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Zara: Company Strategy Analysis Research Paper

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Updated: Oct 16th, 2021

Zara is a clothing retailer based in Spain. In 2006, it is annual revenue was Euro 6.264 billion. Zara specializes in men’s and women’s cloths and operates more than 1000 stores around the world. The resalable feature of Zara is low cost. This is where the business manages its cost base to ensure that it is the lowest cost producer — thereby either winning a greater volume of business through lower prices than competitors can sustain and continue to be profitable, or charging comparable prices and therefore achieving a higher level of profitability. In contrast to Zara, it is competitors (H&M and Mongus) use differentiation strategy to appeal to customers. This is where the business provides a distinct basis of differentiation (uniqueness perceived by the customer and regarded as valuable) which enables business to be won and normally a price premium attracted (Bearden et al 2004).

In terms of porter’s generic strategies, Zara follow industry wide strategy desigining more than 10,000 new items a year. This is where the business operates across the breadth of the industry providing products/services for a wide range of customer needs. An example in the car industry would be Vauxhall with an extensive range across a broad base of customers. In contrast to Zara, H&M and Mongus concentrate on a particular segment. In this context the business has chosen to concentrate attention on a defined segment of the market. This is called a focus strategy. Differentiators maintains a broadly equivalent cost base to that of competitors to achieve above-average profitability Differentiators select cost effective forms of differentiation, which cannot be easily or immediately replicated or leapfrogged by competitors (Boone and Kurtz, 2002).

As a cost leader, Zara maintains an acceptable level of satisfaction of buyer needs. Cost leadership is often in conflict with differentiation i.e. to achieve differentiation adds cost thereby removing the potential cost leadership advantage. For many more complex organizations operating in sophisticated markets an industry-wide’ approach locks the business into the mindset’ of differentiation or cost leadership. This may lead to inappropriate approaches being taken to certain segments of the market. For Zara, competitive positioning is best examined at Strategic Business Unit level where the relevant competitive strategy can be identified in direct relation to specific customers and competitors. This enables a tailored approach to be adopted for each Strategic Business Unit. In turn this may lead to cost efficiency by ensuring that only the specific competitive requirements of the segment are addressed rather than, for example, market/industry wide differentiation approaches which may add significant cost (Boone and Kurtz 2020). The cases of H&M and Mongus show that, the differentiation strategy is often the most attractive’ in that it provides the opportunity for a more creative approach to the market. For this reason the organization tends to be marketing led. It is vital in these business units that the cost/benefit analysis of any new form of differentiation is thoroughly evaluated. In addition, sensitivity analysis must be used to look at the viability of the associated cost base at different levels of sales performance and in different market conditions (Kotler and Armstrong 2006; Zara Home Page, 2008).

Boston Matrix

When using the matrix, care needs to be taken to ensure that the stated competitive positions reflect reality rather than management perception. In some markets several competitors will see themselves as being differentiated and therefore positioned in the system’ box. If these individual forms of perceived differentiation are not valued high by the customer no real competitive advantage has been attained. The competition is therefore truly positioned in the commodity’ box. The acid test of achieved differentiation is superior market position, volume and/or a price advantage. Zara has more stars that its competitors. H&M can be characterizes as cash cows company with stable growth but lack of opportunities. Mongus has low market share but a lot of opportunities to grow and develop its business (question marks) (Kotler and Armstrong, 2006).

Ansoff Matrix

The uniqueness of Zara is that it markets new products at existing markets. This means that the advantages of neither competitive position are achieved. This being stuck in the middle’ yields no competitive advantage and erodes the position of the business unit. The merchandise is sold with technical specifications and other features undifferentiated from those of competitors; nor does the firm provide differentiated support for the customer in assessing or responding to individual requirements. In contrast to Zara, H&M, markets existing products at existing markets. Mongus follows similar to Zara strategy but tries to penetrate new markets with new products (diversification strategy) (Kotler and Armstrong, 2006).

Cost leadership and unique brand image allow Zara to create a competitive advantage and compete with its rivals. The cost leadership strategy often requires a lean’ culture and is usually perceived as unattractive’ with the consistent focus on cost management and efficiency. A tendency to be production or operations led therefore emerges. This produces a concentration on standardisation of products, components and processes with the minimisation of variations/derivatives. A fine balance needs to be achieved between maintaining a narrow range of products/services and meeting the varying needs of different customer groups. It is these tensions between either providing a differentiated approach to match customer need and gain competitive advantage, or pursuing cost leadership to gain profit margin and value advantage, that often leads in practice to a mixed approach (Kotler and Armstrong, 2006).

The Value Chain and Customer Loyalty (New Product)

The introduction of new product (Zara mobile phone) will require new advertising and new message sent to customers. Also, it will require new services and communication to ensure customer satisfaction and loyalty. Customer satisfaction, then, can no longer be considered an operating paradigm, and business has discovered that customer retention, and the generation of optimal customer loyalty and value, are far more tangible and desirable goals. In value chain creation, a special attention will be given to service and sales. Outbound logistics, operations and inbound logistics will not be changed. With this discovery has come the realization that customers can have up to five stages in their relationship life: When a company recognizes that it must focus energy and resources totally on customer retention, customer relationships, and the creation of customer loyalty and value so that attrition can be quickly identified and remedied and defection can be prevented, it is poised for an epiphany.

The new product will need additional investments in service delivery and transportation, store design and additional communication with customers. The next logical step must be development of a strategic process to create and sustain an organizational entity committed to keeping customers and generating as much value from them, and for them, as possible. The supplier company is entirely customer-driven, proactively approaching customers as partners. Companies are strategically directed toward keeping customers, with attaining commitment and loyalty (of both staff and customers), a paramount objective. It is expected that the new product will attract more customers to Zara and increase sales of its traditional products. Management style is often lattice or horizontal, with company focus on continuous improvement in all activities: understanding and serving customers, creating knowledge and information flow around customer needs, staff communication and empowerment, team process, and so forth.

Bibliography

  1. Bearden, W. O., Ingram, Th. N., LaForge, L.W. 2004, Marketing, Prentice Hall.
  2. Boone, L.E., Kurtz, D.L. 2002, Management, McGraw-Hill, New York.
  3. Kotler, Ph., Armstrong, G. 2006, Principles of Marketing. Prentice Hall; 11th edition.
  4. . 2008. ww.zara.com
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