Free Case Study On Zara (Retailer)
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Introduction to Strategy and its Role
Strategy is the approach developed by an organization to achieve its set objectives and goals (David and Michael 1, 2011). All organizations have targets, and they, therefore, develop a workable methodology of achieving the set goals. Companies must ensure that they incorporate all required measures, and consider external market forces that greatly affect the performance of an organization. Through strategies, organizations achieve their dreams and develop amazing success stories set as models for other companies. An organizational strategy compares to that of the military, where the company must ensure that it performs better that its rivals for survival (Hoopes 900, 2003). The same applies in a Warfield, where the army must develop exemplary approaches of ambushing their rivals before they attack. A strategy, therefore, is a vital constituent of an organization, and the company must adhere to it for maximum productivity and success (Johnson et al. 72, 2014).
The paper aims at focusing on a case study on the company’s adoption of its current strategy. The organization under review is Zara, which is among the largest clothing retailers in the world (Tungate 1, 2012). In the discussion, the paper aims at informing the reader and analyzing the company’s strategic choices that it has made to achieve the top rank in the fast fashion industry. The organization applies a unique strategic approach in the highly competitive industry. Through the strategy, Zara has emerged top in terms of market share and generated incomes. The paper takes the reader through the incorporation of the company's strategy to its success.
Zara is a branch of the parent group Inditex, founded by Amancio Ortega and his late wife, Rosalia Mera. The company is the fastest growing brand and is estimated to be the largest fast fashion company in the world. The Spanish retailer company's headquarters is in Arteixo, Galicia and was founded in the year 1975 (Fisher and Ananth 1, 2010). Zara started out as a home-based retailing business by the name Zorba. Ortega and Mera would tailor clothes on demand, and sell them to their customers. With time, the company has grown, having Inditex as the worlds’ largest retailer in the clothing sector (Guerras et al. 71, 2014).
Zara has a unique strategic approach to better its sales, and ultimately profits. The company has revolutionized the fashion industry by introducing trendy clothes at very cheap prices, and fast moving. The company updates its stock twice a week, ensuring that its consumers get the products that they need. The company has very little, (if not none) competitive strategies against its competitors. It aims at ensuring that its consumers get their demands at the right time and the lowest possible prices (Kim and Renée 1, 2015).
The company’s workforce is trained to depict consumer demands from their behavior and talks easily. Comments made by the buyers of the company’s products are taken seriously, and the organization’s headquarters receive useful information from all its branches daily. The company is, therefore, able to come up with designs that match the intended consumer wants, improving their sales (Tungate 3, 2012). The products are fast moving, ensuring that their consumers do not get bored with the products in the stores. The strategy is also effective, in that it maximizes the chances of customer visits to the store (Wu 1, 2014). Through this strategy, consumer patterns have adversely changed, and the retailer can make more accurate fashion decision in comparison to its rivals.
Porter’s Five Forces Model
Zara has more competitive advantages than its rivals do, and for this reason, it remains at the top in the industry. However, to acquire a better understanding of the company’s success, analysis through the Porter’s Five Forces Model is vital (Porter 30, 2008). Here is the analysis summary.
Threat of New Entrants
The fast fashion industry is highly competitive, and there is a high threat of new entrants into the market. However, Zara is an established brand, and its market is wide, therefore new entrants pose minimal threats.
Bargaining Power of Customers
In the fast fashion industry, customers have a high bargaining power owing to the large number of suppliers involved. However, Zara has developed an uncontestable strategy, improving its bond with customers, minimizing threats to organizational success (Tungate 11, 2012).
Bargaining Power of Suppliers
Zara does much of its production, and therefore there is minimal risks posed by supplier power. The organization controls almost 100% of its production, minimizing any threats from supplier power (Tungate 1, 2012).
Threat of Substitute Products or Services
There is a major threat in the introduction of substitute products in the industry, where organization may replace the company’s prevalent clothing designs. However, Zara has constantly remained on its toes, seeking innovation and remaining relevant in the highly competitive industry.
Intensity of Competitive Rivalry
There is intense competition in the industry, and Zara faces a major threat from other competitors in the same market. For this reason, Zara has adopted rigorous measures to curb any cases of competition from rival brands. It includes innovation and customer relations.
