Situational Analysis – SWOT
SWOT analysis is a vital strategic planning tool that is used by Zara to do a situational analysis of the business. It is significant as it allows Zara to identify the present internal strategic factors- strengths and weakness, and external strategic factors- opportunities & threats it is facing in its current business environment.
Zara has numerous strengths that effectively allow it to thrive in the marketplace and protect its dominant market share, whilst successfully penetrating new markets. Some of these strengths include Zara’s ‘fast-fashion cycle’; the brands ability to introduce several successful fashion cycles with the help of a highly integrated supply chain and a highly skilled team of fashion designers. Another key strength of Zara is its affordable pricing strategy. Zara has been able to successfully create a win-win situation for its customers and itself by producing high fashion, created from cheaper fabric but equally attractive to the consumers, increasing their brand loyalty and retention rate.
Zara’s weakness are the areas where it can improve and build on its competitive advantage and strategic positioning. Zara has gained criticism for its limited advertising. Although it may lead to cost advantages, the lack of advertising is a weakness as the brand is failing to effectively maximise its profit and turnover by advertising their collections. Another of Zara’s weaknesses is its limited global presence in some fast growing markets. The number of Zara stores in emerging markets that could generate profit and increase Zara’s market share are limited. The number of Zara stores in India are 20, Malaysia- 10 and Thailand- 11, significantly less that the number of stores in European countries and America.
Zara is as proactive as possible in determining the threats and opportunities that may potentially be faced by the business, however it has limited ability to control these external factors. Some opportunities for Zara include globalisation into emerging markets and the introduction of Artificial Intelligence in stores, to reduce the number of employees and gain market share and revenue. However, Zara has yet to implement these changes. Some threats Zara has anticipated are the threat of high levels of government or legal regulations that could potentially restrict the businesses processes. Another threat is the threat of environmental, natural or worldwide disasters, or pandemics, such as the recent outbreak of the Coronavirus. This global pandemic has had a significant impact on the business and restricted its ability to operate leading to Zara’s closure of 3785 stores worldwide. Zara is unable to control these threats however it has been effective in overcoming and adapting to them as effectively as possible, allowing it to remain the market leader in the retail industry.
Product Life Cycle
Holistically, the business Zara operates in the maturity stage of the product life cycle, however its individual products vary vastly on the timeline. Operating in fashion industry, the business must be able to adapt to the high changes pertaining to consumer’s taste. The life of the trend or design is of maximum 5-6 weeks and Zara has been effective in satisfying consumer preferences by staying up to date with latest trends and setting other trends.
Market Research
Zara successfully utilises the observation method to conduct market research and identify trends and consumer demand. Zara trains its employees to be at the forefront of customer research – by closely listening and noting down customer comments and ideas and keenly observing new styles that its customers are wearing that have the potential to be converted into Zara styles. Store associates are required to be attentive to signs from customers that new trends are taking place and Zara’s design team conducts primary research by regularly visiting university campuses; nightclubs and other venues to observe what young fashion leaders are wearing. (martinroll.com) The business is significantly attentive to customer demand and new trends and it is able to effectively and efficiently respond in supplying the right and demanded merchandise at the right time across its global chain. Zara is known for its ability to create new designs and retail them within a week or two. This effectively allows the business to gain a competitive edge over competitors such as H&M which take close to six months to get new designs and collections into the market. Evidently, Zara is effective in conducting market research to efficiently and effectually respond to consumer demand and generate profit, whilst maintaining its leading market share.
Target Market
Zara uses market segmentation to effectually determine its target market. Zara’s target market is composed of men and women, 18-40 years of age, with mid-range incomes. The business targets individuals who are fashion forward and trend conscious, residing in an urban area. Zara has an advantage over its competitors as they do not define their target by segmenting ages and lifestyles, giving them a much broader market. They segment their product line by women’s (60%), men’s (25%) and the fast growing children’s department (15%) department. (Forbes//whyzarasucceeds-.com) This effectively allows Zara to expand its market share and revenue as they are not exclusive. However, to maximise turnover, Zara should expand its children and men’s departments, allowing them to increase their customers.
