BY:

SARAH SUHAIB
4TH SEMESTER (B.COM HONS.)
A3104613161
UNDER THE SUPERVISION OF
MS.LALITHA
In The Partial Fulfillment Of The Requirements For The
Degree Of Bachelor of commerce
AMITY COLLEGE OF COMMERCE AND FINANCE

TOPIC:BRANDS AND THEIR DISTRIBUTION CHANNELS ACROSS

INTERNATIONAL BORDERS

NIKE
PEPSICO
LOREAL
ZARA

NIKE
Company Profile
Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under the name, Blue
Ribbon Sports. Our modest goal then was to distribute low-cost, high-quality Japanese athletic shoes to
American consumers in an attempt to break Germany's domination of the domestic industry. Today in 2000,
Nike Inc. not only manufactures and distributes athletic shoes at every marketable price point to a global
market, but over 40% of our sales come from athletic apparel, sports equipment, and subsidiary ventures.
Nike maintains traditional and non-traditional distribution channels in more than 100 countries targeting its
primary market regions: United States, Europe, Asia Pacific, and the Americas (not including the United
States). We utilize over 20,000 retailers, Nike factory stores, Nike stores, NikeTowns, Cole Haan stores,
and internet-based Web sites to sell our sports and leisure products. We dominate sales in the athletic
footwear industry with a 33% global market share. Nike Inc. has been able to attain this premier position
through "quality production, innovative products, and aggressive marketing."

Products
Our primary product focus is athletic footwear designed for specific-sport and/or leisure use(s). We also sell
athletic apparel carrying the same trademarks and brand names as many of our footwear lines. Among our
newer product offerings, we sell a line of performance equipment under the Nike brand name that includes
sport balls, timepieces, eyewear, skates, bats, and other equipment designed for sports activities. In
addition, we utilize the following wholly-owned subsidiaries to sell additional sports-related merchandise
and raw materials: Cole Haan Holdings Inc., Nike Team Sports, Inc., Nike IHM, Inc., and Bauer Nike
Hockey Inc. Our most popular product categories include the following:

Running

Basketball

Cross-Training

Outdoor Activities

Tennis

Golf

Soccer

Baseball

Football

Bicycling

Why NIKE is the #1 sports brand in the world

The sportswear equipment and apparel industry is highly competitive and includes many prominent players.
NIKE, Inc. (NKE) is the largest seller of athletic footwear and apparel in the world. It has a footprint in 190
countries. NIKE has sustained its competitive edge by applying some effective strategies:

Focusing on innovation and the introduction of proprietary products NIKE AIR, Lunar, Shox, Free,
Flywire, Dri-Fit, FlyKnit, NIKE+, and NIKE Fuel

Building up a portfolio of globally recognized brands

Using targeted high-impact marketing at high-profile sporting events such as the soccer World
Cup, the Rio Olympic Games, and the NFL Super Bowl

Making endorsement deals with high-profile athletes like Neymar, LeBron James, and Roger
Federer

PROFILE OF THE INDUSTRY

Industry Size

In 2008, Americans spent approximately $38 billion to purchase more than 1.1 billion pairs of
shoes. The wholesale value of athletic shoes for the US market totaled $8.7 billion in 2008 down
8.5% from the year before. According to the Sporting Goods Manufacturers Association, athletic
footwear accounts for almost 35% of all footwear purchases.

In general, consumers are spending less worldwide for athletic footwear. The current domestic
industry focus is on casual and comfortable shoes. Although athletic footwear sales appear to be
recovering, demand is still leaning toward the "brown shoe" casual footwear with a comfortable and

rugged design. This switch is due to the increasing number of workplaces adopting casual dress
codes.
Industry Profitability

The athletic footwear industry is a challenging and saturated market. Intense competition, fashion
trends, and price conscious consumers have slowed growth in this industry. Manufacturers are
combating sluggish sales with radical new styles, along with offering more styles at lower price
points. Companies are looking for new ways to boost sales by capitalizing on direct Internet sales
to consumers. Many companies are also increasing profitability by transferring production to
cheaper offshore facilities.

This segment has reached a point of maturity in the domestic market and can look forward to only
modest sales growth for the long term. However, sales are improving slightly, especially in areas of
running shoes, cross-trainers and basketball shoes. Therefore, companies with strong brands will
increasingly turn to international markets for growth
running shoes, cross-trainers and basketball shoes. Therefore, companies with strong brands will
increasingly turn to international markets for growth.

