Marketing Problems And Issues Faced By Zara Marketing Essay

Marketing Problems And Issues Faced By Zara Marketing Essay Zara clothing is a part of Spanish based Inditex Group, launched in 1975. The sales contribution of Zara clothing is 63.8% in the groups total sales of the financial year 2009. Zara clothing has two main product divisions: mens and womens apparel. Zara is known for its innovative designs around the World; each of the clothing line consists of the following divisions: Upper Garment, Lower Garment, Shoes, Cosmetics and Complements. Kids clothing is included in Zaras catalogue as well. Zara is a vertically integrated retailer which designs, produces and distributes. The company deals mostly with the supply-chain, unlike other competitor retailers of the same market, around half of Zara clothing products are produced in Spain, one third in the rest of Europe, and some in Asian countries and the rest of the world. ZARA has 1,608 stores (including 213 ZARA kids stores) in 74 countries. So while competitors go to Asia for outsource production, Zara makes most of its fashionable items and distributes them to its own stores located in all major cities around the World. At average Zara clothing store is more than 1500 square meters of pure up-to-date fashion. Zara clothing brand is dealing with over ten thousand clothing items a year and Zara has a strategy of launching and distributing a new product to the stores in only time of two weeks. In a result, Zara stores totally change their clothing items each month. Only in the UK, Zara has more than 50 stores in different cities, making Zara the most famous global retailer in the country. Zara clothing is also taking over the American continents by opening multiple locations in The US, Canada and South American countries. Most of the US cities already have Zara clothing sales locations and there are plans to open twice as many stores. According to AT Kearney, the consultants, for the past three years India is at the top of the list of the most attractive market for retail investment. According to Tehnopak, the retail consultants, the revenues of corporate retail sector in India will grow 20-fold from  £7bn ($14.1bn, E10.3bn) to  £140bn over the coming decade. This will reduce the market share of the small family-owned stores that dominate Indian retail. Zaras entry is a test of whether its fast-fashion concept will catch on in India. Zaras trademark is its ability to design, manufacture and deliver a new clothing design to its shops within just two weeks, compared with a nine-month industry average. It takes roughly four weeks to ship a container from Spain to India. Zara already has shops in 74 countries of the World. Financial Highlights (financial year 2009): The financial year 2009 ended with a growth rate of 9% at constant exchange rates. Inditex has also maintained comparable sales over the course of the year. The gross margin, which has increased by 7% to 6,300 million Euros, meaning a 57.1% on sales, 27 basic points more than in the previous year. Operating expenses remain under strict control, with a growth of 7% mainly due to the new retail areas. The contribution of sales in stores located outside Spain has reached 68% of the total figure, and all chains have increased their sales percentages on international markets, demonstrating their desire and ability to expand at a global level. The scale of this effort is clear if we recall that during 2009 alone, we increased our overseas presence to a total of 46 countries. Zaras sales have seen a net growth from 4% to 6% at constant exchange rates, with a 5% growth in EBIT. The main indicators for the financial year 2009 of the group are as under: Net Sales: à ¢Ã¢â‚¬Å¡Ã‚ ¬11,048 Millions EBIT: à ¢Ã¢â‚¬Å¡Ã‚ ¬1,729 Millions Net Sales Zara: à ¢Ã¢â‚¬Å¡Ã‚ ¬7,077 Millions EBIT Zara: à ¢Ã¢â‚¬Å¡Ã‚ ¬1,105 Millions EBIT Margin Zara: 15.6% Problems and Issues: Marketing: Zara has adopted a different marketing strategy form beginning which is not to advertise through traditional media. There are not many businesses which are running without any marketing in this age of communication and technology. If some business is doing good without marketing it dose not mean that the business has captured maximum market and there are no more opportunities to grow. If some business is already doing well, it can do better by launching a marketing campaign and can get more market share. But in last 2 years Zara has changed its strategy slightly and started campaign through some social networking website to keep in touch with its customers. Political issues: According to Fareed Rafiq Zakaria who is a famous Indian American journalist the Indias democracy system has all ability to qualify for illiberal democracy. So that is why the political system is volatile and takes any positive or negative impact on economy on day to day basics. Major political and local political powers plays important role in major citys economy. Foreign investor Zara has very sensitive about its liberal policies due to its main origin of business in Europe is facing very illiberal policies of government in its labour law. And also media the forth pillar of political system play an important part to rock the economic system by flaring up political issues. Due to this Zara is reluctant to invest more in Indian cloth industry which is growing with a GDP of 9% annually. Product: Zara is based in Europe, so it has 3 to 4 main colours which are used by its designers most of the time. But in India there are lots of colours used in readymade cloth industry especially bright colour. Female and male clothes