1. Value chain
(1) Primary Activities
Research and Development
ZARA’s designers continuously track customer preferences, which contribute to produce about 11,000 distinct items, compared with 2,000 to 4,000 items for competitors, per year. In addition, ZARA has more designers than competitors in order to create sophisticated and attractive products. b.
ZARA prepares very limited volumes of new items to analyze customer’s reaction, lowering failure rates, approximately 1%, on new products. c.
Marketing and Sales
Central distribution centers control all of merchandise and ship twice a week to each retail store, which gives customer impressions of freshness of ZARA’s offering. In addition, ZARA limits production runs to create a climate of scarcity and opportunity, which attracts more customers to buy products as soon as possible. (2) Support Activities
Employees selected for promotion have training programs to develop specialty and fulfill socialization goals. In addition, store managers get fixed salaries plus compensation decided on their store’s performance. Those human resources and wage systems motivate managers and employees to work efficiently and profitably. b.
Inditex, the owner of ZARA, operates six separate business units, retailing chains, which are responsible for their own strategies, product design, manufacturing, and so on. Therefore, corporate-level managers are motivated to maximize sales profits and minimize operating costs, which develops profitable organizations. On the other hand, each chain’s earning is consolidated into Inditex at the group level. Those group-level governances also help ZARA lower product costs and control corporate functions effectively.
2. Building Blocks of competitive advantage
Providing small batches of products and vertical integration from manufacturing to retailing reduce “bullwhip effect” and create new products to retail...
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