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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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  • Number of pages: 2

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Introduction

the company began in the textiles industry in 1963. started into business as a dressmaker , Zara opens its first store in the centre of La Coruña, Spain, after 12 years of work by Amancio Ortega Gaona as a textiles maker. Zara's approach to fashion is a success with the public, which drives its expansion materialising in nine new store openings in Spain's biggest cities. Zara's first garment factories, make their home in Arteixo . GOA was the company's first head office. Zara begins to sell its fashions online in the US and Japan.

Zara strengthens its expansion throughout all the geographical areas with the integrated growth of its online . Flagship stores of all the commercial brands keep opening and expanding, e-commerce is launched in new markets .

Internal and external key factors for Zara:

internal

External

1.Economic forces

2.Social, cultural, demographic, and natural environment forces

3.Political, governmental, and legal forces

4.Technological forces

5.Competitive forces

Porters Five Forces

Porters Five Forces allows us to look at the five forces which help us determine the competitive intensity and the attractiveness of a market.

Porters Five Forces Analysis

The threat of competitors

Zara is facing a lot of competition in the market. There are a large number of competitors in the market, such as H & M, Benetton, Gap, and other world-known brands and with the presence of such a high level of competition in making it very difficult for everyone as they seek to get the consumer confidence .The biggest problem is that because of the large number of competitors and lower growth rate due to the presence of many manufacturers in the market has reached its peak in the apparel industry, which makes it very difficult to stay in the industry and reduce the competition circuit. And provide many choices for customers presence of many brands in the market. They are also very fickle minded and base their buying habits on the basis of new trends. You will only buy based on price and brand recognition, and this is the reason that manufacturers keep changing what they do, and come up with new ways to win customers. The manufacture of new goods costs are too high and that it is not easy to buy raw materials and

for this reason are the ones who have the resources and ability to do so is able to survive within the market.

Threat of New Entrants

There is always the threat of new entrants but then the risk is not so much as Zara already has a huge presence in most parts of the world. The barriers for entry for distribution are quite low in Spain New entrants will have it easy as the cost of distribution is quite low as they only need to rent a shop and need a bit of capital to start out. However when it comes to manufacturing then the barriers of entry are really high mainly due to the fact that it requires a huge investment to get started within the market.

Substitutes

There is no threat of substitutes as it is a basic necessity for everyone.

Customer's Bargaining Power

Customers have varying levels of bargaining power as they can decide what they want. Customers are quite fickle when it comes to buying clothes. However the good thing is that each customer has a love purchase volume and that means that even if some tend to change their brand there will still be some who will buy Zara. It is not an item like a burger or a snack which is available easily anywhere for a low price. The good thing about the clothing business is that there is no risk nonpayment because customers pay for clothes during purchase.

Supplier Negotiation Power

There are too many suppliers in the market which is one reason why the suppliers don't have much negotiating power. The fact that Zara procures or makes most of the stuff itself is also another factor which doesn't work in the suppliers favor. If the supplier decides to cut down the supplies the manufacturer can easily go to another manufacturer.

PEST Analysis

The PEST analysis is a study of the environment before a company begins its marketing process. It is a study of the external macro environment. It stands for "Political, Economic, Social, and Technological analysis" and is an environmental scanning component of strategic management

Policy - and political factors affecting Zara is when the government intervenes in the economy, and comes with the laws that change followed the work of the roads. The government can easily change its policy and by extension all of the ways in which it operates in the country change. It can lead to change laws to radical changes, such as changing interest rates. So seek permanently Zara to recognize the entire system and always be ready for any potential problems that could face from the government due to a change in policy.

Economic - economic factors come in commercial traffic as they relate to factors such as interest rates, tax changes, economic growth, inflation and exchange rates, which have the potential to create a lot of problems in the future. There are different levels of duties and tariffs in different countries, causing prices of different products in different countries. The prices vary based on the country of origin and this is what works Zara to be taken into account.

Social - and if there are changes in social trends will have a significant impact on the demand for the products Zara and provide individuals and ready to work. But this is not likely to happen because Zara is working on specialized products. It focuses on the huge market and make different kinds of products so it is unlikely that there will be social transformation in this segment. However, the company still need to work on the various trends and make sure it is updated with the times so that they can satisfy customers and meet the demands of multiple demographic composition.

