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Business model of zara

  1. MKT41010 KANIKA VERMA 15204010
  2. BUSINESS OVERVIEW Zara is one of the largest Spanish clothing and accessories retailer based in Arteixo, Galecia, founded in 1975 by Amancio Ortega and Rosalia Mera. Being a flagship retail store of Inditex group, the fashion group also owns several other brands like- Stradivarius, Pull and Bear, Bershka, Massimo Dutti and Ulterque. The first store provided the customers with low- priced products, this gained popularity and became successful, that’s how a chain of stores were opened throughout Spain. Zara is a vertically integrated retailer, controlling the design, supply chain, distribution and manufacturing of its products worldwide. It has 6,500 stores across 88 countries. Zara’s business overview can be understood by explaining its vision and mission statement:- MISSION STATEMENT Zara’s mission statement says ‘the world is getting smaller; we want the whole world to dress in style, class and experience new designs weekly.’ Zara always try to keep its customers up to date about the latest trends and fashion and provide them with the best clothing experience. VISION STATEMENT Zara aims at becoming the number one fashion retailer throughout the world. Zara is at the peak of success because of the ways of keeping the street fashion adaptive in nature with the changes in the market. The brand deeply went through the changes in fashion world, opted for innovative approaches and trendy designs to put them into the stores within a week or two and lived up to the expectations of people, where else other retailers take almost 6 months to get this done. That is where Zara beat other fashion outlets and became the favourite brand among people all over the world. THE EXECUTIVE SUMMARY
  3. • CONCEPT Zara basically pays a lot of attention on the designs, process of production and the distribution of its products; it’s the fundamental concept of Zara. It always focus on what the customers want and desire and then works in the direction of making the best possible product available to them to satisfy their needs. Zara thinks that the firms have to be flexible in terms of providing products and delivering services to the customers as the customers are surrounded with lot many options and choices in the market place. • CAPABILITIES Capabilities of Zara are required for exploiting the market opportunities to get the profitable results and Zara tries to put control over all its activities like designing, production, manufacturing, strategic partnerships, etc for getting maximum out of its capabilities. Zara always maintains the required flexibility and speed in the designs as well as the production of its products that is how it is able to produce 12000 of new items annually. This defines the capability of Zara that allows it to attain the set objectives and strategies helping Zara to flourish and expand in the market overseas. • VALUE DRIVEN The Value drivers of Zara can be categorized into two- Tangible and Intangible. OVERVIEW OF ZARA’S BUSINESS MODEL
  4. • CO-ORDINATION - The Coordination between the Inventory distribution and Pricing markdown is the key ingredient of Zara’s business model. • COMMERCE- Zara earns revenue from in- store, online sales, and special offerings of it products. But, mostly it fetch great revenues from its in- store operation and provides almost 18% of overall discount. • COMMUNITY- In Zara’s business model its customer segment (Girls, Women, Men) plays a vital role and build its community. • CONTENT- The content related to the products, their different categories, discounts and special offers on Zara’s website seems attractive to the customers and provide relevant information to them. • COMMUNICATION- Zara mostly communicates with its customers with the help of fashion shows where it portrays its collections. It also make use of social media platforms like Face book, Twitter, Instagram, Pinterest as well as its online shopping website to do the same. 5 C’s OF BUSINESS MODEL
  5. KEY CHALLENGES • Miraculous level of competition amongst various international brands in the Chinese market where the biggest challenge for Zara is cultural differences. China has the largest amount of online population so, Zara faces a challenge to convince these people to buy its products. • Another challenge is rising transportation cost if, the fuel cost rises then the model of twice- weekly deliveries that plays an important role in defining the Zara experience becomes more expensive to maintain. The key factor of differentiation in Zara is its updated collection which can be at risk due to the raise in the cost of transportation. • Inability to penetrate American apparel market, the reason behind this is the differences in the tastes of Europeans and the Americans. This is a great challenge on the part of Zara to influence the Americans to buy its products.
