Then the designers will go to all the trendy places to get the feel of the last fashion trends and give adaption to the models from the library after carefully examining the trends. In other words, introducing a new product may limit the success of another product that would have otherwise done well. At the start of each selling season, the designing team create a library of models that serve as platforms for the models that will be eventually launched (Swaminathan and Le, 2003). To install StudyMoose App tap In 1985, Zara was incorporated into Inditex as a holding company and started expanding worldwide with a better distribution system that quickly reacted to the fashion industry's shifting market trends. Over the past 25 years, retailers and brands have obviously exploited sourcing and distribution efficiencies. 2023 The Arena Media Brands, LLC and respective content providers on this website. (1998). The key is to combine improved speed and efficiency across the entire product cycles driven by what customers actually want, not just inward-looking cost-savings in part of the supply chain. An excellent research based hub. Zaras founder, Amancio Ortega Gaona, is known for his reclusive personality and aversion to media outlets. Zara really is heads and shoulders above many of its competitors and approaches retail fashion in a unique way. Zara has accomplished the benefits of agile and flexible supply chains for its innovative fashion items. Zara's business strategy is to adapt the offer to customer needs in the shortest possible time. But the quality is not compromised, the fabric used is still of sufficiently good quality but meant to be used for just one season. Our experts can deliver a custom Outsourcing Strategy paper for only $13.00 $11/page. Its first store already featured low-priced lookalike products of high-end brands. {% include image.html src="https://cdn2.avada.io/media/resources/JwPDOo3.jpg" alt=" The executive vice president leading the initiative was convinced of speed-to-market benefits where demand forecasts improve with time. Now Dr. Warren H. Hausman, professor of management science and engineering at Stanford University, has quantified the financial value of fast fashion to reduce unwanted markdowns and lost sales, or stockouts, enabling firms to increase profits by as much as 28 percent. (2010). In Zara, every purchase is an impulse buyYou are buying clothes not because you love them, but because [they are] likely to be gone in a matter of days, (Suzy Hansen 2012). Dont waste Your Time Searching For a Sample. Order winners are the competitive advantages such as quality, delivery speed, reliability, product design, flexibility, and image that cause a firm's customers to select that company's products. Kids, women, men, elders, all age groups, and cultures can try out Zara's items just to love them. In 2019, Inditex manufactured more than 840 million garments annually via 6,300 stores in 85 different countries. It is a big win for both the customer and the company, she says. Therefore, depending on the demand, costs, market and nature of the products or services, each strategy can be applied accordingly. Zara was founded in 1975 by two founders Amancio Ortega and Rosala Mera, as a family business in Galicia, a city of Spain. In the new economy, the customer's experience matters more than the product itself in the mind of the shopper. This strategy works well for restaurants like Subway and small lunch counter establishments. Zaras strategy is to project high-class fashion from all of its retail locations and to do so right next door to its luxury brand competitors. To gain more information about the customers, Zara empowers its store managers and employees to be super sensitive to customer needs and wants and reports on how customers enact in the stores. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. Established competitors like Gap and Gucci would have to completely reinvent themselves to successfully mimic Zara. That translates into a great brand with high values for customers. 2004). Lead times are reduced, working capital is cut, and waste is minimized. According to Zaras official website, all Zara stores have managed an average 20% reduction in electrical consumption in recent times. We must have the dialogue with the customers and learn from them. Available at: http://repository.lib.ncsu.edu/ir/bitstream/1840.16/6468/1/etd.pdf Cheng, T.C. for only $11.00 $9.35/page. But Zara should be wary of the growth of ultra fast fashion retailers. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. the postponement of the legal age from 60 to 62 led between 2010 and 2022 to an increase of 100,000 in the number of beneficiaries over 60 years old. . This ensures detailed information can flow smoothly, accurately and quickly across the value chain, which then gives companies the opportunities to tailor products and services around customer preferences. For Zara, their strategy has been quite successful. Zara's stores have clothing for men, women, and kids as well. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters. That is what I'm going to show you in this article. Zara Postponement Strategy. Question: Zara: Apparel Manufacturing Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. This button displays the currently selected search type. With a modern approach towards fashion, Zara highly targets young customers as its main customer group, especially the millennials. How about you? While the average design-to-sales cycle times in the apparel industry are more than six months, Zara has achieved cycle times of five to six weeks. This creates a throughout strategy for the company's growth, and it seems to work because Zara has managed to establish itself as one leading fashion retailer globally. Zara tries to connect with customers at every opportunity to provide the best experience possible. The total revenue of Inditex in 2019 is estimated to be 23.31 billion euros. Machuca. This leads us to a traditional marketing research method, which is called the 4p's strategy, which includes products, place, price, and promotion. 