NIKEs Distribution Channels: How Products Reach Customers

Analyzing NIKEs distribution channels and retail model
NIKE distributes its products through three major channels:

By selling products to wholesalers in the US and international markets

By direct-to-consumer (or DTC) sales, which include in line and factory retail outlets (see graph
below) and e-commerce sales through www.nike.com

Sales to global brand divisions

The Rationale Behind NIKEs Retail Focus

NIKEs retail click-meets-bricks marketplace strategy
NIKEs DTC (or direct-to-customer) approach is three-pronged:

NIKE brand and category experience stores

Online sales through its online portal www.nike.com

NIKE factory stores

DISTRIBUTUION CHANNELS

Retail partnerships

NIKE, Inc. (NKE) has also tried to create category-specific retail destinations by partnering with footwear
retailers such as Foot Locker, Inc. (FL), JD Sports, and Intersport.

NIKEs sales mix and retail slant

Sales to wholesalers are the largest revenue category. However, this categorys contribution in the sales
mix contracted from 83.3% in fiscal year 2012 to 79.2% of revenues in fiscal year 2014. DTC sales, on the
other hand, increased from 16.2% to 20.3% over the same period. This is significantly lower than the ratio
of DTC revenues for NIKEs rivals in the space. In the most recent quarter, the respective ratios of DTC
revenue to total revenue for Under Armour Inc. (UA), VF Corporation (VFC), and Adidas AG (ADDYY) were
25.3%, 23%, and 25.4%.
NIKE is focusing on direct selling to the consumer with its DTC initiative. Comparing NIKEs distribution
channels, direct sales to the consumer provide higher margins than do sales to wholesalers. In fiscal year
2014, DTC revenues accounted for ~20% of total NIKE Brand revenues as compared to 18% in fiscal year
2013. On a currency neutral basis, DTC revenues grew 22% in fiscal year 2014 and 30% in 1Q15, yearover-year.
The company is attempting to grow the DTC category to $8 billion in sales by fiscal year 2017, up from $5.3
billion in fiscal year 2014. Thats an annual growth rate of 14.7%, compounded.

Pricing power through the NIKE brand experience stores

The NIKE brand experience stores provide customers with the full bricks-and-mortar retail proposition.
Premium stores that offer the consumer the best brand experience, experience stores include
NIKETOWNs, the largest stores in the fleet. Each NIKETOWN features six or seven NIKE brand
categories, providing the very best innovative product and services those categories have to offer. This
premium customer experience gives NIKE higher pricing latitude on the products offered.
For example, the NIKE Running Store in New York City caters to the complete needs of the runner, from
compete to train, to express, all in one place. Its a hub for both premium services and a premium
experience.
The second goal is creating category experiences. Along with its wholesale partners, NIKE aims to create
unique experiences such as the House of Hoops for Basketball with Foot Locker, Inc. (FL), or the NIKE
Track Club for runners with Finish Line or the Field House with Dicks Sporting Goods Store, Inc. (DKS).
These product differentiation strategies allow for premium pricing. They also benefit NIKEs wholesale
partners by bringing them into the limelight.

Factory stores offer a premium value proposition, broaden NIKEs customer base

NIKEs factory stores provide a premium product to consumers shopping for value. Due to the value
proposition involved, they tend to attract higher shopper volumes.

Online sales through www.nike.com

Online sales made up ~15% of total NIKE brand DTC revenues in fiscal year 2014, compared to ~12% in
fiscal year 2013. Online selling is one of key future growth drivers of NIKEs retail strategies. The category
grew by 42% in fiscal year 2014, and was up by 70% year-over-year in 1Q15.
Well look at other growth drivers in the next part of this series.
In comparison, Amazon.com, Inc. (AMZN), the worlds largest online retailer, grew sales by 20.4% yearover-year in its most recent quarter, ended September 30, 2015. Wal-Mart Stores, Inc. (WMT), the worlds
largest retailer, grew global e-commerce sales by ~21% in the quarter ended October 31, 2014, on a
constant currency basis.
The SPDR Consumer Discretionary Select Sector ETF (XLY) and the SPDR S&P 500 ETF (SPY) provide
exposure to Amazon and NIKE.

