Zara market entry analysis

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Reduce costs

Zara aims to produce goods or services at a minor cost than its competitors so that the sales profit margins are higher. Since its creation, Zara chose for a clear strategy of costs leadership. Thanks to economies of scale, the cost of production is very low compared to the profit margin the company obtains.

The vertical integration in the value chain, the economies of scale and the automation of processes allow the compay to produce at a very low cost.

Product differentiation

Zara’s objective is that the products or services developed by the company are different from competitors for several reasons: quality, yield, distribution, complexity, design, image... The differentiation has to be estimated by the market or the final consumer. The competitive advantage of a product differentiation strategy is to offer a unique product to the client on the market.

Capturing the existing trends in the social environment, reinterpreting - for a reasonable price - the designs presented by the most luxurious brands and continuously renewing the stocks are managerial strategies that Zara uses and that contribute to a product differentiation from the client point of view.

Zara produces more than the half of its articles - the most innovative ones - in Spain. The rest, the basic ones, are relocated, but more than 70 % are located in Europe. It gives the company a good image that is valued by a high brand awareness.

Shops receive new products twice a week, incorporating always into the offers the last fashion trends and adapting it to the tastes and desires of its clients. The logistic agility with the aptitude to provide designed clothes at a good quality price ratio, allow Zara to be different from competitors. In addition, by renewing stocks, Zara manages to fidelize clients and stimulate compulsive purchases.

Another strategy is to convert the points of sale into special places that generate different experiences from purchasing clothes.

Market segmentation

Market segmentation consists in centering on a specific group of clients, in a segment of the line of products or on a geographical market.

The segmentation that Zara carries out is the following:

- Geographic segmentation

- According to geographical areas: In Europe it is an attainable brand for the majority of the population whereas in the rest of continents, it is positioned as an upscale brand.

- According to countries: 15 % of the production is specific to every country, since the company has to adapt to the climate and culture…

- Demographic segmentation: according to sex and age. Zara offers products for men, women and children with a range of age between newborn children up to the height 44.

- Economic segmentation: In Europe, products are designed for a middle class target market whereas in the rest of the world, Zara targets upscale class.

INTERNATIONALIZATION OF THE BRAND

The increasing homogenization of tastes, habits, the way of consuming and the integration of the different economies worldwide are factors that have stimulated the process of globalization. As a consequence, companies are more and more willing to initiate a process of internationalization. For this reason, they take the strategic decision to enter foreign market.

It is a difficult decision, especially because foreign markets are unknown and a great uncertainty exists in the result. In addition, the strategy that works on the local market not always works on the foreign market.

The motives that lead Zara to the internationalization are basically for the globalization of the markets and also for the saturation of the local markets.

The international strategy that chooses a company depends on the characteristics of the industry:

- Global industry: the competitive position of the company is the same in all the countries. Therefore, a global vision is needed on all the markets.

- Multicountry industry: the competitive position of the company is not the same in the different countries. The company competes autonomously in every country.

Zara uses a common policy and strategy for all the countries. It operates a global business model.

The company sells clothes that are changing very quickly due to Zara fashion adaptation, creating in the client a sense of opportunity whenever he enters in shops. The competitive advantage is common for all the countries: flexibility, rapidity and capacity of innovation. For this reason, its international strategy has a global approach.

Globalization enhanced the homogenization of consumers’ tastes. For this reason, 85% of the offer of Zara is the same for 27 countries. For the other countries, Zara configured a specific offer to adapt to the climatic conditions and environments of these countries.

Zara exerce its strengths among its competitors such as:

- The pressure for a global integration: the aims are to reduce costs, to increase the volume of production, to be more competitive, to enhance production key factors to reduce even more production costs, to look for big volumes of production in order to make the most of economies of scale and to reduce the cost of the product.

- The pressure to adapt to the local market (local response): to adapt the product or service to the new country.

The following characteristics of the competitive environment in which Zara operates confirm us that it is a question of becoming a global manufacturer or dying. Therefore, the strategy that textile companies have to carry out is about global integration or standardization. Zara is strong of its unique proposition because its consumers have similar behavior in most of the countries it operates. Even if big competitors exist in the world fashion competition, Zara is able to make economies of scale while operating with global channels of distribution.

Strategic expansion

Zara’s international expansion began in Oporto (Portugal) in 1988, followed by New York (1989) and Paris (1990). These first cities were the following destinations in which Zara decided to bet. Zara's strategic extension