lot of or small embroidery work is like which is lack of Zara fashion designs. Indian consumer likes bright colour for party occasions. Social issues: Cultural differences in India and Europe has a great impact on sales in India due to its designs which are more influenced by Europe. Statistics shows that the Indian cloth market is 490000 million rupees and 30000 million rupees market is only European based apparels. Zaras limited origin designs make its global brand image of fashion industry. Zara opened two shops in Indias metro cities New Delhi and Mumbai but both have vast cloths cultural differences. In New Delhi customers like Indian dresses more than foreign designs but vice versa in Mumbai. There are also traditional cloth designs for special occasions which are lacking in Zara stores. Weather: Indias weather is totally different from Europe because of its five extreme seasons (summer, Monsoon/rainy, winter, spring, autumn) in a year. The winter is of very short duration and not too much cold as compared to Europe and summer (April, May and June) is warmer than Europe. Variation of season requires rapid fashion change according to local weather. At Zara store you will find most of the cloths for normal weather and not for extreme weather. Legal issues: In India there are some legal requirements for foreign companies to start business and the most important one is that you have to make a local partner from India. Zara has started its business with the collaboration of Tata a local Indian business company. Next, Marks Spencer, Accessories, Debenhams and Guess have all franchised their stores to India. Another problem in India is the implementation of copyright law. This is a fact that the day Zara will launch its new design in Indian market it will be pirated in couple of days and you will find the same design at very lower prices in the local shops. Economical issues: The growth rate of Indian economy is comparatively high but it does not affect the life of common people very much because of the unequal distribution of wealth. So the whole population of India should not be considered as a target market of Zara. On the other side high rate of taxes for foreign companies also results into higher prices of the products. Mango, Guess, Esprit, and French Connection are also in line with Zara prices in other markets including Singapore, Dubai and some European markets. It is surprising that the prices in Singapore and Dubai are less than India because Indian duties could add 30-40 percent on retail prices, while duties in these countries are much lower. Devangshu Dutta, managing director of Third Eyesight, a retail consultancy based in the capital, reckons that Inditex may be taking a long-term view of the Indian market and relying on strategic pricing. THE DELIVERY OF A STRATEGIC MARKETING SOLUTION Zara has a very committed and professional team consists of more than 90,000 people. In my point of view Zara should review its strategies and policies now as Zara is now entering in totally different and more competitive markets, like India, of the World. The SWOT analysis of Zara is very helpful to understand the situation which Zara is facing today. Strengths ZARA has a very strong market Image due to quality, style and availability of products. Product/ Brand Image is also very high because of very high quality, reliable products for children, women and men. Strong financial position of ZARA is also our strength which will help us to invest adequately to get favorable results. Due to strong market position there is availability of finance from other financial institutions like banks. ZARA can benefit in saving the cost from existing infrastructure of suppliers. Vast network and store on different main locations all over the UK, Europe and other regions of the World is also our strength. At this time we have availability of suppliers who can provide us required raw material on good prices and we can build good relations with them for future when the competition will be higher. Online availability of our full catalogue is also our strength and customers can see, choose and make a final decision by just sitting home. Weaknesses Due to no marketing strategy and planning the growth rate of market share is very low. High product price is a weakness but we can not compromise on quality and customer services. Proper management and implementation of the new system can take time. Opportunities Well planed customized marketing campaign according to the current requirement of the time. New market search is the next step after capturing our existing market we can go to US and central Asian markets more deeply. More innovation, improved quality and value added products for our customers. Adoption of new technology will help us to lower the cost of our products. Research and development department can be made more efficient and strong for product improvement and availability of the products. Improved and more focused customers service. Continuous training of the staff and labor for cost effective production. Strive to exceed the customers expectations through quality, innovation and customers services. Increase in promotional activities through online marketing to get maximum market share. Building relations and long term contracts with the suppliers will be beneficial for future buying. Threats Entry of new competitors is a threat for our product which can be avoided by building stronger product image in the mind of customer. Unavailability of sufficient raw material because of high number of customers for raw material in the market. In the near future there will be high