Founded in 1975, Zara is a Spanish fashion retailer. It is part of the Inditex Group which deals in textile design and manufacture. Initially, Zara dealt with bathrobes before venturing into suits and general cloth wear. The company’s main values are quality, innovation, creativity, and flexibility. The company’s operating model is dubbed ‘instant fashions’. Through Instant fashions, Zara leverages its group of designers to replicate popular fashion trends and design new styles.
Zara operates a chain of stores in Spain, Europe, and other countries in the world. In countries where it does not have its stores, Zara distributes its products to leading fashion retailers. In expanding its market presence in new countries, Zara pays more attention to market prices in the new country than its retail prices. Currently, Zara has operations in Sweden, Germany, Portugal, United States of America, France, Greece, Mexico among other countries.
Although Zara operates its main store in Spain, it uses different modes of market entry when expanding into new countries. These methods include joint ventures, franchises, and company-owned stores. The desirability of each mode of market entry is influenced by the prevailing economic and political climate in a country (Moore, 2010). In countries with a stable political environment and high chances of growth, Zara prefers to establish its stores. Franchising is desirable in countries with high economic risk or increased administrative bureaucracy about foreign companies. The company uses joint ventures in large markets with barriers to market entry. Such barriers include limited storage space and administrative bureaucracy.
The retail fashion sector is highly competitive hence the need for innovative strategies to retain the customer and enhance brand visibility. Marketing strategies take the form of retail mix,
segmentation elements and location of the store (Moore M., 2003). With regards to market segmentation, fashion retailers establish upscale stores in affluent areas. The retail mix should promote customer retention and acquisition through product quality, customer relationship, and fairness of the price. Excellent customer relationships culminate in enhanced product and service quality. Thus, excellent customer service acts as a switching barrier and also attracts new customers. Quality and affordable products will give Zara a competitive edge over its rivals in the retail fashion sector. In particular, fair prices and quality products encourage consumer satisfaction hence building consumer loyalty.
One of the strategies to attract customers is through discounted prices. Offering discounted products during launch and special days in Belgium will not only attract customers but also reduce the risk of customer attrition. Second, Zara should segment its customers and identify at-risk customers. Identification of at-risk customers will allow Zara to recapture customers and retain customers.
Given that the internationalisation of Zara will affect the decision-making process, it is important to review the nature of the conflict that may emerge about the implementation of the marketing plan. The management of franchises and international stores is a key concern for the marketing team. The primary concern relates to management of conflicts in the sense that the central management may have marketing programmes that conflict with the programmes implemented by the subsidiary store in a new market. In this case, the marketing team should direct its efforts in meeting the needs of the customers. In particular, the marketing should align with customers’ expectations of brand image, advertising and nature of promotional materials. Another factor to consider is the use of technology in marketing operations. Web presence and e-commerce widen the reach of an organisation (Thursby and Berbari, 2016). E-commerce allows the marketing
team to foster good customer relations through the online and immediate provision of after-sales services (Jiang and Rosenbloom, 2005). Also, e-commerce increases the volume of sales because customers can make purchases online.
One of the biggest concerns is that expansion into a new market may require the company to implement different marketing strategies. The cultural context of a market plays a huge role in determining the nature of market activities (Newman and Foxall, 2003). In this light, Zara’s operations in Belgium should respect the market culture of the country. For instance, it would be offensive to use scantily dressed models in a region that is conservative and closely knit. One of the implications of localising a marketing strategy to the culture of a country is budget and control. To come up with an effective marketing plan, there is a need for financial analysis on Zara’s expansion into Belgium. The analysis identifies business factors that affect the budgeting of the marketing department and overall productivity of the company. The increased demand for fashion products has attracted new entrants and intensified competition in the fashion business. The financial analysis is crucial in determining the feasibility of marketing activities to promote a brand in new markets (Ho, 2014). Therefore, the rudimentary analysis creates a framework that is instrumental in guiding the marketing operations of Zara (Rothaermel, 2015).
