Marketing
Zara is a Spanish clothier with several stores distributed in over 50 countries. Since its establishment, Zara’s sales and profits have risen precipitously, with the firm recording net profits worth 214 million Euros in the second quarter of 2020 (Dean 2020). Besides achieving high margins, Zara has significantly disrupted the fashion industry, ranking as one of the sector’s leading entities. While growth in the fast fashion industry may partly account for Zara’s success, it is undeniable that the entity’s retention of a competitive position relative to other brands and sustained competitive advantage in its target market segments through its value proposition, differentiation, relationship marketing, and the adoption of ‘red queen’ strategies, accounts for its unbeatable triumph in the fashion industry.
Competitive Position of the Brand
Based on the sectoral analysis, it is evident that Zara holds a competitive position relative to other brands in the fast fashion industry such as Boohoo, Fashion Nova, and Forever. In 2019, a McKinsey & Co. forecast showed that Zara was the largest of the three top brands- Uniqlo and H&M- by a wide margin (Petro 2019). Moreover, a Statista report showed that the entity ranked as the leading fast-fashion corporation, generating approximately 22 billion pounds and surpassing the revenues of British retailers Marks & Spencer and Primark combined (Sabanoglu 2020). As a corporate brand, Zara is a valuable resource that provides the Index group with a sustainable and competitive advantage by meeting the economic doctrine (Balmer & Gray 2003). The brand’s valuable, inimitable, rare, and organized resources such as a fast, responsive designer team, unique in-store inventory storage, fast fashion brand image, and reduced production period facilitate its competitive position in the sector. In essence, Zara’s capability to meet the corporate brand criteria and huge margins fosters its competitiveness in the industry.
As a highly competitive brand, Zara generates its clear competitive advantages in its target consumers’ eyes through several sources, including value proposition. As the literature suggests, a competitive advantage is a firm’s distinctive capabilities stemming from stable and fixed behaviors that other entities lack (Hakkak & Ghodsi 2015). Others consider a competitive advantage as a state in which a firm’s profit rate is higher than the industry’s average rate (Hosseini, Soltani & Mehdizadeh 2018). In Zara’s context, the competitive advantage stems from its distinctive value proposition of fast fashion deliverable in the right quantity, format, and time that matches the customers’ needs (Danziger 2018). Unlike its competitors, Zara adopts a fast approach of designing, producing, distributing, and selling its fashion collections, a business model that other firms in the industry lack. Scholars note that the company takes only two weeks to develop and get its collection to stores compared to the several months, approximately six months, taken by its competitors (Chu 2019). Zara’s capability to fulfill its value proposition of fashion delivery enhances its competitiveness in the industry.
Furthermore, Zara holds a competitive advantage among its target consumers through good perceptual mapping. As the literature suggests, perceptual mapping is a tool that offers marketers a unique ability to comprehend the buying criteria used by consumers and complex relationships among marketplace competitors (Gigauri 2019). Zara’s unique operations and resources create a positive perceptual mapping among its target consumers.
Zara’s positive perceptual mapping is evidenced by empirical and theoretical research in the industry. For example, recent studies in India show that respondents perceived Zara as an entity inclined towards fashionable clothes, quality garments, and value for money (Saraswat 2018). Baykal (2011) also note that Zara’s unique in-store inventory model gives the entity a competitive advantage on the brand image because consumers view it as a fashion retailer that can rapidly change and keep pace with dynamic fashion trends. Scholars also posit that the rapid inventory turnover brings a sense of freshness and exclusiveness to consumers (Caro & Gallien 2010). It is worth noting that unlike its competitors, Zara adopts a unique business model that involves distributing products in small batches and leaving extra capacity in its stores, thus creating a perception of agile responsiveness to changing fashion trends and a sense of freshness. This unique product positioning in the consumers’ minds generates a competitive advantage for the brand relative to other brands considered less responsive to fashion trends because of their low inventory turnover rate.
Besides perceptual mapping, differentiation in Zara is a significant source of the company’s competitive advantage. Scholars posit that the primary differentiation strategies that work in Zara are product and channel distribution (Baykal 2011). Zara goes beyond quality and price in product differentiation, which is a common differentiation strategy in the fast-fashion industry. Instead, the company focuses on ensuring that fashion remains rare by providing a small number of each design in its stores (Baykal 2011). Moreover, Zara has a stocking rhythm- twice a week- which enables consumers to precisely know the delivery days and visit the stores more frequently on those days (Ferdows et al. 2004). Product differentiation in Zara enhances its competitive advantage because it creates customer loyalty by assuring the latter of new, quality, and affordable design collections that may not be available among other industrial participants.
