Marketing Strategy Project – Part 1

Submitted By:

Mirza Adeel Baig

Qasim Nasir Butt

Arslan Sarwar

Submitted to:

Sir. Arshad Waheed

Zara Introduction:

Zara is one of the biggest fashion clothing and accessories retailer founded by Amancio Ortega
and RosaliaMera in 1975. It operates under the shadow of Inditex group along with Massimo
Dutti, Bershka and Pull and Bear. Inditex group is one of the largest fashion distributors with
more than 4780 retail stores in 77 countries in Europ, Asia, USA and Africa.

Currently Zara has 1751 retail stores worldwide with the annual revenue of $12 Billion dollars in
year 2012.

The first store of Zara with the concept of fashion garments opened in central street Galicia,
Spain with the name of Zorba in 1975. The name Zorba is an aspiration of classic film “Zorba the
Geek” but two blocks away there was a bar with the name of Zorba. Two totally different stores
with the same names can confuse the consumers so one of the stores had to change their
name. The Bar with the name of Zorba had already signed latter for this name so Ortega had to
change their store name to “Zara”.

Zara started their first store with the concept of high end fashioned products at low price, the
concept turnout to be great big success and Ortege started to open more Zara stores all over
the Spain.

With the expanding business Ortega defines a new strategy for Zara in 1980s, Ortega had
worked and had changed the design, manufacturing and distribution process for the Zara. The
concept behind was that Ortega wants to reduce the manufacturing selling lead time so as to
lunch new design in minimum time on stores shelves. He named the concept as “instant
fashion”.

Furthermore from 1980 company start expanding to overseas they have lunched stores in
Mexico, Greece, Portugal etc. It entered in USA in 1989.

Worldwide Zara has 1,751 stores. They annual revenue is of about $9 Billion plus it is vertically
integrated means that their control start right from supply chain than designing, manufacturing
and finally they got the control of their own distribution network with which Zara supply their
product worldwide.
EXTERNAL ANALYSIS (PEST):

1. Political-Legal Forces

As Zara normally opens stores in different countries of the world so to be successful the
political situation of different countries and also the parent company should be known.

 The stability or instability of the laws have a big impact on the organizations working
 Political climate of the countries also impacts the growth of specific organization or
business
 Political interference in the businesses and organizations also impacts the decisions
related to moving to the specific countries
 Policies related to the taxes are different for different countries which impacts the
decision of an organization related to entering that country for business
 Restrictions of trade is another point that organizations always look into before
entering to another area

Political factors analysis Germany:

Germany has become one of the major economic and political powers of the European Union
and is considered as historic leader in many cultural, theoretical and technical fields. Germany
has an area of 357,021 Sq. Km, and is consisted of sixteen estates with Berlin as largest city and
capital of German federation. Germany is the most populous country in European Union with
population of about 82.2 million.
New Germany rise after the revolution process started from 1918-1919 with World War-I and
Worked War-II in 1945 and its reunification in 1990.Now the Germany has become leader in
many scientific and cultural fields. No doubt Germany witnessed significant economic and
political instability but now it has evolved into a Leader of the European Union. The political
system of Germany is based on Federation System. Political Environment is stable and steady
for decades due to a widely technologically advanced Political Structure, is based on federal
democracy.
Despite of all facts and figures of political and economic stability, Germany has a continuous
economic division through the estate, since the country was divided for more than four
decades into East Germany and West Germany. The purchasing power is much stronger in the
Western part of Germany as compare to that of people have in East Germany. Although
massive investments were made in the East Germany butt his part of the country still has
extremely high unemployment.
Where as in Northwest Germany people have a purchasing power above average, indicating
opportunities for the ZARA in fashion industry on this market. The total unemployment rate of
5.1percent (Men 5.4%, Women 4.7%) is expected to remain in 2014, which will be lowest in 25
years data. After passing of only two decades to World War-II, West Germany had developed as
world’s richest nations, with privileged circumstances that have extended to all segments of
society. Moreover, the economic composition of the country attracted foreign skilled labor to
settle down and boosted the economy and industrial production at remarkable speed.

However, presently, the country is facing challenges like high numbers (almost 9%) of foreign
settlers that have obtained German nationality along with the affects of global economic
recession on German market also. The Government is also trying to help market with worth 80
Million bailout package to support market to recover from recession like infrastructural
investments and tax relief.
tax reliefs. The aim of the initiatives is to kick start economy and to stimulate a number of areas
to support an increased demand that will hopefully spring from this. The financial and political
initiatives mentioned before aim at the government Is also taking initiatives for stimulation of
society in a broader terms from economic and social point of view. Also the revised federal
policies are playing important role in recovering German market from recession aftershocks.
However, the Political stability of Germany is the strong positive factor when it comes to
livelihood on the future for ZARA to plan its business in Germany.

