Zara brand equity measurement, Assignments of Brand Management

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CONTENTS

Executive Summary

PEST Analysis

MICRO Analysis

Consumer Segmentation

Brand Positioning Map

Marketing Mix

Branding

Conclusion and Recommen-

dations

EXECUTIVE SUMMARY

This report aims to provide an analysis of the fashion retailer

Zara, one of the leading brands within the fashion industry.

The methodology used to analyse the brand includes models

such as a PESTLE and SWOT analysis and Michael Porter’s

Five Forces (1980) as well as both secondary and primary re-

search, such as comparative shopping and observational re-

search.

Zara is a Spanish retailer established in 1975 by Amancio

Ortega, and since then it has experienced a strong national

and international expansion; currently the brand operates in

87 countries with more than 1.830 stores centrally located.

It is the flagship store of Inditex (Industria del Diseño Tex-

til, SA), one of the largest world’s corporations, headquar-

tered in La Coruña. In addition to Zara, which accounted for

64,9% of the group’s 2011 retail sales (Annual report,2011),

Inditex owns seven other retail chains: Pull and Bear, Mas-

simo Dutti, Bershka, Stradivarius, Oysho, Zara Home and

Uterqüe.

Its vertically integrated business structure allows the brand

to control most of the steps on the supply chain: it designs,

produces, and distributes itself and most Zara stores are

company-owned, which enables a quick response to consum-

ers’ changing demands and a greater flexibility.

Zara’s aim according to Amancio Ortega is “to democratise

fashion by offering the latest fashion in medium quality at

affordable prices”.

MARKETING ENVIRONMENT POLITICAL FORCES ECONOMICAL FORCES •Government: An organization must be able to consider issues such as how stable the political en- vironment is and what government regulations influence the policies that regulate or tax the firm. Zara having a global presence, they must take this into account when entering a new market. •Recession: Inditex sales in Spain in 2011 accounted for 25%, which was 6.8% less than in 2009 (Inditex annual report). However, thanks to its global presence, the firm has been able to offset the slow- down in Spain (El País, 2011). The Span- ish company is increasingly aiming at the global market because of stagnant results in its mother country due to the heavy re- cession in Spain. •Price: Differences in prices between es- tablishments of the same brand from one country to another and the likely response of local customers, for example Zara Japan and Zara Spain. •Difference in income per capita across countries in which Inditex operates.

LEGAL FORCES ENVIRONMENTAL FORCES

• Plagiarism: High street retail- ers create affordable garments in- spired from the catwalk and luxury brands. However this is sometimes a concern for the latter. Zara was sued in 2008 by Louboutin for sell- ing an open-toed red-soled shoe which it claimed was similar to its Yo Yo model (Retail Week, 2012) •Sweatshops: In August 2011 Zara was accused of sweatshop facto- ry conditions and the employing an underage worker (The Guardian, 2011). This might have an extremely negative impact in the brand’s image. •Sustainability: People are increasingly aware of problems caused by pollution so in 2007, the firm’s CEO unveiled an environ- mental strategy that included the use of re- newable energy systems at logistics centres and the introduction of biodiesel as fuel for the firm’s trucking fleet (Palladino, 2010). Zara is also opening some eco-efficient stores. This company’s environment-friend- ly image may attract more customers.

MICROANALYSIS

I

n terms of revenue and growth Zara’s main competi- tor is the Swedish firm H&M who, unlike Zara, outsources all of its production to developing countries with low labour rates. While H&M has 900 suppliers and no factories, nearly 60% of Zara’s merchandise is produced in-house (Gallaugher, 2008). In terms of cus- tomers, Zara is facing all the trendy and fashion clothing designers and has positioned itself as the smart choice of those who want to com- bine fashion with affordable prices. To avoid multiple intermediaries and time waste Zara deals directly with its network of suppliers. The same hap- pens with the distribution; the brand wants to keep control and owns almost all of its stores, all placed in strategic locations. ‘Inditex selects suppliers all over the world to produce its collections and has an extensive supply chain with a presence in over 40 countries. The fact that a significant part of its supplies are carried out in areas close to the head- quarters of each of the chains makes possible a rapid and flexible response to the market.’ (Inditex, 2011) -12-

SWOTANALYSIS •Vertically integrated system •Fast Fashion/ Ability to recre ate fashion •Many stores around the World •Strong supply chain and distri- bution channels •Diversified product range •Each store wants customer comments and opinions. •Centralised production •Tagged as imitators •Euro-centric model •Lack of advertising Strengths: Weaknesses: Opportunities: •Designers’ collaborations could expand the company into new markets •Zara’s brand awareness •Emerging markets (BRIC countries) Threats: •Rivals may copy Zara strategy •Manufacture based in Spain is becoming expensive •Potential oversaturation in Eu- rope •Competitor H&M is doing great with designer collaborations and a broader target market (ex: Ma- ternity)

