Kaobns. 2013).

Zara is particularly attractive to the “middle class urban women” – a desirable product to this market and it has done well to see this gap in the market, especially as the number of women in employment is growing (Roux, C. 2002 and Kotler et al. 2013). 2. Economic: Economic factors can impact how consumers spend and their level of purchasing power. (Kotler et al. 2013). Zara seems to be “Relying on a Winning Formula and is “well positioned” (Baigorri, M. 2009). Zara positioning due to affordability has managed to still attract product sales even as economic factors impact consumer spending.

Its economical focus, affordability and fashionableness has resulted in purchases by “upscale shoppers” who have seen their purchasing power diminish (Kotler et al. 2013). As European and US markets slow, Zara has been responding to changes in the economic environment, with success, but focusing its growth in the emerging economies, like China (Biagorri, 2009). These growth markets are seeing middle class affluence increase characterized by greater disposable income and the want to spend (Kotler et al. 2013). Zara’s affordability is impacted by responding to an important economic factor – cost of labour.

Some factories are located in Galicia and Northern Portugal where labour is cheaper than other Western Europe countries. Clothes that have a greater shelf life are manufactured by low cost suppliers predominantly in Turkey and Asia. 3. Natural: Changes in the world to promote environmental sustainability put pressure on organisations to adopt an environmental focus (Kotler et al. 2013). Inditex (Zara’s Group Company) has a Sustainable Inditex 2011-2015 plan aiming to reduce its global ecological footprint and commitment to building sustainable and environment-friendly stores. Inditex, Corporate Responsibility). It has already opened its first eco-efficient stores on Fifth Avenue, New York (Green Retail Decisions, 2012). Zara’s mission statement states the company’s commitment to environmental and animal welfare (Zara website) – refer to appendix A for the complete mission statement. 4. Technological Technological changes play a significant part in shaping organizational outcomes with technological changes leading to opportunities (Kotler et al. 2013).

The technological environment forms an important part of Zara’s “fast fashion” concept. Kotler et al. 2013, p. 353). Mobile technology development has increased the communication speeds of customers wants back to the design and manufacturing teams with the use of PDA devices. (Kotler et al, 2013). Zara has built highly automated factories utilizing robots 24/7 to cut and dye fabrics and produce final products (Petro, G. 2012). Without technological evolution Zara’s lead-times and product numbers it can offer compared to competitors would diminish (Wikipedia, 2013). Zara has captivated the online retail market through introducing online boutiques (Ceasar, J. 010). Further technological development and the launch of iPhone allowed Zara to widen its product availability through introducing the iPhone app (iTunes Store) 5. Political and Social: Government legal requirements as well as pressure groups weigh heavily on business operations (Kotler et al. 2013, p. 93). Zara faced breaches in terms of local country regulations in Brazil resulting in a supplier factory being closed. Staff abuse has also been citied in some of its operations which Zara has promised to respond to. Breaching law impacts operations and can be costly.

Zara needs to perhaps pay more attention to its political and social environment when conducting operations (Wikipedia, 2013). Greenpeace in 2010 identified Zara, amongst other retailers as releasing high levels of toxins and chemical discharge in their production. Zara has responded by committing to eliminating the use of toxic chemicals by 2020. This social pressure forces Zara to look at alternatives and change the way in which they operate this part of the business (Environmental Leader – Environmental & Energy Management News, 2012). . Cultural: Zara successfully pays attention to the preferences and behavior of societies by providing stylish affordable fashion that the customer wants (Kotler et al. 2013). Zara has attracted several million likes on Facebook testament to an exceptional following within society (Ceasar, J. 2010). Society’s views and tastes can be strongly influenced by high profile people such as celebrities – In 2011, Kate Middleton wore a Zara lace dress that sold out online within a few hours of photos being publicized (Paxman, L. 2011) Micro-environment

To create customer satisfaction through marketing requires working with other elements within the organisation’s internal environment (Kotler et al, 2013). To analyze Zara’s micro-environment we will look at the 6 factors: 1. The Company: Zara’s success comes from its vertically integrated structure. The strong, constant communication between the managers in store back to the headquarters with over 200 Zara designers has been a fundamental success element. The IT system allows quick information flow between designers, factories and stores (Kotler et al. 2013).

Inditex, company culture is “based on team work and open communication and performance expectations are very high”. This focus set from the top is emulated down to employee’s ensuring that each employee is striving to meet customers’ needs (Inditex website – Our Team). 2. Suppliers: Zara follows a just in time approach with control of all aspects of the supply chain. Zara has followed this approach since inception, with the building of its own factory in La Coruna (Wikipedia, 2013). 40% fabrics are own-made and more than half of clothing produced by its own factories (Kotler et al. 013). Remaining production is out-sourced to low cost suppliers (Wikipdia, 2013). Zara utilises contractors and outsourced suppliers and who are viewed as part of the company, (Pearson, A). 3. Marketing Intermediaries: Zara has minimal intermediaries. They utilize banking services but the market orientated intermediaries like promoters, distributers, resellers or marketing service agencies appear to not be part of Zara’s internal environment. Zara distribution is directly to the consumer through stores they own and manage.

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