NIKEs Growth Drivers In The US And Overseas

North America: NIKEs largest growth driver

Despite having operations in 190 countries across the world, North America continues to be the
most important of NIKEs growth drivers. North American sales make up about 44% of its total
revenues worldwide. And, NIKEs projecting high single digit top-line growth in North America
through 2017.
A combination of product innovation and pricing power spearhead the companys efforts to stay
ahead of the pack. Theres also a large gap between NIKE, Inc. (NKE) and its nearest
competitors, Under Armour Inc. (UA), VFC Corporation (VF), Lululemon Athletica Inc.
(LULU) and Adidas-owned (ADDYY) Reebok.

Emerging
markets
NIKE believes Brazil and China (FXI), two key markets, are under-penetrated. Chinas growing
middle class and the growing sporting environment are important revenue opportunities. The
company wants to improve its product mix and profitability in the Chinese market to take
advantage of the changing landscape.
Brazil already has a healthy sports culture, even apart from soccer. NIKE was a sponsor at the
FIFA 2014 soccer World Cup and is also a sponsor at Rios Olympic Games, slated for 2016.The
company wants to use these opportunities to enhance its image not only in Brazil, but all over the
world.

PEPSICO

Company Profile
PepsiCo Inc. (PEP) is a leading food and beverage company that manufactures and distributes its products
in more than 200 countries. Food products that PepsiCo manufactures include chips, flavored snacks,
cereals, rice, pasta, and dairy-based products. The companys beverage product portfolio includes
carbonated soft drinks, juices, ready-to-drink tea and coffee, sports drinks, and bottled water.
Headquartered in Purchase, New York, the company employs around 274,000 people worldwide.
According to Information Resources, Inc. (or IRI), a market research company, PepsiCo owns nine of the
40 largest packaged goods trademarks in the United States. The company owns several brands, and 22 of
them, including Pepsi, Lays, and Gatorade, generate more than $1 billion each in revenues.

Understanding PepsiCos business model

Diversified business model
PepsiCo Inc. (PEP) has a diversified business model with a strong presence in food and beverage
products. In a scenario where carbonated soft drinks have been continually declining, PepsiCos significant
presence in the snack food category gives it an edge over its closest rival, The Coca-Cola Company (KO),
which is heavily dependent on sparkling or carbonated beverages. In 2013, PepsiCos food business
accounted for 52% and its beverage business accounted for 48% of the companys $66.4 billion revenues.

Complementary products
PepsiCo benefits from its presence in two complementary categories: food and beverages. There is a high
coincidence of purchase between these two categories. According to Information Resources, Inc. (or IRI), a
market research company, 54% of US consumers who buy salty snacks also buy a beverage in the same
basket. For instance, PepsiCo states that when Frito-Lay snacks are merchandised along with Pepsi
carbonated soft drinks (or CSDs), it results in higher sales.
Another interesting observation is that more than 60% of US households who buy Mountain Dew also buy
Doritos tortilla chips.
Leveraging category strengthThe presence of one category of business in a region makes PepsiCos
entry easier into the complementary category. For instance, PepsiCo is able to leverage its beverage
business in emerging markets to develop its snacks business.

PepsiCos three-channel distribution network

Three distribution channels

PepsiCo Inc. (PEP) is a leading food and beverage company with an impressive global presence. The
companys products reach the market through the following three channels: direct store delivery (or DSD),
customer warehouse, and third-party distributor networks. PepsiCo chooses the relevant distribution
channel based on customer needs, product characteristics, and local trade practices.

Direct store delivery

Under the DSD system, PepsiCo delivers products directly to retail stores. Of the three channels, DSD
enables PepsiCo to merchandise with maximum visibility. Its more suitable for products that are restocked
often and are sensitive to promotions and marketing.
Customer warehouse
The customer warehouse system is a less expensive distribution channel. Its ideal for products that are
less fragile and perishable, have lower turnover, and are not purchased impulsively.
Third-party distributor networks
PepsiCo distributes food and beverage products to restaurants, businesses, schools, and stadiums through
third-party food service and vending distributors and operators.
Leveraging its dominant position
PepsiCo is the second-largest nonalcoholic beverage maker in the United States with a large scale of
operations. The companys dominant position helps it enjoy favorable relationships with its retailers, who
allow the company to have major shelf space. This helps PepsiCo influence consumer shopping patterns
and increases the coincidence of purchase of its complementary food and beverage products.
You can invest in PepsiCo through exchange-traded funds (or ETFs) such as the Consumer Staples Select
Sector Standard & Poors depositary receipt (or SPDR) Fund (XLP) and the SPDR MSCI World Quality Mix
exchange-traded fund (or ETF) (QWLD).
PepsiCo also manufactures and distributes certain brands licensed from Dr Pepper Snapple Group, Inc.
(DPS) such as Dr Pepper, Crush, and Schweppes, as well as certain juice brands licensed from Dole and
Ocean Spray.
The extensive distribution of PepsiCo and The Coca-Cola Company (KO) gives them a competitive edge
against other nonalcoholic beverage makers.
Understanding PepsiCos segments

