ANALYSIS
Abstract
Zara is a renowned company in the clothing and fashion industry worldwide. Zara is among the best companies in fashion design. With regards to the SWOT analysis. The strengths of Zara include: Zara is the most profitable brand of Inditex. Zara has a strong supply and retail network. It has focused on significantly investing in AI. It has an affordable pricing strategy. Has fast-increasing sales. Its weaknesses include its low presence in certain fast-growing markets. Less aggressiveness in promotions as well as marketing. Its opportunities include: improving customer service through investing in AI. Making investments in promotions and marketing. Its threats include Competitive threats from other fashion companies. Intensified regulatory threats. Increasing costs of raw materials. Zara’s brand in China targets the royal, the middle class and the young consumers who tend to have a sense of fashion. Zara’s brand image in China entails that customers’ especially young customers view their products as being luxurious and stylish. Zara’s brand in Australia targets both men and women between the age of 20 and 35 and children. In Australia, Zara has only adopted product branding. In China, Zara uses both corporate and product branding. The company has currently been positioned in a universal position consumer market as it operates globally and has retained its competitive advantage in the industry.
Introduction
Zara is a renowned company in the clothing and fashion industry worldwide. It is one of the top fashion designing organizations, which has been categorized as the most effective market responding company. Zara is among the best companies in fashion design since it normally ensures that it keeps up with the latest trends that are quite affordable and of high quality. This company was founded by Mr Amancio Ortega it initially started as a small store called Zorba in Spain, a constituent of Inditex which later changed its name to Zara (ZARA, n.d.). Zara currently is an international company, operating in various companies worldwide. The big reason for the success of Zara is that it ensures that it is always keeping up with the rapid changes in fashion. Zara faces competition from its major rivals including H&M in China and Showpo in Australia. However, despite the competition, the company has reportedly been said to have a high competitive advantage in the market consistently (Amarkhil, 2018). Therefore, this paper seeks to analyze and determine Zara’s current competitive position globally. To achieve this, Zara’s brand global SWOT analysis, analysis of Zara’s brand in China and Australia, as well as the branding strategies have been undertaken.
Zara’s brand global SWOT analysis
SWOT Analysis
| Strengths Zara is the most profitable brand of Inditexstrong supply and retail networkInvesting in AI, information technology, as well as other contemporary modern technologies to make its retail network and supply chain efficientaffordable pricing strategy | Weaknesses low presence in certain fast-growing marketsless aggressive in promotions as well as marketing |
| Opportunities Improve customer service by investing in virtual reality, AI as and other technologiesIncrease customer base through promotions and marketingcapable of expanding its retail channel to many parts of the world | Threats Competitive threats from other fashion companiesRegulatory threatsIncreasing cost of raw materials |
Table 1: Zara global SWOT analysis
Strengths
Zara is the most profitable brand of Inditex. Its reason for emerging to be a top fashion company globally is due to its ability to defying conventional wisdom. The company has implemented a unique model as well as getting an appropriate balance between supply and demand. The company has fast fashion cycles such that customers always find something new and without overstocking (KAPUSTINA et al., n.d.). Zara’s stock normally remains fresh as well as the brand focuses on creating a sense of urgency on its customers to make purchases. Products available in the store today, might be unavailable the following week.
Zara has a strong supply and retail network. Essentially, Inditex factories have more than 1800 suppliers and also have controlled costs due to their high levels of integration which contributed to efficiency in the company’s business model. Moreover, the retail network for Zara has significantly increased recently to a total of 2251 retail stores by January 2018 and its commerce network has reached 48 markets as of November 2018 (KAPUSTINA et al., n.d.).
Zara has focused on significantly investing in AI, information technology, as well as other contemporary modern technologies to make its retail network and supply chain efficiency (KAPUSTINA et al., n.d.). Zara has invested in RFID technology enabling it has improved inventory management within its stores. It has also invested in IT tools facilitating better sharing of information and greater flexibility along with facilitating ideas to be converted into products quickly.
Zara’s affordable pricing strategy is another core strength which has enabled it to increase and expand its customer base. The company has also produced some higher-priced brands intending to cater to the high end of the market. Its pricing strategy, as well as the affordable designs, are focused on youth. Zara’s pricing strategy is appealing to its business strategy.
