Environmental Scenario of the Zara with the Help of Porters Five Forces - Case Study Example

Institute: Executive Summary This essay mainly highlights the environmental scenario of the Spanish retail giant, Zara with the help of Porter’s five forces. Along with this, it also focuses on the opportunities and threats faced by the organization of Zara in global market among many other rival players. This is evaluated with the help of SWOT analysis and finally the problem or opportunity evaluated is assessed by PESTEL analysis. Finally, the essay is concluded with the help of a recommendation and alternative solutions so as to improve the brand image and reputation of Zara in long run. Section 1: The Situation Zara is recognized as one of the reputed game changing cloth retailer. It came into existence in the year 1975 by a Spanish group named Inditex. It became extremely difficult for the organization to position itself in the market among numerous competitors. However, the industrial scenario in which, the organization of Zara is trying to create its foothold is analyzed with the help of Porter’s five forces. It is a reputed analytical tool, comprising of five elements. Bargaining power of the buyers: due to economic downturn, the per capita income of the citizens reduced significantly. However, in spite of low per capita income, the buying behavior of the customers continued in the similar pattern. This means, the citizens of Spain became extremely fascinated by the trendy and modern look and design of the clothes of Zara. Due to which, the rate of switchover costs of the lacoste customers reduced that increased the growth of total sale and profitability of the organization of Zara in the market among many other rival players. This is mainly due to differentiated product lines and competitive price of the product lines of Zara that attracted the lacoste customers towards the brand thereby amplifying its market share and brand image in the market. Bargaining power of the suppliers: the bargaining power of the suppliers is quite low. The power and demand of the suppliers reduces to a significant extent mainly due to liberalization of international trade. Moreover maximum extent of the big retail apparel giants is trying to maintain licensing agreements with the suppliers. Due to which, the small suppliers are not getting any orders from the retail giants that diluted their bargaining power. Therefore, the suppliers had to follow the rules and regulations prepared by the retailers in order to maintain their image and prosperity. New entrants: the power of new entrants is extremely in the segment of apparels. This is mainly due to low switch-over costs of the customers and long sales cycle. Due to which, the industry of apparel retail industry is growing at a rapid pace that enhanced the brand image and prosperity of the organizations operating in this segment. However, in order to retain the dominance and reliability of the existing players like Zara tried to offer varied types of innovative designs and colors of apparels to its customers. By doing so, these organizations might easily retain the customers for a long time thereby amplifying its loyalty and consistency in the market among others. Threat of Substitutes: the threat of substitute products is moderately high. This mainly due to the presence of large number of competitors in the segment of apparel, presenting varied types of inventive designed clothes at a lowest price. However, in order to retain the dominance and uniqueness in the market, the organization always try to present creative products so as to attract the attention of the customers to a significant extent. Competitive rivalry: as the segment of apparel is extremely fragmented and so there exists numerous small sized competitors. Due to which, the rate of rivalry among them is extremely high as compared to many other segments so most of the competitor’s desire to present varied types of trendy designs and materials in order to retain its portfolio and loyalty in the market among others. Thus, from the above mentioned points, it might be depicted that the industry of apparel is extremely competitive due to the presence of numerous competitors. Therefore, in order to retain its position and foothold in the segment of apparel retail, the organization of Zara need to present more concentration in presenting trendy designs at lowest price. Only then, the organization of Zara might enhance its brand image and market share among others. Section 2: The problem/ opportunity The problem or opportunity of the organization of Zara may be analyzed with the help of SWOT. Strengths: Global market presence: the organization of Zara comprises of retail stores in more than 114 countries. Due to which, the range of customers is increasing at a rapid pace in the entire globe thereby amplifying its brand image and reputation in the market among others. High accessibility of the brand: the products of the brand, Zara is easily accessible to its target customers as compared to its competitors. This is mainly due to the presence of excellent supply chain of the organization of Zara that encouraged the customers to purchase the trendy products. Affordable pricing: although the product lines of the organization of Zara are extremely preferred by the lactose customers, so it is recognized as a premium brand. However, as the prices of the product lines of Zara is extremely low in cost as compared to its competitors, so it is also favored by all the customers of varying income groups (ESOMAR, 2008, pp. 334-345). Elaborated product lines: the product lines of the organization of Zara comprises of diverse product lines such as perfumes, apparels, bags, wallets, caps etc. Weaknesses: Low on store inventory: due to low on store inventory, the rate of total sale of the product lines of the organization of Zara reduced significantly as compared to many other rival players. Brand endorsements is limited to golf and tennis: the brand endorsements of the product lines of Zara is mainly limited to golf and tennis. As a result of which, the range of sale of the products lines reduced that hindered the total operating income of the organization of Zara. Opportunities: Growth in international markets: the sales volume of the product of the organization of Zara