PepsiCos business segments

PepsiCo derives its revenues from the following six segments:

Frito lay north America

Quaker Foods North America

Latin America Foods

Americas Beverages

Europe

Asia, Middle East and Africa

The first three business segments form the PepsiCo Americas foods business unit

2014 segment performance

The PepsiCo Americas Beverages segment continues to account for the largest proportion of total
revenues. Its been experiencing declining revenues over the past few years primarily due to lower
carbonated soft drink volumes and challenging macro conditions. The segment derives its revenues from
the sale of beverage concentrates, fountain syrups, and finished goods under brands such as Pepsi,
Gatorade, and Tropicana.
The Frito-Lay North America segment comprises branded snack foods such as Lays chips and Doritos
tortilla chips. Net revenues for the segment grew 4%, driven by volume growth and favorable pricing. The
Quaker Foods North America segment, which includes cereals, rice, pasta, and other branded products,
witnessed a 1% decline in revenues as higher volumes were offset by an unfavorable product mix. The
Latin America Foods segment revenues surged by 7%, reflecting the impact of favorable pricing.
The Europe segments net revenues increased by 2% due to higher pricing.
Despite favorable pricing and volume growth, revenues for the Asia, Middle East and Africa segment
declined by 2% due to the sale of bottling operations to Tingyi and the Vietnam beverage refranchising.
Investing for growth
PepsiCo continues to invest in the expansion of its business in developing and emerging markets. For
instance, PepsiCo plans to invest nearly $5.5 billion by 2020 in India, one of the companys key global
markets.
PepsiCo is also entering into key alliances and developing products that cater to local tastes and
preferences. For instance, in 2012, the company entered into a strategic alliance with Tingyi Holding
Corporation, a leading food and beverage company in China. Under the alliance, PepsiCo made Tingyis
beverage subsidiary its franchise bottler in China. The strong network of Tingyi helped PepsiCo enhance its
business in China.
Exchange-traded funds (or ETFs) such as the SPDR MSCI World Quality Mix ETF (QWLD) and the
Consumer Staples Select Sector Standard & Poors depositary receipt (or SPDR) Fund (XLP) provide
investors means to have exposure to food and beverage stocks such as Coca-Cola and PepsiCo

LOREAL

L'Oral is the second leading beauty and personal care manufacturer in the
world, following Procter &Gamble at number one. Excluding shaving,L'Orals
market ranking rises to number one globally. The company has a
comparatively narrow focus, exclusively in beauty and personal care, as
opposed to some of its key rivals Procter & Gamble and Unilever which are
present in home care and beauty and personal care. L'Orals exclusive
focus has enabled it to make more targeted investment in R&D and
advertising, growing to be a formidable force in the industry. In colour
cosmetics, L'Oral is the leading provider at over 19%, with Este Lauder a
distant second at 8% market share. It has also made strong strides in skin
care through a number of launches based on cutting edge technology.
Despite its good market coverage, the companys market share dropped
marginally. L'Oral has been affected by lower hair care sales in Western
Europe. In addition, market growth was partly driven by commodities such as
oral care and bath and shower in which L'Oral has limited presence.

L'Oral Groupe
Headquarters: France
Regional involvement: Global
Category involvement:Skin care, colour cosmetics, hair care, fragrances,
mens grooming, sun care
World BPC share 2011: 9.7%
World BPC value growth 2011: 4.8

Head office

Centre Eugne Schueller, L'Oral head office, in Clichy, France

L'Oral Group has its head office in the Centre Eugne Schueller in Clichy, Hauts-deSeine, near Paris.[63] The building, constructed in the 1970s from brick and steel,
replaced the former Monsavon factory, and employees moved into the facility in 1978.
1,400 employees work in the building.[64] In 2005, Nils Klawitter of Der Spiegel said "the
building, with its brown glazed faade of windows, is every bit as ugly as its
neighbourhood." Klawitter added that the facility "gives the impression of a high-security
zone" due to the CCTV cameras and security equipment. The world's largest hair salon
is located inside the head office building. As of 2005, 90 hairdressers served 300
women, including retirees, students, and unemployed people, per day; the customers
are used as test subjects for new hair colours. [65]
L'Oral USA has its headquarters in New York City;[66] its New Jersey headquarters is
in Berkeley Heights.[67]

