Zara's Case Study

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1. What is Zara’s value Proposition? How does it differ from its Competitors?

“Zara has pioneered leading-edge fashion clothes for budget minded young adults through a tightly integrated vertical structure that cuts delivery time between a garment’s design and retail delivery to under three weeks (against the industry norm of three to six months)” (Grant, 2010, p.212)

According to Clayton Christensen in order to process you Value Proposition you must look at the following (Harvard Business Review)

Zara’s value proposition is that it offers its customers cutting edge fashion at very affordable prices. It actively seeks out what styles are “hot” in the fashion world. After Zara has identified the latest trend it can have the clothes on sale in their prime locations worldwide, this is achievable because it has full control (Vertical Integration) of almost the whole garment supply chain from design to retail within three weeks. A typical Zara customer visits the store 17 times a year compared to the average of 3 times per year for other retailers. ZARA has created a culture to achieve their value proposition and in doing so it sets itself apart from the opposition that being H&M, Benetton and Gap. “The notion of speed as a source of competitive advantage was pioneered by the Boston Consulting group which is a concept of time based competition” (Grant 2010) or as Harvard business review called it “Fast Fashion”. (Ghemwat et al, 2006). By mapping Zara’s competitors against the performance characteristics of competing products on a Value curve framework this concept was design by Kim and Renee Mauborgne (Graham, et al 2004) “Value Curves are a graphic depiction of how customers perceive competitors relative performance across the critical success factor” (Johnson, er al 2011 p.74)

High
Low
Developed from W.C. Kim and R.Mauborgne Harvard business School Press As you can see from the value curve, Zara has created a substantial strategic gap in the areas of design and agility. This is down to the success of Zara’s speed of response to what the market demands. Zara’s brand equity is also reinforced through their shop windows they are changed every two weeks this entices potential customers to come in and look around, resulting in impulsive purchasing due to Zara’s scarcity of its stock controls. Scarcity in fashion increases desirability however with manufacturing relying heavily on production in Northern Spain verse Gap and H&M any disruption to that area such as labour strikes would seriously impact on Zara’s bottom line as there are no alternative supply centres in Europe.

2. How does the Zara supply chain differ from the traditional retail industry model? What are some of the advantages and disadvantages of this supply chain?

Applying Porters Value Chain Model to Zara’s supply chain gives a full picture of the supply chain which can then be compared to the traditional retail industry model supply chain. (Porter, 1985)

Porter, M, (1985) “Value Chain”. Competitive Advantage: Creating and Sustaining Superior Performance

Zara’s Primary Activities (5):

1. Inbound logistics:
Zara keep circa 50% of its production in-house and outsource the rest unlike most other retailers who will outsource all of their production. (Ferdows et al, 2004). Outsourcing their basic collections with minimum fashion content is low risk while maintaining high fashion in-house enables Zara direct access to respond almost immediately to changes in demand (Ferdows et al, 2004). Zara’s real-time sales data allows them to imitate current fashion as opposed to other retailers attempting to predict fashion (Ghemawat et al, 2006).

2. Operations:
Zara operate a centralised distribution system. Orders are received from stores at least twice a week where they go through a review process before being approved and delivered. Zara’s warehouses are constantly moving and hold goods for a number of hours only...
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