1) The Postponement strategy Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. The confluence of better capital equipment and more adept employees results in higher quality garments. A pair of articles in Sourcing Journal by John S. Thorbeck document the financial gains of the Zara-led transition, as well as the resistance of traditional US managers to embrace a better way and their willingness to live in a kind of retail denial., Fast fashion has been around for some time. Pagh, J.D. "Zara Gets Fresh Styles To Stores Insanely Fast. The initial motivation of implementing postponement strategy is to avoid, before obtaining accurate and personalized customer Zara has the courage to continually strengthen its portfolio by closing underperforming stores and opening new markets, so its flagship stores keep the reputation among loyal shoppers. And it underlines its cost-cutting strategy as it relates to sustainability. In a world of big data and quick decisions, I can only imagine more and more brands taking Zara's approach in product development as well as customer service. The Arena Media Brands, LLC and respective content providers to this website may receive compensation for some links to products and services on this website. In order to achieve that, Zara's designers are required to use the cloth that Zara has in stock. So not only buyers are trendy, but they are also unique, which sounds pretty cool like being in a cool kids' club. Zara directly manufactures most of the products it designs and sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain economies of scale. The superior performance of agile management in fast fashion is now well-documented. Postponement is defined as a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands (Yang, Burns, & Backhouse, 2005). For Zara, it is all about the customerexperiences for the customer, exchange with the customer, Evangelism through the customer, and being every place for the customer. Zara masters the concept of exchange as it is not the cheapest in the fast-fashion arena, but it consistently delivers branded value of trend-right product at appealing prices. There are various models on postponement covering a continuum from pure standardization to customization. Firstly, Zara is vertically integrated. Appealing to the loyal segment of the target market, like Zara does, allows for higher profit margins and caters to customers who seek out branded value, she emphasizes. The term postponement in the supply chain is similar to its actual meaning. Zaras fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. Applying the matrix into Zara, the company uses the full postponement strategy, where the manufacturing and logistics operations are initiated after the knowledge on customer demand. For Zara, it is not about how much it spends on advertising, but it is all about the customer. The brand's products look somewhat similar to the hottest items in the market, but they have different traits depending on specific markets. Retailers must adapt to the changing consumer where the top characteristic is value. The idea is that low inventories create a sense of urgency among customers. Small patches of products may lead to stock-outs but it can also encourage customers to have more desire for the garments and visit the stores more frequently. Compared to average retailers, Zara provides a significantly larger assortment of styles and designs with over 450 million products per year. . . Fast fashion is a business model tailor-made for the multi-channel I want it now Internet-driven buyer of today. Such a pace is unheard-of in the fashion business, where designers typically spend months planning for the next season.. Zara is also prepared to hold significant stocks of fabric to allow the clothingproduction system to be decoupled from the longer lead time fabric production system, which is helped by having a substantial level of fabric supply originating from Inditex. Zara is not the cheapest in the fast-fashion industry, but it delivers trend-right products at appealing prices consistently, which makes it have the best-branded value. "The New York Times. Finally, time postponement refers to the concept that products are not shipped to the retail warehouses but are held at a central warehouse and are shipped to customers directly. From China to the U.S. to Europe to Brazil, Zara reaches vastly different cultures. Zara considers only markets that promise strong demand for its products. For instance, algorithms that combine the rate of sale of various products as compared to similar products during the same seasonal cycles could yield caveats enabling Zara to adjust manufacturing before peak demand is reached. The Salvation of the Gentiles: 11 I say then, Have they stumbled that they should fall? Postponement strategies can be applied to form, time and place (Hoek et al., 1998). This enables them to manage one of the most efficient supply chains in the fashion industry, and to create the fast fashion category as a market leader. I am sure other retailers too would have taken lessons from Zara's strategy. A push strategy aims to keep products in stock even before the customers order them. It is beneficial to delay commitment to product-specific characteristics as late as possible to avoid a mismatch between orders and inventory on hand. Very organized ,I enjoyed and Loved every bit of our professional interaction . Zara is one