PRODUCTS
LOral got its start in the hair-colour business, but the company soon branched out into
other cleansing and beauty products. LOral currently markets over 500 brands and
many thousands of individual products in all sectors of the beauty business: hair colour,
permanents, hair styling, body and skin care, cleansers, makeup and fragrances. The
company's products are found in a wide variety of distribution channels, from hair salons
and perfumeries to hyper - and supermarkets, health/beauty outlets, pharmacies and
direct mail.
LOral has six worldwide research and development centres: two in
France: Aulnay and Chevilly; one in the U.S.: Clark, New Jersey; one
in Japan: Kawasaki, Kanagawa Prefecture; in 2005 one was established
in Shanghai, China, and one in India. On 17 March 2006, L'Oral purchased cosmetics
company The Body Shop for 562 million.

L'Oral's advertising slogan is "Because I'm worth it". In the mid 2000s, this was
replaced by "Because you're worth it". In late 2009, the slogan was changed again to
"Because we're worth it" following motivation analysis and work into consumer
psychology of Dr. Maxim Titorenko. The shift to "we" was made to create stronger
consumer involvement in L'Oral philosophy and lifestyle and provide more consumer
satisfaction with L'Oral products. L'Oral also owns a Hair and Body products line for
kids called L'Oral Kids, the slogan for which is "Because we're worth it too"

L'Oral falls below industry growth

A: In 2008, the acquisition of Yves Saint Laurent helps the company beat
the global growth rate.
B: 2009 is a difficult year for the company with strong exposure to
premium cosmetics, which are hard hit by the economic downturn.
Consequently, the company's growth rate falls below that of the global
beauty and personal care market

C: L'Orals global growth in beauty and personal care falls slightly below
that of the industry in 2011, when industry growth is partly driven by
commodities such as oral care and bath and shower. L'Oral has no
presence in oral care and is a small player in bath and shower. In addition,
its hair care share falls due to Western European weakness.

L'Oral focuses on skin care

In recent years L'Oral has been focusing on skin care, recording the
highest growth rate in terms of CAGR between 2006 and 2011, making
breakthrough launches such as Visionaire. L'Oral surpassed Procter &
Gamble as the leading player in China skin care, projected to drive absolute
value growth between 2011 and 2016. It is now venturing into skin care
devices with Clarisonic.
L'Oral ranks number one in colour cosmetics leading its immediate rival
Este Lauder by 12 percentage points. L'Oral operates a number of brands
across various pricing tiers catering to a wide range of target audiences. It is
now pushing colour cosmetics beyond immediate BRIC markets, as
indicated by its recent acquisition of Colombian colour cosmetics brand
Vogue. In addition, it has also agreed to purchase Urban Decay, a US brand
catering to a younger audience.
While L'Oral made strong strides in skin care and colour cosmetics, hair
care has been relatively less dynamic in developed markets although the
company has announced exciting launches in the coming months.

Flexible portfolio helps drive year-on-year growth

globally
L'Oral has a well-balanced regional portfolio with a good presence in both
developed and emerging markets. In Western markets L'Oral has been
driving growth through value addition including breakthrough launches
across the wide pricing spectrum, lending it a degree of flexibility to cater to
a wide range of consumers, thus helping the company to drive growth even
in the face of economically challenging times. Despite lower growth
prospects, L'Oral has been targeting the US given the significant market
size.

It has made a few acquisitions in the market including Clarisonic and more
recently announced its plan to buy the US colour cosmetics brand Urban
Decay to strengthen its position in beauty specialist retailers. In emerging
markets, L'Orals strategy depends on market-specific conditions. In China,
L'Oral has been driving sales growth for both premium and mass ranges,
while in India the company is aiming to expand in the mass market through
Garnier. It is also targeting markets beyond BRIC countries as indicated by its
acquisition of Vogue in Colombia. It has also announced the completion of a
manufacturing site in Indonesia, which is set to serve as the hub for
Southeast Asia.

