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Zara Company Delivering and Creating Customer Value

Executive summary

This report evaluates the Zara Company and its market position and how it achieved this successful business feat. Zara is a fashion design company which produces ready to wear latest competitively priced designs to fit its customers who principally are from the mass market. The report Compares and contrasts the market position of Zara with a range of other companies in the fashion art market sector, its market share with the rest of its competitors and produce, market segment and comparative advantage over other companies like H&M, Gap, Top shop amongst others. The report uses porter’s generic strategies to make its comparison., talk about Zara’s market segment and how they gain competitive advantage amongst its business rivals.

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Main body

This is an evaluation of the Zara Company and its market position and how it achieved this successful business feat. Zara is a Spanish fashion Design (clothing retail group) Company which produces the latest competitively priced ready to wear designs to fit its customers who principally are from the mass market. Zara opened its doors to the market in 1975, in la Corunna Spain as its Headquarters. It has expanded into 45 countries with 531 stores in 400 cities in the world. Zara’s success is mostly attributed to its rich history and strategic location in the market besides concept, capabilities and value drivers. Zara has had exemplary experience and a model business structure (Report,2000).

The report compares and contrasts the market position of Zara with a range of other companies in the fashion art market sector, its market share with the rest of its competitors and products, market segment and comparative advantage over other companies. The report uses porter’s generic strategies to make its comparison. Market position is the actual place of a business in the market by percentage of its total sales. Zara’s market position is defined by the quality products and services it delivers to its varied target market clientele. This valuable position in the market was achieved by a thorough analysis of present and potential customers, market demands, financial goals and the products in competition with the Zara company by use of product identification and differentiation techniques to get Zara’s most desired products. Zara increased its overall market positioning and increased the ability to achieve higher profitability and growth through clear leadership and sound business management practices besides site improvement and online position and an aggressive marketing (O People,2008).

The Zara Company has had a personal and close relationship with its customer’s especially through online communication and maintained high market segmentation by analysing the demand in the market to obtain a wealthy understanding of where people are coming from and their needs. It also identified its market clearly through definition of the geographical area, time frame prospects and price range (Carneskog, Lena, Danin, Susanne, 2008).

Zara company has had varied success strategies which give it a comparative advantage over its competitors in the market. These factors of success include rich history, strategic position in the market, shorter communication times from the company to the market, production of smaller quantities of a particular style to create demand, Production of a range of styles over the year to give the customer a choice from which to choose, an interlinked and independent business structure and strategy, extensive market research which fosters development and product innovativeness along the process, strategic placement of various business functions at manageably close proximity which helps in faster decision making, early production process control including an advantageous early investment in the raw materials. Other factors include use of up to date technology to manage its goods and marketing besides market monitoring. Zara does not in any way invest in setting trends but responds to the challenges and fashion change remarkably quickly by its world class stylist measures and techniques and great capability to understand designs (Devangshu Dutta, 2003).

Value Chain is also referred to as the value chain analysis, which is a concept from business management that involves a chain of activities within a particular company. The company’s products go through all the company activities in order and in each stage it gains great value. The chains of activities comparatively give the product more value than the sum of added values of all the activities. In the case of Zara Company it refers to the whole supply chains and distribution network (Porter, M.E, 1996).

Zara reduces cost by creating a value chain production of its own merchandise and sells them in its own stores. Zara also has the comparative advantage of voluminous and wide market reach through a multiple layer distribution channel of the value chain which most World design companies don’t have The stylists and the distribution management are sitting in the same office to make communication and decision making easy and fast.Zara‘s new products reach the market fast in time record of 15 days after production as compared to the other companies which must undergo an ordering process. It has also developed a home service and in store deliveries (Chris Marylyn, 1993).

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Zara has underscored there principle pertinence of the value chain of cost reduction on transportation costs by having almost everything under one roof or a nearby location. The firms also bypass the intermediaries which leads to the fast and commendable speed with which the goods reach the clients, it has been used by many companies as the standard business model for excellence and also reduces cost on labor besides the legal taxation measures (AT&T, 2008).