price of raw material due to increased demand. Availability of raw material in future is another threat and can be managed by involving maximum number of suppliers in the beginning with small quantity orders to all the suppliers. Order quantity can be increased in future as per demand. Low buying power of the customers in existing markets is also a threat and can be managed by searching new markets. Keeping in view the SWOT analysis and our problems and issues Zara should focus on the following points and develop a strategy accordingly: Recommendations: Advertising and Marketing: Unique approach of advertising and marketing within the business model of Zara adds an additional factor to their success. A 0.3% of total income is spent on marketing and advertising. This amount is significantly less than the competitors of Zara who are spending 3-4% of their total revenues on advertising and marketing. The main competitors of Zara like next, Bhs, Debenhams, New Look, HM, John Lewis, MS, asos, peacocks and topshop are the main stores which are more focusing on marketing specially on online presence and are among the top list stores on search engines in fashion and clothing search results. Because Zara is not in putting any effort for online marketing, that is why we do not find it in search results. In this age of communication and technology it is very hard to run a business without marketing and interaction with existing or potential customers. In my point of view Zara should now develop its own IT and marketing department and should launch an online marketing campaign through search engine optimization, social networking websites like facebook, twitter, bebo etc. Email marketing is another highly reliable and reachable idea to convey the message to maximum number of customers in no time. The list of emails can also be used to keep the customers update with latest offers in the store. By using Zaras own website and these social networking website people can keep in touch with store without coming to store and this thing will increase the market share with the help of low cost solution of online marketing. Interactive websites are the main source to attract more traffic and keep in touch with customers which helps to improve and change in products according to the requirements of the customers. This is also the quickest way to get feed back from our valuable customers around the globe. At the moment Zara is more focusing on the development of its stores on the prime locations on the high streets which is also a good strategy but it can not be replaced with a well organized professional marketing campaign which can bring thousands of customers to the store in days. With the help of fully functional interactive website customers can give feed back immediately after using the product and we can improve our products quickly. In the big countries like India where the presence of physical stores is not feasible in every city because the buying power of the customer is not equal and to open a store for small number of customers can not add anything other than heavy losses. In situation like this online store is the best idea to serve the customers who do not have physical access to the store but can afford and buy from online store. Because in India we can find our customers in many cities but the number of the customers will be low, so online marketing and online store will be more helpful to satisfy that market. Additionally, because of the short product development cycles, customers can be trained to visit Zara online stores most of the time because new items are presented weekly and are not restocked often. This feeling of scarcity encourages customers to come to online stores and buy frequently. In order to keep our stores looking fresh and trendy; Zara is investing heavily in their store layouts. Each Zara store is remodeled every five years in order to update with current trends. Same strategy should be followed in India as well to maintain the international standards. Direct marketing is not the top priority of Zara, in fact its the cost advantage and maintenance of brand that adds value to company. Zaras information and communication protocols are highly differentiated from its competitors. Zaras expenditure on IT comprises of less than 0.5% of total income on Information Technology and IT employees are only 0.5% of total workforce of company. In contrast to this Zaras competitors spend around 2% of total revenue on IT and 2.5% of their workforce is involved in IT. Main tools utilized by Zara are human intelligence, from store managers and market research, and information technology such as their PDA devices which forms a hybrid model for information flow from stores to headquarters. For example, handheld devices are provided at Zara stores which are used by managers over there for sending standardized information including customer feedback and ordering needs to in-house designers. So this is the key to keep the designer updated regarding rapidly changing customer demands and trends. Zaras designers not only keep themselves informed of fast-changing trends and demands of custo mers but also participate in formation of hybrid model. Zaras competitors entirely rely on IT applications so here again Zara wins the differentiation by incorporating human intelligence in its hybrid model. Zara obtains uniqueness by adopting human intelligence assisted IT solutions leading to well-organized inventories, thoroughly linked demand and supply, and decreased costs from obsolete merchandise; but this is not the end , there is always room for improvement. IT processes need