Analysis of Zaras Marketing Plan and Strategy

Analysis of Zaras Marketing Plan and Strategy Zara is a retailing chain with several stores situated worldwide. Its marketing strategy is based more on expansion rather than advertising or traditional methods of promotion. This report will provide a brief outline and a critical evaluation of Zaras marketing plan particularly in relation to its environment. The report will also identify and evaluate how technology and the new media could impact on Zaras future marketing plans. The sustainability of Zaras marketing strategy and how it will affect their reputation in the future will also be examined. Zara has already begun the implementation of the marketing strategy so a brief look at the current position and the results has also been included in this report. 2.0 Marketing Plan 2.1 Mission Statement Zara moves at the pace of society, fashion ideas, and trends that society itself has natured. Hence its success among people, cultures and generations that, in spite of their differences, share a special sensitivity for fashion. 2.2 SWOT Analysis Zaras main strengths are its early development in technology which has resulted in smoothly operated logistics, its ability to produce good designs and recent trends promptly and efficiently, its investment intensity and its participative culture (see appendix 1: Company background). Its main weakness is its customer service but it has opportunity for growth in new markets, new countries and on the internet. The firms main threat is the possible effect of the worldwide economic recession on the strength of the Euro which could increase the costs of Zaras outsourcing and ultimately remove the competitive advantage gained by its pricing strategy. 2.3 Marketing Objectives Increase customer equity Increase purchase frequency among plus size customers Continue to grow by extending the Zara fashion brand Increase brand awareness and favourable attitudes among consumers Zaras main corporate objectives are growth through store expansion in large highly populated cities and maintaining a competitive advantage through the constant release of a variety of new fashions regularly. The marketing objectives to increase brand awareness and extend the Zara fashion brand will contribute hugely towards achieving the overall objectives particularly the store expansion. 2.4 Marketing Strategy The target group consists mainly of women aged between 18 40 who are either working in big cities or pursuing higher education, have a mid-range income and are generally interested in fashion trends as well as conscious about their looks. The company has positioned itself as a store selling a variety of medium quality high fashion clothing at affordable prices and has stores in about 70 countries worldwide. The pricing strategy is to produce clothes that are typically inexpensive and affordable by those who cannot spend much on fashionable clothing but want to have appealing and comfortable outfits as well as wealthy consumers who like good quality and style. Zaras marketing strategy is to create a customer focused product that will differentiate Zara from its competitors by bringing a fresh look to the plus size segment, feeding on the existing Zara name and values associated with the brand and stealing the variety-seeking customer from the competitors. 2.5 Marketing Mix Product Price Promotion Place Physical Evidence People Process Quality Inexpensive Store display Logistics Customers Outsourcing Appearance Affordable Public relations Store atmosphere i.e. wide open spaces Suppliers In-house production Brand Inclusive (i.e not exclusive) Advertising in high Fashion magazines e.g Vogue, Harpers etc. Each line with its own section in the store Store managers Backward integration Appeal Internet Designers CSR initiative to create awareness e.g design competition for students According to McDonald M, (2007), all organizations have a mix of products or services that could be classified as either, a disaster, lowest cost, niche or outstanding success products based on M. Porters generic strategies matrix. But Zara has very few disasters, in fact it has a new product failure rate of just 1% in comparison to the industry average of 10% (Pearson, n.d.). Through backward and vertical integration, Zara keeps its costs low and therefore is able to maintain low prices whilst still retaining profitability. It does not particularly aim to produce niche products as most of the designs are either a copy from the catwalk or from other store designs. However most of the time it does have outstanding success with its products as a result of its excellent supply chain which enables it to produce new designs promptly. Zara can produce and distribute new designs within two weeks of a new style appearing on the catwalk, a feat which has given the firm a competitive advantage over competitors such as HM (Hennes Mauritz) and Gap. The firms clothes are advertised mainly through the store displays in their numerous stores located worldwide and through their attentive customer service. They also advertise on the internet and very rarely in other forms of media. The products are distributed through a complex technology based system which ensures that goods are delivered to all the stores simultaneously and on a regular basis. 3.0 The Marketing Plan and its Environment 3.1 Pestel Analysis Zara originated in Spain and with over 500 of its stores currently located there, the market has become rather saturated. Hence it has expanded to 63 countries and consequently faces various challenges usually presented by unfamiliar environments. Zara has a policy of establishing its stores only in the city centre of large cities and each store must have a minimum size of 1000 square metres. In certain countries obtaining this can be a challenge which resulted in Zara partnering with one of its main competitors, Benetton in an attempt to penetrate the Italian market. The joint venture failed after two years as they were unable to secure the required property size in an appropriate location. Furthermore Zara originally had a policy of owning all its stores which it has had to review following the entry into various countries with a restriction on total foreign ownership. Zara was forced to consider joint ventures and franchises