Zara has successfully used the retail strategy model to its advantage by interlinking the market positioning factors and the execution factors. Its product assortment, product development and sourcing, channel store locations, knowing customer experience and an aggressive marketing are the key strategy execution steps that Zara used comparatively to its advantage. Zara’s success is also attributed to a sound brand, retail and operational strategies an edge over other companies (Herb Kleinberger, 2008).

Due to these advantages over its competitors, Zara has managed to raise its market share through increased sales revenue and sales volume in the market. Zara managed to combine distribution strategy with product differentiation and brand management of short product cycles towards staggering growth, enviable profitability and secure market share. It has equally improved its targets on profitable customers by wisely choosing its new global market destination countries, integrating services and goods across channels, improved sales force efficiency and effectiveness, improved pricing, customised sales and products, improved customer efficiency and effectiveness. Individualized marketing messages, value, brand and relationship equity drives. Apart from its own financial reserves, the company can request loan from the banks in the countries of investment (Rossi Luca, 2005).

The use of intelligent support for operational decision making will assess the relevance of the information to decision and gain the insight in evaluating possible effective market entry strategies. The operational decisions to take for the new product service includes employment of more human resource, Warehousing, transport and capital reinvestment besides maintenance of the same, development of in store/ home delivery software besides further government taxation. Even though the company must engage more staff to move on with the investment plans (Alexander Smirnov, 2006).

The company should invest in cheap contractual labor in the countries of investment especially the support staff like delivery personnel. This will reduce costs of hiring from Zara’s parent country. Zara Company’s cost estimating has been effective enough to realise the massive investment in the countries of interest, it will be remarkably affected by the impending operational changers of the new investment strategies. (Letter Report, 1997).

The company should also engage independent transport companies at reasonable costs to avoid purchase of more motor vehicles and hiring of more drivers, transport and insurance licensing and other liabilities like accidents and maintenance costs which arise from buying motor vehicles. The company should also use in house technical expertise to design the in store and home delivery services application forms and to integrate it into the company websites in the countries of investment. The company should also use its existing Warehouses at the start but with the plan of expanding its construction plan of the same. The company basing its decision to invest in the new service products, home service and in store knows how these have continued to be profitable in the market Home delivery is projected to outpace the retail shopping by 2009 due to increased demand of growth rate of up to 34.6% (George Deitz, 2007).

The company will ride on its product and historical fame to market its products online besides other means. The company is most likely to invest using the reinvestment capital reserve accounts for this business expansion. This will not be a mean achievement but it will be highly profitable in the long run. For effective market impact with the new product, the company needs to realise workable goals, plan a promotional product program based on the demands of the target customers and develop a realistic price value based profitability margin versus costs of the product (Fair Isaac, 2008).

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The Zara Company also needs to reinforce its marketing and sales strategies in the wake to launching the new product. This involves the careful integration of everything it does to reach and persuade its clients through an aggressive yet careful marketing and everything it does to close the sales agreements of home survive and in store deliveries with its clients through one on one meeting, telephone calls, online advertisements and product release updates in the sales and marketing process (Laura Lake, 2008).

The customer orientation is highly influenced by the belief or disbelief in the products of the company. This trust is mostly affected by the sales persons who are in constant contact with the clients and should therefore follow ethical service provisions of the company (Vitell, 1986).

Table 1. Comparison of Zara and H&M (Style and Design, 2004)

Zara H&M
Started in 1975 in Spain, several years after H&M. Started in 1947 in Sweden, several years before Zara
Has 531 stores in 45 Countries. Has 900 stores in 18 Countries
Records annual sales of over $ 4 billion. Records an annual sales of over $ 6 billion
Concentrates on flexible fashion designs that accommodate the affluent and the low income earners. Concentrates on inexpensive fashion designs that accommodate the low income earners in the market.
Concentrates in an investment venture beyond an inspirational few market destinations and invests widely in many countries in the world. Concentrates in an investment venture on an inspirational few market destinations like in the U.S where it has over 100 stores.