of the most successful fast-fashion chains in the world, which is famous for its ability to keep itself up to date with fashion trends and the incredibly short time to introduce new products. It is the first-hand ear to the ground on buyers and market trends, as well as a tool to plan the next steps. It doesn't want to be a trendsetter; it just wants to be a fashion company that customers need. In Chart 4, you see total revenue in billions of dollars between 2003 and 2007 for 4 major clothing retailers. In turn, Zara leverages this control into precise data acquisition and forecasting, seamless modifications, and reliable quality in its products. Today the customer, not the company, calls the shots. On the other hand, manufacturing postponement refers to the situation where certain stages of the manufacturing process for a product are delayed until receiving a customer order. They must weigh the benefits of scaling markets with the prospects of them losing some of the strategic advantages that enable them to do so. While it cannot be said whether or not Zara is successful in creating a greater general welfare in the societies it touches, it can be said definitively that it influences a great number of societies. Shipments from the distribution centres to stores are made twice a week, based on customer demand in each individual store. By buying more than 50% of its fabric un-dyed, speed and flexibility are improved because the fabric can be used for a variety of garments and line later. Because demand for short-life-cycle products or fashion goods is extremely hard to forecast, retailers and brand owners chronically suffer from costly markdowns (price reductions to move merchandise unsold at full price) and stockouts (lost sales due to sellouts of popular styles). Zara uses proprietary software to analyze fashion trends from each of its many hundreds of stores around the world. Were not vertical., Speed-to-market is something were thinking about for next year., Thorbeck suggests that the appropriate quote is from Pogo: We have met the enemy and he is us. Instead of embracing a better way, the US fashion industry asks why? and how much will it cost?. For example, in Istanbul Zara can be found one street away from Cartier, Hermes, and Chanel, three very expensive brands (Suzy Hansen 2012). The founder Amancio Ortega is currently the sixth richest man in the world. Through this technology and mobile connectivity, it links a customers shopping visit and provides access to inventory not present in the specific location. According the matrix, the full speculation strategy relies fully on forecasting, where all the manufacturing operations are performed before knowing customer demand. Postponement is used for rapid response to changing market conditions. Clearly, different types of postponement strategies have different costs and benefits associated with them. Postponement strategy enables managing demand uncertainties and benefits mass customization by improving operational efficiency. an academic expert within 3 minutes. Indeed, demand for Inditex products and designs is fueling Inditexs expansion. 7 days later, all Zara stores worldwide started selling pink scarves. And the companysstorelocation strategy is another aspect of its every place factor. By making the brand experience meaningful and the exchange valuable, Zara taps the potential of its customers to evangelize the brand. Users can insert up to 11 letters, for free. Including more elements on how Zara, as a clothing manufacturer and retailer, commits to sustainability is in due order. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. How Do They Do It?" It manages the design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. I write about 21st century leadership, Agile, innovation & narrative. However, an overwhelming majority of Zaras sales are in Europe. It is a two-way communication that allows for continual improvement. As you can see, Zara doesn't have many marketing campaigns such as other fashion brands. This strategy is effective for the company's decision making process as the brand knows and understands the customer's mind. The Copernican revolution in management mindsets in which the customer is the center of the corporate universe has yet to take place. Zara works closely with its suppliers and customers, to enable constant information to flow smoothly and quickly up and down the supply chain. Zara is every place the customer needs it to be. Moreover, the inventory is maintained on the basis of the sales history to individual stores. This is one of Zara's first steps to move into online selling more, and it received good feedback from the customers. A Zara's loyal customer can visit the store about six times per year. Harvard Business Review, November 2004, 104-110 Garci-Dastugue, S. and Lambert, D.M. Zara is able to maintain a good pricing strategy by optimizing development and distribution costs. It refers to delayed decision-making about a product. As the brand ethos is so embedded in the customers mind, the customer becomes the brand manager, Kohan explains. In the context of this paper, we will be looking at the postponement and speculation matrix (Figure 1) by Pagh and Cooper (1998). Zaras network is strongly integrated, where 60% of the production is carried out in-house in Europe and 40% of its fabric is sourced from its parent company group Inditex. The stores are likely to be near high-end fashion brand stores. Not only that, but Zara also delivers the brand experience and products when and where the buyers demand it. There are trade-offs between different levels of customer service and inventory, production and distribution costs when applying different strategies. But Zara is not reactive in the same way that other retailers