  6. THE BUSINESS Environment of Zara can be understood by throwing light on its Situation Analysis i.e., SWOT Analysis. THE BUSINESS MODEL ENVIRONMENT STRENGHTHS -Well known and established brands -High quality products at low price -Becoming highly innovative with technology -Centralised distribution system -Standardized product delivering services WEAKNESSES -Online customer service is somewhere lacking behind -Online pricing is not consistent with in- store pricing - Weak Online presence -Don’t incur much cost on advertising OPPORTUNITIES -Development of products and improving them for giving best shopping experience -Further global expansion -Product collaboration with outside sources -Demand for high fashion at affordable prices THREATS -High Shipping Cost -Market Demand is often based on the current economic state -High level of competition in the fashion market -Emergence of newcomers with new ideas and creations
  7. VALUE PROPOSITION •Factors that Zara delivers that is of value to the customers -Women/M en - Zara is delivering value to its customers by providing unique, customized and fashionable clothes as well accessories at affordable prices that have some added value( sentimental value, emotional value, beauty, heritage, etc) to the customer. -Designers- Zara is delivering value to its designers by giving them a platform to present their quality creations to the customers. • Needs that Zara satisfies that helps the customers get a job done or solve a problem -Women/ Men - Zara satisfies the needs of its customers by providing them with large choices of style and fashionable products at affordable prices as well as reasonable quality. -Designers- Zara satisfies the designers by making their creation popular in the eyes of the customers. • The key pains and gains that Zara addresses for the customers -Women/ Men Pains- Expensive and costly designers clothes as well as problem in finding centralised stores. -Women/ Men Gains- Enabling the customers to feel fashionable at affordable prices and facilitating them with centralised store location. -Designers Pains- Heavy cost of setting up their own fashion store and to reach customer. -Designers Gains- Providing them with a platform where they can present their collection to large number of customers without incurring heavy cost
  8. CUST •People for whom Zara is creating value -Customers both Men and Women (between the age group of early twenties and thirties, ranging from college students to professionals), Designers • The job to be done of the customers -Women/Men - To search for brands providing latest fashion items of standard quality at cheap prices -Designers- To create fashionable and trendy clothes that are eye catchy for the customers to get maximum exposure • Problems that Zara tries to solve -Women/ Men - These customers are trying to solve the problem of getting stylish clothes at affordable prices -Designers- They are trying to solve the problem of reaching large number of customers to make them aware about their creation and to lower the cost of setting up a store • Grouping of customers on the basis of their jobs and problems -The Freemium or Premium user segment -The Designers segment • Type of platform -Zara is a multi sided platforms that connects various customers and designers to get the maximum benefit out of the business CUSTOMER SEGMENT
  9. • Type of relationship that Zara’s customer want- personal, emotional or automated Women/ Men - Personal, emotional and Trust relationship Designers- Personal, Cross- sided network •Zara’s strategies to attract customers Zara has the most competitive business strategy for attracting customers which is divided into two points:- First, they update their collections in the store in every two weeks which creates a feeling in the customers that they should buy the product at the time its made available in the store otherwise it will sell out in the coming week. It also gives customers a sense of differentiation from other brands. This mentality leads to the purchasing of products hence, increasing the sales of Zara. Second, the factories are located in Europe which is an advantage for Zara as the new and latest designs take little time to reach the store. This facilitates customers in getting new designer clothes in a short time span. It also creates a sense of loyalty in the customers towards the brand hence, increasing the revenues. • Zara’s Strategy to retain its customer’s participation Its the toughest task to retain the interest of customers in the brand for a long time but Zara manages this by updating its collection and getting trendy, fashionable clothes within two weeks which is a less time period for any other brand to get their stock updated. So, this generates a mentality in the customers of scarcity of fashion that is- to buy the product at the time they have seen it otherwise they will loose it as the inventory is updated in every two weeks. • Zara’s strategy to increase their interaction By being creative, flexible, getting new and latest fashion trends at reasonable prices to attract the customers will increase their interaction to a great extent CUSTOMER RELATIONSHIP
