Zara Case Study

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How well does Zara’s advantage travel globally?

Zara has had great success by minimizing costs on expenses such as advertising and marketing and focusing on promoting sales by good store locations and in-store promotions. In order Zara to maintain its competitive advantage, Zara should consider opening a distribution center in the Americas.

Zara has several advantages when expands its operation in global markets. Firstly, Zara has always promoted its product via its stores and it had its own centralized distribution center which will translate to low advertising and logistics costs when it enters into new markets. As opposed to its competitors who could invest heavily on advertising and distribution channels. In the industry apparel retailing was witnessing increasing concentration which could benefit Zara when entering new markets.

What do you think of Zara’s international strategy? Evaluate its past strategy for market selection, its mode of entry, and its standardization of its marketing approach.

They do not currently customize their product to meet just one country’s requirements which allows them to control costs. They have used their cost advantage to support their pricing strategy aboard which is market-based with customers bearing the extra costs (C. page 17).

Its market selection strategy has been effective as it entered about one country per year and then began to rapidly expand after gaining experience operating locally (C. page 15). The company looked for similar markets to Spain and conducted macro and micro analysis and used forecasting to determine profitability in a market before entering. Zara has utilized several modes of entry into new markets ranging from company-owned stores, to joint ventures and franchises which has been successful (C. page 16).

Zara’s international strategy was excellent because it adopted a balanced mixture of standardization and customization. Standardization of Zara’s marketing approach has also been successful and allowed them to maintain strategic control over the marketing mix. Pricing is market-based but promotion and product offerings vary less internationally as basic designs tend to be common from country to country (C. page 18).

It followed standard procedures in selecting and entering a certain market, which made scaling operations easier. Zara did not withdraw from a single market, which reflected sound market selection decisions. It followed a systematic procedure to insure extensive market testing before expanding its operations (oil-stain method). Moreover, countries were initially selected in concentric groups to facilitate shipping problems evolving with the complexity introduced by a certain range of distance. Commercial teams carefully studied markets before making the entry decision. Zara would immediately expand into a favorable market to reach economies of scale after setting market-based prices.

What is the best way to grow the Zara chain? What are the prospects for the Italian market? Europe?

The best way for Zara to grow would be expand its market operations by following a short term and long term strategy. In the short-term Zara, should aggressively pursue European markets especially Italy to begin with. However, since all major European markets would have heavy presence of competitors, it would be beneficial for Zara to seek help from an experienced player to set its foot in the market. Hence, Zara can either outsource its retail stores to interested franchisees or to maintain greater control can form joint ventures. Zara can continue to own its flagship stores and franchise other stores with the intention of buying them out when they increase their market share. The Italian market is highly lucrative because of several reasons:

- It is an attractive market since Italians are fashion conscious, spend close to 1000 Euros on apparel, Italy is also the largest apparel market, and Italians are frequent shoppers.

- Proximity to its warehouse and distribution facility. This advantage will help Zara operate better and faster than any of its competitors.

- Zara has experience in Europe and can apply its business model in Italy without undergoing several structural changes.

- Zara can maintain its structure and take advantage of its unique business system in Italy. However, the Italian market will be difficult to enter unless Zara partners with a local business that reflects the market conditions and gives Zara an entry into the market. Also, Zara will need prime locations for its retail stores if it plans to keep the advertising to minimum.

European Market

The European market is lucrative since it is not fully exploited to its potential and there are several markets like Greece, Sweden, and Italy. To add to that there is a low retail chain concept in their markets which makes room for entrants like Zara to get a foothold in the market. Finally, the sale per capita is considerably high in Europe and this would make for some interesting statistics for strategists.

Conclusion and Suggestions

Zara is currently enjoying competitive leadership in fast fashions. It has made its founder, the richest man in Spain. So far, strategies implemented by Zara provided a firm base to organization. The changing or introducing change in strategies is a difficult process to conduct, but to excel in business and cope with current expanding markets Zara must introduce some new objectives and strategies. No single strategy can serve the purpose. Like before, Zara should decide an implementable combination for future. It is recommended that, not to implement all the decisions in a single step, rather act and wait for response and then decide for further actions to be taken. Detailed assessment of scenarios is to be done before finalizing any decision because fashion market changes frequently that rough estimates may lead to undesired results.