Advertisement as a Strategic Management Challenge
Zara faces a variety of management challenges based on the strategic approach derived by the organization. During the market entry into the industry, the company was stringent on its zero advertising strategic approach. By then, the state of the fast fashion industry was very different from what we have today. Other existent organizations such as H&M and other fast fashion retailers embarked on advertising and extensive promotion. The organizations also rarely brought in new product designs, and consumers therefore possessed a different mentality (Kumar 107, 2006).
Consumer behavior at the time was varied, and most people would rarely visit stores for purchase of clothes. It owes to the fact that consumers were aware of the fact that clothes were available in the store for a long period. The consumers would only therefore visit stores on scheduled dates, when they could make purchases from the available commodities. Clothes lasted in stores for over 12 months, where then the trend changed. Fashion was less evolving then, and people would adhere to non-variant tastes for a long time (Harrington, Robert, and Michael 10, 2011).
Zara’s approach was to bring in varying designs each week and ensure that the consumer needs are satisfied. The organization embarked on aggressive production to maintain its fixed schedule, with the focus on maximizing sales. The organization had to face the challenge of advertisement, where very few people recognized the brand. Consumers had no information pertaining the company, and their research on the organization was limited. The company had to operate without customer consent of the products, and therefore took a longer time to get the maximum market attention. The company started in 1974 and has gained maximum productivity in the late 20th and early 21st century (Walder 1, 2013).
The challenge was major one, and the company’s strategy has bore fruit after many years of implementation. Competing with other major brands has also been a challenge, despite Zara’s minimal concern for competitive strategies.
The Blue Ocean Strategic Model
Zara has created a Blue Ocean by eliminating the aspect of competition from its strategic approach. The organization’s products are tailored to match consumer wants, and not to compete with other brand’s products. Its uniqueness enables the organization maximizes the market share, and the overall profit generated (Niciejewska and Dimitar 12, 2009). The company’s approach is different from all other clothing brands in the market, enabling it to achieve maximum and uncontested market performance. The brand capitalizes on consumer orientation, and its products aim at ensuring that all customers are satisfied and that it covers their tastes and preferences (Mauborgne and Chan 115, 2005).
Zara has, to a major degree, embarked on the blue ocean strategic model. Renée Mauborgne and Chan Kim developed the model in the book “Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant.” The authors embark on a varied approach towards organizational performance, and suggest a new approach towards corporate excellence. In their book, the authors emphasize on innovation and product utility to eliminate the need for competition. The focus is on introducing products that match the consumers’ demand and tastes, enabling the organization maximize its profitability. In such a case, the company has minimal competition, and much of its attention is on bettering the product rather than developing competitive strategies (Mauborgne and Chan 114, 2005).
The company has been able to develop brand loyalty, where the organization ensures that it provides its consumers with the products that match their tastes and preferences. Through the strategy, the company has become the trendsetter, and much of the trendy fashions come from the products of the organization, offering over 12,000 designs every year. Inditex is large in terms of profits and revenues, generating over $20.7 billion in terms of sales in 2012. In the accrued sales, Zara takes up 66%, an equivalent of $13.6 billion. Zara has over 2,000 stores wide though this is an estimate owing to the company’s rapid expansion, opening hundreds of stores yearly (Fisher and Ananth 2, 2010).
Zara has most of its production done within Spain and China, and most of its stores are located in the two countries. The company has no marketing department, and it hardly indulges in any promotional activities. The excess revenue is majorly invested in bettering the appearance of the organization’s stores, for maximum customer attraction. The company is the leading in the industry in terms of growth and market scope. Zara is constantly opening new stores worldwide, bettering its reach in terms of market coverage (Tungate 2, 2012).
As depicted in the strategic model of Zara, much of the focus is bettering cloth designs to match customer wants and preferences. The company does not invest any money in marketing, which is a major competitive strategy in most of the organizations. Advertisement majorly focuses on informing the consumers of a new product in the market and its advantages over rival products (Porter 30, 2008). Zara’s major concerns are constant innovation, improved store experience, better company-customer relation, and zero marketing. The company’s approach has enabled it maximizes its market coverage, and through its strategy, Zara has achieved ultimate success in its industry.