Weaknesses
One of Zara’s weakness is its low presence in certain fast-growing markets in different parts of the world. In most of the fast-growing markets entailing Malaysia as well as India, Zara has a few stores. In fact, in India Zara has only 20 stores, 10 stores in Malaysia, 11 stores in Thailand and only 1 store in New Zealand (Chu, 2016). These are way fewer stores as compared to the stores in Spain, the United States, Russia, the UK, and China. India is a fast-growing market with an attractive market for fashions and by Zara increasing its number of retail stores in it would be profitable.
In comparison to its rivals, this company appears to be less aggressive in promotions as well as marketing. Rather than promoting sales through heavy advertisements, the company has been centered on pulling customers through response to their needs and tastes. Through this, Zara established strong brand recognition without marketing and promotions (Ortiz Cuadrado, 2016). Nonetheless, this has resulted in highly competitive pressure.
Opportunities
Though the focus of this company has been on providing top-class customer service, it can also improve the customer service through investments in virtual reality, AI as well as other technologies (Saraswat, 2018). Focusing on customer-oriented strategies is very beneficial to brands especially in this era. Nonetheless, contemporary technologies can transform shopping into a better experience.
Zara can also further increase its customer base including its sales through making investments in promotions and marketing. Up to date, Zara is renowned for investing small amounts in marketing (Saraswat, 2018). Nevertheless, with the increasing competitive pressure, investment in marketing may be a good idea for this company and assists in increasing its sales as well as its customer base.
The company is also capable of expanding its retail channel to many parts of the world such as the fast-growing Indian and Asian markets. Although it has an incredible presence in China, Zara still a small retail presence (Saraswat, 2018). Expanding its retail channels to markets such as India can be very profitable to the company since it has a larger market base with intense potential.
Threats
Competitive threats from other fashion companies in intensively increasing. This has created pressures on Zara’s sales and marketing (Wang, 2018). Though Zara has a robust brand image as well as a strong supply chain, it is currently experiencing intense competition within the industry. In China, Zara’s great competitor is H&M and in Australia, its big competitor is Showpo.
Regulatory threats have also intensified due to the increasing legal and political regulations within the fashion industry. Worldwide, governments, as well as legal corporations, have intensified their regulations on businesses encompassing those operating under the fashion industry (Amarkhil, 2018). These high levels of regulations are becoming a roadblock to expansion and fast growth.
The cost of raw materials has been gradually increasing. Although Zara has ensured that it has a well-managed supply chain that manages the supply of raw materials effectively, the increasing cost of raw materials, as well as labor cost, have raised the operational costs (Ortiz Cuadrado, 2016). This is can make a negative impact on Zara’s profits and revenue.
Zara’s brand in China
Concerning the 6-D Model of Geert Hofstede, the Chinese culture possess a strong power of distance. The Chinese society tends to be a collective society whereby personal relationships are vital together with commitment as well as respect for the community (Chen & Wang, 2015). Chinese tend to place more emphasis on value, benefits of the product, quality, assessing features as well as putting more effort into research (Chu, 2016). Chinese also focus on comparing prices. Impulse purchases are uncommon. The contemporary Chinese consumers are very detailed in brand and price because of their extensive research regarding the products and brands have mostly done online (Chu, 2016). Nonetheless, they do not embrace brand loyalty and not price sensitive. Chinese consumer purchases are also based on a recommendation from trusted friends or family members. With regards, to fashion, the Chinese current middle class considers fashion and style (Chen & Wang, 2015). With the growing economy, Chinese customers are gradually shifting their value to increased individualistic values.
Individualism addresses the level of interdependence that the society has amongst themselves. China has a score of 20 in individualism, since China is a collectivist culture whereby Chinese people tend to act in the interest of the Chinese people and not to themselves (Chen & Wang, 2015). Employee commitment within organizations is low and personal relations over work and organization.
Masculinity depicts that the society will be controlled by success, competition, as well as achievement. A low score on masculinity dimension is meaning that dominant values within the society tend to care for others as well as the quality of life. China has a score of 66 meaning it’s a masculine society, success oriented (Chen & Wang, 2015). Essentially, the need to make sure success is achieved, is notable by how Chinese people sacrifice family as well as leisure in order to work. They work till late night and leisure time is not important to them.
Uncertainty avoidance focus on the way the society is dealing with the reality that the future is unpredictable. China has a score of 30 on Uncertainty Avoidance. The Chinese people are contented with ambiguity as their language has a lot of ambiguous meanings which is quite hard for western people to follow (Chen & Wang, 2015). Moreover, they are entrepreneurial and adaptable.
