Marketing Communications on the Example of Zara - Case Study Example

MARKETING COMMUNICATION A CASE STUDY OF ZARA Executive summary: Zara one of the most successful company in the apparel industry has a very strong and unique business model. Zara is a famous brand name in Europe on the other hand the company is getting gradually popular all over the America. In order to keep abreast with the challenges posed in the apparel industry it is important for Zara to reinvent and innovate themselves. When establishing a re-birthed marketing plan every aspect of the marketing plan must be critically examined and thoroughly researched. This consists of examining market research, auditing business and current situation (situation analysis) and carefully scrutinising the soft drink industry and possibilities for Zara in the market. Once Zara have carefully analysed the internal and external business environment and critically examined the industry in general the most suitable marketing strategies will be selected and these strategies will be administered by effectively and continually monitoring external threats and opportunities and revising internal efficiency procedures. Market Analysis: The market analysis investigates both the internal and external business environment. It is vital that Zara carefully monitor both the internal and external aspects regarding its business as both the internal and external environment and their respective influences will be decisive traits in relation to its success and survival in the industry. Internal Business Environment: The internal business environment and its influence is that which is to some extent within the business's control. The main attributes in the internal environment include efficiency in the production process, through management skills and effective communication channels. To effectively control and monitor the internal business environment, Zara must conduct continual appraisals of the business's operations and readily act upon any factors, which cause inefficiencies in any phase of the production and consumer process (Tremblay and Martins-Filho, 2001). External Business Environment: The External business environment and its influences are usually powerful forces that can affect a whole industry and, in fact, a whole economy. Changes in the external environment will create opportunities or threats in the market place Zara must be aware of. Fluctuations in the economy, changing customer attitudes and values, and demographic patterns heavily influence the success of Zara products in the market and the reception they receive from the consumers. SWOT Analysis: SWOT stands for Strengths Weakness Opportunities Threats. SWOT analysis is a technique much used in much general management as well as marketing scenarios. SWOT consists of examining the current activities of the organisation- its Strengths and Weakness- and then using this and external research data to set out the Opportunities and Threats that exist. Strengths: Zara has been a complex part of UK culture since almost a decade. The product's image is loaded with over-romanticizing, and this is an image many people have taken deeply to heart. The Zara image is displayed on T-shirts, hats, and collectible memorabilia. This extremely recognizable branding is one of Zara's greatest strengths. Additionally, decreased expenditure on advertising is one of their greatest strengths. It allows them to conduct business on a global scale while at the same time maintain a local approach. Weaknesses: Weaknesses for any business need to be both minimised and monitored in order to effectively achieve productivity and efficiency in their business's activities, Zara is no exception. Although domestic business as well as many international markets are thriving but Zara has recently reported some declines in unit case volumes in different markets of the world. Opportunities: Brand recognition is the significant factor affecting Zara's competitive position. Zara's brand name is known well throughout the world today. The primary concern over the past few years has been to get this name brand to be even better known. Packaging changes have also affected sales and industry positioning, but in general, the public has tended not to be affected by new products. This strategy gives Zara the opportunity to service a large geographic, diverse area. Threats: Currently, the threat of new viable competitors in the apparel industry is not very substantial. The threat of substitutes, however, is a very real threat. The industry is very strong, but consumers are not necessarily married to it. Possible substitutes that continuously put pressure on both Pepsi and Zara include tea, coffee, juices, milk, and hot chocolate. Even though Coca-Cola and Pepsi control nearly 40% of the entire beverage market, the changing health-consciousness of the market could have a serious affect. Of course, both Zara and Pepsi have already diversified into these markets, allowing them to have further significant market shares and offset any losses incurred due to fluctuations in the market. Consumer buying power also represents a key threat in the industry. The rivalry between H&M and Zara has produce a very slow moving industry in which management must continuously respond to the changing attitudes and demands of their consumers or face losing market share to the competition. Furthermore, consumers can easily switch to other beverages with little cost or consequence (Gasmi and Vuong, 1992). Product Life cycle: To be able to market its product properly, a business must be aware of the product life cycle of its product. The standard product life cycle tends to have five phases: Development, Introduction, Growth, Maturity and Decline. Zara is currently in the maturity stage, which is evidenced primarily by the fact that they have a large, loyal group of stable customers. Furthermore, cost management, product differentiation and marketing have become more important as growth slows and market share becomes the key determinant of profitability. In foreign markets the product life cycle is in more of a growth trend Zara's advantage in this area is mainly due to its establishment strong branding and it is now able to use this area of stable profitability to subsidize the domestic apparel Wars. Marketing Objectives: The objective is the starting point of the marketing plan. Objectives should seek to answer the question 'Where do we want to go' The purposes of objectives include: -> to enable a company to control its marketing plan. -> To help to motivate individuals and teams to reach a common goal. -> To provide an agreed, consistent focus for all functions of an organization. All objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and Timed. Specific - Be precise about what you are going to achieve Measurable - Quantify you objectives Achievable - Are you attempting too much Realistic - Do you have the resource to make the objective happen (men, money, machines, materials, and minutes) Timed - State when you will achieve the objective (within a month By February 2010) (Kotler, 2003) 1. Market Share Objectives: To gain 60% of the market of apparel industry by September 2009. 