Technology - because of advances in technology companies seeking Zara to ensure that they keep abreast of the technological advances. And already it owns is the latest innovative technologies in everything. The more advanced technology can be updated whenever quality. Zara has invested in technology it has to keep the difference because if they do not, their competitors will be getting a head start on this.

Ansoff matrix analysis :

Market penetration

How does ZARA use intensive growth strategies to increase its sales? The first step is market – penetration strategy.

ZARA encouraged its current customers to buy more. This work when ZARA noticed major weaknesses in competitors' product or marketing programs.

 ZARA moves fast. With an house design team , and a tightly controlled factory and distribution network, the company says it can take a design from drawing board to store shelf in just two weeks. That lets ZARA introduce new items every week, which keeps customers coming back again and again to check out the latest styles.

ZARA's success is because at least half its factories are in Europe, where wages are many times higher than in Asia and Africa. But to maintain its quick inventory turnover, the company must reduce shipping time to a minimum. The fast-fashion approach also helps ZARA reduce its exposure to fashion faux pas.

the secret to ZARA's success is its control over almost every aspect of the supply chain, from design and production to its own worldwide distribution network. ZARA makes 40 percent of its own fabrics and produces more than half of its own clothes, rather than relying on a hodgepodge of slow – moving suppliers. New styles take shape in ZARA's own design centers, supported by real-time sales data. New designs feed into ZARA manufacturing centers, which ship finished products directly to 450 ZARA stores in 30 countries, saving time, eliminating the need for warehouses, and keeping inventories low. Effective vertical integration makes ZARA faster, more flexible, and more efficient than international competitors . ZARA can make a new line from start to finish in just three weeks .

Market development

 ZARA use a market development

 First,  identified potential users groups in the current sales areas. ZARA is timeless, classic and unique. In fact, it is a good idea to anaylze student 's opinion on fashion. It is really a big market.

Second, ZARA consider selling in new locations in new market.

ZARA's parent company, Inditex, got fastest growing clothing manufacturer in the world. ZARA, Inditex's fastest growing division, turns its inventory twice as fast as major competitors, with an inventory-to-sales of 7% compared to an industry average of 14%. Their profitability in European operations (15%) is fifty percent higher than that of its major competitors. From the Inditex' annual report, the researcher that ZARA focus on the developed fashion market or

country . For example, it has 20 shops in Belgium, 48 shops in Portugal, 98 shops in France. Compared with 7 shops in China, 3 shops in Thailand.

Product development

Management should also consider new- product possibilities. ZARA develop new features quickly because it has a fast development from concept to point of sale. On average, this takes 6 weeks. ZARA's “affordable fashion” positioning clearly denotes that it's not a luxury brand, its target customers are a great number of people that are eager to purchase fashion while quite sensitive to prices. They want to be different, unique. The relentless introduction of new products in small quantities at fast speed and at affordable prices seems to be the answer to the large scale customization requirements of the target customers.

ZARA also has super business teams which constantly monitor external developments – consumers on catwalks, at airports, shopping areas, sport events, movies and other events. It seems that ZARA, has some 200 of such teams traveling the world with the aim of discovering new fashion behavior and trends. This helps explain why ZARA's team, which consists of passionate and able designers, experienced market specialists and procurement and production planners, is able to annually create approximately 40,000 new designs from which about 10, 000 are so quickly selected for and put into production.

Most important thing is, instead of more quantities per style, ZARA produces more styles, roughly 12,000 a year. Thus, even if a style sells out very quickly, there are new styles already .

Diversification

Diversification growth makes sense when good opportunities can be found outside the present business.

ZARA could seek new products that have technological or marketing synergies with existing product line, even though the new products themselves may appeal to a different group of customers. It might start information technology aided manufacturing operation . Once the team selects a prototype for production, the designers refine colors and textures on a computer-aided design system. If the item is to be made in one of ZARA's factories, they transmit the specs directly to the relevant cutting machines and other systems in that factory.

The constant flow of updated data mitigates the so-called bullwhip effect—the tendency of supply chains to amplify small disturbances. A small change in retail orders, for example, can result in wide fluctuations in factory orders after it's transmitted through wholesalers and distributors. In an industry that traditionally allows retailers to change a maximum of 20 percent of their

orders once the season has started, ZARA lets them adjust 40 percent to 50 percent. In this way, ZARA avoids costly overproduction and the subsequent sales and discounting prevalent in the industry.

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