effective management of levels of inventory. The information and communication system owned by Zara leads to cost advantage to Zaras operations and adds capability of responding rapidly and up to the mark. Zaras business model demarcates its unique concept, capabilities, and value drivers and these have leaded the company to the path of success. Fully concentrated core operations and production abilities, resistance to outsourcing, pin point focus on fashion has given recognition in fashion industry and market. To sustain and maintain such sort of differentiation in the era of global expansion there is need to adapt business capabilities of product development, cost of production, marketing, information and communication technologies and strategic partnerships. Mass media Advertising It is one of the basic requirements of a company to promote the sales of its products. In addition to this, it works as a building block in the process of building of brand identity. Further more it plays important role in communicating changes or changes or new arrivals to the customers. Advertising is considered to be one of the essences of fashion industry. Advertising if properly planned would increase the buzz-value of Zara. For achievement of our objectives following branches of advertising would be utilized. When these media will come into play every member of the society would be having awareness to Zara. Print Advertising The print media remains one of the cost effective source of advertising. Advertisement of products can be carried out via newspapers and magazines. Additionally promotional brochures and fliers would serve the same purpose. The selling price of advertising space in newspapers and magazines is directly related to the position attained by advertisement and the readership of the publications. Our advertisement would be published on the most popular and glossy supplement of magazines and newspapers to catch the eye of customers. Outdoor Advertising Billboards Billboard advertising is very common in Delhi and Mumbai and this trend is going to be followed by Zara to grab the attention of the passers by. This would be supplemented by other outdoor advertising methods to capture larger portion of market. Kiosks: It is not difficult to find malls and railway stations in cities like Mumbai and Delhi. Keeping this thing in mind provision of kiosks can also provide easy outlet for the products of company. Zara would use this marketing strategy as well. Tradeshows and Events We have plans to organize trade fairs, exhibitions and events to draw attention of customers. It would be achieved in collaboration with different local companies which promote fashion industry. Covert Advertising Advertising in Movies All of us know that India is famous for its movie production. We would use this tool as covert advertising as a unique kind of advertising. Almost every weekend a new movie is released. Thousands of people come at one platform and the same platform can be sponsored by Zara to gain the advantage of grabbing customers. Celebrity Advertising We know that audience in India follows the trends adopted by celebrities over there. Celebrities like Amir Khan and John Abraham have already played their role in Zaras promotion campaign. To keep the pace with this strategy is still the part of our marketing layout. Pricing Strategy: In the beginning the competitive pricing strategy should be adopted to capture more market share in India because in most of the large cities of India international brands and stores are already available. One more thing is local shop keeper who will copy Zaras designs and sale them in the market on low prices. To avoid this problem brand image should be communicated through advertising so that customers do not only consider the design but brand and quality as well. For brining marked reduction in prices the production can be started in the host country which will decrease our operating expenses like freight, high cost labour in Europe, import taxes and duties in India. After taking these steps we will be able to compete in the market very easily and can get benefit in long run. Conclusion: Zara has a very strong financial position and growth rate in last couple of years. As Zara has already opened its stores in many developed countries and has started to enter in under developing countries like India, Zara should review and change its strategy related to marketing and production because the circumstances and situation in under developed countries is totally different from developed countries. In most of the developing countries advertisement plays a vital role to communicate the message to the target market especially highly populated countries like India. Marketing is very necessary for the growth of a product or brand and get maximum market share in short time. Traditional and non traditional media should be used to achieve the objectives. Production can be started in the countries where you are going to open new stores; this thing will help to reduce the cost of production, time form production houses to outlets and will increase the safety of the products as well. Another considerable advantage of production in India is that Zara can build good relations with local community by offering jobs to local people and can get better understanding about the market and its requirements. The above mentioned factors will contribute a lot in the long run to get more market share and keep Zara in the Indian market. Friendster, 2009, Zaras Profile http://profiles.friendster.com/97785772 [Accessed 05-08-2010] http://managementfunda.com/advertising-types/