Detailed Report on Zara Business Model
Task: You are required to write a 3000-word report for Zara business model. You must include logical and persuasive articulation of business model description; value proposition development; business operations development; supply chain development; competitive advantage; financial value capture and strategic fit.
Zara is a very famous name in the fashion and clothing industry. It has been in the international market for a long time now and has huge customer support. The company has been growing exponentially so far. However, technological advancement is causing difficulties for the company. Due to lack of technology, the company has been facing several issues to connect with the customers who are from various parts of the world. This purpose of this paper is to discuss a various business model that includes value proposition development, supply chain development, competitive advantages and so on. This paper will also reflect various business model assumptions.
Business Model Description
A business model outline the motive of how a companymakes, delivers and gains value. In simple words, the business model of Zara describes how the company makes money through profit. There are various types of business models business organisations use to get the competitive edge. Zara follows the fast-fashion business model. The business model of Zara is completely structured. There are multiple factors such as vertical Integration, supply chain management, integration model and so on in Zara that makes it one of the successful brands of the world. fast-fashion business model that Zara has incorporated, targets mostly the young girls and boys and middle aged people. Fast-fashion business model is very easy to understand. For example, A lady buys a new dress the fabric of which will be started to wither after wearing it for 7-8 times. It will make the lady buying new pieces of cloth again and this cycle of fast-fashion will continue to move (Funget al. 2017). This is the key business model of Zara.
Value Proposition Development
Value proposition development is the organisational attitude to build value to customer experience. Zara provides fashionable and affordable clothes by presenting trendy and hot styles for the season. Zara’s strategy is to offer cutting edge fashion at a reasonable price. They move from selecting a trend to getting the clothes ready for sale within a month. Controlling the supply chain process effectively from design to marketing and selling is what makes it possible.
Broad Style Options
Zara manufactures around 12,000 style every year which means that fresh fashion reaches to the stores and thereby reaches to wardrobe of the customers quickly. A typical customer of Zara visits the store 15 times in a year on an average. This huge amount of style options also suggests that the sales team also have a greater chance to sell products in large numbers.
Zara creates scarcity bu reducing the production of each style and thereby reduces the risk of stocking products which they cannot sell. This scarcity model is also effective in another term as it makes the customer realise that the shoppers need to buy an item quickly as it may get out of stock.
Zara spends very little, nearly 0.3% of total revenue, compared to their competitors in the market. It is mostly because they have opened their stores in the prime town centres, which helps them to attract customer more than often. So they do not need to promote products in large volume.
Figure 1: Value Proposition Model
(Source: Joyce & Paquin, 2016)
The company by creating the effective unique value proposition can draw more involvement from more customers and thereby increasing conversion from customers. It helps the company to stand out amongst the competitors and increases customer loyalties and influencers for the company.
Business Operations Development
Developing business operations is very important for Zara to grow their business. To increase productivity, Zara should follow the below mentioned five steps to improve business operations.
Figure 2: Business Model Canvas
(Source: Joyce & Paquin, 2016)
Zara's communication system is not so effective and healthy. Therefore the company needs to improve their inside system and communicate well with the teams to make the business operations a bit more smooth and easy. It is seen that the management do not communicate directly with the subordinates or with the suppliers and other stakeholders. It needs to be rectified by the company to make the process running smoothly.
Zara despite being one of the most successful brands in the fashion industry, needs to spend a bit more on the promotional activities.
Resolve Small Issues
The company need to consider the smallest issues and try their best to resolve those issues. The owner of the company needs to deal with the weak spots right away (Muñoz, 2018). Sometimes minor issues often become giant problems and it can cost time and money both and can bring operations to halt. The company has various issues like the communication problems between the stakeholders and suppliers, technical issues and advertisements.The company management needs to brainstorm solutions for the issues and implement the solutions that the company thinks would be the best. Once the current problems are fixed, the management can devise a strategy to manage issues.
Keep Up with Trends
Anything that happens both inside and outside the company affects operations (Feiglová, 2019). Zara needs to be aware of its local competitors, the changing rules and regulations and the current state of the company. Staying updated with development helps the company to find best practices.
The design team of Zara generate thousand of designs every month, which is further delivered to the manufacturing plants and further the product is sent back to Zara centre in Spain for quality checking. Zara should integrate all these process under one roof which will save a lot of time and cost for the company.
Employees are the keys to success for any business company and therefore it is of paramount importance for the company that they keep their employees happy and consented (Xuejie, Chang & GuangHao, 2019). The company need to involve their employees in business operations and give value to their opinions and ideas to inspire them. It will help the company to build its reputation.