Long term orientation dimension focus in describing the way each society needs to retain some links with its historical past when handling present or future challenges. At a score of 87, this is meaning that the Chinese culture is a pragmatic culture whereby they believe that the truth relies on time, context as well as situation (Chen & Wang, 2015). Indulgence dimension tends to describe the extent to which individuals attempt to control their desires. Apparently, China is a restraint society with a score of 24, therefore it tends to be pessimist and cynicism.
According to Schwartz value first dimension “openness to change” vs. “conservation” that depicts the opposite value. Openness to change depict the independence of thought considering to change. While conservation stress a form of submissive self-restriction. Therefore, the Chinese market has conservation values. They tend to be submissive to products that are suit their cultural values.
According to the OCEAN traits, the Chinese society appears to have low levels of openness. They also do not exercise impulse purchases due to Confucianism values. The level of extraversion of the Chinese people is low as they tend to be less assertive and less talkative. The level of agreeableness is also low as they are less friendly and mostly consider their families to come first. With regards to neuroticism, the Chinese people tend to be moody.
Target market
The company targets the royal, the middle class and the young consumers who tend to have a sense of fashion. The target market of Zara in China is women and men between the age of 18 and 50 years (ZARA, n.d.). The company also targets teenagers and young children. Due to the conservative values of the Chinese people, with regards to the Schwartz values, the company targets individuals that have conservation values since they have high possibilities of exercising brand loyalty towards their brand. With regards to OCEAN traits, the company targets customers with high levels of openness, conscientiousness, extraversion, agreeability and neuroticism.
Brand position
Zara’s brand positioning is the affordable fast fashion which is positioned to a universal consumer market. The company has emerged to be a world-class brand, though its success does not depend on its designers in creating popular or classical, it is because of the close relations of the brand positioning of Zara to fast fashion (Wang, 2018). The customer’s mindset on Zara’s brand on fast, design, quick sale, affordable products, fast production as well as a quick response to the market demand depicting fast fashion. In China Zara is more focused in rational branding. This is because, the Chinese people tend to be moody, and therefore, emotional branding is inappropriate. However, Zara in China faces tough competition from its main competitor, H&M. Therefore, Zara’s rational branding is demonstrated through attempts to appeal to customers to purchase the products due to their high quality and lasted trends which helps it to gain a competitive advantage.
Brand identity vs. brand image
Since Chinese cultural values entails placing more emphasis on value, benefits of the product, quality and assessing features, Zara’s physique entails being a reactive and quick response to customer needs and wants. It also entails being flexible to changes in the market as well as being market-oriented. This has been met through “in-store feedback collection” as well as “two weeks collections” features. Since Chinese tend not to embrace brand loyalty, therefore, Zara has ensured that it creates a good relationship with its customers by providing trusted quality products, providing products that are affordable and also offering a fair exchange of values so as to woo Chinese customers. Zara’s reflection focus on maintaining their products to be stylish with some sense of collectivism to suit the Chinese customer’s taste and preference who tend to be a collectivism society (Chu, 2016). The brand’s culture has been met by providing both Spanish and international designs to suit the diverse market base.
With regards, to fashion, the Chinese current middle class considers fashion and style Zara’s brand image in China entails that customers’ especially young customers view their products as being luxurious and stylish. The contemporary Chinese consumers are very detailed in brand and price because of their extensive research regarding the products and brands have mostly done online. Therefore, the customers also view Zara’s products to be affordable and of high quality (Chen & Wang, 2015). Moreover, the Chinese customers also find Zara’s brand to be unique, flexible and responsive in terms of customer services. They also perceive Zara’s brand to be trendy and classic. Chinese consumers also perceive Zara’s brand to be upholding individualistic values. Therefore, Zara’s brand fits the Chinese market although there is a gap that exists in the market due to the collectivism in China because Zara mainly produce products that have a sense of individualism.
Cultural value and dimensions
Using the 6-D Model of Geert Hofstede, the Australian culture seems to have a low power distance at 36. The Australians are believing in inequalities to be unacceptable within their society. For Australian society, it appears to be an individualistic society. In this society, work is shared among both men and women. Australians tend to place more focus on the quality of products, affordability, and convenience (KAPUSTINA et al., n.d.). Impulse purchases are very common in Australia. Australians are more concerned with brands and mostly tend to prefer sticking to one brand. They embrace brand loyalty and are very price sensitive. Most of the purchases are based on recommendations from peers or online reviews.