Even though Zara is comparatively smaller than both Gap and H&M Companies, it has grown commendably fast as compared to the two considering that it started in 1975 and has over 500 chains in 45 countries as compared to the H&M which has 900 stores in 18 countries only yet it was started in 1947. However H&M still records a higher turnover on sales than Zara.As compared to Gap in terms of size, Gap is notably more established than both H&M and Zara records an annual sales of $ 15 billion.

The Zara Company’s profitability recordings should not be considered workable assumptions in pre-empting the future sales. In this light therefore, focus should be made towards fiscal forecasting based on the following factors: Observed and unobserved chain specific characteristics, seasonality of demands, the experienced competition in the multiple chain distribution, possible expansion of the market, substitution and complementarily between the different product goods and services. This will help forecast the future sales. (Anirban Mukherjee,2008)

The company should use the break even analysis to solve managerial problems. Calculate at which sales volume the company will certainly make profit. This tool can as well be used to analyse and solve managerial problems. If used the company will be able analyze the potential profitability of an expenditure in its sales based business activities and possible duration before a record of its profit is made. It will also help the company get an estimate pricing for its products based on expenditure costs. (Weatherhead, 2001)

Break Even Analysis

The Break Even Analysis will be based on the following key factors: Possible per unit revenue, average cost per unit and monthly fixed costs. The Break Even Analysis graph below is used as an exemplary tool of measuring possible Break Even Point beyond which the company will be profitable. Considering that the initial investment and operational costs total $80,000,and that the company continues to make sales on a gradual sales increase platform, then the company’s Break Even Point will be approximately 1750 unit sales. This analysis is also projected for a considerable period of time to realise the profitability margin (Rob Holland, 1998).

The Zara Company should also increase its online marketing strategy for potential sales conversion realization and progress besides constant touch with the customers through a prospecting statements release that will effectively improve its sales besides reducing any unnecessary costs (Omniture Press Review, 2008).

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ZARA’s Break Even Analysis

ZARA’s Break Even Analysis.
Figure 1. ZARA’s Break Even Analysis.

In order to develop a reliable long term marketing control and sales customer orientation, there is need for honest realistic promises to the clients as a managerial strategic component, the sales persons should forge a mutually beneficial customer relationships through the client oriented transactional strategies so as to attain a leadership position the market environment The sales managers are supposed to integrate and develop a strategic distinctive motivational interest ,role and methods of operations with the sales team towards achieving desired results. (Schwepker, Charles H, Good David J, 2004.)

Conclusion

Considering the tight competition of the fashion design industry, global investment trends, technological and the management challenges, Zara Company has proved committed and resolved on to move on with commendable growth prospects. It has responded effectively with sound, apt and resolute market change solutions, making it a market leader with a loyal customer base besides irresistible marketing strategies for its intended clientele. Conclusively, Zara has crafted a wealthy market niche for its products and is a potential fashion threat to its big and small competitors alike.

Recommendations

I recommend that the Zara company should keep its focus like it has done and to ensure that it develops a sound risk management strategy which will cushion it against any financial and market constriction challenges besides the looming global melt down. The key main focus I would also recommend includes a continued ownership of the stores, ware house and an inbuilt chain production system for high profit maximization.

References

  1. Carneskog, Lena, Danin, Susanne, 2008. Strategies. The way to succeed. Web.
  2. Cohen S, Joseph, 2007. Strategic Supply Chain Management. Web.
  3. Fair I, 2008. Decision Making. Web.
  4. George D. Deitz, 2007. Marketing Strategy.
  5. Kleinberger H. 2008. Retail Marketing Strategy.
  6. Letter Report, 1997. General Accounting.
  7. Luca R, 2005.
  8. Omniture Press Review, 2008. Omniture increases La Redoute’s Email Marketing Sale Conversions by 100 percent.
  9. O People, 2008. Positioning Strategy: First step define your target market.
  10. Report, 2000. Zara’s Business Model: Information and Communication Technologies and Competitive Analysis.
  11. Schwepker, Charles H, Good David J, 2004).Marketing control and sales customer Orientation.
  12. Style and Design. 2004. Inside the H&M fashion machine.
  13. Smirnov A. 2006. Context Driven Methodology for Operational Decision Making in Network Centric environment.
  14. Vitell, 1986. Customer Orientation.

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