are. The postponement and speculation matrix has helped us understand the factors that help Zara to become one of the most successful fast-fashion chains in the world. You can see in Chart 1 below, Zaras environmentally conscious philosophy bears out in its waste management. The parent company Inditex also has other fashion brands in its portfolio, such as Zara Home, Pull & Bear, Massimo Dutti, Bershka, Oysho, Bershaka, and Uterqe. Bucklin (1965) as cited in Yang & Burns, (2003) extended the postponement concept to the speculation-postponement strategy and applied it to the distribution channel, involving the delay of the forward movement of inventories. Its fast-fashion deliverable is available in the quantity, format and time in which the customer needs the product. In some ways, Gaonas character is reflected in Zaras approach. Friedman, Thomas (2006). Because Zara manufactures its products in Europe, it can very rapidly change designs to accommodate dynamic demand for various styles. The choice for these US fashion firms is simple: change or die. That enables them to create 5 to 8 new designs everyday and about 12000 new products and designs every year (Swaminathan and Le, 2003). Once a customer specifies the platform, the rest of the sandwich is made-to-order. Furthermore, the average inventory holding at Zara is 6 days, compared to 52 days at H&M and 94 days at Cortefiel. Some Zara stores have very premium pricing, whereas others have much more affordable prices, based on the locations and targeted customers. Zara's strategy allows products that are not labor-intensive to be outsourced; nevertheless, the items that require more resources are produced in the brand's factories (Ferdows et al., 2004). Read on to find out more about Zara's secrets and try applying them to your own brand. Instead, it introduces three salient components of Zara: the business model, the environment, and society at large. Creating customer curiosity is a most powerful pull marketing strategy. Start Your Online Business with Shopify 12 Day Free Trial + Pay Only 1$ For Your First Month. But Zara doesn't compromise the product's quality, so it will be lower when compared to other brands such as Hugo Boss or Uniqlo. ISBN 978-0-374-29279-9. (2016, Mar 06). Zara capitalizes on very inexpensive but highly effective social media advertising strategies. The proven pot of gold was not enough to motivate consensus and change across company functions.. Moreover, the firm employs standardisation of the design modules. Considerations prior to market entry include local taxes, political conditions, tariffs, local competitors, demand, location, regulation, and supply chain. This being a sort of subset of the control advantage, Zara has a distinct advantage in its ability to create efficient supply chains. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. (2004). Zara Postponement Strategy The case of Zara - The Postponement strategy I) Introduction In order to compete in the world of rising globalization and shortening of product life cycle nowadays firms have to deal with the demand for increasing product variety to meet the diverse needs of customers. There are various models on postponement covering a continuum from pure standardization to customization. All Stories from 23rd February 2023. The former appeals to Zaras unique strategy. (click on screenshot for larger image) The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosala Mera. This is the source of the brand's quick growth and reputation. The Postponement strategy Zara's supply chain strategy is successful because it exercises full control of the designing, manufacturing and Online selling has been carefully planned and limited to specific countries as well. . This concept can be applied to more than just-food. The Online Store Starter Kit will be delivered to your email after signing up for Shopify using the custom landing page Shopify made for AVADAs audience. The result is the brand's sales keep getting higher, and the market share keeps increasing. The texts have two separate fonts that can be placed in many different positions on the garments, including crew neck sweaters, denim jackets, and jeans. Shoppers can engage their mobile phones to see models wearing selected fashions when they click on sensors in the store or displayed on AR-enabled shop windows. Shopper frequency at Zara is 2x to 3x higher than traditional womens apparel, which indicates super loyalty to the brand, Kohan says. Copernican revolution in management mindsets. Rapid product replacement enables Zara to sample many different designs; however, low inventories allow Zara to do this absent waste. Buyers now want an item's value to be beyond price, with more time-saving and convenience. Moving on, while vertical integration and product replacement highlight two of Zaras strategic and very unique approaches to retail fashion, there exist many other stratagems that merit mention. By adopting this strategy, Zara can avoid the high product obsolescence costs that are often faced by fashion apparel retailers. By properly designing the product structure and the manufacturing and supply chain process, Zara can delay the point in which the final products assume their specific characteristics, thus raising the flexibility to handle the changing demand for the multiple products. 500,000 items were stocked and sold out in just three days. That said, it is a challenge for Zara in the future to adapt to a changing market. Zaras strategy is to get as close to them as possible, (Suzy Hansen 2012). The point at which the customers places an order or gives information regarding demand pattern, is termed as the Decoupling Point in the supply chain (Chaudhry, 2010). 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