2. Profitability Objectives: To achieve a 20% return on capital employed by August 2009 3. Promotional Objectives: to increase awareness of the product on the market. 4. Objectives for Survival to survive the current market war between competitors. 5. Objectives for Growth: To increase the size of the worldwide Zara enterprise by 10%. Selecting Target Market: Once the situation analysis is complete, and the marketing objectives determined, attention turns to the target market. The soft drink market is very large, and the business cannot be "all things to all people", so it must choose which market segments have the greatest potential. The target market is the group of customers on whom the business focuses attention. The target market is where Zara focuses its marketing efforts as it feels this is where it will be most productive and successful. The target market for Zara is very wide as it satisfies the needs for many different consumers, ranging from the pregnant women to the women and men of each and every age group. Most Zara products satisfy all age groups as it is proven that most people of different age groups consume the Zara product. This market is relatively large and is open to both genders, thereby allowing greater product diversification. There are four broad ways which Zara can segment its market: -> Mass marketing -> concentrated marketing -> Differentiated marketing -> Niche marketing the most apparent method used by Zara is with no doubt the differentiated marketing method as Zara satisfies a range of different markets. Developing the Marketing Mix: The marketing mix is probably the most crucial stage of the marketing planning process. This is where the marketing tactics for each product are determined. The marketing mix refers to the combination of the four factors (price, promotion, product, and place) that make up the core of a business's marketing strategy. In this step of the marketing planning process, marketing mix must be designed to satisfy the wants of target markets and achieve the marketing objectives. The most successful businesses have continually monitored and changed their marketing mix due to respective internal and external factors and have monitored the external business environment in order to maximise their marketing mix components (Becker and Murphy, 1993). Product: Many Products are physical objects that you can own and take home. But the word product means much more than just physical goods. In marketing, product also refers to services, such as holidays or a movie, where you enjoy the benefits without owning the result of the service. Businesses must think about products on three different levels, which are the core product, the actual product and the augmented product. The core product is what the consumer is actually buying and the benefits it gives. Zara customers are buying a wide range of apparels. The actual product is the parts and features, which deliver the core product. Consumers will buy the Zara product because of the high standards and high quality of the Zara products. The augmented product is the extra consumer benefits and services provided to customers. Since apparels are a consumable good, the augmented level is very limited. But Zara do offer a help line and complaint phone service for customers who are not satisfied with the product or wish to give feedback on the products. Positioning: Once a business has decided which segments of the market it will compete in, developed a clear picture of its target market and defined its product, the positioning strategy can be developed. Positioning is the process of creating, the image the product holds in the mind of consumers, relative to competing products. Positioning helps customers understand what is unique about the products when compared with the competition (Kaldor, 1950). Zara plan to further create positions that will give their products the greatest advantage in their target markets. Zara has been positioned based on the process of positioning by direct comparison and have positioned their products to benefit their target market. Most people create an image of a product by comparing it to another product, thus evident through the famous battles between Zara and H&M products. Branding: It is often hard to say exactly why we buy one company's product over another. Companies such as Nike and Adidas spend large amounts of money trying to win consumers away from their competitors who make products that are very similar. The popularity of the brand is often the deciding factor. There are a number of branding strategies: Generic brand strategy, Individual brand strategy, Family brand strategy, Manufacturer's brand strategy, Private brand strategy and Hybrid brand strategy. Zara utilizes the Individual brand strategy as Zara's major products are given their own brand names (Meurer and Stahl, 1994). Packaging: Packaging, which is not as highly perceived by businesses, is still an important factor to examine in the marketing mix. Packaging protects the product during transportation, while it sits in the shelf and during use by consumers; it promotes the product and distinguishes it from the competition. Packaging can allow the business to design promotional schemes, which can generate extra revenue and advertisements. Price: Price is a very important part of the marketing mix as it can affect both the supply and demand for Zara. The price of Zara's products is one of the most important factors in a customer's decision to buy. Price will often be the difference that will push a customer to buy our product over another, as long as most things are fairly similar. For this reason pricing policies need to be designed with consumers and external influences in mind, in order to effectively achieve a stable balance between sales and covering the production