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Evaluation of Strategic Decision in Zara Company by Using the Theory of Pest, Swot, Market Segmentations and Positioning

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Political Forces

Government: An organization must be able to consider issues such as how stable the political environment 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.

Zara is a Spanish brand, so it enjoys all of the benefits of operating a business out of the European Union. In a political context, one of the biggest pros of running a company in the EU is the country’s extensive trade agreements. Not only does this make it incredibly easy to import raw materials and export finished products within the European Union, but it also means that Zara can send its merchandise across the world with little effort and for a low cost. Overall, the EU’s free-trade policies are massively beneficial for Zara; let’s just hope the Union continues to thrive!One of the biggest environments that can cause you to alter your products, ads, or even your overall brand perception is a country’s political views. While we like to think of the Internet as a global space, the social media and search engine platforms popular in your local market may not be the same as another country. For example, Facebook has been blocked in Iran, Vietnam, and North Korea. Twitter is currently banned in several other countries. This means if you’re a business using Facebook in these areas, you cannot use these advertising options and it is less likely that your target audience can see your updates. It also means you need to consider local alternatives, for example, Sina Weibo in China and Facenama in Iran and Afghanistan.

Economic Forces

As mentioned previously, Zara is a Spanish brand. Since Spain has one of the highest unemployment rates within Europe, this means that it has a relatively low cost of labor especially in comparison to other Western European countries, such as France, Germany, and the United Kingdom. Zara manufactures a good fraction of its products in Spain, so this low labor cost allows them to minimize costs and, in doing so, improve profitability. Again, the low cost of labor in Spain is definitely a positive for this brand!

Zara is a well-recognized brand, so those less familiar with its products might think they’re quite expensive. On the contrary, Zara is considered a relatively affordable brand in comparison to other European high street fashion names. This allows the company to thrive even in poorer countries; for example, despite Spain’s slow economy, Zara is still one of the most popular clothing brands in the country. Indeed, Zara has some more expensive products, but what’s most important is that it can cater to the majority of shoppers with the rest of its clothing lineup.

Recession: Inditex sales in Spain in 2019 accounted for 25%, which was 6.8% less than in 2018 (Inditex annual report). However, thanks to its global presence, the firm has been able to offset the slow-down in Spain (El País, 2019). 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 establishments of the same brand from one country to another and the likely response of local customers, for example Zara Japan and Zara Spain.

Sociological Forces

Despite its affordability, Zara is a fashionable name for most shoppers. This is where you can only praise the company for its hard work. Zara delivers a good-quality product for not a lot of money. And thanks to the brand’s clever marketing efforts, it feels rather exclusive for buyers. Overall, this strong, positive brand presence allows Zara to collect healthy profit margins for its shareholders, while buyers still feel like they’re getting a great deal.

There’s no doubt that online shopping is a major trend in the 21st century. Although clothes shopping might not be the best fit for the web, consumers now want to order their garments with the tap of a button, and from the comfort of their own homes. This isn’t necessarily a bad thing for Zara, since they already have a popular web shop. However, Zara will have to pay close attention to the performance of its online store, since consumer’s preferred channels are definitely changing.

Zara being a global brand, it operates in countries with strong cultural and style differences. Socio-cultural factors are extremely important when entering a foreign market. For example, people in Bangladesh do not change their ward-robe too often and a strong preference for bright colors dominates, as opposed to blacks and whites, more worn in China.

Technological Forces

Zara is one of many brands looking to use technology to expand its reach. As one of the world’s most popular fashion retailers, the company has both the money and the audience needed to get the most out of data. As a result, Zara is looking to big data the study of analyzing huge data sets to find better ways to reach and appeal to consumers. With both online and in-person customer touch points, this isn’t a straightforward task. But if Zara can pull off some successful data analysis, you bet they’ll be able to propel their powerful business even further. Social media: Having a presence in social networks such as Twitter or Facebook allows access to live information involving the consumer and making him/her feel more connected to the brand.

Online presence: Zara.com has become one of the brand’s most popular storefronts thanks to their permanent sections such as Look book, where the latest of the chain’s articles are shown, or People!, an initiative in collaboration with the customers, who send photos of their own fashion displays from the latest Zara trends (Inditex, 2018). This involves the customer emotionally and creates a more interactive way of shopping.

New technologies: Information and communications technology is at the heart of Zara’s business. Information on customer needs and demands flows daily and is fed into a data.