Apart from product differentiation, channel differentiation is also a significant source of Zara’s competitive advantage. Unlike other industrial participants, Zara has a well-organized and inimitable store. For example, scholars note that the brand’s stores are stocked with new designs twice a week (Baykal 2011). The store organization facilitates the fulfillment of consumers’ demand for fast-changing fashion trends. Zara’s channel distribution differs from competitors such as H&M, who capitalize on economies of scale, stock their stores with vast batches of designs, and take about six months to introduce new designs to their collections. Therefore, the well-organized and frequently stocked stores create a competitive advantage for Zara relative to its close rivals.
Sustaining a Competitive Advantage
Besides having multiple competitive advantages, Zara has managed to sustain these advantages in its demographic and psychographic market segments through “red queen” strategies. According to scholars, the “red queen” effect in the business context is based on the self-escalating and co-evolving nature of businesses triggered by increased pressure and the need to adapt faster to survive in the industry (Schindehutte & Morris 2010; Tiwana 2014). Derfus et al. (2008) also emphasize that the red queen effect is seen as a context whereby each firm’s performance depends on its matching or exceeding the rival’s actions. This view is also supported by Barnett and Hansen (2007), who posit that the “red queen” strategy is pillared on the idea that an organization facing competition is likely to search for ways to improve its performance, which in turn triggers learning among rivals and further learning in the first organization. In essence, the “red queen” effect is the innovative actions taken by an entity to offset the constraints introduced by its rivals.
Throughout its operations, Zara has managed to sustain its competitive advantages through the self-escalating and co-evolving mechanism. For example, Zhu, Krikke and Caniels (2018) note that Zara utilizes a quick response strategy to increase agility in its operations. Notably, the company leverages its close communication loop principles, stick to a rhythm across the supply chain, and capital assets to remain highly responsive to consumers’ changing demands in the fast fashion industry. Arguably, Zara’s quick response strategy is a “red queen” effect triggered by competition in the industry. For example, for years, Zara has maintained a significant footprint in the brick-and-mortar market.
However, in response to its rival’s action to capitalize on e-commerce, Zara has been working to close some of its small stores to boost its online sales (Heuritech 2020). Zara’s digital transformation is just an example of the “red queen” tactics that the company utilizes to maintain its competitive advantage among domestic and international consumers by ensuring timely availability of new designs to online shoppers.
Moreover, Zara has managed to sustain a competitive advantage in its market segment by capitalizing on the concept of relationship marketing. Scholars describe relationship marketing as developing long-term relationships between a seller and a buyer (Nwakanma, Jackson & Burkhalter 2007; Jemaa & Tournois 2014). Rowe and Barnes (1998) also add four relationship marketing perspectives: locking-in customers, customer retention, database marketing, and building strong, close, positive relationships. Of the four dimensions, Zara capitalizes on locking-in customers to sustain its competitive advantage. As the literature suggests, locking-in customers entail setting up switching costs as a barrier to make customers “economic hostages” to a firm (Andreasen & Petty 2006; Kaplan & Norton 2003; Hellmer 2010). In this context, Zara locks-in its consumers by stocking little of each of its designs and adding new designs to its collection twice a week. This technique enables Zara to impose a high switching cost, missing out on new fashion designs, on consumers who attempt to shift their purchases to other industrial players.
Threats and Responses
Despite maintaining a competitive advantage among its market segment, Zara’s competitiveness remains highly threatened by service differentiation in firms such as H&M. As the literature suggests, service differentiation such as after-sale services in companies such as Zara is not optimal as some of its competitors. Notably, Baykal (2011) observes that, like other few entities, Zara receives lots of consumer complaints regarding its after-sale services and requests to exchange products and refund clients. However, over the years, firms such as H&M have mastered service differentiation, and it is highly responsive to customer feedback concerning their products and areas of improvement. The growing service differentiation in Zara’s closest competitors poses a significant threat to its preference among consumers, notably those that have had unpleasant experiences with its after-sale services.
In response to the current threats and in attempts to sustain its competitive advantage over its competitors, Zara should invest significantly in reinforcing its service differentiation and exploring further “red queen” strategies. As averred by Hoffman (2000), firms can create sustainable competitive advantages in two categorical sources: superior skills and superior resources. In this scenario, Zara has been investing significantly in outstanding resources such as a super responsive supply chain to attain a competitive advantage. Arguably, the firm should also enhance its employees’ skills and capabilities to attain optimal service differentiation. Moreover, Zara should utilize the “red queen” strategies to strengthen its capabilities relative to its rivals’ actions. Some of these capabilities that the firm could explore are maintaining a sustainable online presence by investing in social media marketing, as is the case with some of its competitors, such as Fashion Nova.
In summary, Zara maintains a competitive position in its target market through value proposition, product, and channel differentiation. Moreover, the brand has maintained its competitive advantage among its target segments through relationship marketing and the adoption of “red queen” strategies. To develop and maintain its competitive advantage over its competitors in the future, Zara should consider investing in service differentiation and further ‘red queen” strategies such as establishing a significant online presence.
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