is highly preferred by the customers residing in Asia-Pacific regions. Due to which, the total sales figure of Zara increased by almost 50 percent in the year 2008 among many other rival players. High demand of sportswear in Australian region: the demand of the fashionable sports-wears in the region of Australia is extremely high that amplified its brand image and uniqueness of the organization of Zara in the market. Diverse cultural areas: as the organization penetrated in numerous regions so it had to develop clothes as per the preferences of the customers of diverse culture and creed. Inventive and trendy designed clothes of Zara proved extremely effective for the organization that enhanced its image and reputation in the market among other rival players (Dutta, 2002, pp. 223-234). Wide range of customers: due to global market presence, the range of customers also enhanced by significant extent that amplified the prosperity and brand value of the organization of Zara in the market among others. Threats: Varied competitors: the organization of Zara had to face fierce competition with reputed rival players such as Ralph Lauren, Tommy Hilfiger, Fred Perry and many others. Therefore, in order to create and retain its position and ranking in the market, it tried to offer varied types of modern and eye catching dresses to its target customers. Financial crisis: due to recent economic turmoil, the market share and total sale of the product lines of the organization of Zara reduced to a considerable extent. Due to which, the customers switched over from the brand of Zara to others such as H&M, Ralph Lauren etc. Increase of counterfeit products: due to the increase of the counterfeit products , the market share and brand image of Zara reduced. Section 3: Problem or Opportunity Analysis In this section, the above evaluated problems are analyzed with the help of PESTEL analysis. Political: in order to maintain the operations and functions in an effective way, the organization of Zara need to be well versed with the rule and regulations of the various international countries. Only then, it might become possible for the organization of Zara to cope up with the existing competitors such as Ralph Lauren, H&M, Tommy Hilfiger, Fred Perry etc. Economic: in order to create strong foothold in the international markets of China, Japan, Australia, Asia-Pacific, the organization of Zara need to be aware about its interest rates, taxation policies, inflation, exchange rates, tariff rates etc. Only then, the organization of Zara might become able to maintain its operations among others. Social: in order to enhance its brand image and position in the international markets among others, it needs to be well aware about the taste and preferences of the customers. Only then, it might be able to handle the strong competitive rivalry. Technology: in order to offer excellent and tension free shopping experience, the organization of Zara need to introduce varied types of advanced technologies such as online sites, bar codes, and computer aided designs etc. Only then the customers of varying cultures might get attracted towards the brand and the rate of switchover costs might get reduced. Environmental: commitment of the organization of Zara to reduce the impact of green houses gases over the environment also enhanced its corporate sustainability and position in the market among other existing contenders. Legal: the organization of Zara need to be well accustomed with the rules and regulations of the government of diverse international countries so as to improve its reliability and loyalty in the market among others. Thus, it might be clearly depicted in order to retain the customers for a longer period of time, the organization of Zara need to know their taste and preferences and also the tariff and interest rates of the countries. Moreover, the organization of Zara need to be implement varied types of inventive technologies such as bar codes, computer aided designs etc to cope up extensive rivalry (Donald and Stefano, 2008, pp. 145-156). Section 4: Alternatives and Recommendations In this age, sustainability and competitive position is extremely essential. In order to attain that, the organization of Zara needs to offer varied types of discounts and schemes such as coupons for the loyal customers. Only then the organization of Zara might become successful in attracting a wide range of customers of varying income groups and cultures towards the brand. This might amplify the brand image and dependency of the brand in the market among others. Moreover, retention of the customers might also increase the profitability and operating income of Zara to a considerable extent. Zara can also opt to venture into new markets either solely or through joint ventures. It can come into contract with some brands already existing in the market and then through joint venture get access into that market. The tastes and preferences of the consumers are widely changing and that is the reason why companies are focusing to offer products with varied flavors and tastes. It is important for Zara as well to offer more products which will attract the customers towards the shops. But at the end t must be said ad hic policies like discount offerings and corporate pricing will be the most beneficial steps at this stage. Conclusion Conclusively, it might be stated that the organization of Zara might enhance its brand image and position in this competitive market by presenting extremely trendy and innovative product lines. However, in order to do so, it needs to well vivid market research to know the taste and preferences of the customers of varying cultural backgrounds and religions. Only then, the organization might become successful in amplifying its profitability and effectiveness in the market among others rival contenders. In addition, by presenting the product lines at low cost, the organization of Zara might become successful to retain the customers for longer period of time thereby amplifying its reputation and prosperity. Works Cited Dutta , Devangshu, “Learning from Zara: Case Study, 2002”.London: Third eyesight. ESOMAR, “Market Research Handbook, 2008”. London: Sage. Sull, Donald and Turconi, Stefano, “Fast fashion lessons, 2008”. Journal compilation, London Business School. Read More