SKIN CARE PLAYERS TARGET CHINA FOR GROWTH

Asia Pacific is projected to contribute the most to skin care absolute value
growth between 2011 and 2016 and this growth will be mainly driven by
China. Consequently, China skin care is heating up. L'Oral has performed
successfully in China skin care through a wide range of brands across the
pricing tiers and retail channels to cater to varying consumer needs and
affordability. To this end, it overtook Procter & Gamble as the number one
player in skin care in 2008.
Given the strong growth prospects for China skin care, other leading skin
care manufacturers are targeting China for growth. Este Lauder has
launched a skin care brand specifically designed for Chinese consumers
while increasing the number of outlets in second- and third-tier cities. Coty
has struck a deal with Chinas largest retailer to market its skin care brand
Lancaster. In the face of growing threat, the question is how best L'Oral can
defend its position in the market. It could follow Este Lauder and introduce
a similar brand to Osiao, but this may not be prudent. It may make more
strategic sense to introduce Clarisonic in China.

L'Oral strong in colour cosmetics but long-term

competition looms

L'Orals global market share in colour cosmetics at over 19%, while

its immediate rival Este Lauder in the same category at a distant
8%, reveals a strong market position for L'Oral. In 2011, L'Orals
market share remained static, which is a good performance given
the competitive nature of the market. Despite a strong market

position and good performance, there are indications of weaknesses

in its operations in certain markets. The key challenges are in the
Russian market, where Coty is gaining share, while in China Este
Lauder is increasing its outlets. Chanel is gaining ground in one of
the most lucrative markets, Middle East and Africa, while Latin
America is dominated by direct sellers. The problem is further
compounded by its portfolio extending across a number of beauty
and personal care categories diluting the company focus in terms of
research and development. In addition, increasing cost of
production with soaring commodity prices has been exerting
pressure on operating margins in the industry, leaving less room for
R&D investment. L'Orals strong market position in colour
cosmetics lends it immunity from looming competition in the short
to medium term, but it needs to address them to secure its position
in the long run.

Losing ground in Russian colour cosmetics

Russia is L'Orals leading market in Eastern
Europe, making up for nearly 55% of its regional
colour cosmetics portfolio. L'Oral is the leading
player in Russias colour cosmetics market at over
18% value share, while the immediate rival
Oriflame is at nearly 14% value share.
L'Oral lost 130 basis points in Russias colour
cosmetics market in 2011 along with declines for
the next three competitors. The difficult economic
conditions have contributed to the loss of market
share, but its next two competitors Oriflame and
Avon are suffering from the slow growth in direct
selling. As for Procter & Gamble, colour cosmetics

is a relatively small part of its total portfolio.

Procter & Gamble is currently trying to revive
market share growth for its key category laundry.

Company Profile

In 1963, Amancio Ortega started a small company in Spain that manufactured womens
pajamas and lingerie products for garment wholesalers. In 1975, after a German
customer cancelled a sizable order, the firm opened its forts Zara retail shop. The
original intent was simply to have an outlet for cancelled orders but the experience
taught the firm the importance of a marriage between manufacturing and retailing a
lesson that guided the evolution of the company ever since. The first Zara clothing store
opened in 1975 in Spain as a small retailer selling mens and womens clothing.
Since then Zara chains have grown into retailing giants with almost 1000 stores
worldwide and an impressive sales record. The success of Zara is partly to do with the
appeal of its mens and womens and childrens fashions and accessories that display
unique style but at real world prices. But it is also partly as a result of their collaborative,
digital networks that link Zara with its suppliers and customers. These advances have
enabled Zara to deliver tailored products quickly and reliably, creating what the
company terms a value net for all the firms in the supply network. This value net is a
key part of the operations strategy, allowing customer choices to be simultaneously
transmitted to all supply partners who then deliver components as need by other
partners.