CONSUMER SEGMENTATION Z ara seems to have a wide range of target markets, from kids to teenagers to women and men. However, the core customer tends to be a wom- an aged between 15 and 35. A typical Zara customer is a person that wants fashionable, trendy and unique outfits at af- fordable prices. As Zara has its origins in Spain and is primar- ily a European fashion brand, its consumers are also heavily influenced and moved by Eu- ropean fashion. Aside from that, the customer may belong to any social stratum or demo- graphic segment as Zara caters to a wide range of tastes. The market segmentation strategy employed by the brand is based on the demographic and psychographic variables like gender, age, generation, lifestyle and social aspirations. However, aside from this the company also targets custom- ers based on their sense of fashion and style e.g., contem- porary, trendy, classic, etc. The brand uses a differentiated market strategy as it aims to target various segments. Zara situates its stores in high profile locations and provides customers with a turnover time of 4-5 weeks for its new col- lections, made available at very affordable prices. This, along with the brand identity, the clothes and accessories collec- tion and the limited produc- tion run, attracts the target markets to Zara stores. The average Zara customer visits the store 17 times per year, compared with only three an- nual visits made to competitors (Gallaugher, 2008)

BRAND POSITIONING MAP This Positioning map gives Zara an overview of its position in relation to that of competitor brands within the market (Posner, 2011). There is a very strong rivalry between competitors as firms have to fight for market share. Zara is perceived as being slightly more fashionable than its competitors. Fig.3 Zara Market Position

MARKETING MIX AND BRAND STRATEGY

PRODUCT COMPARAISON £39, £29, Although the Zara bag is 10 pounds more expensive than the H&M one it also looks more fashionable. The Zara bag is offered in two colours, black and brown. Although the H&M has a larger colour offer (Pink, White and black) this only makes it come across as very tacky. In this particu- lar case the 10 extra pounds that Zara charges for its bag are completely justified. It is very elegant and looks expensive while the H&M one looks cheap and of poor quality. The bag has been so successful that Zara has created other similar ones. It has even been adopted by the “it” girl Olivia Palermo and the singer Mollie King and it has appeared in sev- eral fashion blogs.

PRICE Z ara is positioned in the premium price segment, which means its prices are slightly higher than those of its competitors. Price varies by country depend- ing on the purchasing power of the target market segment and on the margin the company wants to gain. For example, higher prices are charged within the UK. Zara used to show the key European curren- cies on its price tags and the UK price was generally higher than elsewhere in Europe (Jackson et al., 2009). Prices are, on average, 40% high- er in Northern European countries than in Spain, 10% higher in other European countries, 70% higher in the Americas, and 100% higher in Japan (Palladino, 2010). But how long Zara can go on charging such markedly varying prices in different countries? Jap- anese customers pay about half as much again as west Europeans but Luca Solca of Sanford Bernstein, a research firm, says consumers in China, where Zara also charges more, see high prices as part of a product’s appeal (The economist,

PROMOTION Advertising has traditionally been the main method of communicating a brand image (Jackson et al., 2009). However, Zara spends on average 0.3% of its income on advertising, which is considered very low com- pared to the 3-4% typically spent by rivals (The economist, 2005). The fact that it spends so little has reinforced its identity as a clothing retailer that is low cost but high fashion. One of the reasons for this non ad- vertising policy is the fact that Zara changes its collections very often, so it is obviously unnecessary to promote products that won’t be available a few days after the consumer has been in contact with the advert. “The reason for not spending mon- ey on publicity is that it doesn’t bring any added value to our customers. We would rather concentrate on our of- fering in terms of design, prices, rapid turn-around of stock and the store ex- perience.” says Carmen, a press officer at Inditex (Tungate, 2005). The strategy adopted by Zara consists of investing in the location and visual mer- chandising of their stores. The company believes that its shop windows, the con- tents of which are decided in A Coruña, are all the advertising it needs. Displays are regularly updated since they are crit- ical for Zara to remain visible and entice customers. The stores are large and ap- pealing in their interior design, window displays and sophistication and are posi- tioned in prime locations for more visi- bility. For Zara word of mouth has also a great significance because despite the fact that the company has seldom used the me- dia to advertise its products, Zara is still popular among the population at large, which proves that people talk about it. The Zara customer needs neither to be reminded of nor to know what is in the shop to come back. He does it be- cause he knows he/she is going to find a product he/she is going to like. There is therefore no reason to do any promotion since customers go to the shops of their own accord.

BRANDING The elegance transmitted by the logo is also found in the store in- teriors. The brand has adopted a strategy tending towards the resem- blance to luxury brands. The stores are large, giving the customers room to breathe instead of overwhelming them; the sections are widely spaced in keeping with the spirit of luxury boutiques. When getting into a Zara shop we can also see that the goods are organized according to colours and sophistication. Inside Zara stores, the window displays and the internal arrangement of the product play a key role. Zara’s famous dark blue paper bags are also part of the brand identity and they are a way of promoting it too, ‘dandling smartly from wrists on buses and trains and in the street, in every city, everywhere’ (Tungate,

‘The secret to Zara’s appeal is that, although shopping there is cheap, it doesn’t feel cheap’ (Tungate, 2008). Zara imitates luxury companies: choosing the best locations in the main cities, showing a few selected looks in their windows and through a sophisticated mer- chandise display inside the stores. Occasionally stores have been opened in characteristic build- ings of the city as is the case of ‘Palazzo Bocconi’, in Rome, or the ‘Convent of San Antonio El Real’ in Salamanca, Spain, which is considered one of the great- est restorations carried out by Zara, something that in terms of investment return will never be cost-effective and that was un- dertaken to strengthen the image of the brand.