2. ECONOMICAL:
 Type of economy (free economy or planned economy) impacts a lot on the decision
related to investments in different countries
 Strength of the currency impacts the profits and loss of organizations working in that
country so exchange rate also impacts the decision of organizations to invest
 Inflation is another major factor that effects decisions of countries to enter in the
country as it effects rate of interest, exchange rate, living cost etc.
 Cost of labor also affects the profits and loss of organization and also decides that
either entering in that country will be feasible of not
Economic factors for Germany:

German market is considered as social market economy resulting into free enterprise and
competition based market with a high level of social services.
Germany is comprised of world’s fifth largest economy; however, the country entered into the
recession of 2009, the effects of recessions appeared in terms of high unemployment rate and
decrease in consumer consumption power. But due to government policies and companies
measurements the country is trying to meet the recession by products e.g. the companies
through internal adjustments measures such as by reducing working hours rather than
workforce are trying to decrease unemployment rate.

Due to recession, the German consumer behavior has changed, people attract towards off-
season sales rather buying at full price but the consumers prefer to buy fashioned clothes, ZARA
is considered as one of their favorite brands. The point of real worry is that brand clothes
especially designers outfits are losing their grounds.

By offering mid-season sales the ZARA can penetrate into the market due to the low buying
power and recession after effects which are expected to recover in 2014 completely.

3. SOCIO CULTURAL FORCES:

 The values and the attitude shared by the people in the country are important factor
for businesses
 Education and social mobility is another factor effecting the business to enter in a
country
 Population demographics also have an effect on decisions related to entering another
country

Social factors of Germany:

More than 90 percent of German population lives in cities, the ZARA fashion could have good
projections of distributing their products to a large part of the market. Developed Welfare
system of federation is extremely benefitted to citizens for example pension schemes, un-
employment insurance, social assistance, health-care, accident- and long-term care insurance.
In presence of such social support from the government, Germans are focused on health and
physical activities, resulting increased demand for sportswear, however due to external factors
such as recession people are careful while spending on their shopping. But the interesting
factor is that the new German generation is more attracted towards fashioned clothes as
compare to old traditional and classical outfits. Also the interest of consumers has increase in
ecological friendly clothes, and they prefer to buy fashioned clothes of the brands which fulfill
their green responsibilities.

4. TECHNOLOGICAL FORCES:
 Advancement in the technology decides about the entry of some business in the
country
 IT and infra-structure of country impacts the entry of external people in country for
business

Technological factors of Germany:

Being a part of European Union Germany has naturally high technological development.
Majority of German’s collect information through internet. In this regard, vide internet
advertisements ZARA can attract large consumers. In German language website could be an
idea to attract more customers, as majority of the German prefers to do business deals in their
own language.

Also because of recent recession many consumers have turned towards online shopping
looking for clothing at more affordable prices. As estimation almost 29 million of Germans
prefer online shopping and more than, 50,000 stores offer their online products. An Eighteen
percent growth of internet buyers is reported; the large part of young Germans visit online
stores whereas the old ones prefer to go market for shopping.

CONCLUSION OF PEST ANALYSIS

As a nation German always try to do different both from cultural point of view as well as when
they do business in the same way their sense of fashion is also different from rest of the
Europe.

German those who live in Western part of the country has high purchasing power, North West
Germany has average buying power, due to this reason ZARA should focus in these two
markets. This is also noticeable that the Germans prefer shopping in sale seasons where clothes
are discounted, but offering mid-season sales ZARA can take advantage over market.
ZARA can also take advantage of increased trend of internet users, especially young German
prefer to visit online stores which is also the target market segment of ZARA.

German fashion market is favorable for ZARA to distribute across the country with promise of
care take of mother planet and environment friendly brand.

INTERNAL ANALYSIS:

Zara’s mission statement is to be the environmental friendly company and also to contribute to
development of society and also wants to be the fast fashion company. Main points in which
Zara is above his competitors are below:

 Vertical integration model

 Quick response to change in fashion
 High quality
 Short production lead time
 Toxic free products

From the point of view of physical, human and organizational resources, Zara is very strong
apparel brand which is also another reason of the success of this brand, some points are
discussed below:

1. PHYSICAL RESOURCES:
 Perfect location of stores: Normally Zara stores are located in the best places of the
cities which allows maximum people to visit the store
 Display: the display of the Zara stores is much attractive and also the ambience is
maintained in each and every store
 Up to date collection: the collection present in the stored of Zara is up to the market
trends and even they are the innovators in the fashion industry so they have the best
collection available in the stores
 Integrated Information system that they are using in the stores is another internal
strength of the Zara
 Vertical integration of Zara also helps in the efficient working of the brand
 2. HUMAN RESOURCES:
 Designers: To meet the requirements of the fashion market, Zara has a team of
professional designers that work on the new collections throughout the year
 Professional Employees: To give best service to the customers Zara has trained
employees having a professional attitude

3. ORGANIZATIONAL:
 Clear vision and knowledge of the strategic goals
 Company’s culture is much strong
 Structure of Zara is much flexible and managers of stores are also allowed to be
involved in the development of products
 Effective communication between the stores and headquarter