costs. Price strategies are important to Zara because the price determines the amount of sales and profit per unit sold. Businesses have to set a price that is attractive to their customers and provides the business with a good level of profit. Long before a sale was ever made Zara had developed a forecast of consumer demand at different prices which inevitably determined whether or not the product came on the market, as well as the allocation of adequate money and resources to produce promote and distribute the product. Pricing Strategies And Tactics: The pricing Strategy a business will use will have to focus on achieving the marketing plan's objectives and support the positioning of the product, and take external factors such as economic conditions and competitors in to account. There are 5 strategies available to business: Market skimming pricing, Penetration pricing, Loss leaders, Price Points and Discounts (Cravens, 1995). Over the years Zara has used Penetration Pricing as a way of grabbing a foothold in the market and won a market share. Its product penetrated the marketplace. Once customer loyalty is established as seen with Zara it is then able to slowly raise the price of its product. There has been a fierce pricing rivalry between Zara and H & M products as each company competes for customer recognition and satisfaction. Till now it appears as if Zara has come up on top, although in order to gain long term profits Zara had to sacrifice short term profits where in some cases it either went under of just broke even, but as seen it has been all for the best. Pricing Methods: Good pricing decisions are based on an analysis of what target customers expect to pay, and what they perceive as good quality. If the price is too high, consumers will spend their money on other goods and services. If the price is too low, the firm can lose money and go out of business. Pricing methods include: Cost based Pricing, Market based pricing and Competition based Pricing. Over the years Zara has lost ground here in it's pricing but has regained its strength as it employed the Competition-based pricing method which allowed it to compete more effectively in the soft drink market. Leader follower pricing occurs when there is one quite powerful business in the market which is thought to be the market leader. The business will tend to have a larger market share, loyal customers and some technological edge, thus the case currently with Zara; it was first the follower but through effective management has now become the leader of the market and is working towards achieving the marketing objectives of the Zara. Survival in the market place, own 60 % of market share by 2009, increase further awareness of product and a return on 20% on capital employed for August 2009. Promotion: In today's competitive environment, having the right product at the right place in the right place at the right time may still not be enough to be successful. Effective communication with the target market is essential for the success of the product and business. Promotion is the p of the marketing mix designed to inform the marketplace about who you are, how good your product is and where they can buy it. Promotion is also used to persuade the customers to try a new product, or buy more of an old product (Tremblay and Polasky, 2002). The promotional mix is the combination of personal selling, advertising, sales promotion and public relations that it uses in its marketing plan. Above the line promotions refers to mainstream media: Advertising through common media such as television, radio, transport, and billboards and in newspapers and magazines. Although most of the target is most likely to be exposed to media such as television, radio and magazines, Zara has very limited advertising budget. This low priced marketing reduces the cost of Zara's products. Place and Distribution: The place P of the marketing mix refers to distribution of the product- the ways of getting the product to the market. The distribution of products starts with the producer and ends with the consumer. One key element of the "Place/Distribution" aspect is the respective distribution channels that Zara has elected to transport and sell its product. Selecting the most appropriate distribution channel is important, as the choice will determine sales levels and costs. The choice for a distribution channel for any business depends on numerous factors, these include: - how far away the customers are; - the type of product being transported; - the lead times required; and; - the costs associated with transport; there are four types of distribution strategies that Zara could have chosen from, these are: intensive, selective, exclusive and direct distribution. It is apparent from the popularity of the Zara's product on the market that the business in the past used the method of intensive distribution as the product is available at every possible outlet. Physical Distribution Issues: Zara needs to consider a number of issues relating to the physical distribution of its apparel products. The five components of physical distribution are, order processing, warehousing, materials handling, inventory control, transportation. Zara must further try to balance their operations with more efficient distribution channels. Order Processing- Zara cannot delay their processes for consumer deliveries (i.e. delivery to selling centres), as this is inefficient business functioning and is portrays a flawed image of the product and overall business. Warehousing and inventory control- warehousing of Zara products is necessary. Inventory control is another important aspect of distribution as inventory makes up a large percentage of businesses assets. Transportation- transporting Zara products is the one most important components of physical distribution. Electing either to transport the sports drink by air, rail, road or water depends on the market (i.e. global or domestic) and depends on the associated costs. The most beneficial transportation method for Zara would be ROAD if the product were moved around from storage to the cost centres. Implementing, Monitoring And Controlling: Financial Forecasts: Financial forecasts are predictions of future events relating strictly to expected costs and revenue costs for future years. There are five major marketing expenditures, which include research costs, product development costs, product costs, promotion costs and distribution costs (Comanor and Wilson, 1967). Sales force composite is the