  10. •Zara’s way of communication with customers Zara communicates with its customers with the help of its online shopping website, in- store interaction, social media platforms- Facebook blog posts, Twitter, Pinterest, Instagram as well as some fashion shows where it present its collections • Distribution of Zara’s product and services The Zara stores are highly centralised that can be reached easily by the customers and they have a self service option where customers buy their products and straight away take them home. On the other hand, the products are delivered at customer’s place who buy products online from the website and the time span of delivery is about two days. It also coordinates in the best manner with logistics which is an important aspect to be considered. So, it can be said that because of the huge number of retail outlets it becomes easy for Zara to distribute its products and services to the customers and give them the best shopping experience. • Differentiating Direct and Indirect channels Website comes under the category of direct channels that is delivered by Zara and In- store services (from the point of view of customers) and field sales (from the point of view of store staff) can be referred to as both direct as well as indirect channel as there are certain designers working for Zara to get the best collection in the store. Zara has its own factories where clothes are prepared and they are straight away sent to the stores for final sales. DISTRIBUTION CHANNEL
  11. REVENUE STREAM •Zara’s Pricing Strategy -The pricing strategy is market- oriented so, the prices are set keeping in mind the markets like- prices are high in international markets because of longer distribution channels whereas, they are low in domestic markets. - It has set an affordable price for its fashionable and quality clothes which gives high increments in sales. - It focuses on Just in Time policy for getting better results. - It follows different price lines which also indicates the level of quality of its clothes like- Higher the price, better will be its quality - It has a low level of inventory • Sources of Revenue In-store sales- $7,670,000,000 Online Sales- $3,875,000,000 Total Revenue- $11,545,000,000 • Zara’s Revenue at glance In the end of the year 2014 (ended January 31, 2015), Zara experienced heavy sales of $19.7 billions which was comparatively high from other extremely popular retailers like H & M. In the past year Inditex has marked great success by increasing its sales by 8% which was far more than the competitors in the market on the other hand, in India, the average sales per store of Zara is about Rs.45 Crore a year It has 1,923 stores in 88 countries generating fast fashion for its customers both Men, Women and the reason behind its high revenues is its ability of getting quick merchandising in its stores.
  12. KEY ACTIVITIES •The core activities of the Zara’s business -Product Development - Sales & Marketing -Search for latest fashion trends -Control of value chain • The type of business ii is- value added, problem solving or networking? As per the key activities of the business, it can be inferred that Zara’s business is more of value added and networking. Product Development, Search for latest trends are value added on the other hand, Sales & Marketing and Control of value chain fall under both the categories- value added and networking. • Key activities to be done in the business All the four activities mentioned above- Product Development, Sales & Marketing, Search for latest trends and Control of value chain are of utmost importance for Zara and will be done in the business.
  13. KEY RESOURCES •The key resources of Zara are also the key value drivers of its business and they are categorised into two:- - TANGIBLE RESOURCES Tangible driver is basically the financial segment of Zara that is very strong and competitive in nature and the financial performance of Zara explains its heavy amount of earnings and profit margins in the market. - INTANGIBLE RESOURCES Intangible drivers are the customer loyalty, brand awareness of Zara which provide significant amount of value to it. This is due to the Zara’s flexible and innovative nature which always provides the customers with wide range of clothes in terms of designs, fashion, latest styles, trends, etc. These are the two key elements that drive value for Zara and hold utmost importance in differentiating its business from that of others.
  14. KEY PARTNERS • Suppliers of resources that Zara needs for the business The designers, wholesalers, distributors, fashion magazines, and the customers both Men and Women who shop at Zara. • People integrated in Zara’s activities All the people who are some way or the other connected to Zara like- its store employees, Sales and marketing staff, distributors (distribution channels), customer segments, designers, website handlers, suppliers, etc. These people are the backbone of Zara in implementing all the operations in the best possible manner. • Supporters to Zara’s key activities Zara gets support from both its In- store staff as well as outside sources.
  15. COST STRUCTURE • The most important cost incurring segments in the business - Material Cost ( Variable Cost) $ 500,000,000 -Marketing Cost (Variable Cost) $ 500,000,000 -Design Cost (Variable Cost) $ 700,000,000 -Logistics Cost (Variable Cost) $ 500,000,000 Zara incurs heavy amount of cost for obtaining material for creating quality clothes for its customers so, in relation to this cost Zara has to pay for the designs as well as the logistics because these hold great importance in the business. Zara updates its inventory within a time frame of 2 weeks so it pays a lot more attention on these three costs. Lastly, it incurs little and manageable cost on advertising the brand this is because Zara is a well- established brand in the market and most popular as well so, it focuses on the other three costs to a great extent. So, the total amount of cost incurred by Zara is $ 2,200,000,000 and the total Profit earned after all the expenses is $ 9,345,000,000. • Key activities that are more expensive From the figures mentioned above it can be derived that Design Cost is the most costlier affair for Zara as it puts lots of emphasise in researching for the latest fashion trends and designs for updating its collection.