Marketing Objectives
“Zara is committed to satisfying the desires of our customers. As a result, we pledge to continuously innovate our business to improve your experience. We promise to provide new designs made from quality materials that are affordable” (www.zara.com)
As evident in the statement above, Zara is significantly focused on the customers and is very responsive to their demands, in order to achieve their marketing objective of increased retention rate, market share and brand awareness. Zara’s main marketing objective is maintaining a competitive advantage through the expansion of their product range as often as possible. By constantly changing the product mix offered to satisfy consumer taste and preferences, Zara increases long term profits and gains a competitive edge. Zara has been effective in working towards its marketing objectives and achieving their goals as evident in research conducted by IBISWorld which stated that “shopper frequency is seven times higher in Zara than traditional women’s apparel, indicating significant brand loyalty’”. Another marketing objective Zara is focused on is maximising customer service. The business effectively trains employees to reach the highest levels of customer service, in order to create customer satisfaction as well as a positive reaction from customers towards the products they purchase. This has allowed Zara to establish a strong customer base with high numbers of repeat sales. Thus, Zara successfully determines its marketing objectives and systematically works towards them, in order to flourish and gain a competitive advantage.
Marketing Strategies:
Market Segmentation
Zara uses market segmentation to increase sales and market share. They segment their product line using demographic factors such as age, gender and income, psychographic factors including the consumers options and opinions, behavioural factors such as loyalty and geographic factors. As such Zara is able to effectively expand its market share and revenue as they offer products to a broad range of people who share the common characteristic of interest in trends and fashion.
Product/Service Differentiation and Positioning
Zara effectively differentiates its products to create an image of affordable, trendy and high quality clothing. Zara’s main point of differentiation is based on increasing the number of available styles and limiting the quantities of the available. Zara also produces high fashion, created from cheaper fabric but equally attractive to the consumers. As such, Zara efficiently obtains a differentiated affordable product line that generates profit.
Product
Zara prides itself on fast fashion with new designs of apparel restocked in limited quantity regularly. Its products include clothing, accessories, shoes, swimwear, beauty, and perfume for women, men and children. Zara identifies the latest trends in fashion and retails them in a unique ‘Zara style’ almost immediately. Zara’s products vary within global markets as the products are customised to the local culture and consumers tastes and preferences. Zara is known for its ability to create new trendy designs and retail them within a week or two.
Price
Zara has effectively determined the most appropriate pricing strategy for the business and consumers. It creates a win-win situation for both stakeholders by creating ‘low-cost, high fashion’, catering for the price sensitive consumers with a desire for affordable fashion. This allows the business to maximise profit through customer satisfaction and loyalty leading to repeat sales. Zara uses competition based pricing to incite consumers to view the product as superior and to allow the business to remain the market leader.
Promotion
The marketing expenses of Zara are significantly lower than the average fashion retailers. 0.3% of Zara’s revenue is being invested into promotion, in comparison to its competitors using 3-6% of their sales revenue. Instead of relying on traditional mass-marketing mediums, Zara uses prime retail locations to attract its customers. Its storefront and window displays showcase the brands best and most demanded collection. Zara also has a great social media presence, with a following of almost 40 million on social media platforms such as Instagram. The business regularly posts models wearing the newest collections in attractive posts that entice viewers to visit the store. Zara’s advertising campaigns vary in the different countries it operates in to suit the different preferences of consumers worldwide. Advertising campaigns in Dubai feature modest clothing and Arab women, while campaigns in Europe are reflective or European taste and preferences. Zara also relies heavily on word of mouth and brand loyalty due to its great consumer choice and affordable pricing. Thus, Zara is successful in globally promoting its brand and gaining market share, whilst utilising minimal revenue.
Place
Zara successfully operates with the classic distribution method of producer to retailer to consumer, allowing it to efficiently and effectively produce and retail its products as soon as possible. Zara’s parent company, Inditex, have their global headquarters in Arteixo, a small town on the northwest coast of Spain. More than 5,000 employees across various departments work there and the site is also home to 10 of Zara’s factories and its largest distribution centre, which is responsible for shipping the retailer’s clothing to 96 different countries around the world. this strong distribution network enables the company to deliver goods to its European stores within 24 hours, and to its American and Asian outlets in less than 40 hours. Zara has spread to several nations with more than 7000 stores worldwide (Fortune, 2016). The retail giant operates in physical stores located in prime locations that are highly attractive to its target market, and it also retails online. Its just-in-time limited fast fashion cycle maximises the businesses profits as no revenue is spent warehousing excess unsold products.
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