Legal Forces

Like all of us, Zara has to operate within the bounds of the law. For all fashion brands, copyright law is one of the scariest legal branches out there. Since Zara loves capturing hot clothing trends and making them more affordable, it’s bound to run into some issues with copyright. In fact, the major retailer already has. It’s been accused of stealing designs and clothing concepts from the likes of Adidas and Balenciaga. In past cases, Zara has largely been able to weave itself out of uncomfortable legal situations like these, but who knows if the behemoth brand will continue to have such good luck.

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.

Strengths in the SWOT analysis of Zara

Unique designs – One of the first and foremost advantages of Zara lies in its design abilities. It has a plethora of designers on board who understand the Zara brand and the psyche of the customers who visit Zara very well. The clothes are elegant, superior quality and have fantastic finishing. They come in a lot of varieties including party wear, office wear, for kids, for men and women, casuals as well as several others. Even accessories are an integral part of Zara wear.

Strong presence Zara has kept expanding its presence across the globe. On latest count in 2015, it had 2100 stores worldwide with an average sale of 15.9 Billion per annum. In 2016, it has expanded even further. If it has to survive in retail, Zara has to keep expanding its presence and it is good to know that the brand is doing exactly that.

Brand value the brand is ranked number 53 by Forbes in its brand ranking and is valued at a whopping 10.7 Billion dollars. There are several positive points leading to the excellent brand equity of Zara. The performance over the years and the consistent quality it has provided has given a boost to the brand in recent years. Besides this, the brand has stayed away from controversies and tried to stay humble even when it came across them. Such a healthy culture has resulted in the brand being loved by its consumers over and over again.

Superb supply chain – Zara is known to get its designs from conception to the stores in 2 weeks whereas it takes other competitors minimum 6 weeks or more, automatically making Zara the trendiest store which has the latest in fashion. On an average, 450 million items are designed every year by Zara. This naturally pushes the consumers to visit the store again and again to check out the latest designs.

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Design advantage – Zara has the reputation of launching 1000’s of new designs every year across the globe. As a result, a customer who might visit other stores twice or thrice a year to check out the latest in fashion, might have to visit Zara every month to see whats new in Zara. Because of their strong design advantage, the customer keeps buying fashion forward clothing from Zara besides purchasing the basics from the brand as well. Some customers dedicate their complete wardrobe to Zara clothing. All of Zara’s designs are elegant yet trendy, and are loved by their customers.

Low cost and higher profits – Because of their design advantage and fantastic physical evidence in stores, Zara rarely advertises its products. It relies completely on its trendy image to pull the customers to its stores. This is the reason that Zara has very low cost of operations and at the same time has high margins. It spends most of its earnings and profits on backward integration and on supply chain rather than spending it on Advertising.

Physical evidence of stores – Another strong positive of Zara is that the service has very good physical evidence of the stores. Whenever you walk into the store, you will get this open minded feeling instead of feeling cramped like you do in other showrooms. Zara uses a wide and deep store layout so that customers would love to walk around the store while picking up and trying out their favorite designs

Weaknesses in the SWOT analysis of Zara

Generalized collection – Zara does not specialize in anything and has everything for everyone. One of the reasons that a customer shifts to a competitor is when the competitor is focused on one thing. It might be shirts, it might be pants, it might be dresses or party wear or whatever. Such immediate focus is lacking in Zara and it is good for the day to day wear or trendy wear.

Lack of advertising – While it may lead to a cost advantage and cost is one of the strengths of Zara, the lack of advertising is a weakness because the brand can double its profit and its turnover by advertising its collection. It is known to be a trendy fashion outlet and it can easily pull in more customers with advertising which will generate a lot of positive word of mouth for the brand.

Low safety stock – A regret which Zara stores have is that stocks which are fast moving rarely have a safety buffer behind it. Low inventory is kept at Zara as a strategy to keep customers walking into the stores to check out the latest items. But it also means that if a particular design is a hit with the customers, it won’t reach its potential because there is no safety stock or buffer for this design.

Opportunities in the SWOT analysis of Zara

Online E-commerce Zara can definitely take advantage of the online buying trend and make its clothes available not only in its own stores but also on other E-commerce stores as well thereby bringing a hike in sale.

Backing some flagship designs – One of the common traits of top brands is that they have some designs which are flagship designs of their stores. This is lacking in Zara and hence, there should be some designs which should always be sold from a Zara store, bringing in great demand for these designs and building even more brand identity for the brand.

Growing market potential – Wherever Zara is currently existing, he brand is becoming more and more popular, thereby resulting in growing market potential. A rise in earning potential of consumers results in rise in demand for status symbols. Zara is one such status symbol in clothing industry which consumers love to wear. Hence, Zara needs to capitalize on the growing market potential of existing markets.