With regards to individualism dimension, Australia has a score of 90 indicating that is mostly an individualist culture. People tend to be self-dependent and tend to prefer products that suit their own tastes and preferences. The masculinity score of Australia is 61 thus being considered to be a masculine society. Behavior in this society is on the basis of the shared values that every individual needs to aim at doing the best in whatever they are doing. Australian people tend to be proud of themselves including their achievements (KAPUSTINA et al., n.d.). Uncertainty avoidance score is 51 indicating that the level at which Australians feel threatened by ambiguous situations is medium. At a score of 21 in long term orientation, it indicates that Australia is a normative society whereby they tend to have a strong need of remaining truthful, respect traditions and save for the future (KAPUSTINA et al., n.d.). The score of 71 for indulgence dimension indicates that the country is an indulgent country. Australians a willing to enjoy life and have fun. They value leisure time and spend money as they wish.
According to Schwartz value first dimension “openness to change” vs. “conservation” that depicts the opposite value. Australian market embrace the openness to change value, as the people of Australia are show the willingness to change. The Australia people are flexible to change and take to embrace individuality. Therefore, the Australian people are flexible to change to suit the trends in the fashion industry.
According to the OCEAN traits, the Australia people have high levels of openness due to their sense of individuality and democracy. In terms of conscientiousness, for Australians it is high because of their high levels of reliability. They also show some high levels of agreeableness due to their friendliness and compassion. Australians also have high levels of extraversion since they tend to be talkative, energetic and assertive. With regards to neuroticism, Australians are not mood and appear to be emotional stable.
Target market
Zara in Australia targets both men and women between the age of 20 and 35. This comprises of individuals from the royal and middle class (Ortiz Cuadrado, 2016). It also targets young children and teenagers. The Australia market have the openness to change value as per Schwartz theory and tend to embrace democracy. The company targets customers who are open to changes due to the continuous trend in fashion in the industry as per the Schwartz theory. With regards to OCEAN traits, the company targets customers with high levels of openness, conscientiousness, extraversion, agreeability and neuroticism.
Brand position
Zara’s brand positioning in Australia is affordable fast fashion which is positioned to a universal consumer market. While in Australia, the company has emerged to be a top-class brand, though its success does not depend on its designers in creating popular or classical, it is because of the close relations of the brand positioning of Zara to fast fashion (Ortiz Cuadrado, 2016). The Australian customer’s mindset on Zara’s brand on fast, design, quick sale, affordable products, fast production as well as a quick response to the market demand depicting fast fashion. The company has focused more on emotional brand positioning through advertising on social media and various media aimed to emotionally woo customers to purchase their products. In Australia, Showpo is Zara’s main competitor. This company has been a big threat to Zara. Therefore, the company has to remain unique in its marketing and quality of products. The company also has an emotional attempt to promote its products through an advertisement slogan, “Love Your Curves.” This is aimed to trigger customer purchases emotionally creating a need for purchase among customer.
Brand identity vs. brand image
The Australian society is an individualistic society whereby the people tend to prefer products that suit their own individual wants and preferences. Therefore, Zara’s brand identity and structure appears to be reactive and offers a fast response to customer needs. Australians tend to place more focus on the quality of products, affordability, and convenience. So, the Company also maintains high quality in the production of its products (Aaker & Biel, 2013). Australians are more concerned with brands and mostly tend to prefer sticking to one brand. They embrace brand loyalty and are very price sensitive. Style and maintaining a brand culture is essential to suit diverse markets. The company also identified for its affordable prices on its products. International designs of fashion are made to suit specific markets.
Since Australians are price sensitive, Zara seems to suit the country because its image in Australia encompasses customers viewing their products to be pocket-friendly and of high quality meeting their tastes and preferences (Ortiz Cuadrado, 2016). It is also viewed that their products are unique, flexible and designed to address the customer wants.
Overview of branding strategies
Product branding
Product branding refers to a strategy defining unique marketing aspects to distinguish a particular product. Product branding has the advantage of creating awareness to the customers and differentiating a particular product from other products (Lado et al., 2016). For example, H&M has been successful through product branding which has helped it to differentiate its products from other fashion products. On the other hand, product branding has turned out to be a failure for Forever 21 making it fall and face the risk of bankruptcy.