Supply Chain Development
Supply chain process of Zara
Zara uses a pull system in their supply chain management system and inventory m management system. the company produces products in small quantity of each style because of the various kinds of trendy styles that they come out with in every month.
A Lean & Agile Supply Chain
The Store orders products twice in a week and their order delivered within two to three days after placing the orders. Items are shipped and sent to the stores on hangers along with price tags sticked on them. So the items come off the transports and directly reach to the sales floor. This eases the work of the store manager of placing the order and get the product whenever the customer wants or needs them. Zara store adapts to the changes in real time as style and customer preference evolves with the time. It is a great business model to achieve success in ever changing business industry. As the business model of Zara tracks closely to real demands of the customers from one week to another, it saves Zara from being caught in ups and downs of the market which ensnares its competitors (Sitaro, 2020). Turmoil in the economy especially in this current financial year has hurt the sales of very few famous companies badly, however Zara has been steady and profitable even in this time. A fast moving and nicely balanced supply chain like that of Zara needs constant attention to make the business operations running smoothly. Supply chain management is always having an eye on the customer's demand and doing the adjustments to manufacturing and supply chain system. Zara uses its supply chain process to change the traditional history of its business operations (Töytäriet al., 2020). It is very hard for the competitors to copy its supply chain process.Buying similar technology like Zara is easy but the competitors should learn the operating procedures and mental methods to use technology effectively.
The overall supply chain management process of Zara is very good, however there is one area where the company needs to improve or change its system. Zara as described uses just-in manufacturing method which pose a lot of risks. Any issues in productions due to weather or any internal problems can reduce the speed of the production because of various steps that it needs to take down post manufacturing and delivery. The company also need to build a healthycommunication system between the customers and suppliers which is very important to enhance supply chain management system.
The industry of fashion has become highly encounterable. Pricing strategy is the biggest source of competitive advantage of the company. The company targeting the middle class people and the company knows that middle class people are very price conscious (Jung, & Jin, 2016). The company knows that the middle class people want trendy products at affordable prices and there are not many brands that can provide quality products at affordable range. The greatest positive of Zara lies here. It offers quality and stylish products but without an extra cost. Hence grabbing middle class people is all good news for the company. Zara completely nailed the challenge of cost and made the middle-class customers to feel happy about the company.
Zara provides quality and trendy products which is unique. No other companies able to produce products like Zara. Zara offers unique products that attracts customers. As the fashion has been constantly evolving, Zara has been very successful to change their products as per the trends. Consumers are getting full value against their money.
Zara has a global presence and it is a great competitive advantage for the organisation. In recent years, the company has expanded the ecommerce presence into new international market of Asia. China has always been a significant market for Zara and the company also has a great influence in the European market. The number of stores has increased up to more than 2200 and the company also has been also operating ecommerce sites in 48 markets. This helps the company to take competitive advantage.
Customer service is another key factor that helps the company to retain its customers. The 24*7 customer service and the well trained and behaved staff of the company is a great advantage for the Zara company. The store of Zara are designed not only to provide superior experience to the consumers but the company trained employees also helped the company providing best customer service who flock to Zara stores.
It is another great advantage of Zara and to achieve customer loyalty the company has done a lot of things starting from product development to price strategy correctly. High customer loyalty is a great advantage for the company as it translates to increased sales and revenue.
Zara follows the fashion busines model and Zara’s business strategy enables the company to sell out more items in full price. The company Jason been able to do so because they have been able to made people realizing a sense of scarcity and exclusivity that the company has. The total cost of the company is minimized as Merchandise had been reduced drastically compared to the others (Fernandes et al., 2018). Zara makes more than 80%of the full price on the clothes whereas the average is 60 to 70%. The fast fashion strategy also helped Zara to reduce the number of unsold items. Unsold items account for less than 5% of its stocks which is very low compared to the industry average which is 15 to 20%.
Identification and assessment of Assumptions & Uncertainties
It is not practically possible to destroy all the uncertainties. Various assumptions have been made in the development of the risk-based approach.
Critical Assumptions identification
In this step, the assumptions are identified and there is a critical determination. The most important part of the CAP is identifying the assumptions that are not written (Chu, 2016). CAP measures the criticalness of the assumptions as a change in the NPV. For determining criticality each assumption is assigned a different case on the basis of uncertainty.