Market expansion – New markets will always give new business and potentially profitable business to Zara. It needs to keep a constant eye on emerging markets, where the spending power is rising and where people can spend on a semi premium brand like Zara so that they can wear better and more stylish clothing. Such market expansion insures the clothing brand against saturation in developed countries where the competition is too high.

Threats in the SWOT analysis of Zara

Low advertising – Zara needs to ask this question to itself. Looking back, will Zara think that it made a mistake by not advertising its unique brand proposition from the start? The way that Zara keeps rotating design, it can rope in a lot more consumers if it advertises the fact that you will get the latest in designs from Zara. But maybe, if its consumer base increases tremendously, coming up with new designs and differentiating itself will become more and more difficult. So, the debate of whether Zara should advertising or not, will be going on in the management room of Zara itself.

Competition – Zara is not the only one which is known for its chic design. Vero moda,H & M and Mango are also loved for its design. But the advantage to Zara is that the other brands are quite costly when compared to Zara whereas Zara gives much better designs at affordable prices. However, this competition leads to saturation in the semi premium segment indirectly affecting the margins.

Reach – Zara needs to increase its reach tremendously. Zara operates exclusively through its own stories and does not have shop in shop kind of stores or smaller displays (at least in Asia). This is where the competition gets its tremendous volumes from. But these volumes are missing in Zara and the only answer to this is that Zara increase its reach. If it does not, then competitors will eventually affect the brand equity of Zara because of their sheer power of penetration.

Here is Market Segmentation of Zara

Zara 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 primarily a China fashion brand, its consumers are also heavily. Influenced and moved by Chinese 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 customers based on their sense of fashion and style e.g., contemporary, 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 collection and the limited production run, attracts the target markets to Zara stores. The average Zara customer visits the store 17 times per year, compared with only three annual visits made to competitors (Gallaugher, 2008).

Here is Marketing Positioning in Zara Company

For a clothing brand like Zara, the brand positioning is very important. The positioning for Zara in the fashion industry is ‘affordable fast fashion’ and positioned to a universal consumer market. Zara has become a world-class brand, but the success of Zara does not rely on the named designers to create classical or popular, however, it’s due to a close relationship of Zara’s brand positioning to “fast fashion.” Through the rapid imitation strategy, emphasis on the fast design, fast production, and quick sale and with the fastest speed in response to the market demand, as the representative of fast fashion. Zara’s target audience is aged between 20-35 years, as these consumers are more sensitive to fashion, but do not have the ability to buy the designer brands. Therefore, in order to meet consumers’ demand for this customer base, thus, Zara creates a fast fashion model and it is a great success under current market trends.

Ries and Trout (1981) were the first to coin the term ‘positioning’. This had no relation with the products, services or organizations, but all related to the ability to command a position in consumers’ minds, distinct from the competition. Caperer (1997) argues that positioning is a way of emphasizing the distinctive characteristics of the brand that makes it stand out from its competitors and is appealing to the public. Gelder (2003) defines brand positioning as a way to demonstrate a brand’s distinction and competitive advantage over competitors. Brand positioning is a rather functional affair, with an emphasis on product and service features, benefits, usage, value and ability to solve problems for consumers. Aaker (1996) defines a brand position as the part of the brand identity and value proposition that is to be actively communicated to the target audience to highlight an advantage over competing brands.

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Evaluation of Strategic Decision in Zara Company by Using the Theory of Pest, Swot, Market Segmentations and Positioning. (2022, July 14). Edubirdie. Retrieved October 7, 2022, from https://edubirdie.com/examples/evaluation-of-strategic-decision-in-zara-company-by-using-the-theory-of-pest-swot-market-segmentations-and-positioning/
“Evaluation of Strategic Decision in Zara Company by Using the Theory of Pest, Swot, Market Segmentations and Positioning.” Edubirdie, 14 Jul. 2022, edubirdie.com/examples/evaluation-of-strategic-decision-in-zara-company-by-using-the-theory-of-pest-swot-market-segmentations-and-positioning/
Evaluation of Strategic Decision in Zara Company by Using the Theory of Pest, Swot, Market Segmentations and Positioning. [online]. Available at: <https://edubirdie.com/examples/evaluation-of-strategic-decision-in-zara-company-by-using-the-theory-of-pest-swot-market-segmentations-and-positioning/> [Accessed 7 Oct. 2022].
Evaluation of Strategic Decision in Zara Company by Using the Theory of Pest, Swot, Market Segmentations and Positioning [Internet]. Edubirdie. 2022 Jul 14 [cited 2022 Oct 7]. Available from: https://edubirdie.com/examples/evaluation-of-strategic-decision-in-zara-company-by-using-the-theory-of-pest-swot-market-segmentations-and-positioning/
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