Steps in Zaras Marketing Channel

In order to make sure that the marketing channel is streamlined for success and that
Zara is able to produce quality products in just a short period of time, the management
organized every business process and activities from design to retailing.
1. Design and Order Administration
In order to support the strategy of the company to have a strategic supply chain
management, changes and improvements were introduced in the design and order
administration process. In order to ensure product quality, the company designs its own
products. There are more than 300 people who work in the order and administration
department. These people produce designs that the company will make into clothing
items. In order to make the supply chain more effective, the order and administration
team works on designs for the current season as well as the next season, making the

process more efficient and enabling the company to update and develop the current
designs very quickly.
2. Production
The companys production process supports the companys strategic supply
chain management. Zara manufactures approximately 50 percent of its products in its
own network of 22 Spanish factories but use subcontractors for all sewing operations.
This enables Zara to focus on the processes that adds to organizational capabilities.
Many of Zaras suppliers are based in Spain and Portugal and Zara exploits this
geographical proximity in order to ensure quick response to orders which is critical for
fashion products.
3. Distribution
All products pass through Zaras major distribution center in La Corua. The 5storey, 50,000 square meter distribution center employs some of the most sophisticated
and up-to-date automated systems. With a workforce of 1200, the distribution center
normally operates four days per week with the precise number of shifts depending on
the volume of products that have to be distributed. Orders for each store are packed
into separate boxes and racks (for hanging items) and are typically ready for shipment 8
hours after they have been received.
In 2001, the distribution center shipped 130 million pieces. 75 percent of these
shipments were to stores in Europe. Fashion garments represent around 80 percent of
Zaras products and the rest are more basic items. Contractors using trucks bearing
Zaras name pick up the merchandize at La Corua and deliver it directly to Zaras
stores in Europe. The trucks run to published schedules. Products shipped by air are
flown from either airport in La Corua or the larger airport in Santiago. Typically, stores
in Europe receive their orders in 24 hours, the United Sates in 48 hours and Japan in 48
to 72 hours. Compared to similar companies in the industry, shipments at Zara are
almost flawless 98.9 percent accurate with less than 0.5% shrinkage.
4. Retailing
Stores usually place their orders and receive shipments twice per week. Orders
have to be placed at pre-designated times.
The store plays an important role in the Inditex business model that ranges from
production up to end distribution. The overall experience of the customer in the store in
considered. Apart form the fashion supply, the interior design of the store, coordination
of collections, maximum care over window displays and customer care are some of the
elements that guarantee this experience. The stores where Zara concentrates the
majority of its investment are the essence of the groups chains, for which reason the

location in the main commercial areas of cities and care over interior design take on
vital importance for the company. The store is Zaras main image vehicle.
Apart from its location, its window designs and interior design, customer care is
one of the elements that Inditex takes most care of: its relationship with consumers.
Personnel receive specific c training on customer care as one of the main intangible
values of the store. Inditex establishments are thought out so that the encounter
between the customer and fashion can take place in a pleasant environment. Store
personnel with supervisors as the main drivers of quality of service, encourage freedom
and comfort of the visitor by taking an active role in the shopping process exclusively
when the customer requests this (Inditex 2007).

Marketing Plan Mix

Zara Marketing Mix

Promotion of the Online Shop

Zara has a unique marketing policy of Zero investment in marketing. Instead, the company
uses the money it would have used to advertise in opening new stores. The striking thing about
Zara is that it has found differences that matter to the consumers and used that to differentiate
itself from the rest of the competition. In other words, its key marketing strategy is based on
exclusivity, experience, differentiation and affordability.
In essence, the company relies heavily on the word of mouth advertising more than anything else
does. The products target population in age group 18-40 that live in the cities. This is because;
this group is the most fashion conscious, more than any other group. Specifically, the market
segment comprises of women (65%), men (25%) and children (15%) all of them being fashion
conscious, educated and fall in the middle class category.
Their commitment is clearly visible in the attention they pay to each and every detail of their
showrooms. The elegance with which the windows are laid out and the way the shop attendants
are groomed, everything is worked out according to a plan that is very precise. Every store
manager has free access to talk to their counterparts at Spain regarding the marketing and
improvement strategies.
Small and regular product shipments are designed to keep the inventory scarce and fresh;
compelling customers to buy urgently and frequently visit the store to check what is new. Bar
coding, online shopping and computer, aided purchases are all measures designed to increase
sales and make it a global brand.

Price
Because the concept of Zara is to provide its products at a reasonable price to its
customers, it follows that customers find its prices quite affordable. However, we have to
know that we are referring to the cream customers who would compare Zara with Hugo
Boss or others. Some Zara stores might be very premium whereas others will be very
much affordable. But mostly Zara has a premium pricing strategy. The pricing is made
possible by optimizing development and training costs.