A test for desirability focuses if the solution is nice to have or must-have for the company (Wang, 2018). It shows how the company can create an experience that is user-centric and that can meet the needs of the customers so that it becomes an integral part for the consumers without which the customers can’t survive. Zara has been meeting the desires and demands of the customers so far. They are providing quality product in pocket friendly budget which is the need of the customers.
Feasible suggest what the company need to do to grow their business. It tells what kind of technologies that the companies need to implement to realize new experience. Feasibility tests whether the innovation of the Zara is strengthening the business or not (Chu, 2016). Zara to grow their business first of all need to develop communication system and focus on integrating their supply chain system to grow the business more.
Viability mainly deals with the commercial point of view. It is all about the dollars. It suggests the companies to realize which of the customers are more profitable for them and it also makes them realise that whether the company is doing enough to pursue a profitable customer(Akeke, Eno & Eyo, 2018). Zara has identified its customers and the company is giving their best to keep impressing the middle class young people with their products.
Phased Development Plan to Address Uncertainties
Phased product development is tried and tested approach to address uncertainties. A suitable plan is developed below to address the uncertainties.
The company needs to prepare for multiple outcomes starting from low sales to employee dissatisfaction (Akeke,Eno & Eyo, 2018).
Zara needs to revisit their current business plan and asses the current situation and thereby make changes as per the requirements. It will help the company to stay updated and combat against the uncertainties.
Selection of Innovation Tools and Techniques
Value Proposition Canvas tool provided below helped Zara to comprehend the experience of products and the customer individually and Zara also used this tool to understand how to approach every experience in light of another (Fernandeset al., 2018). Zara applied this tool effectively so that they can meet the needs of both side, customer and develop products as per customer choice.
Business Model Canvas
It is a lean start-up and strategic management template that a business organisation incorporates for developing the existing or sometimes to develop a new business model. BMC is nothing but a chart that contains the elements which describe the company's value proposition, customer base, infrastructures and finances. Zara by illustrating potential trade-offs used this tool to align their activities (Akeke, Eno & Eyo, 2018). The BMC can be used by printing it on the large surface so that a group of people can discuss business model elements with board marketers. It is like a hands-on tool that helps the company to understand, create, discuss and analyse the things. It is also available in software format.
Business Environment Map
The tool named Business environment map is developed to help the individuals mapping their environment's forces in a structured and tangible format (Joyce, & Paquin, 2016). Zara applied this tool to enhance the inside environment of the company. The business environment model is categorized into four areas, Market Forces, industry forces, Macro-Economic trends and key trends that helped the company to focus on each factor.
Zara by applying this market segmentation tool can divide a target market into smaller parts and especially in more defined categories. There are four types of market segmentation that includes demographic, psychographic, geographic and behavioral. Zara can divide the targeted customer zones in these 4 categories and target them.
This storytelling Canvas helps the company organising everything that the company has gathered to make a strong and designed storyline. Zara can use this tool to design a catchy storyline for the company that will create a long lasting impact on the minds of the customer.
After reflecting various aspects of the Zara fashion company, it can be said that the company has been continuously making efforts to grow as a better sustainable company. While conducting the research,it is found that the company has been doing great overall in their business as the sales of the company is also increasing at a good rate. The company has trained staff and quality designers and the company has been currently operating in 85 countries with more than 6000 stores worldwide. All these suggest that the company is stable and there is no point to panic for the company right now. However there are some areas such as the communication between the workers and management, integration of supply chain and technological development are few areas where the company needs to put some focus to grow as a more developed company in future.
Conclusion & Recommendations
Zara despite being one of the giants in the fashion industry has been facing few issues starting from communication to product advertisements, that needs to be rectified.. Zara has a huge customer base across the world who have been with the company for a long time. Zara is used to managing a lot of variations together starting from the choices of the products to customer support. Zara has used various business development tools to develop their business operations and to comprehend people need and demand from the company. The paper here discussed various development processes of Zara starting from value proposition development to business operations development. The paper also shed light on the supply chain management of the company and how they run their business operation oa daily basis. The paper finally concluded by providing some key recommendations that will help the company to rectify the small issues that the company currently has.
There are few drawbacks that the company has to take very good care of. Several recommendations have been made below:
- first of all the company does not have a strong technological background which is creating problems for the company. Zara needs to install some machines that will help them to produce products in large numbers.
- another key thing that the company should look very seriously to be sustainable is that they need to reduce the uses of plastic packaging. Rather the company should use eco-friendly packaging to be sustainable
- The company also need to recruit some experts from the fashion industry to innovate new and cool and trendy products.
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