  16. FUTURE STRATEGIES K STRENGTHS -Well known and established brand -High quality products at low price -Becoming highly innovative with technology -Centralised distribution system -Standardized product delivering services WEAKNESSES -Online customer service is somewhere lacking behind -Online pricing is not consistent with in- store pricing - Weak Online presence -Don’t incur much cost on advertising OPPORTUNITIES -Development of products and improving them for giving best shopping experience -Further global expansion -Product collaboration with outside sources -Demand for high fashion at affordable prices SO STRATEGIES -Use the high quality at low price feature to fetch quality customers -Enter into the developed and emerging markets WO STRATEGIES -Get consistency and equality between the online and the in-store prices -Development in the production process which may get maximum output of products to satisfy the demands of high fashion customers THREATS -High Shipping Cost -Market Demand is often based on the current economic state -High level of competition in the fashion market -Emergence of newcomers with new ideas and creations ST STRATEGIES -Use centralised distribution system for gaining competitive advantage -Update the collection of clothes as usual for facing competition and defeating the competitors WT STRATEGIES -Improve the online presence for getting best results -Collaborate with the new entrants and it can flourish in the market
  17. REFERENCES Zara (retailer) - Wikipedia, the free encyclopedia. 2015. Zara (retailer)  - Wikipedia, the free encyclopedia. [ONLINE] Available at: https://en.wikipedia.org/wiki/Zara_(retailer). [Accessed 04 December 2015].  Zara’s business model and competitive advantages | Diane A. Isabelle. 2015. Zara’s business  model and competitive advantages | Diane A. Isabelle. [ONLINE] Available at:http ://dianeisabelle.com/2012/09/08/zaras-business-model-and-competitive-advantages/. [Accessed 04 December 2015].  Zara: worldwide pricing strategy revealed by study - News : Retail (#544318). 2015. Zara:  worldwide pricing strategy revealed by study - News : Retail (#544318). [ONLINE] Available at:http ://us.fashionmag.com/news/Zara-worldwide-pricing-strategy-revealed-by-study,544318.html#.Vm BjBFXRKko . [Accessed 04 December 2015].  Copy of Zara Pricing Policies by Melissa Chen on Prezi. 2015. Copy of Zara Pricing Policies by  Melissa Chen on Prezi. [ONLINE] Available at:  https://prezi.com/56oua3ljvjwl/copy-of-zara-pricing-policies/. [Accessed 04 December 2015].  2015. . [ONLINE] Available at:    http://www.forbes.com/sites/walterloeb/2015/03/30/zara-leads-in-fast-fashion/. [Accessed 06 December 2015].  Sample Project Of Business Model on Linked In (By Tove Perlhede)
  18. Spanish fashion brand Zara crosses Rs 500-crore sales mark in India - timesofindia- economictimes. 2015. Spanish fashion brand Zara crosses Rs 500-crore sales mark in India -  timesofindia-economictimes. [ONLINE] Available at:  http://articles.economictimes.indiatimes.com/2014-07-17/news/51656567_1_zara-store-indit ex-trent-massimo-dutti . [Accessed 06 December 2015]. Zara business model canvas - Google Search. 2015. zar  a business model canvas - Google Search. [ONLINE] Available at:  https://www.google.co.in/search?q=zara+business+model+canvas&biw=1517&bih=71 4&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwiA6OPUwcfJAhXHwA4KHSeYCR8QsAQIG g&dpr=0.9#tbm=isch&q=zara+business+model+canvas+2015&imgdii=SNz2HJNCuD-UvM%3 A%3BSNz2HJNCuD-UvM%3A%3Bv9dx_lc-mSEBNM%3A&imgrc=SNz2HJNCuD-UvM%3A . [Accessed 06 December 2015].