to combat this problem and currently has several co-owned stores. The worldwide recession is also an economic factor that could create challenges for Zaras marketing plan. The credit crunch has left the populace with less disposable income and for many people, keeping up with the fashion may not necessarily be a priority in the face of rising prices and costs. In addition, inflation in the less developed countries that Zara operates in could create a risk as the profits may be less than expected. Part of Zaras corporate objectives, is to protect the environment as much as possible, which includes producing less waste, recycling where possible, the use of ecological fabrics, production of PVC footwear and use of biodiesel fuel. Ensuring that this objective is achieved is quite crucial as the companys image could be affected by the activities of pressure groups or stakeholders who might raise environmental issues in the countries that Zara operates in. There are also cultural considerations to Zaras international expansion strategy which forms the basis of its marketing plan. Despite overwhelming success in Europe over the past few years, Zara has been unable to penetrate the American apparel market successfully. It could be as a result of a difference in tastes and preferences added to the fact that the firm has not developed a strong supply chain strategy as they have in Europe. Nevertheless, cultural differences in tastes and styles could remain a challenge for a company focusing on diversification to foreign countries. In Moslem countries, Zara adds extra length to the hemlines of its dresses and in its corporate web page, it states that our international presence allows us to conclude that there are no frontiers that would impede a shared culture of fashion. Efforts will have to be made to ensure that sensitive cultural issues in foreign countries are not ignored. 3.2 Five Forces Analysis The relationship of Zaras marketing plan with its environment can be further analysed with the use of Porters five forces model. Zaras main competitors are Gap, Benetton and HM. Zara has maintained a competitive advantage over its competitors through its ability to control its supply chain. It does not share most of its suppliers as it has acquired some of them through its parent company, Inditex and unlike its competitors, most of its operations are executed in-house such as fabric manufacturing and part of the cutting and sewing processes. Indeed Zara competes with its rivals for customers but through its creation of a brand has secured customer loyalty. Its customers visit the stores on average 17 times a year compared to the industry average of 3 times and on most of those occasions purchases are made. Zara releases around 10,000 different designs every year and deliberately produces styles in small quantities to create an aura of scarcity. This ensures that customers visit regularly to see the latest designs and purchase immediately because there is no certainty that the style will be there the next day. There is always a threat of substitution, as competitors will all release the same design eventually but again, Zaras speed gives it an advantage and it would have sold out its top designs, long before the competitors who have a longer lead production time (usually five months compared to Zaras two weeks), can put the designs on the market. There are no real barriers to entry into the industry that Zara operates in other than the fact that Zara has differentiated its product. It is not a pure differentiation however since it does not charge a premium price for its products nor is it a cost leadership as it does not have the lowest possible price and does not really aim to be the lowest cost producer. What Zara has, is a combination of differentiation and cost leadership which translates to a very successful product that new entrants would have great difficulty competing with. 4.0 Zaras Marketing Plan and the Impact of New Media and Technology In the past few years social media has become increasingly popular as a mode of communication between consumers and companies or institutions. It provides a forum for conversations about a companys actions and also a means for companies to test the publics level of awareness about their activities as well as the peoples perception of them. Social media such as Twitter, Facebook and other blogs or discussion groups can also provide companies with a unique platform to raise awareness of their corporate responsibility activities. Many brands are cautious about online interaction because they are uncertain as to how they will be perceived and also the limited control they would have over dissenting views and negative reactions voiced publicly. Many CR managers are hesitant to highlight corporate responsibility issues and enable debates because they feel that they may be inviting unwanted attention. (WGSN, 2009). Yet online environments actually offer companies a broader space in which to connect with customers, NGOs and peers around sustainability issues. Social media can also be used for advertising purposes which most of the companies in the retailing industry seem to use it for including Zara and its competitors. Zara has an impressive movement on Facebook where latest designs are advertised and consumers comment on each post with an average of 400 700 comments and about 10,000 likes. However Zaras stance on corporate responsibility issues are not highlighted in the social media like their competitor HM who have detailed positions on corporate responsibility in every country they operate in. They also have a full sustainability report in relation to their activities and its impact on the environment with a section inviting the public to email them with feedback and questions. Interestingly they do not have a public forum for the publics responses and views to be aired but addressing the issues publicly is a first step in the right direction. Zara could use the social media to have a more positive impact on the public by opening up discussion boards to debate ethical and social responsibility issues in relation to their activities in all the countries they operate in. Sustainability has become a core issue for business operations and widespread stakeholder participation is critical. The social