Line branding
This refers to providing all the products to customers under one same brand name. In essence, this is simply integrated into a better remembrance by customers, improved shelf-space as well as a means to gradually improve and develop new products. The advantage is that this strategy enables a company to extend its brand to incorporate related items under a common concept (Lado et al., 2016). A good example is Adidas, which has appeared to be successful in line branding is various products under one brand name Adidas. The disadvantage is that this strategy possibly weakens the brand rather than strengthening it like in the case of K-Fed’s Kid’s Clothes which failed.
Range branding
This branding allows the brand to expand into near territories of complementary products supporting the main product use. The range brand entails several products under one banner. The advantage is that products share a common name which helps to avoid brand building from being dissipated (Truong et al., 2017). A good example of a company using range branding that was a success is Armani which utilizes Armani brand for its range of clothing and other products such as shoes, perfumes, glasses, leather bags as well as belts. The disadvantage is that this strategy overstretches the brand thus weakening it. For instance, BCBG Max Azria failed due to overstretching its brand leading to its near bankruptcy.
Two-tier branding
This is a strategy that entails combining both product and corporate branding whereby the name of the company, as well as the individual product brand name promotion, are carried out by displaying them. This strategy helps in expanding a company’s products appeal to diverse markets (Truong et al., 2017). For instant, Isaac Mizrahi a high-end designer applied the approach in designing outfits for movie stars and the approach helped him expand his business. The disadvantage can be confusion caused by overlapping segments. For example, Altazurra ran into confusion by using this approach.
Corporate branding
It entails practicing to promote a brand name for a corporate entity rather than a particular product or service (Truong et al., 2017). The advantage is that it helps the product to gain recognition as well as creating a lasting reputation within the marketplace. The big problems are that it is costly and dilutes the brand image. Eddie Bauer flopped by trying to adopt corporate branding driving it into an identity crisis.
Umbrella branding
This is a marketing practice that entails the utilization of one brand name in selling two or more associated products. The advantage is that the success of one product tends to boost other products too (Truong et al., 2017). H&M’s use of this approach has boosted all its products making it be at the top in the industry. The disadvantage is that it can cause quality fluctuations. Chico’s Inc. use of umbrella branding was a failure amounting to big loses.
Co-branding
This is a marketing approach that uses multiple brand names on products as a strategic alliance. The advantage is that it enables brands to share risks (Truong et al., 2017). A good example of co-branding is the branding partnership between Kanye West’s personal cloth line and Adidas to establish a high-end footwear named Yeezy. The branding was successful as it attracted more company earnings and increased the brand’s growth while giving Kanye a proper platform for building his high-end cloth line. The disadvantage is that this approach also can have a serious impact on the partner brands.
Zara’s branding strategies for each country
Branding strategy for Australia
In Australia, Zara has only adopted product branding due to Australian society which embraces individuality. Zara finds product branding appropriate in Australia creating awareness to the customers and differentiating a particular product from other products (KAPUSTINA et al., n.d.). There is high competition from other brands thus making product branding suitable to raise awareness to the consumers to be able to differentiate the products. This strategy has been successful due to Zara’s ability to the rapid changes in fashion trends. The company produces new products which are based on the latest trends quickly thus enabling it to outdo its competitors.
Branding strategy for China
In China, Zara uses both corporate and product branding. Since China is a collectivist society with conservative cultural values, Zara uses corporate branding to help its products to gain recognition as well as creating a lasting reputation within the marketplace (Chen & Wang, 2015). It also applies product branding to help in defining unique marketing aspects to distinguish a particular product to the Chinese people who tend to be very keen on details. These two strategies have been successful because of the cultural values of the Chinese whereby they tend to be keen on details and research more about the product.
Conclusion and recommendations
To sum it all, Zara is one of the top retailers in the clothing and fashion industry that seems to be performing quite well. The company has currently been positioned to a universal position consumer market as it operates globally and has retained its competitive advantage in the industry. Its success both in Australia and China have been attributed to the close relationship of its brand positioning to fast fashion. However, the Zara still faces the threat of high competition from its rival competitors; H&M in China and Showpo in Australia. Therefore, further recommendations can help improve and maintain its competitive position. Zara should, therefore, consider the following recommendations:
- Zara needs to take into consideration the slight decentralization of its vertical integrated production as well as the distribution chain to ensure that they are cost-effective and also to open more plants in Asian countries to take advantage of the low production costs.
- With the marketing issues facing Zara, it should take into consideration the adoption of the same strategies to those adopted by its competitors such as H&M, which centers on collaborating with designers.
- To minimize competition in the retail stores, Zara needs to provide a different range of products in every store to encourage customers to visit them all.