most logical method in forecasting revenue. This involves estimates from individual salespeople to sell to work out a total for the whole business. Once these costs and revenues are forecasted, management can then decide which combination of marketing mix strategies will deliver the most sales revenue at the lowest cost. Implementing: Implementation is the process of turning plans into actions, and involves all the activities that put the marketing plan to work. Successful implementation depends on how well the business blends its people, organisational structure and company culture into a cohesive program that supports the marketing plan. For its further success, Zara must impose several key changes. Production needs to be on time and meet the quota demanded from wholesalers. It must also be efficient so as not to build inventory stocks and inventory prices. The marketing needs to be motivated and knowledgeable about the product. The forms of promotion such as advertising must be attracting and enticing to the target market to get the greatest amount of exposure possible for the product. This will ensure the success of the product in the stores. Distribution of the product must be efficient. This problem has already been taken care of with convenient transport routes to commercial areas and transport already being arranged. Monitoring and Controlling: Monitoring and controlling allows the business to check for variance in the budget and actual. This is important because it allows Zara to take the necessary actions to meet the marketing objectives. There are three tools Zara should use to monitor the marketing plan. They are the following: i. Sales Analysis The sales analysis breaks down total business sales by market segments to identify strengths and weaknesses in the different areas of sales. Sellers of Zara products vary from major retail supermarkets to small corner stores. This gives its products maximum exposure to customers at their convenience. ii. Market Share Analysis Market share analysis compares Zara's business sales performance with that of its competitors. Zara looks to increase its market share by over 60%. With the changes Zara is currently undergoing, they aim to regain an iron fist control of the market. Target market various age groups and lifestyles from high school students too universities, and male or female. Marketing Profitability Analysis: This analysis looks at the cost side of marketing and the profitability of products, sales territories, market segments and sales people. There are three ratios to monitor marketing profitability; they are market research to sales, advertising to sales and sales representatives to sales. The results of these three tools can help Zara determine any emerging trends, such as the need for a different product. Comparing these results with actual results gives the business an idea on when to change (SBA). Market Research: When attempting to implement a new Marketing plan a business must address its target market and conduct the relevant information to insure the new marketing plan both differs from the old and is better for the business. When conducting market research a business must first define the problem and then gather the appropriate information to solve the problem (SBA). There are 3 types of information a business can gather to solve its problems. ->Exploratory Research which clarifies the problem and searches for ways to address it. ->Descriptive Research is used to measure and describe things like the market potential for a product and characteristics of the target market. ->Casual Research is used to test a hypothesis about a cause and effect relationship. Zara through its market research has addressed all three types of research to define the problem raised by shareholders and gathered information to serve their needs. Factors Influencing Consumer Choice: When making decisions on products a business must look at factors that influence consumer choice such as psychological factors, Socio-cultural factors, Economic factors and Government Factors. Psychological Factors: such as motivation, perception, lifestyle, personality and self concept, learning, and attitudes influence the consumers' behaviour towards a product and Zara has addressed this issue by introducing different products at different locations to satisfy different lifestyles. Socio-cultural factors: such as culture, subculture, socio-economic status, family and reference groups influence the consumer's behaviour towards a product. Economic factors: such as Disposable income and discretionary income. Zara has addressed this side of the influence by maintaining a low price on the price of its products. Government Factors: such as new regulations, inflation, interest rates all influence consumer spending and choice (Bagwell, 2005). Bibliography & References From book: Cravens, D., W. & Piercy N., "Strategic Marketing," Eighth Edition, 383. Jones, J. (1995), When Ads Work, Lexington Books, New York, NY. Kotler, p. (2003) marketing management, 11th ed., America: prentice hall. From web site: SBA. (no date) Marketing research. [On line]. [Cited on 18th April 2009] SBA. (No date) Competitive Analysis. [On line]. [Cited on 18th April 2009] From Journals: Bagwell, K. (2005), "The Economic Analysis of Advertising," Forthcoming in M. Armstrong and R. Porter. (Eds.), Handbook of Industrial Organisation, Volume 3, North-Holland, Amsterdam. Becker, G. S. and K. M. Murphy (1993), "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, 108(4), 941-64. Comanor, W. S. and T. A. Wilson (1967), "Advertising, Market Structure and Performance," The Review of Economics and Statistics, 49, 423-440. Gasmi, F., J. J. Laffont and Q. Vuong (1992), "Econometric Analysis of Collusive Behaviour in a Soft-Drink Market," Journal of Economics and Management Strategy, 1.2, summer, 277-311. Kaldor, N. V. (1950), "The Economic Aspects of Advertising," Review of Economic Studies, 18, February, 1-27. Meurer, M. and D. Stahl (1994), "Informative Advertising and Product Match," International Journal of Industrial Organisation, Elsevier, 12(1), 1-19. Tremblay, V. J. and C. Martins-Filho (2001), "A Model of Vertical Differentiation, Brand Loyalty, and Persuasive Advertising," in 'Advertising and Differentiated Products', Edited by Baye and Nelson, Elsevier Publications. Tremblay, V. J. and S. Polasky (2002), "Advertising with Subjective Horizontal and Vertical Product Differentiation," Review of Industrial Organisation, 20, 253-265. Read More