media is a relatively cheap method of communicating with a vast number of people worldwide and presents an opportunity that no company should overlook. Zara has a small blog which outlines a few sustainability and global issues or activities that the firm has engaged in such as global warming, climate change and more recently help given to the victims of the Japanese tsunami. However, this blog is not widely publicised and is more likely to be stumbled upon rather than sought out as a Facebook or Twitter page would. Zara has in the past found itself in the midst of a corporate responsibility storm such as a link to a supplier with a sweat shop factory in Bangladesh, (Procurement Leaders Forum, 2008) and another factory (also in Bangladesh) occasionally used for production which collapsed killing three people. In each incident, Zara responded swiftly and offered reparations which has earned it a high rating in terms of social responsibility. Zaras timely and effective response was further emphasised by the fact that competitor firms who also used the same factory, offered less and in some cases refused to accept responsibility altogether. Zara would however benefit immensely from having a social site where such issues could be discussed publicly and potential dangers could be highlighted to prevent such disasters from recurring. 5.0 Sustainability of Zaras marketing Strategy The sustainability of Zaras marketing strategy depends on two major factors that could have a crucial impact on Zaras activities in the long term. Unlike most of its competitors, Zara tends to avoid outsourcing to developing countries where labour is very cheap. The main reason for this is to have more control over its suppliers and to enable a rapid delivery process in addition to contributing to the employment market of its home country Spain. The result of this is that the labour costs are higher than those of its competitors but this is compensated by the speedy production of the latest styles with reasonably consistent quality. Zara does produce some generic lines in developing countries but 60% of its outsourcing is in Spain or Portugal. The current worldwide recession may however have a serious impact on this strategy. With rising labour costs and the effect of the recession on the Euro, Zara may be forced to increase the outsourcing to developing countries. This would make them lose the competitive advantage of speed and may affect their corporate image as a result of the stigma attached to the use of cheap labour in sweat shops. Pressure groups and international campaigns are constantly demanding an improvement to working conditions for employees in developing countries. Consequently even outsourcing to the Far East may cease to be a profitable option in the long term too. Another factor that could have an impact on the marketing strategy is the ever increasing focus on environmental issues. The major environmental impacts in the fabric sector arise from the use of energy and toxic chemicals which are utilised widely in many manufacturing stages such as pre-treatment, dyeing and printing. Zara currently executes most of these tasks in-house and could therefore face pressure from consumers making demands for environmentally sensitive production. This may mean that Zara would have to invest in research to find alternative materials or recycling options that could reduce the threat to the environment. Zaras marketing strategy could also face other challenges which might arise from the use of the new media. As discussed earlier, Facebook is used quite extensively for advertising and other forms of promotion. The question is how sustainable is the use of this new media for marketing purposes? Seth Godin, author of Meatball Sundae, in his presentation14 Trends No Marketer Should Ignore (XXXX), described the web as a world of new marketing which requires various trends for its successful implementation. He stressed the importance of communication between consumers and the manufacturers and also suggested that with the advent of the internet, everyone is now a critic that cannot be avoided or ignored. One picture on Youtube showing a serious lapse could undo millions of dollars of advertising. The underlying message is that the internet is a new world that companies could embrace for their marketing potential at low cost or ignore at their peril. If a company is not on any of the socia l media, they may be unaware if a campaign is carried out against them and consequently unable to execute a damage control program. Any sustainable marketing strategy should include a role for social sites. Zaras marketing strategy is mainly based on expansion which the internet could play a vital role in. Last year the company launched its first tranche of websites for some of its European markets including the UK and two weeks ago it also launched websites for Denmark, Sweden, Monaco and Switzerland. It plans to open further sites in two of the worlds largest e-commerce markets, US and Japan later this year which will increase its presence online. Seth Godin believes that we are in the middle of the next, possibly biggest industrial revolution and that the internet represents a tremendous opportunity for people who understand it. The reality is that any marketing strategy that does not include expansion online may not be sustainable in the long term. Robert Hellar (Internet Selling, ) stated that shopping has already begun to move in some force out of the high street and onto the Website. Traditional retailers will have to join this revolution that will cut costs, increase variety and make home deliveries. This development however exposes the investments in high streets to a new vulnerability and risk. As part of its expansion, Zara purchased several properties where stores are owned and these assets may in future become liabilities. The Amazon experience and the internet banking developments have shown that stores as we know them could become quite redundant and possibly mutate into nothing more than showrooms and warehouses. The sustainability of the high street stores cannot be determined; however the expansion of the websites is likely to be a sustainable strategy and a good fall back option in the event that shopping on the high street does eventually become unfashionable.