4. Management Practices:

Being one of the fast fashion brand in the world is because of the visionary management style
of the founder of Zara, he had a view point that clothes should also be regarded as the
perishable thing and people should consume immediately and rush for the next. Zara has a
strong management with a strong organizational culture

5. Vertical Integration Structure:

Zara has a vertically integrated structure that its competitors do not have because the others
rivals have to outsource all the production but Zara can also perform tasks in the in house units.
Due to all this the production lead time of Zara is much better than that of the other brands and
it can quickly respond to the changes in the fashion

6. IT and Communication System:

Zara has one of the best IT instruments and systems, online data for products, developments
stocks is available to all relevant persons and one can easily get idea of the current position and
performance of the company. Also the requirements of the developments and sales strategy
can also be checked from this data
 7. Distribution:

Zara has a very good logistic system and requires very less labor for the stacking and
handling of the logistics. Due to the high efficiency of the logistic system they are able to
move goods to stores (European) within 24 hours. They also keeps the stocks for very
less time and focus on the strategy of finishing the inquiry as quick as possible. But issue
related to the supply to other countries is very much expensive and this cost is
transferred to the consumers in the form of high garment pries.

8. Marketing and sales:

Zara do not spend a lot of money on the advertising but focus mainly on the in store
displays and also the store locations, which is also very much beneficial. Regular
customers visits their shops regularly and due to the attractive environment they are
forced to purchase the goods.

SWOT analysis of ZARA:

Strengths:
 Zara is overseas brand operating in 77 countries as USA, Europe, Asia and Africa.
 The one of the major strength of Zara is their concept of “Instant fashion” as per the
article on Best Global brands 2010, Zara needs only two weeks time to design any new
product and bring it on the shelves while their competitors takes 8 weeks for the
complete process.
 Zara production houses are in underdeveloped countries like Portugal, Pakistan,
Bangladesh etc. it will help Zara to take advantage of low wage rates.
 But Zara kept most of their production houses in Spain and Portugal where wages are
relatively lower than Western Europe with this they can take advantage of lower cost
labor along with shorter lead time to bring new product on shelves to quickly respond
customer demands according to a statement by Louis Vuitton Zara is “Possibly the most
innovative and devastating retailer in the world”.
 Zara is the only brand which is providing new trends in fashion with the highest turnover
at low prices.
 Zara has designers working innovatively compared to its competitors like GAP, H&M and
others.
  All of the Zara stores are owned by the company and it’s a vertically integrated starts
from designing of the product to their distribution.
 As like Zara’s competitors it doesn’t do any advertisement for their product they just
deliver their products directly to their customers by selling it on stores. Reference article
“the Secret of Zara’s Success”, Store Magazine.
 Zara has highest product line due to their fastest turnover rate, each product in Zara
store has been replaced after two weeks.
 With the fastest product turnover rate company has low inventory cost.
 In a year Zara store in Spain being visited 17 times by their customers compares to 3
times/year of their competitors according to article Zara a Spanish Success Story.

Weaknesses:
 Due to the company’s giant size in the retail industry, it could also count as its weakness
that if there would be any trouble in some part of business it would be very difficult to
control.
 Zara try to provide a cutting edge products to their consumers, but normally it has been
seen that fashion industry is very volatile so more cutting edge designs means more
riskier the product if fashion will change (Zara 2.0- Fashion index.com).
 Zara is reputed to develop and new design in the market but it would be riskier if their
innovation gets stumble.
 In inditex group Zara’s share is of 80% which failure of this group can put whole group
into jeopardy.
 Advertisement has been proven as the most efficient tool in the marketing which can lift
up your sales, Zara’s policy of not doing advertisement for the promotion of their
product if not work in coming future could hart their business of the whole group badly.
 In Asian market most of the people belong to the low income scale group, so trendy
store like Zara which requires customer to visit their store with high turnover rate would
not be possible in these countries. So Zara fast trendy strategy may not be workable in
these countries.

Opportunities:
 Being a part of Inditex group, Zara has opportunity to open new stores in different
countries.
  Zara has a great potential to invest more as they are already operating in 77 countries so
they knew the dynamics of each country.
 People in counties like India, China are also getting toward high fashion so Zara has
opportunity to capture maximum share from these markets as well.

Threats:
 H&M, GAP and Benetton which are the biggest threat for Zara.
 New entrants in market are also a threat for Zara.
 Increasing the labor and raw material cost in underdeveloped countries shrinking down
their profits margins.
 Zara is operating in 77 countries so any economic crisis would be great threat for Zara.
 Zara’s net cash flow is lower than its competitors because Zara has a huge investment in
real estate choosing prime locations in the market, introducing new product line in
every two weeks.
TzqxjPft
EA
D
B
ff
ti
W
fkSLO
M
'&
IG
:H
hibsy,gR
nw
Zarpoductevlm
.tt
fi