Place / Distribution
Zara is very unique and one of the things that make it a stand out brand is the fact that it
is a vertically integrated retailer. What this means is that it designs, manufactures and
distributes the products itself. This approach seems to be working for it because it has
managed to establish itself as one of the leading Spanish fashion stores globally. Zara
is present in over 30 different countries including India and its expansion is ongoing.
Therefore, you will soon be seeing more Zara stores in more countries.
In fact, 90% of Zara stores are owned by the company and the rest are joint ventures of
franchises. This means that customers experience the same environment when
entering one of the Zara stores be it they are in London, New York, Paris, Rio de
Janeiro, New Delhi etc.: the stores are spacious, well-lit, modern and predominantly
whiter and walled with mirrors.
Most people say Zaras real strength lies in its culture, something that can never be
replaced for anything. One of the things it does is that it hires young designers and
trains them to make quick decisions. In other words, while good decisions are
encouraged, bad decisions are not severely punished.
Facing several problems related to rent space, every mall owner in India is ready to
provide free space to Zara, which speaks volumes about the popularity of this brand in
urban areas and the long way it has traveled.
It is unbelievable but the fact is Zara comes out with at least 500 or more new designs
per month. This, coupled with the brand name Zara enjoys, helps to price their products
according to their will and wish, as new trends tend to be a bit costly. However, the
people at Zara are sensible enough as pricing is quite competitive with the brands like
Pantaloons, and Phoenix etc in India as well as other parts of the world

Product
Zara is known as the Coca Cola of fashion. Such is the craze of this brand among the
fashion enthusiasts. One of the major strength of the company is that it is able to
respond very quickly to the changing needs of the customers. The company does not
source its manufacturing process, making it fully in control of the products it produces.
Its unique selling preposition is to imitate or create the latest trends. In most cases, new
styles are normally available on the sales stores within two weeks, four weeks
maximum. If a product is not selling in the stores, it is immediately pulled from the
stores.

However, when it comes to India, it has a few problems to sort out, prominent among
those being the lack of seasonal variations in their range. Secondly, it needs to tackle
and cope up with the cultural needs of the local people which is a big challenge and
Zara is working to reach out local people by coming up with designs that integrate
modernism with local traditions.

Marketing Channel Structure

What sets Zara apart from other companies is its well-designed supply chain network.
Zara started its operation in the 1970s. It was opened by Amancio Ortega in Spain.
From then on, Zara continued to grow and how has nearly 900 stores around the world.
One of the elements of Zaras success as a fashion empire is its highly effective supply
chain system that enables the company to control the entire marketing channel and its
processes and steps from textile manufacturing to retail.
Zara also has an extremely effective global network which is consist of buyers and
trend-spotters. The responsibility of these people is to find inspiration by walking around
the metro in different locations, navigate the world-wide web and to scan newspapers
and magazines, and visit fashion shows in search for new trends for men, women, and
children clothing. From the information and inspiration that they gather, they create
clothing pieces that have the catwalk look but at the same time affordable. Zaras
clothing products are very attractive to people of all ages and all walks of life.
The success of this fashion brand can be attributed to its marketing channel and supply
chain management. Supply chain or value chain management is composed of the
operational or tactical activities and can be defined as managing the entire chain of raw
material supply, manufacture, assembly and distribution to the end consumer (Jones
1989 cited in Lowson 20002). Christopher (1998) defines supply chain management as
the management of upstream and downstream relationships with the suppliers and
customers to deliver superior consumers value at less cost to the supply chain as a
whole.

Summary of Zara current market situation

Zara is a publicly listed company and belongs to the Inditex Group, founded by
Amancio Ortega in 1975 in Spain. Zara always continues to bring excitement to
fashion and fulfils customer demands. Currently Zara has 1,600 stores in 77
countries and continues to force its logistics system to complete stock rotation
every 15 days. Zara needs 14 days to develop a new product and deliver it to
stores and launches around 10000 new designs each year.
Zara is moving forward with its successful entry into the digital world and
continues to expand and manage its online presence: over a million daily web
site visits and more than 14 million Facebook fans. The online expanding
strategy in international key markets as the U.S. and China is one of the hot
topics.
Zaras online shops feature all major functions, although does not correspond
with Zaras local presentation (prestige image), even more a bit disappointing,
especially compared with H&Ms creative way to convey fashion online with the
dress room function, moreover, by saving outfits or share on Facebook, Twitter,
send a link or e-mail. Online expenditure in sales not only increases the
economical profit, it boosts the online ranking worldwide and creates an added
value of the brand.