Academic Research’s Take
According to research, Zara has greatly improved, and the success attributes to the company's strategy. The company has arisen of major concern in regards to its strategy, having many companies emulating it. Research proves that the organization has greatly improved into becoming a fashion giant worldwide. Major companies copy Zara’s approach, especially in the fast fashion industry, seeking competition with the ever-growing brand. Some major companies in the industry have decreased the lifespan of their products in stores, in the quest to compete effectively with Zara. The brands did not renew their designs in less than 12 months but have now opted to narrow the lasting time to maximize customer satisfaction (Nippa et al. 55, 2011).
Many academic articles feature Zara's strategy for achieving corporate success. Other organizations have adopted the strategy, in the attempt to match the company’s success, and many companies are opting to minimize marketing expenses. In a book by Ananth Raman and Marshall Fisher, “The New Science of Retailing,” the authors feature Zara as one of the trendsetters in the retailing industry (Fisher and Ananth 1, 2010). The organization approach towards corporate success is attributed to the company’s strategic approach. According to the authors, the organization uses a strategy that is less common, precisely in the fashion industry. The founders of the organization appear as heroes, with respect to the development of the largest brand in the clothing industry (Greening, James and Sara 12, 2012).
Other articles also feature the story, despite the company’s publicity shyness. The founder, Amancio Ortega has never appeared in any interview and hardly is there a photo of him, let alone a talk. The current chair too, Pablo Isla, does not feature in any interview and remains out of the public eye always. The company is termed as one of the shyest companies, in terms of seeking publicity, and much of its undertakings are private (Tungate 7, 2012).
Potential Limitations of the Strategy
Zara’s strategic approach appears to possess more pros than cons. It is evident that the methodology is effective, as it has helped a home-based business turn into a success story, becoming the largest clothing brand in the world. However, there exist a number of limitations, whose correction would amount to maximum corporate success.
The lack of advertisement limits the market scope of the company. Zara is involved in zero advertising and marketing forums, limiting its market coverage, since there are many people who are not aware of the company. Through the introduction of minor (but effective) marketing measures, Zara can widen its market, and eliminate any competition threats. The combination of the organization’s strategy with marketing would amount to maximum corporate success, improving Zara’s profitability (Elkington 2, 2006).
Another limitation is the high cost of production due to operations in Spain. Zara can maximize its profitability through cutting on costs. With the reduced production costs, the organization saves more funds and the profits increase. The excess funds can widen its market coverage through opening stores in new markets (Elkington 4, 2006).
Company Options and Possible Actions
Zara has a number of options for maximum productivity and profitability. The company can maximize its production operations in China and other countries with cheap labor, such as in Africa. By the adoption of this approach, the company not only maximizes its profitability, but also creates employment for the poor. It helps cut on overall production costs, enabling the company to reinvest the funds into the organization. In this context, Zara maximizes its market coverage through expansions into new markets such as in Africa, Asia, and Australia.
The company also has an option of investing funds in marketing of the company's product. The major limitation of Zara is the lack of a marketing strategy to create awareness f the product to the public. The organization limits its success by the lack of advertisements of its products, which would ultimately result in maximum corporate success. With a marketing strategy, Zara outdoes the competition, and, therefore, maximizes its profits, making it an uncontested brand (Fisher and Ananth 19, 2010).
Current Management Scholarship’s Support
The current management scholarship offers major support to Zara’s decision-making process, in relation to consumer orientation. The current management education focuses on educating managers to better their products to suit the needs of the customers and their preferences. The company should also maintain close relations and a tight bond with its customers, increasing brand loyalty and profitability (Martin 79, 2014).
As depicted by many authors and scholars, companies should create products with the maximum utility to their consumers, which will enhance long-term success of the company. Zara applies a similar approach and tailors its product to meet the existent consumer demand. The company set the new fashion trend, where clothes vary in a short span of time.
Authors’ management ideas, however, vary from Zara’s strategic approach, where a company should maximize marketing to widen its market (Nippa et al. 58, 2011). The company, therefore, adheres to much of the current management techniques, despite the minor difference in relation to advertising. Through the adoption of Zara’s technique, organizations may develop maximum corporate success and consequently maximize their profitability.
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