QUESTION

Go to www.casequest.net and select the Zara CaseQuest from the menu.
You will need the Zara: IT for Fast Fashion case to complete this assignment. Please follow the instructions and process outlined in the Zara CaseQuest.
You will be required to hand in a five-page paper as outlined in the instructions in the CaseQuest. Essentially your are required to describe, compare and contrast the industry business model, using The Gap as your proxy, and then Zara’s business model. Please note that we are not trying to resolve the technology issue presented in this case. This CaseQuest has been designed for you to analyze and understand the different business models, which are present in an industry, and thus understand competitive positioning of competing firms. You are not required to hand in your work sheets from the case quest, but you are required to submit, as an appendix, a diagram of Zara’s business model. This can be built using power point or hand drawn.
This is an individual assignment. The body of your report must use 11⁄2 line spacing with 12-point fonts, must
not exceed 5 pages and must use proper APA referencing.
You will be required to hand in both an electronic and paper version of your report. The electronic versions must be in Word or Adobe format and must be submitted via Blackboard on or prior to the due date. Paper versions must be handed in at the beginning of class on the due date.

SOLUTION

What Business is ZARA in?

ZARA is a game changing clothing giant of fashion industry with the head office situated in Spain “The CUBE” the central command for the INDITEX Corporation. The technology-enabled strategy adopted by Zara has broken all the rules of fashion industry. For example it does not do advertising, rarely holds any sales etc. In fashion industry where every major player like GAP outsources their manufacturing to low cost countries, Zara is the only vertically integrated fashion giant which has in-house production swaths in huge scale. This counterintuitive approach of Zara has made Amancio Ortega, the founder of Zara into wealthiest man and the world’s richest fashion executive.

Inditex became the world’s largest fashion retailer by August 2008 beating the GAP ( Hall, 2008).Zara being the crown jewel amongst the eight brands produced by Inditex and is responsible for 2/3^rd of Inditex’s sales (Murphy, 2008). That is why it has earned the tag of “the most innovative and devastating retailer in the world’  (Surpwicki, 2000).

Business Models

Disruptive innovation is the innovation with the help of technology which helps the organisation to create a fresh and new market along with a value network. This business model eventually goes ahead in future to disrupt the existing market and the value network by simply displacing the earlier technology. This has been done effectively by ZARA in the fashion industry.

Clayton Christensen coined this term and developed the Disruptive Innovation Model which depicted that time and again all the major player in the market which have either died or being displaced could watch the disruption occur but until they realised it was too late (Mountain, 2006).

Key elements of Disruptive businesses identified

The key element which has been witnessed is that when disruptive innovations happen the established companies are bound to get paralysed, because they are usually motivated to go up-market to defend these new low-end markets which results in improved disruptive innovation and increases the market share and eth reigning product loses its place. The key features are (Christensen & Overdorf, 2000):

• Disruptive business models create new markets
• They establish themselves in their competitor’s worst customers.
• They compete in the low end of the established markets

Two distinctive competencies of disruptive companies

• AS the demand for performance desired by the customers increases over time in the existing market, the performance of the company also increases with the technological paradigm
• Disruption and commodization are the two processes which go hand in hand. Thus the company which overshoots cannot be successful in such case either disruption will kill its market or commodization will steal its profits (Hirota).

Key competitive advantages of disruptive companies

The disruptive companies gain competitive advantages over their competitors like they are able to achieve direct-to-consumer sales and just-in-time manufacturing which means practically there will be no inventory at all. This helps in matching the demands of customers with the best product offerings that they have (Schrage, 2002).

Business Model of Gap Inc.

Gap, the former industry leader in apparel industry, spends a lot of money on advertising. The reason why it spends so much money is to capture the market share and to create impact on the prospective customers using the advertising medium like television which is very costly. The primary objective of this advertising done by Gap is to reach out to the large customer base which is still lying untapped.

Gap introduces new lines of clothing at time interval of every decade like  BabyGap line for kids and toddlers was introduced in 1989 and in the year 1999 teens and 25-35 years old were targeted using the Banana Republic line of clothing’s (Munk, 1998).

Mostly the manufacturing of gap is being outsourced to the developing countries to save the labour cost and the cost incurred on materials. With this approach the major sources of risk which Gap might face are delay in the delivery of the desired stock can cause severe loss to the company. Moreover there have been serious issues of child labour being used in the Gap manufacturing units which have been outsourced to developing nations (Engler, 2004).

The approach followed by gap which makes it a profitable brand in the apparel industry is by doing bottom line earnings which have been driven under successful leadership. Expense management and clear cut focus on the healthy margins helps them to earn bottom line earnings growth. The vertically integrated corporate structure supports the company’s goal by giving specific identity to each clothing brand line Gap has like Banana Republic, Old Navy etc. Even the international centre of Gap is being treated as just profit centre which is channel based division and not brand based division. Gap earned greater profit margins by developing online stores for its whole range of apparels which were cheaper than the brick and mortar departmental stores as distribution channels. This resulted in reduction of selling costs and support services, property and equipment and services and operations too (Louise, 1999).

Core competencies and Competitive advantages of Gap

The core competency which is enjoyed by Gap for years is there being Gap for every generation and the e-commerce efforts of gap followed the successful strategy that it adopted offline too. It established completely new markets which were entirely focussed on stylish and value driven product offerings and Gap kept the value drivers tightly controlled in-house.