It is a framework which determines the attractiveness of the market by providing an overview of the profitability and sustainability of a business venture into a new regional market. The threat of substitutes in retail fashion is very high as the industry has an assortment of various products and services. The rivalry of the competitors is high because players in the fashion industry tend to offer homogenous fashion products. In this light, the competitiveness of the market is through pricing, personalisation and customisations of products to appeal to the needs of
customers. The barriers to entry in the business are high as retail fashion is capital intensive (Thursby and Berbari, 2016). This makes it difficult for companies to pool funds and enter the industry. Zara sources raw material and other products from Europe and Asia. Purchasing products from both Europe and Asia allow Zara to reduce the wait time associated with delays from one supplier (Danese, 2004) thus increasing its bargaining power as a supplier because it always has the fashion products that customers need. The bargaining power of the suppliers is low to moderate which facilitates the creation a free competition and makes it easier for customers to shift from one retailer to another with ease. Additionally, the presence of homogenous products in the market reduces the bargaining power of suppliers. The bargaining power of the buyers high to moderate due to the presence of a large number of suppliers from which the buyers can choose from due to the presence of the homogeneous product.
It examines the internal strengths and weakness of the project and explores the external opportunities and threats to the fashion. The strengths of the business are that Zara’s organisational culture advocates for creativity and innovativeness. Creativity is pivotal in providing a competitive advantage to fashion designing companies. The weaknesses of the business are that it is capital intensive and the return on equity is not assured (Rothaermel, 2015). The opportunities include the chance for Zara’s business to expand into new international markets. The primary threats to Zara’s operations in Belgium are the presence of high competition and stringent regulations which affect the quick attainment of the profit and growth margins of the business.
The analysis reveals the feasibility and viability of the project. The business is a profitable endeavour as the retail fashion sector has seen significant progress in the overall spending of people. Additionally, the company will attain considerable growth in its profits margins since
Belgium is a huge market in the European Union. This highlights the benefits of reduced operating cost in the business in the purchase of products. Besides, it gives the business a competitive edge among international competitors. The perpetual achievement of the business growth parameters will provide an infrastructure for the business to expand and extend their operations across geographical borders.
Sensitivity analysis is a decision model that seeks to determine whether external changes in weighted decisions would affect the overall desirability of a preference. In particular, sensitivity analysis determines the optimal choices that lead to the realisation of preset tasks. Of note is the use of a criterion consisting of several attributes to calculate the suitability of a decision (Goodwin and Wright, 2004). Therefore, a sensitivity analysis determines the viability of a project.
In the current scenario, the marketability and pervasiveness of retail fashion products make it highly desirable to expand the market into new countries. Entry into new markets can either be through direct entry or franchising. In this case, the preference for direct entry and franchising will first be assessed against a background of the cost of conformity with local legal rules governing the commercial aspect. Differential high taxation of foreign firms may serve to discourage opening up new branches thus increasing the probability and viability of franchising.
Market expansion can also be resolved through a sensitivity analysis exercise. In this case, it is imperative to weigh the desirability of Zara expanding into Belgium. The volume of sales is highly dependent on the purchasing power of a region and geographic location of a market. Therefore, it is advisable to base expansion decisions on sensitivity analysis that weighs viability of new geographic markets against the viability of increased stock and floor space in current stores. For instance, the enlarged repertoire of services is a pull factor for consumers thus translating into
a high volume of sales. On the other hand, expansion into Belgium increases the overall running costs associated with hiring a new labour force and compliance with Belgium’s legal rules on labour and commerce. Therefore, expansion of existing stores and stock maximises the profitability. It is therefore important to use sensitivity analysis in making decisions.
Global and local markets present a unique chance of maximising productivity and profitability of a brand. Indeed most firms are instituting reforms to increase their income stream and overall productivity. This section explores the structural issues surrounding Zara’s market entry into Belgium.
