Zara Brand Equity and Brand Positioning - Essay Example

Brand equity is the intangible asset that the consumer associates with a product. We can determine it through financial impact of the product, brand extensions and consumer attitude. Zara garments were not designed and manufactured to be highly durable or classic clothes that would always be in style. They are described as ‘clothes to be worn ten times’ and yet they contributed more than 70% of the Inditex group sales. This is a vital statistic considering that Inditex group owns seven other fashion brands. With regards to brand extensions the Zara brand was successfully used to launch Zara Home in 2003. Zara Home was well received and has grown internationally to have a presence in 23 countries and 250 stores (Matassa, 2008). Additionally Zara’s strong brand equity can be manifested through its consumers’ attitude. This is clearly shown by Zara's global average of 17 visits per customer per year compared to the three visits per year received by its competitors. That is an avowal of huge brand loyalty. Brand positioning refers to the targeted consumer’s preference to buy your brand instead of others. Zara has been able to carve out its own niche through cost leadership as the high-end fashion product at a reasonable price. If we compare Zara’s prices to those of its major competitors such as Benetton, Gap and H&M it is far cheaper yet as fashionable. Zara has been able to develop a sustainable competitive advantage through its shortened supply chain response that enables it to consistently move a design from conception through to production then into its distribution centers in as little as three weeks. This has largely contributed in setting Zara’s service apart from its competitors. In fact, 75% of the merchandise in an average Zara store is changed over duration of three to four weeks. Zara customers are therefore aware that if they spot a garment they like, they have to go and purchase it on the spot because it might not be there on their next visit. Zara brand strategy From Zara we can identify the broad strategies applied to strengthen the brand being as follows: the marketing mix, its people, short lead times and scarce supply. However, that is not to say that the Zara brand’s success lay solely on the mentioned factors. The organization as a whole has been able to clearly-define its brand values and allowed them to permeate throughout the entire organization. Zara has a distinct ownership for management of the brand right from the top management level. This has meant that critical activities such as sales, operations, customer service, product development and others are made use of in supporting the whole organization’s strategic management process (Kotler & Armstrong, 2009). The marketing mix is represented by product, price, place and promotion. With regards to product, the Zara strategy has been to anticipate the latest fashion in apparel and to produce them before other competitors. Secondly, the garments are manufactured to be non-durable so as to prompt the consumer not to store them in their wardrobes but to wear them and to visit Zara shops frequently for replenishment. Thirdly, the company ensures that its stores have a wide variety of products because each store receives new products at least twice per week. Clothes that have low demand are quickly spotted, removed and replaced by new trendier designs such that customers are always spoilt for choice. This product appeal is increased by the lower price that Zara charges in comparison to competing brands such as Gap, Benetton and H&M. Zara has been able to use its low cost leadership as a sustainable competitive advantage to strengthen its brand positioning. The company operates using a vertical supply chain which covers all phases of the fashion process from design to manufacture to logistics to distribution and finally to its own retail stores (Matassa, 2008). The price attribute of Zara’s products is lowered here by the fact that the company can minimise its inventory costs through use of just-in-time manufacturing. Also, the fact that Zara owns 90% of its retail stores implies that it is able to make the 50-60% gross margins that retailers make. This increases profitability for the brand which helps to sustain the low prices offered. The other component of the marketing mix that Zara uses well within its brand strategy is place. Here we encounter two very key considerations, the location of its stores and the distribution system being utilised. Zara stores are deliberately located on the best-known streets in a selected city’s prime retail district. This is to make the brand visible to as many of its targeted market as possible while lowering the need for traditional advertising. According to Schewe and Hiam (1998) place also covers aspects such as market coverage, logistics and distribution and service levels. Zara has a high-tech distribution system with distribution centers centrally located from its manufacturing plants. Different stores are also supplied with different products depending on their requirements and assessed demand. The efficiency of the distribution system is so high that along the entire Zara supply chain it is difficult to find inventory. Products flow quickly, and without stopping, from factories to distribution centers to stores, where they are put immediately on the sales floor. This distribution system is heavily reliant on Zara’s effective communications and information technology infrastructure. When it comes to the final P of marketing, promotion we witness one of the biggest differences between Zara and its competitors. Zara spends approximately 0.3% of sales on advertising while its competitors spend on average 3 – 4% of sales on advertising. The company prefers its marketing promotion to be done by word of mouth and from the appeal of its stores. Word of mouth has proved to be more effective for Zara than advertising or using celebrities has been for its competitors. Zara stores are laid out to dazzle. The store racks, the window displays and store layout are designed and tested at the headquarters in La Coruna before being deployed to all stores. This is done every four to five years. To ensure consistency the team from La Coruna is the one that does the redesigning at all company-owned stores. This is meant to attract customers inside the stores, and once in to display the fabrics, colors and designs to the best effect. The company also has a stylish and modern website from where customers can view or download the latest Zara catalogue. Other factors that we had mentioned earlier that Zara utilizes to enhance its brand equity and positioning are its short lead times and scarce supply of apparel. Small and regular consignments keep product supplies fresh and scarce which compels customers to visit the stores frequently as they search for what’s new and to purchase now because next time they come they will not find that item. This is one of the core reasons why globally Zara has an industry high average of 17 visits per customer per year compared to three visits per customer per year for its competitors. The short lead times for products from factory to store sales floor ensure that Zara is able to react quickly to fashion trends. This differs from the method preferred by its competitors. Most fashion brands prefer predicting fashion to reacting to fashion. Reacting to fashion trends is less likely to fail than predicting if one is able to deliver the products while the demand still exists. Zara has perfected this ability as evidenced by its new products failure rate of 1% which is much lower than the industry average of 10%. Finally, Zara empowers its staff and has established a strong brand culture e.g. decision-making and experimentation is encouraged among its young designers while store managers, product managers and commercials work together to ensure that stores are supplied with the correct products and quantities etc. Seller-customer intimacy is also encouraged so that the store managers are made aware of the customer preferences and tastes which could be used in coming up with new products. Zara brand strategy problem The major problem with Zara’s brand strategy would be its persistence with a centralized distribution system especially when we consider that the brand is rapidly expanding across the globe. Though the company has an effective distribution system, this foray into new markets in Asia, Latin America and the United States is bound to add complexity and also increase cost if Zara insists on relying on its original hub in Spain. A centralized distribution system will not effectively cope with the rapid expansion and different needs of the new markets. It would probably be more prudent if Zara establishes new production and distribution centers in these far away markets such as the US, Asia and Latin America. Recommendations The first recommendation is as we have stated above, Zara will need to decentralize its distribution system to these new geographical markets. This will not only increase efficiency in delivery but also aid Zara in maintaining its competitive edge of short product lead times from design to manufacturing to retail sales. Secondly the existing distribution centers in Europe are being overwhelmed by the rapid increase of the number of stores being opened. To prevent these distribution centers from becoming bottlenecks, Zara will have to establish more distribution centers to cater for its expanding European market. Thirdly, a foray into the markets in Asia and America would have to be carefully considered because of the huge cultural differences, especially with regards to Asia. Income levels could be going up within Asia but that does not translate necessarily into a market for fashion. References Kotler, P. & Armstrong, G. (2009). Principles of Marketing. (13th ed.). New York: Prentice Hall. Matassa, L. (2008, June 11). A zest for Zara. Business & Leadership. Retrieved June 3, 2010 from, http://www.businessandleadership.com/life/news/article/11665/marketing/a-zest-for-zara Schewe, C. D. & Hiam, A. (1998). The Portable MBA in Marketing. New York: John Wiley & Sons. Read More