It has followed proper insight into the consumer, market optimisation by finding the right store location, done inventory and markdown optimisation and localization which have acted as core competencies to gain competitive advantage in apparel sector (Hollinger, 2004).

Zara’s Customer Characteristics

The main customer segment catered by Zara is the plus size full shape body women

Next comes the People aged between 18-40 who work in big cities or are pursuing higher education and have mid-range income group.

Next follows the People which are interested in fashion trends and are conscious about their looks and they enjoy shopping along with socialising hectic lifestyle.

The next segment is the people who sought the benefits from clothing which fit their body shape and at the same time make them look beautiful.

Unique Customer Behaviours at Zara

Zara gives its customers unique purchasing experience which many a times results in impulsive buying behaviour. It also emphasises the role of clothes in society and fashion statements. It enhances the individual motive soft the consumers by projecting a desired self- image. The consumer behaviour is also linked to the personal needs and values of the consumers and these values which are expressed and communicated through the clothes also guide the consumer behaviour. These values driven customers do buying many times due to economic, aesthetic or personal value attached to Zara’s clothing line.

The consumers get very short decision time as they know if they come second time for the same cloth they might not find it at the store of Zara which results in more impulsive buying behaviour shown by the customer.

Behaviour Drivers

Zara generates the positive emotions by using the positive influence on the consumers mood using the  retail environment of the stores which is enhanced with the colour effects,  suitable store layouts, effectual sales personnel appointed at Zara and emotionally also they try to uplift the store atmosphere by being very helpful and courteous to the customer.

Most of the consumers of Zara do impulse buying which is being influenced by the fashion oriented as these products give experiential and sensory cues to the buyer. Zara understands the impulse buying behaviour in best manner for the fashion products that too from an experiential perspective.

Zara Core Competencies

The distinctive core competencies of Zara which makes it unique in the apparel industry are:

It is considered as the true fashion brand which thinks about the body shape of their customers and respects them along with designing specifically for their customers. Thus they follow a customer centric approach.

Products are:

• Compliment the full body shape
•  Product symbolism
• Fresh ;look with colours and materials form the competitors
• The Zara label aims at  customer loyalty

Promotion is:

• Above –the-line just  print advertising
• Below-the-line they use internet , events, PR and brand communications along with media cooperation
• The main communication goals of Zara are to inform the consumer about new product line and to create positive emotions about the Zara products and to generate the purchasing intentions bay enhancing their interest (Neghina, 2009).

Price is like always affordable along with good quality.

Place of the stores is very wide, positive emotions generating atmosphere in all the stores which are at prime locations

Behaviour Drivers

The data on what sells at the Zara stores and the what does the customer wants is directly reaching the central office “ The Cube” where a team of just 300 designers role out 30,000 items in a year in comparison to just  2000 to 4000 designs being rolled out by big chains like H&M (Pfeifer, 2007).

The average time taken by Zara concept to turn into appearance in particle form in the store form idea is just 15days as compared to their rivals who just launch new fashion line once or twice in a year (Tagliabue, 2003).

Zara excels by targeting its technological investments at specific points in the value chain where it feels it will get maximum profits so that every dollar spends pays off. The triple benefits archived by the apparel ruler Zara which skyrocketed from $2.43 billion in 2001 to $13.6 billion in 2007.

Appendix A

Disruptive Business Model for Zara

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Figure: Depicts Disruptive Innovation Model at ZARA

The main five keys for Zara business Model are:

Bibliography

Christensen, C. M., & Overdorf, M. (2000, March-April). “Meeting the Challenge of Disruptive Change. Harvard Business Review .

Engler, M. (2004, July 6). The Gap Minds Itself. Retrieved April 3, 2012, from In These Times: http://www.inthesetimes.com/article/823/the_gap_minds_itself/

Hirota, N. (n.d.). Impact of new technologies (revolutionary changes) on a firm’s existence. Explanation of Disruptive Innovation of Clayton Christensen’97. Retrieved April 3, 2012, from 12 MANGAE: the Executive fasttrack: http://www.12manage.com/methods_christensen_disruptive_innovation.html

Hollinger, C. (2004). GAp Inc. The way Forward. Retail Technology Summit.

Louise, L. (1999, October 18). Clicks and Mortar’ at Gap.com. Business Week .

Mountain, D. R. (2006). Disrupting conventional law firm business models using document assembly. International Journal of Law and Information Technology 2006 .

Munk, N. (1998, AUgust 3). Gap Gets It. Fortune .

Murphy, R. (2008, APril 1). Expansion Boosts Inditex Net. Women’s Wear Daily .

Neghina, C. (2009, December 31). New Collection Launch, Marketing Plan: Zara. Retrieved April 3, 2012, from Slideshare: http://www.slideshare.net/preciousssa/zara-marketing

Pfeifer, M. (2007, September). “Fast and Furious. Latin Trade .

Schrage, M. (2002, July). The Dell Curve. Retrieved April 3, 2012, from Wired: http://www.wired.com/wired/archive/10.07/dell.html

Tagliabue, J. (2003, May 30). A Rival to Gap that Operates like Dell. The New York Times .

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