Market elasticity underlies systematic analyses into market expansion. Causal attribution of market expansion to elasticity demonstrates prudent portfolio management practices. Market elasticity goes to the heart of supply and demand factors, therefore, affecting market expansion. Of note is the reluctance to expand into new geographic markets where the demographics represent a large proportion of persons unlikely to buy fashion products from retail shops (Cruz-Ros, 2010). For instance, some neighbourhoods prefer buying from thrift stores. Therefore, market factors are important in understanding the aggregate fashion retail patterns in an area.
Among appropriate expansion and retail marketing initiatives is franchising. Franchising offers a vista of entry to new markets. It is requisite to conduct a financial analysis before implementing a franchising option. In this scenario, franchising is premised on several key assumptions. The operating assumptions take into consideration the number of employees, minimum legal wage and benefits, and a number of working days. High wage bill and large employee workforce reduce the overall profitability of a firm hence the need to maintain a small
workforce and reasonable wages (Alon, 2012). Another issue worth considering is revenue on the volume of unit sales of clothes. It is imperative to note that consumer spending on luxury clothes vary across countries. Therefore, it is prudent to franchise into territories that have high customer frequency as demonstrated by the profitability of rival businesses.
Another key factor influencing the retail franchising option is taxation. High taxation reduces profit margin thus the need to enter into markets with lower tax regime. Additionally, double taxation discourages investment hence the need to avoid jurisdictions with double taxation. Of note is the need to project the net present value of the venture over a period of 2 calendar years before adopting franchising as a model for entry into new markets. The franchising options available must not only increase the competitiveness of the venture but must also maximise profits at low operating costs. While franchising provides a viable source of increased profits, it is important to consider neighbouring disadvantages. First, franchising is a high-risk investment option that ties up working capital into the business. Franchising is also open to risks associated with poor inventorial and managerial skills.
To ensure maximised growth across the franchising options there is a need for vertical integration of the markets. The franchise should amalgamate the corporate values of the parent company as well as local business values of the country where the franchises are located (Singapore Management University, 2016). Vertical integration of corporate values enhances brand image across the global market (Sashi and Karuppur, 2002). Additionally, it increases the competitiveness of Zara as a brand. In extension, the franchise should have a different product range that mirrors local tastes (Lee, 2016). Therefore, the franchise in Belgium should localise its products and services to its market audience. Given the differential purchasing power and variant
economic strengths of markets, each franchise should have its pricing model that mirrors local purchasing power.
Consistent with the financial argument that viable investments should have the highest net present value (NPV), the presence of a shared centralised management offers guidance that has the desired effect of increased profits and global coherence. Theoretically, the centralised management also enhances coordination across the parent venture and the franchise chain (Tham, 2015). By implementing similar decisions, the franchise chains can mirror the growth and profitability strategies of the parent venture. This results in increased brand performance and maximised profits. Marketing Implementation: Contingency Planning
The worst-case scenario would involve price wars. Price wars intensify business rivalry and adversely affect business by increasing the time take to reach the break-even point. Although Zara offers quality and competitively priced fashion products, the increasing austerity among individual consumers presents a significant risk. Consumer austerity affects revenue as demonstrated by lack-lustre sales and low volume of sales. In this light, Zara should consider franchising as its mode of market entry. Franchising will help Zara to avoid high operating costs and losses that a business may suffer due to lack-lustre sales associated with price-wars and consumer austerity.
Zara should use the franchise model to gain entry into the Belgian market. Given the lengthy business administrative bureaucracy in Belgium, franchising will allow Zara to reduce the time taken to penetrate the market. Although Zara prefers direct market entry and joint ventures in the European market, franchising allows Zara to acquire the franchise operations at a later date depending on the profitability of the franchise.
Given the competitiveness of the cloth retail industry, Zara should continuously innovate and localise its clothing products to the Belgian culture. Additionally, the company should leverage on globalisation and technological forces to increase its brand visibility and maximise its profits. It must also formulate creative and scalable solutions to risks associated with global brand management. It is advisable to apply best practices of risk management to enhance profitability and brand visibility. Thus, Zara must continuously improve its brand as well as offer innovative consumer-centric products and services.
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